I normally write about Medicaid planning and VA Aid and Attendance benefits, but with all this talk about health care reform, I thought I would look into the effects of such reform on Medicaid and Medicare. Since we know that any proposals will have long-term effects on either program (but will not affect the VA Aid and Attendance program), a cursory review of the proposed changes will allow you to speak intelligently with your senior clients.
Both the Senate and the House of Representatives have a number of proposed bills being presented under the "health care reform" umbrella. Much debate has been held, and there is much more to come about how these proposed legislations will affect each of us. Both parties include in their legislation sweeping reforms that will be seen as either improving or socializing health care. Regardless of which side of that argument you fall on, knowing what is proposed and how it will affect your clients is important.
For example, both groups have in front of them proposed legislation that includes a reduction in the Medicare budget throughout the next 10 years. Some see that as a cut in benefits, while others look at the same proposals and see fiscal responsibility. What are these cuts and where do they come from? The House version of the bill sees cuts of nearly $500 billion throughout the next 10 years, while the leading Senate version of the bill proposes cuts of $280 billion. Both versions see cuts coming from a slowdown in the rising cost of care, a concerted effort to weed out fraud and mismanagement, and proposed changes to Medicare Advantage Plan subsidies. Each of these cost savings will affect your clients.
In conjunction with the slowdown in the rising cost of care, both versions of the bill propose to make some preventive care cost-free to Medicare beneficiaries. Routine examinations such as colonoscopies and mammograms would be provided free of charge to patients 65 and older. Under the House version, prescription drug prices would be negotiated on a national basis to reduce expenditures when recipients enter the doughnut hole, while the Senate version proposes eliminating the doughnut hole altogether over the next several years. While neither of these proposals sound like cost savings measures on the front end, experts predict that providing preventive treatments and affordable medicines will save money in the long run because seniors will receive the care and medicines they need, not that they feel they can afford.
It is difficult to imagine that enforcing Medicare and Medicaid fraud could result in hundreds of millions of dollars in savings. If it could, then the logical question is why isn't it being done now? Are our officials just sitting back watching fraud being perpetrated upon our senior citizens and doing nothing? Regardless, both houses make assumptions that a substantial amount (although a very small percentage of a $6.5 trillion Medicare budget) could be saved by simply cracking down and prosecuting fraud.
And finally, reducing the rate of growth of the Medicare budget also entails ending the subsidies on Medicare Advantage plans. Currently, Medicare subsidizes Advantage plans over and above the standard premium of $96.40. These plans cost more because they provide more and higher benefits than other forms of supplemental insurance. Under the proposed legislation, there could be significant changes to these plans or they could be completely eliminated over time. Seeing as nearly 25 percent of Medicare beneficiaries (or about 10 million enrollees) have this type of plan, it is difficult to imagine that they will become extinct, but we're dealing with the government, and they don't appear to be listening.
So what about long term care expenses, private long term care insurance and Medicaid planning? It's hard to tell. The proposed legislation doesn't make it clear how these expenses will be affected. With rhetoric on one side about death panels and pulling the plug on granny to curb costs for long term care, and the other side saying that all of this additional care can be provided at no additional expense to any of us, it becomes apparent that the truth lies somewhere in the middle. It is foolish to think that a free society would tolerate a government agency making end of life decisions for our loved ones and it is a complete absurdity to think that reform won't bring a price tag that we will all have to help pay for generations to come.
If, however, our government does pass health care reform that is as broad as proposed, then changes to our long-term health care planning will inevitably need to be considered. Medicare currently pays for a long term care facility only when the purpose of such confinement is rehabilitation. If the recipient does not need rehab or has not fulfilled the hospitalization requirement, then such a facility would have to be paid by private insurance or Medicaid. If everyone can receive free health care, then will all long-term health care, whether at home or in an assisted living facility or nursing home, be included? If one party has its way, the answer may be "yes." Cradle to grave health care is a possibility and if it passes, what incentive is there to purchase long term care insurance or to do planning? Would Medicaid become obsolete under such a scenario? In the House version of the bill, Medicaid eligibility would remain the same except for those earning less than 133 percent of the poverty rate. That means that states would control eligibility for those covered under the aged, blind, and disabled section of Medicaid. Would the CMS cease to exist or would it be less powerful?
What if all citizens are mandated to carry insurance, much like those who drive automobiles are required to do so now? Many states are concerned about the cost of such proposals because many of the uninsured, in order to be in compliance, would simply sign up for Medicaid. Again, a provision in the proposed legislation gives the temporarily uninsured the option of signing up for Medicaid or receiving assistance to pay for mandated coverage. The federal government and the states both contribute to Medicaid, with some states paying 50 percent of the cost. So, at the same time the federal government is facing a budget crisis, the states are experiencing a surge in Medicaid enrollees and are already having a tough time meeting their own budgets. Since Medicaid covers not only the elderly for long term care benefits but also children and the poor, these state programs would bear the brunt of any sweeping changes. Some states have already passed legislation to protect themselves from these mandates, requiring that any additional expenses related to health care reform be 100 percent borne by the federal government. While this type of statement makes good press, the truth is that federal law trumps state law in these matters, and additional expenses related to health care reform that are picked up by the states will surely result in increased taxes at the state level.
Neither version of the health care reform legislation proposes to eliminate Medicaid. Could it happen? Many elder law attorneys would argue that it would be difficult to require a "spend down" by those older than the age of 65 if no one under that age were required to do so in order to receive the same or similar benefits under a universal health care program. Would our court system or the ACLU stand by while our seniors go broke paying for health care to which they are entitled under a government run program and for which all Americans contributed? Under our current health care system, it is deemed fair to penalize those that have not purchased the appropriate long term care coverage by requiring them to use their accumulated assets first to pay for care. But, if everyone is required to have the same coverage, then either everyone is covered all the way through, or you are, indeed, punishing those who have set money aside for retirement or made good investments.
There are many other provisions in both versions of the legislation that will affect our clients. Since many of us sell personal health insurance, long term care insurance, group life and health, disability policies, etc., we may be forced into other markets and this legislation could create some serious challenges for our industry. Our products are under attack for both their benefits and their premiums, from a tax and overhaul perspective. Being forced to accept pre-existing conditions could prove to be over-costly for many small insurance carriers and having policy benefits dictated to them may push some out of our business. And while I won't address all the pros and cons of universal health coverage, I will comment just enough to let you know where I stand: I don't like it. Enough said.
Whatever happens with health care reform will have a direct impact on what we as financial planners will provide in the way of product to our senior clients. Will we be selling more life insurance for estate planning purposes, simply because our seniors will have more of an estate to pass along? Will drug plans from Canada be our big seller? Or, will we be offering supplemental insurance that is far different than that which we offer today? These answers are expected to come quickly. Let's just hope they are reasonable.
I'll end with one happy note: All of this reform talk has gotten Congress thinking about expenses. It stands to reason that Medicare premiums, scheduled to go up next year, are under review. The House has passed legislation blocking those increases since there is no cost-of-living increase in Social Security scheduled for 2010. The Senate is taking up the issue and is expected to go along. That has got to be good news for all of those recipients living on fixed incomes.
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