If you’re between 40 and 65, you recently received a letter from Governor Mark Dayton and Lt. Governor Yvonne Prettner Solon encouraging you to "Own Your Future." Own Your Future is a public information effort sponsored by the State of Minnesota and the United States Department of Health and Human Services. The effort encourages individuals to plan for long-term care needs now instead of waiting until a crisis occurs. Many people mistakenly believe Medicare will pay for long-term care costs. It does not. And, unfortunately, in today’s new old age marked by record longevity, many people learn this too late.
Kudos to Governor Dayton, Lt. Governor Prettner Solon and DHS Commissioner Jesson for raising this issue and bringing visibility to it. It opens an opportunity for a Phase II to provide better options for those many Minnesotans who don’t see personal savings or paying for long-term care insurance as a viable part of their fiscal plan.
Phase II of Own Your Future is Imperative
Long-term care insurance might be the answer to preserving a safety net. But thus far only about 10% of Americans have long-term care insurance policies. Many people find the insurance complex. They have concerns if their company will come through with benefit payments years from now. And if you’re paying for a car, rent, mortgage and other expenses of daily living, long-term care insurance is going to fall pretty far down the priority list of household expenses.
Another disincentive to planning is Medicaid, called Medical Assistance in Minnesota. If you go into poverty because of Alzheimer’s, congestive heart failure or other long-term care need, you’ll qualify for Minnesota’s defacto long-term care insurance policy. It pays for about 40% of Minnesotans’ long-term care needs. But unless we all agree to massive tax hikes – or put our thinking and doing hats on to create new approaches - Medicaid as the fallback is unsustainable.
Own Your Future highlights that paying for long-term care is an issue we have to address. Innovation in this area is essential to an individual’s and statewide community’s life quality and fiscal health.
And that’s why a Phase II of Own Your Future – a phase that provides accessible, realistic answers for varying financial capacities on “how” to own your future - is so critically important.
Putting Minnesotans’ Heads and Will Together
Following are briefs of some of the ideas that came forth from the non-partisan Citizens League on this issue. You can read the full report here. They illustrate that if we put our heads together, we can develop payment ways that are helpful and beneficial to people, not barriers.
Make Medicaid Co-Insurance: The current structure of Medicaid contains disincentives for personal responsibility. Consequently, its function as a safety-net for long-term care for the elderly poor has been distorted. Medicaid has been dubbed “a public insurance with an extremely high deductible” (i.e., virtually all of one’s assets). The Citizens League recommends that the state seek a Federal Waiver to make Medicaid a co-insurance, with eligibility for co-insurance contingent on: 1) privately purchased long-term care insurance and/or savings for long-term care; and 2) income. Co-insurance could be structured in a variety of ways. One possibility is to provide a co-pay on long-term care expenditures financed by private savings and/or private insurance. Another is to match the dollar amount of private insurance once private insurance benefits have been exhausted. This also means that we need private products that are appealing to people, which ties to the next idea:
Provide Online Marketplace: The state could transition the “Own Your Future” web site to an online website of state-endorsed insurance products/savings products for differing financial needs. This “Good Housekeeping” “Consumer Reports-Like” seal of approval – could aid Minnesotans in cutting through complexities and myths that prevent people from purchasing long-term care insurance products. If really great products exist that no one knows about – this would be an easily accessible one-stop shop for them. It also could have an Amazon.com-like review area where Minnesotans can provide their experiences on the products, why they fit in their life, etc. in real-life terms, not marketing-speak.
Tap Your Home Equity . . . Safely: The largest asset of most Minnesotans is their home. This is true notwithstanding the recent fall in home prices. People of all incomes have savings in their homes. Medicaid often exempts people's homes from the requirement that one must have no assets in order to qualify for Medicaid. Yet, it has been estimated that replacing Medicaid's home exemption with “reverse mortgages” could save Medicaid from $5 to $20 billion a year in the United States.
A highly cost-effective potential approach for the state of Minnesota would be to develop and/or support a product that allows seniors to tap their home equity for limited purposes (e.g., health and long-term care costs, and costs that allow them to remain in their homes) under terms far more favorable than existing reverse mortgage terms. According to the League report, a simple way to reduce the risk and administrative costs would be to reduce the amount of equity that can be withdrawn, so that the ultimate home value (due to market forces or a lack of home maintenance) is of less risk.
Own Your Future is doing a valuable service in raising the issue of long-term care planning and financing. Now, the leadership and innovation opportunity before Minnesota is to provide effective ways for people to act on this new information. No state has figured this out. Minnesota can.
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