Aging America's Achilles' Heel: Medicaid Long-Term Care

Publication Date: September 2005

Publisher: Cato Institute

Author(s): Stephen A. Moses

Research Area: Banking and finance

Type: Report

Abstract:

Seventy-seven million aging baby boomers will sink America's retirement security system if we don't take action soon. A few years ago, the problem went unrecognized by most Americans. Today, the prospect of a fiscal crisis has forced policymakers to focus on solutions.

Social Security has center stage these days with a $10 trillion unfunded liability. Medicare is an even greater problem, with $60 trillion in unaccounted-for obligations. The good news is that these massive "social insurance" programs have finally begun to attract the attention of analysts, policymakers, and legislators.

Another social program bears scrutiny but receives much less attention. Medicaid is the poor relative among government programs. It is means-tested public assistanceùin a word, welfare. While Social Security and Medicare have spurious "trust funds," Medicaid draws its financing from general tax revenue without even the pretense of a trust fund. Medicaid is the principal payor for long-term care (LTC), especially nursing home care.LTC is an 800-pound gorilla of social problems that lurks just around the bend. If we wait to deal with Medicaid and LTC until after we handle Social Security and Medicare, it will be too late.

At last, we have a window of opportunity to address the challenges of Medicaid and LTC financing. Congress has committed to find $10 billion in Medicaid savings over the next five years. Despite the hand wringing this has caused, such savings and much more can be achieved while actually improving the program. This paper will explain how that can be done.