In a new study, Medicaid is found to have a substantial benefit for a lot more people than low-income older Americans and the disabled.
When most people think of Medicaid, they envision the medical expenses it pays for the poor, especially women, children and the disabled. But the government program spends more than $80 billion a year on those 65 and older and it’s not just the elderly poor who benefit from out-of-pocket medical expenses, according to a study done by three economics professors. High-income retirees stand to benefit from Medicaid even if they never receive an actual benefit.
That’s the conclusion of Eric French and Mariacristina De Nardi, professors of economics at University College London and senior economists at the Federal Reserve Bank of Chicago. They were joined in the study by John Bailey Jones, an associate professor of economics at State University of New York at Albany.
Higher-income people benefit from Medicaid when healthcare costs impoverish them, which is especially true if they require nursing care since few people have long-term care insurance. They may still have their homes but they qualify because they depleted other assets.
The study shows that the percentage of high-income single retirees receiving Medicaid rises with age. It goes from near zero for those in their 70s but accounts for 20 percent of that group when they reach their late 90s.
“Medicaid pays for a big chunk of all nursing home care provided to elderly Americans and both rich and poor people wind up in nursing homes,” French says. “As a result many high-income individuals wind up benefiting from the program. With relatively high-income people there’s a good chance they can wind up in nursing homes just because they live a lot longer than low-income people.”
The study says, however, that even higher-income retirees benefit from Medicaid even if they don’t use it because it provides insurance for them if they ever need nursing care. Therefore, that allows them to maintain smaller reserves than they otherwise would have to do.
About seven percent ever purchase long-term care insurance, and there’s a big debate of what to do, French says. One potential culprit is there is a reasonable substitute for long-term care insurance in the form of Medicaid, he says.
“It provides an incredibly valuable insurance to people of all income levels because Medicaid provides insurance when you really need it when you run out of all your other resources,” French says. “For Bill Gates, say, he’s never going to need it. For the rest of us, if we last long enough, we’re probably run pretty low on assets.”
This discussion about Medicaid isn’t what people read about or know about when it comes to the program, French says. Most think about Medicaid being for kids and pregnant women, and that’s true in terms of numbers. It’s not true in what gets spent on them.
“When you look at the dollars, women and kids are actually pretty cheap,” French says.
About one-quarter of the Medicaid expenses go to that group, French says. Elderly make up about the same 25 percent The biggest chunk at 40 percent is the disabled under age 65, including people who are in nursing facilities already with serious health problems. The remaining 10 percent goes to hospitals that take care of the poor and other expenses, he says.
The latest study is a synopsis of a longer paper looking at the welfare consequences of increasing or decreasing Medicaid generosity to get a handle on what’s the right size for the program, French says.
“Our view is the generosity of the program is about right in the sense of most people wouldn’t be willing to pay for a Medicaid expansion but you have to compensate people a lot of money to take a Medicaid cut, especially given the fact it leaves the elderly population can’t re-optimize their savings levels,” French says. “A big cut for these individuals would really harm them quite a bit because of it is exposing them to a lot of risks of running out of assets and winding up in tough straits.”
As for the numerous states that haven’t taken additional federal funds for Medicaid expansion under Obamacare, French says that has had an impact on those younger than 65 but not on those 65 and older. Existing Medicaid funding has enough to deal with that elderly population and nursing homes and those with serious health issues, he says.
As for previous proposals in Congress to cut Medicaid spending, French says there are questions about how that would impact people’s welfare since so much of Medicaid’s payments go to the disabled care and nursing homes. While there may be waste that can be cut, the amount spent is about right and cuts would hamper people’s care, he says.
“I think it’s fundamentally doing sensible things,” French says. “It’s providing insurance to people when they need. Obviously, it’s distorting their behavior a little bit because it causes them to save less than they otherwise would just because if you save a little bit less you’re more likely to benefit from the Medicaid program. Despite that, the Medicaid program is providing very valuable insurance to people when they most need it.”