We have heard a lot in recent weeks about the estate tax -- or death tax, as many of its opponents prefer to call it. House and Senate Republicans, together with a diverse group of Democrats ostensibly concerned about family businesses, have voted to repeal the federal estate tax. President Clinton has threatened to veto the repeal.
Unnoticed in the hubbub is a policy that drains the estates of many more families than does the estate tax. The families this policy affects are typically much less wealthy than those who pay estate taxes, and their assets can be and often are swallowed whole. This policy is means-tested (that is, income-based) coverage of nursing home care through the Medicaid program.
Government coverage for nursing home care operates mostly through the Medicaid program, the health care program for the poor, rather than Medicare, the universal health care program for the elderly. Nursing home residents with any substantial savings do not qualify for Medicaid. But after paying the $46,000 average annual cost of nursing home care, many become poor enough to have Medicaid assume their nursing home costs.
Let me rephrase this: The way we pay for nursing homes is designed so that middle-class seniors must become poor before the public pays for their care. The only way for nursing home residents to protect some portion of their savings for the next generation is to hide it or give it to family members, both of which are hard to pull off and sometimes illegal.
So, in contrast to our country's universal system of paying for hospital and physician care for the elderly, the way we pay for nursing homes is quite complicated, limited and often arbitrary. This contrast brings out one of the unsung benefits of covering medical costs universally without regard to income: Universal coverage protects lifelong savings for the next generation. Medicare protects vastly more inheritances than the estate tax repeal ever could.
But for the one in four American seniors who will stay in a nursing home for a year or more, Medicare is no help. (Medicare will pay for a little over three months of nursing home rehabilitation for patients coming out of a hospital, but that intentionally excludes long-term nursing home residents.)
There are some striking similarities between estate taxes and the means test for nursing home coverage. They each net federal and state governments about $30 billion a year. (Out-of-pocket spending for nursing home care totaled $31 billion in 1998 according to government figures.) They both are subject to semi-legal avoidance; indeed, the Medicaid policy literature is filled with talk of "Medicaid estate planning" and state programs to recover Medicaid expenses by seizing the homes of dead former beneficiaries.
The difference is that Medicaid ceilings affect many more estates than the estate tax does. The estate tax affects only estates larger than $675,000, and that figure will rise to $1 million over the next few years. Only 43,000 families paid estate taxes in 1997.
Means-testing nursing home coverage affects hundreds of thousands of people a year. About 300,000 current elderly nursing home residents had assets that they have lost or will lose before becoming poor enough to qualify for Medicaid. The government will not pay for nursing home care for people who possess non-housing assets of $2,000 or more. (Even a house is included if there is no one living in it and the nursing home resident is not expected to go home.)
An even larger number of previously middle-income seniors qualified for Medicaid on admission to the nursing home for the sole reason that incipient nursing home expenses effectively impoverished them -- nursing home residents must contribute virtually their entire income to the nursing home to qualify for public assistance.
Nursing home coverage is a complicated issue. Any coverage for nursing homes will have significant effects on care for the elderly at home, which is now covered by a shifting patchwork of Medicare, personal savings and "informal" care from family. Of course, any provision of care for the elderly must face the same objections about out-of-control entitlements that initially blocked Medicare prescription drug coverage.
Nevertheless, two countries with much older populations -- Japan and Germany -- have recently changed from means-tested to universal nursing home coverage. (They have differed over the challenging question of informal care in the home: Germany reimburses it, Japan does not.)
But Congress and the states have been trying to squeeze savings out of Medicaid nursing home coverage, not expand it. To seriously debate estate tax repeal for the super-rich when, for the same money, we could prevent nursing home costs from taking the inheritances of so many middle-income Americans shows an obtuseness that transcends ideology.
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