U.S. Department of Health and Human Services

A Synthesis and Critique of Studies on Medicaid Asset Spenddown

Executive Summary

E. Kathleen Adams, SysteMetrics/McGraw-Hill
Mark R. Meiners, University of Maryland Center on Aging
Brian O. Burwell, SysteMetrics/McGraw-Hill

January 1992

This report was prepared under contract between the U.S. Department of Health and Human Services (HHS), Office of Family, Community and Long-Term Care Policy (now the Office of Disability, Aging and Long-Term Care Policy or DALTCP) and SysteMetrics/McGraw-Hill. For additional information about the study, you may visit the DALTCP http://aspe.hhs.gov/_/office_specific/daltcp.cfm or contact the ASPE Project Officer, John Drabek, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. His e-mail address is: John.Drabek@hhs.gov.

PREFACE

This paper represents the compilation and synthesis of all major studies to-date on the issue of asset spenddown. These include several recent studies completed under contract to the Office of the Assistant Secretary for Planning and Evaluation. The authors would like to thank Mary Harahan and John Drabek of this office for their keen insights and guidance on this manuscript. The authors also want to acknowledge and thank those who provided unpublished studies for inclusion in this synthesis:

Tom Bice, Independent Consultant
Lenny Gruenberg, The Long Term Care Data Institute
Pamela Short, Agency for Health Care Policy and Research
Brenda Spillman, Agency for Health Care Policy and Research

This report was developed in conjunction with a study of long term care financing reform conducted by the Office of the Assistant Secretary for Planning and Evaluation. Other reports also developed during the course of the study include:

• access to nursing home care
• consumer protection and regulation of long term care insurance
• the combined burden of acute and long term care expenses

Copies of the reports may be obtained by writing to: Brenda Veazey, Department of Health and Human Services, Room 424E, Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201

EXECUTIVE SUMMARY

Asset spend-down in nursing homes is the process by which individuals enter nursing homes as private pay clients, deplete their available assets in paying for their care, and then enroll in the Medicaid program once they are impoverished. "Medicaid asset spend-down" is a source of considerable concern to disabled elderly persons who face the prospect of extended nursing home care. It is also a matter of considerable concern to State Medicaid programs, since Medicaid indirectly serves as a safety net for middle and upper class individuals who incur catastrophic nursing home costs.

Numerous studies of Medicaid spend-down have been conducted in the last five years, and much has been learned. This paper summarizes the results of recent research, with a particular emphasis on how research methods used in these studies have affected results. Not only has much been learned about the phenomenon of Medicaid spend-down itself; researchers have also come to recognize key relationships between research methods and estimates of asset spend-down.

Two Measures of Medicaid Spend-Down

Two different measures of Medicaid asset spend-down have been developed by researchers, each of which is informative, but which provide different perspectives on the problem. The first measure (Spend-Down I) examines spend-down from an "insurance" or "risk" perspective. It measures the percentage of persons originally admitted to nursing homes as private payers who eventually convert to Medicaid prior to final discharge. Spend-down I is therefore a measure of the risk to individuals of spending down to Medicaid over the course of their lifetimes, given the probability they enter a nursing home as private payers.

The second measure of Medicaid spend-down (Spend-Down II) measures the percentage of Medicaid recipients in nursing homes who were not eligible for Medicaid when they were originally admitted. Spend-Down II is useful in capturing the proportion of State Medicaid expenditures for nursing home care which is accounted for by those who spend-down.

Summary of Estimates

Several studies report widely varying estimates of these spend-down measures, based on several national and State level databases. The critical factor explaining differences among these studies is the length of time that persons are studied. The proportion of persons spending down during a single stay is much lower than the proportion of persons who spend-down over their entire lifetime, probably because half or more of these people have multiple stays. In general, studies using national data tend to show lower estimates of spend-down than do State studies because the latter data bases tend to observe people over longer time intervals.

Based on the studies conducted to date, it appears that somewhere between one in four and one in five persons who originally enter nursing homes as private payers convert to Medicaid before final discharge (Spend-Down I). Although there is close agreement between comparable national and State studies on Spend-Down I, there are not enough State studies to determine the extent to which spend-down rates vary from State to State.

On the other hand, estimates of Spend-Down II vary considerably across States, no doubt reflecting variations in Medicaid eligibility policies across States as well as other factors. For example, major studies are available for Michigan (27%), Wisconsin (31%), and Connecticut (39% to 45%). However, most national studies of Spend-Down II give lower figures, reflecting the shorter time periods that they cover.

Other Findings

In addition to estimates of Spend-Down I and Spend-Down II, other aspects of Medicaid spend-down have also been examined. One is the length of time it takes for people to spend-down to Medicaid after nursing home admission. On this question, the research is more consistent on the median time to spend-down than the mean. The results of existing studies are fairly consistent in reporting that of those people who spend-down, the majority spend-down within a year of nursing home admission. This finding suggests that most people who spend-down have limited assets when they first enter a nursing home, less than the cost of one year of care--about $32,000 in 1991. The research is less consistent in estimates of the mean time to spend-down, since means are disproportionately affected by the relatively few persons with extremely long lengths of stay prior to converting to Medicaid.

Studies in Connecticut, Michigan and Wisconsin also show that people who spend-down to Medicaid spend more time on Medicaid after converting to Medicaid coverage than they spend as private payers prior to conversion. The studies suggest that Medicaid-paid days account for at least 65-75 percent of all nursing home days used by those who spend-down. However, the research also shows that, once eligible for Medicaid, people who spend-down pay a greater proportion of total nursing home costs, through ongoing income contributions, than persons who are eligible for Medicaid at initial admission. Thus, spend-downers account for a somewhat lower percentage of total Medicaid expenditures than their percentage of Medicaid-covered nursing home days.

There is some evidence that females who enter nursing homes are at higher risk of spending down to Medicaid than males. This may be related to the fact that females admitted to nursing homes are less likely to be married, are less likely to be discharged alive, and have longer lengths of stay, an average, than males. Females may also have fewer available assets at nursing home admission than males, and thus spend down more quickly, other factors being equal. However, no research has directly tested this hypothesis.

Some studies have tried to estimate the out-of-pocket costs of privately paid care prior to conversion to Medicaid among people who spend-down. These estimates range widely, and are very dependent upon assumptions about the costs of private care, which are not available in any of the data sources used in the studies conducted to date. As the median and mean time to spend-down differ markedly, so does the median and mean cost of privately paid care prior to conversion among those who spend-down.

Directions for Future Research

Researchers now recognize several important relationships between research methods and estimates of Medicaid spend-down. First and foremost, researchers now know that it is extremely important to use longitudinal data bases that are able to track nursing home use by individuals over multiple nursing home admissions. There is a strong correlation between multiple admission, lifetime length of stay, and the likelihood of spending down. This finding has been borne out by the data. For example, the Connecticut data show that over 75 percent of all persons who spend-down to Medicaid have more than one nursing home admission.

Other important relationships between research methods and estimates of Medicaid spend-down include:

• The sample population must be appropriate to the Spend-Down measure being estimated.
• Estimates of Spend-Down I and Spend-Down II are also dependent upon the distribution of payment sources among all nursing home admissions.
• Estimates of Spend-Down I and Spend-Down II are improved with the length of time covered by the data.
• In addition to having data on sources of payment for individuals in nursing homes, it is important to have Medicaid enrollment data, preferably from Medicaid administrative data systems.

In sum, the research conducted to date has shown the definitive advantages of superior data sets in deriving more reliable estimates of Medicaid spend-down.

Much of the best research on Medicaid spend-down has been conducted on nursing home users in the State of Connecticut, since the best available data source for conducting spend-down research exists there. More spend-down research needs to be conducted in other States, but this, of course, must be preceded by the construction of comparable "all-payer" longitudinal data sets of nursing home users in these States. Spend-down research conducted from cross-sectional survey data will always encounter substantial data limitations, no matter how assiduously these surveys attempt to collect retrospective data on sampled members.

Work on the Connecticut data set should also continue, with more focused analyses of Medicaid spend-down, including changes in spend-down rates over time, the magnitude of out-of-pocket costs prior to Medicaid conversion, and the differential characteristics of persons who spend-down and those who remain private payers throughout their nursing home stays.

Finally, more research needs to be conducted on exactly what goes on during the process of Medicaid spend-down. There is speculation that in addition to paying for private nursing home care, many people spend-down purposefully by divesting or sheltering their assets. Similarly, better data is needed on other out-of-pocket expenses of nursing home users (e.g., expenses for acute care services and prescription drugs) which may accelerate their falls to impoverishment.

The policy relevance of Medicaid spend-down research is a better understanding of the number, characteristics and circumstances of people who experience high out-of-pocket costs for private nursing home care, forcing them into impoverishment and reliance on public assistance under Medicaid. This information is important in the consideration of strategies to build public and/or private risk pools that will help to mitigate the catastrophic potential of nursing home costs for future users. While much has been learned about Medicaid asset spend-down in the last few years, there is still much that remains unknown, or at least uncertain. Further research on Medicaid spend-down should continue to inform the policy process as alternative strategies for mitigating its impacts are debated and, hopefully, implemented.