This is precisely what the Citizens League, an advocacy group based in Minnesota, proposed in their recent report, “Moving Beyond Medicaid: Long-Term Care for the Elderly as a Life Quality and Fiscal Imperative.” If current trends continue, Minnesota’s Medicaid system will be impossible to sustain in its current form, and the solution may involve reverse mortgages.

The report offers some grim statistics about the situation in Minnesota, which can also be seen as a microcosm for a national problem. In sum, “40% of the long-term care expenditures for the elderly in Minnesota in 2004 were financed by Medicaid…Medicaid funding for long-term care for the elderly could grow nearly fivefold in Minnesota, from $1.1 billion in 2010 to $5 billion in 2035.” Assuming that taxpayers balk at financing this entire burden using public funds, an alternative system for financing long-term care (for indigent residents) will nee to be created.

While a handful of potential solutions were laid out, I want to focus on the one that involves reverse mortgages. Basically, the Citizens League has suggested eliminating the home-exemption rule, whereby one’s home is not factored into eligibility for medicaid funds. Under the proposal, recipients of medicaid could be prodded to obtain reverse mortgages instead of or in conjunction with medicaid funds. Of course, the reverse mortgage would have to be redesigned in order to provide an additional level of protection for borrowers and to keep costs at an absolute low. Loan amounts would be small (in order to minimize risk and costs), and the proceeds could only be used for medical and long-term care expenses.

The benefits to state governments would be fantastic: “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. When you consider that states are increasingly strapped for cash and that taxpayers are demanding cuts in public programs, this idea is a practicable way to shift some of the medicaid burden onto those that benefit directly from its services.