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LTC Bullet: Did Janet Reno Legalize Medicaid Fraud?

Friday June 5, 1998


The following article, authored by Stephen Moses, President of the Center for Long-Term Care Financing, appears in the June, 1998 issue of LTC News and Comment.

Did Janet Reno Legalize Medicaid Fraud?

Attorney General Janet Reno recently informed House Speaker Newt Gingrich that the Justice Department will not prosecute financial professionals who advise and abet Medicaid asset transfers for a fee. (See excerpts of Reno's letter in the May 1998 LTC News and Comment.)

The Medicaid planners are ecstatic. They interpret Reno's decision as a vote of support for their arcane, but lucrative, legal legerdemain. We can expect to see more articles and ads than ever before promoting trusts, transfers, annuities, and other self-impoverishing machinations. If the story ended here, the consequences for private long-term care insurance would be devastating. How can insurance agents sell something the government is giving away?

As usual, however, the Medicaid estate planning bar has miscalculated the public policy significance of this latest development. Having won a battle, they are about to lose the war. Here's why:

For the past 16 years, eight Congresses and three Presidents have struggled to restrain Medicaid estate planning. In 1982, they restricted asset transfers and authorized liens and estate re- coveries. In 1985, they clamped down on the misuse of trusts to hide assets. In 1988, they made restrictions on asset transfers longer and stronger. In 1993, they closed many eligibility loopholes and made estate recoveries mandatory.

None of this had any appreciable effect. The Medicaid estate planning bar just became more creative and aggressive. For every loophole Congress closed, private sector Medicaid planners and their allies in the publicly financed legal services bar pried open a dozen new ones. Medicaid long-term care costs continued to skyrocket.

Finally, President Clinton and a Republican Congress became completely exasperated. They criminalized Medicaid asset transfers in 1996. When public opposition to the "Throw Granny in Jail" law arose, they exonerated Grandpa and Grandma, but targeted Medicaid planners specifically with a year in jail and/or a $10,000 fine for recommending and/or assisting
Medicaid asset transfers. How could they possibly send a clearer message than that?
Throughout this tarnished history, the Medicaid estate planning bar fought every step of the way against Congressional and Presidential efforts to save Medicaid for the poor. No boundaries of professional ethics or common sense restrained the Medicaid planners' creativity and brazenness in qualifying their well-to-do clients for publicly financed long-term care. They employed every conceivable legal tool, including divorce, involuntary guardianship and private powers of attorney, to divert the savings of vulnerable elders away from the costs of long-term care and into their own and their clients' pockets. No wonder that some erstwhile Medicaid planners have begun to call Medicaid planning "financial abuse of the elderly." Nevertheless, most Medicaid planners have not yet gotten the message that the legislative and executive branches of government have been trying to send.

So, why do I think the Medicaid planners have gone too far this time? Reno's letter to Gingrich provided an important clue to the Administration's intent. The Attorney General said "I would like to stress that the Department of Justice is available to assist Congress... to draft new legislation that would address the concerns of Congress... and that meets other policy objectives
of the Congress and the Executive Branch." In other words, by stirring up opposition to an extremely weak and unenforceable criminalization statute, the Medicaid planning bar has inadvertently attracted top-level political, legislative and judicial attention to the underlying
problem on which they are so vulnerable - widespread abuse of the Medicaid program for personal gain.

The challenge now for those of us who oppose Medicaid planning and support private long-term care insurance is to expose the Medicaid planners? past and present abuses, and offer a positive alternative. That is exactly what the Center for Long-Term Care Financing is mobilizing to do.

To expose these abuses, we have prepared an hour-long audiotape consisting of excerpts from formal training sessions on Medicaid estate planning. We call this tape "Medicaid Estate Planning: The Smoking Gun." On it: professional Medicaid planners explain and advocate complicated techniques to divest or divert hundreds of thousands of dollars from infirm seniors in order to qualify them quickly for Medicaid benefits. Leading elder law attorneys ridicule and deride members of Congress, state legislators and their staffs for their
futile attempts to discourage Medicaid estate planning. Some of the lawyers declaim arrogantly on the tape that they have ignored the criminalization statute with impunity. One even acknowledges publicly that a Medicaid planning technique he is presenting is immoral, to which admission his audience responds with a burst of laughter. We intend to make the "Smoking Gun" tape and other similar evidence available to legislators, public policy makers and the media.

Merely exposing the disgrace of Medicaid estate planning is not enough, however. We must have a positive alternative program to offer. Therefore, the Center for Long-Term Care Financing is preparing a white paper entitled "LTC Choice: A Cost-Free Solution to the Long-Term Care Financing Crisis." We will offer complete information to LTC News & Comment readers on this proactive "LTC Choice" proposal sometime in the future.