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LTC Bullet: Widespread Medicaid Planning Confirmed…Again

Thursday August 27, 1998

Seattle--

The August 1998 issue of the respected academic journal The Gerontologist confirms that Medicaid estate planning--the practice of transferring or sheltering assets and income in order to qualify for taxpayer-financed nursing home care -- is a widespread phenomenon. The findings reported in "Medicaid Estate Planning: Practices and Perceptions of Medicaid Workers, Elder Law Attorneys, and Certified Financial Planners" support the results of several previous studies and directly contradict assertions that Medicaid estate planning is a relatively benign and isolated occurrence.

This finding is extremely important because it helps to explain why so few Americans purchase private long-term care insurance despite the risk of catastrophically high long-term care costs. People don't insure against a financial risk that does not exist.

Researchers from the Braceland Center for Mental Health and Aging, supported with a grant from the Robert Wood Johnson Foundation and the State of Connecticut, surveyed Medicaid eligibility workers, elder law attorneys, and certified financial planners to compare their experiences and perceptions on the scope and nature of Medicaid estate planning. The researchers observe that Connecticut is known as a "hotbed of MEP [Medicaid estate planning]

activity due to its wealthy population and generous, high-quality, Medicaid-covered nursing home services."

The survey results confirm that Medicaid estate planning is a commonplace strategy advocated and facilitated by lawyers, financial planners, and even Medicaid eligibility workers to shield their respective clients from responsibility for long-term care costs.

Particularly relevant findings include the following:

*Change in Prevalence Over the Past 6 Years: Eighty percent of Medicaid workers, 60.0 percent of elder law attorneys and 57.7 percent of financial planners reported that asset transfers have increased over the past 6 years. (P. 407)

*Average Value of Transferred Assets: Among financial planners, 51.9 percent reported average transfers over $200,000. Fifty-five percent of elder law attorneys reported average transfers over $100,000. Overall, 7.4 percent of respondents reported average transfers over $200,000. (P. 408)

*Financial Profile of Typical Applicant Executing Transfers: Income: Among financial planners, 51.7 percent reported clients with total monthly incomes between $2,500-$4,999

with 17.2 percent reporting clients with monthly incomes above $5,000. Almost two-thirds (62.5 percent) of elder law attorneys and 48.6 of Medicaid eligibility workers reported clients with monthly incomes between $1,000-$2499. Overall, almost 20 percent (19.4) of respondents reported clients with monthly incomes above $2,500 and 5.0 percent reported clients with incomes over $5000. (P. 409) Assets: One-hundred percent of financial planners reported clients with more than $100,000 in total assets; 13.8 percent reported clients with assets of $200,000-$349,999; and 72.4 percent reported clients with assets over $350,000. Among

elder law attorneys, 87.8 percent reported clients with more than $100,000 in total assets; 41.5 percent reported clients with assets of $200,000-$349,999; and 19.5 percent reported

clients with assets over $350,000. (P. 409)

*Estimate of Magnitude: Financial planners reported advising 40.8 percent of clients on average about asset transfers. Elder law attorneys reported advising more than half (51.4 percent) of clients about asset transfers. Overall, 81.9 percent of respondents recommended cash gifts; 43.5 percent recommended paying off debt; 58.7 percent recommended converting countable assets into exempt assets; 52.9 percent recommended various financial instruments; and 55.8 percent recommended increasing the Community Spouse Resource Allowance (CSRA). (P. 409)

One area of possible bias in the reported findings is the assertion that "the higher proportion of elder law attorneys reporting that they advise clients who actually divest assets is not surprising given that it is their professional responsibility to provide legal guidance that is in their clients’ best interests." (P. 410) Advising clients to give up control of their life savings and place themselves at the mercy of a welfare system with a notorious reputation for problems with access, quality, discrimination, reimbursement, and institutional bias is not likely to be in very many clients’ best interests. Unless, of course, the client is an eager heir seeking to protect an early inheritance.

The Braceland Center’s findings confirm those of previous studies conducted by the Office of the Inspector General ("Medicaid Estate Recoveries," 1988; "Transfer of Assets: A Case Study in Washington State," 1989) and the General Accounting Office ("Medicaid: Recoveries from Nursing Home Residents’ Estates Could Offset Program Costs," 1989; "Medicaid Estate Planning," 1993). Center for Long-Term Care Financing President Stephen Moses directed

both OIG studies and consulted on the earlier GAO study in his former position as senior analyst for the Inspector General.

A more recent study not cited by Braceland researchers was the 1996 Minnesota Department of Human Services Quality Initiatives Division’s "Long-term Care Client Asset Review" conducted to assess the extent and impact of Medicaid estate planning. Quality Control staff reviewed

445 cases of clients residing in long-term care facilities as of December 1, 1994 for evidence of improper transfers. The results were troubling: 9 out of every 10 transfers were improper (276 of 297). The total amount of assets improperly transferred was $1,747,852 vs. $353,398 in permissible asset transfers.

In the August 1998 issue of LTC News & Comment, David Rosenfeld, Chief Counsel of the Center for Long-Term Care Financing, stated that "thousands of Medicaid planning professionals are not prospering on imaginary clients. It just takes some people more time than others to admit this."

This latest study reported in the Gerontologist should help to reveal the truth about Medicaid estate planning.

Source: Leslie Walker, Cynthia Gruman and Julie Robison, "Medicaid Estate Planning: Practices and Perceptions of Medicaid Workers, Elder Law Attorneys, and Certified Financial Planners," The Gerontologist, Vol. 38, No. 4, August 1998, pps. 405-411.

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