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LTC Bullet: NY Court Gives Green Light to Medicaid Planners

Tuesday September 22, 1998


A Federal District Court in New York has entered a final judgment in New York State Bar Association (NYSBA) v. Janet Reno (97-CV-1768) declaring unconstitutional the law which criminalizes assistance with certain asset transfers for the purpose of obtaining Medicaid's long-term care benefits (dubbed by opponents including the NYSBA the "Granny's Advisor Goes to Jail Law") (Section 1128B(a)(6) of the Social Security Act, 42 U.S.C. 1320 (a) - 7b (a)(6)). The ruling permanently enjoins the United States, its agents, servants, employees, and attorneys from commencing, maintaining or taking any action to enforce this statute.

The impact on LTC insurance sales may be devastating. Medicaid planners have an entirely different view of an appropriate candidate for LTC insurance than most of us contemplate. Medicaid planners spread the falsehood that only the rich can afford LTC insurance. The New York court's ruling gives Medicaid planners a green light to put everyone else (and some of the rich too) on welfare after the insurable event occurs.

Discredited time and again, Medicaid planners can now show copies of this ruling to clients as proof that the U.S. government endorses their tempting alternative to LTC insurance for some.

Subscribers may recall that Congress retargeted the original criminalization statute (Section 217 of the Health Insurance Portability and Accountability Act of 1996) at the professionals who all too often instigate Medicaid planning schemes.

Last December, the NYSBA filed suit against Janet Reno claiming that the new law targeting Medicaid planners was unconstitutional on First and Fifth Amendment grounds. Judge Thomas McAvoy granted a preliminary injunction last April and recently issued his final ruling in the case.

The Medicaid planning bar, emboldened by this decision, will likely file suit in other jurisdictions using the NY court's ruling as persuasive authority. Renewed efforts to repeal the law are also foreseeable.

Most everyone agrees that criminalizing financial planning advice is not good public policy. Those familiar with the criminalization statute itself also agree on its troubling aspects. Yet, Congress and the President ran out of easier options.

All previous attempts to close loopholes in Medicaid eligibility rules have been frustrated by the success of Medicaid planners in opening new loopholes. In context, criminalization should be viewed merely as evidence of a renewed and more determined commitment to save Medicaid for its intended recipients.

Fortunately, the Justice Department has indicated its willingness to help Congress draft new legislation to meet its policy objectives that will pass constitutional muster.

Until then, seniors are more at risk than ever of losing control of their assets to obtain inferior welfare-financed care so their heirs can take an early inheritance with the assistance of Medicaid planning professionals.