LTC Bullet: Certifiable Suckers?
Thursday December 10, 1998
Should Medicaid estate planning attorneys play a role in testing and endorsing the professional competence and ethics of long-term care insurance agents?
That is the question raised and answered in the following article which will be published in the January 1999 issue of LTC News & Comment.
by Stephen A. Moses, President
Center for Long-Term Care Financing
Are long-term care insurance agents certifiable suckers? I don't think so. But NAELA does. And it looks like we are going to find out who is right. Here's the story:
The National Academy of Elder Law Attorneys, the trade association of America's leading Medicaid estate planning lawyers, is co-venturing with one of its founding members, Boston elder law attorney Harley Gordon, to offer a program of professional certification and desig- nation for long-term care insurance agents.
The program, which involves an eight-part training course, a four-hour NAELA-instructed review session, and a four-hour NAELA-proctored exam, is already receiving critical scrutiny by heavyweights in the long-term care insurance industry. They are asking questions like these: should a professional certification program be offered by a for-profit company rather than by an independent, objective organization like the America n College of Life Underwriters? Will the program's diffuse scope and its availability to "accountants, attorneys, bank trust officers, financial planners, healthcare professionals, and security brokers" dilute its value for establishing the unique knowledge, and professionalism of long-term care insurance agents? Does the Corporation for Long Term Care Certification's glossy booklet announcing the program, which is strewn with typographical errors, poor grammar, and condescending ethical aspersions toward LTC agents, reveal carelessness and bias against private insurance? Why are early supporters of the program already starting to drop out? I'll let others address these issues. My objective in this article is to challenge the wisdom of partnering professionally with NAELA and the Medicaid estate planning attorneys it represents.
Despite a growing avalanche of information about aging demographics and catastrophic long-term care financing risk, the public remains in denial about the need to insure privately. Why? The answer is simple. Medicaid still finances over two-thirds of all patient days in nursing homes and Medicare pays liberally for long-term home-health care. In the past 10 years, public financing has skyrocketed and private out-of- pocket costs have plummeted as a percentage of total LTC expenditures. After 25 years, the long-term care insurance industry has barely penetrated five percent of the senior market and virtually none of the critical baby-boomer market. Simultaneously, Medicaid and Medicare have come to face a fiscal crisis that threatens their existence. These conditions will not change until public policy rewards the early purchase of private long-term care insurance and allows those who fail to plan ahead responsibly for this risk to encounter serious financial losses as a consequence. For the past 16 years, eight Congresses and three Presidents have tried to do exactly that, but they have been thwarted every step of the way, and to this day, they have been defeated. Who is responsible for blocking these efforts at government reform? Primarily, the culprits are NAELA and the Medicaid estate planning bar.
*The history of foiled reform*
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA '82) authorized transfer of assets restrictions, liens and estate recoveries to discourage Medicaid financial abuse. The Omnibus Budget Reconciliation Act of 1985 (OBRA '85) attempted to clamp down on the misuse of trusts to hide assets. The Medicare Catastrophic Coverage Act of 1988 (MCCA '88) made transfer of assets restrictions longer and stronger while implementing spousal impoverishment protections to eliminate the need for Medicaid planning altogether. The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) closed some key eligibility loopholes, made estate recovery mandatory, and sent the strongest message yet that aggressive Medicaid planning for upper middle class people will not be tolerated. None of this had any appreciable effect. The Medicaid 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 poked open a dozen new ones. Finally, President Clinton and a Republican Congress became completely exas-perated. In the Health Insurance Portability and Accountability Act of 1996 (HIPAA '96), they criminalized certain kinds of Medicaid planning and later, in the Balanced Budget Act of 1997 (BBA '97), they targeted this criminal penalty toward the Medicaid planning attorneys themselves. Even this drastic measure could not stop the Medicaid planners, however. NAELA urged a New York court and Attorney General Janet Reno to conclude that the criminalization statute was unenforceable. According to a recently published chapter in an elder law publication, "the heat is off elder law practitioners who advise their clients to make transfers in anticipation of applying for Medicaid assistance." Consequently, the heat is also off potential clients to purchase private long-term care insurance.
My colleague David Rosenfeld and I attended NAELA's 10th Anniversary Advanced Elder Law Institute in Washington, D.C. from November 20 to 22, 1998. True to past practice, this conference focussed on aggressive techniques to qualify well-to-do seniors for Medicaid- financed long-term care while eliminating or minimizing their spend- down liability. For example, past-NAELA-President Vincent Russo gave a session entitled "Irrevocable Trusts for Asset Protection" to a jam-packed audience in which he explained how to protect half a million dollars while qualifying a client for Medicaid. He concluded: "If an individual requires long term care and has significant assets to protect, then a combination of outright transfers directly to family members and assets being placed in an Irrevocable Living Trust may make sense." In another session, Florida attorneys Nicola Boone and Scott Solkoff recommended the "Personal Care Contract," a legal device whereby adult children promise to take care of an ailing parent in exchange for an early inheritance of his or her life's savings. When and if nursing home care becomes necessary, Medicaid eligibility is obviously no problem because the parent is now indigent. We questioned the ethics of this technique, but a New York attorney in attendance assured us that: "It is not financial abuse of the elderly if the elderly person wants you to do it." A third session, offered by Attorney Victor Finmann, explained how to divert large Individual Retirement Account (IRA) balances from Medicaid spend-down liability, while simultaneously avoiding Federal and State income, estate and excise taxes. According to Finmann's outline, his clients want to "[t]ransfer assets to qualify for Medicaid and thereby avoid [the] 100% 'tax' on assets [that would occur] (by payment of 100% of assets to [a] nursing home or home health care aides.)"
But, for me, this was the final straw: In a program entitled "Nursing Home Litigation Issues," one of the presenters showed a horrific videotape of a terribly mistreated nursing home resident suffering from bone-deep, decubitus ulcers on his legs and shoulders. The audience groaned and gagged. The presenter explained that he sued the responsible nursing home under the False Claims Act and recovered $600,000 on this case which occurred in a non-profit nursing facility serving 98-percent to 99-percent Medicaid residents. Another presenter at the same session said he spends all of his professional time suing nursing homes; he has seven to ten cases open at all times; and he thinks more and more attorneys should get into the lucrative field of nursing home litigation. "Inadequate staffing is almost always the cause of the awful consequences," he observed. Do you see how the pieces of this puzzle fit together? Medicaid planners make their money in three ways. They help affluent clients avoid income and estate taxes thereby depleting the government's resources. Then, they divest or shelter the same clients' assets to qualify them for publicly financed long-term care without spending down. Finally, when the overburdened, resource-starved Medicaid program can consequently no longer afford adequate reimbursements to assure quality care for a disproportionately heavy Medicaid nursing home caseload, the Medicaid planners sue the welfare-dependent nursing homes for deficient care-giving. If you ever wonder why Americans sometimes end up suffering and dying in tragically inadequate welfare homes in this country, just connect those dots . . . they lead directly to the unbridled practice of Medicaid estate planning. Are these the people who should examine and certify LTC agents' professional ethics and competency?
*Medicaid planners see LTC agents as a source of referrals*
Why are Medicaid planners suddenly taking an interest in long-term care insurance and agents? The market for Medicaid planning candidates is drying up. The public is gradually becoming aware of Medicaid's access and quality problems. Seniors are flocking to assisted living facilities which private long-term care insurance usually pays for, but Medicaid rarely does. Seniors want to avoid the kinds of nursing homes that rely predominantly on Medicaid financing. To replenish this dwindling client base, Medicaid planners need referrals. Enter the LTC insurance agent. Medicaid planners seem to offer an easy solution for clients who cannot physically qualify for insurance. Attorneys can wave a magic legal wand and save the clients' assets while qualifying them for Medicaid benefits. Medicaid planners present this option with such seeming compassion and caring that the offer appears extremely seductive. But beware! There are three huge problems. First, an artificially impoverished elder loses the ability to purchase quality care in the private marketplace at the appropriate level. You may be condemning your client to the kind of nursing home care the Medicaid planners are litigating against. Second, Medicaid planners are notorious for failing to reciprocate with referrals from among their clients who can qualify for private long-term care insurance. Every referral they send to a long-term care insurance agent is one less Medicaid planning candidate for them. Finally, as long as Americans can ignore the risk of long-term care, avoid the premiums for private insurance, and qualify easily for government-financed care, they will not sense the urgency and need to buy a long-term care insurance policy. Until that system changes, penetration of the LTC insurance market will remain minimal.
*Insurance pros should be certified by insurance experts*
A professional designation and certification program for long-term care insurance agents is definitely a good idea. Fortunately, the insurance industry contains independent professional organizations capable of designing and offering a professional certification. They should do so soon. The Center for Long-Term Care Financing will gladly support and assist such an effort. The team approach to protecting seniors by interlacing the professional services of long-term care insurance agents with those of attorneys, accountants, and financial planners is excellent. We have encouraged this strategy in articles and speeches for many years. Hundreds of thousands of responsible financial professionals, who do not practice or condone Medicaid estate planning, are readily available to work cooperatively with long-term care insurance agents. With the constant publicity nowadays about the impending collapse of Social Security, Medicare and Medicaid, these collateral professionals are finally primed to work cooperatively with long-term care insurance agents to help them help their clients avoid the dire consequences of the on-going constriction of government largesse. Agents should catch this wave and ride it to the benefit of your mutual clients. But we should all ignore the siren's call of Medicaid planning advocates which will inevitably sink our hopes for a healthier long-term care system in America.
(Tape recordings of all the NAELA sessions referenced above and others as well are available from ADC Services, 69013 River Bend Drive, Covington, Louisiana, 70433, fax 504-892-9975. In addition, you can order a free tape, "Medicaid Estate Planning: The Smoking Gun," by sending a self-addressed, stamped envelope with at least $1.01 in postage to The Center for Long-Term Care Financing, 13110 NE 177th Place #170, Woodinville, WA 98072)