LTC Bullet: Is Medicaid Planning OK if Insurers (Not Lawyers) Do It?

Tuesday, September 3, 2002


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LTC Comment: Medicaid planning is the artificial impoverishment of frail or infirm seniors to qualify them for Medicaid nursing home benefits without spending down their assets. Most Medicaid planners are lawyers. Lately, however, insurers have gotten into the Medicaid planning game by promoting "Medicaid friendly" annuities. There is a certain poetic justice in this development because Medicaid planning attorneys have been squealing like stuck pigs about insurance agents invading their turf. Unfortunately, however, Medicaid planning is bad for clients whether it's done to them by lawyers or insurance agents. The main problem with Medicaid planning is that it undermines the clients' ability to purchase quality long-term care in the private market at the most appropriate level, including home care and assisted living, and leaves them dependent on welfare-financed nursing home care. Of course, Medicaid planning has also nearly ruined America's long-term care safety net for the poor.

Below, we pass on to you an article titled "Don't Use Joint Annuities For LTC Artificial Impoverishment" by Carroll Busher, an LTC Bullets subscriber. This article, reprinted with permission, originally appeared in the August 2002 editions of LTC E-Wire and National Underwriter magazines. For much more on the practice of Medicaid planning and its devastating impact on individuals, families and America's social safety net, see the Center for Long-Term Care Financing's LTC Bullets subject archives for "Medicaid Planning" at - medicaid_plan .

Co-incidentally, we heard this morning from Harley Gordon--who is a friend, colleague, Center supporter and fellow opponent of Medicaid abuse--about another example of egregious, irresponsible and inaccurate Medicaid planning using annuities promoted by an insurance marketer. We invited Harley to convert his strong August 30 letter of complaint to the Florida Insurance Commissioner, Bureau of Agent & Agency Licensing regarding this practice into a format suitable for publication as an LTC Bullet. We'll bring you that item sometime in the future if he decides to proceed. For now, we hope you find the following piece of interest.

"Don't Use Joint Annuities For LTC Artificial Impoverishment," by Carroll Busher, National Underwriter, August 2002, pps. 28-29.

Artificial impoverishment has been practiced for years and still is by a good many elder law attorneys. Now, sadly, it has become the hottest long term care planning scheme, and some practitioners are using the joint annuity contract to make it all happen.

In my opinion, this is not a good development for the consumer and it's not good for the financial professional or the insurance industry. We'll see why momentarily. First, let's review the landscape.

Artificial impoverishment is the name given to the practice of placing an otherwise financially disqualified individual on Medicaid via financial sleight of hand.

For years, certain elder law attorneys have stretched credulity--not to mention the law--to gain access to Medicaid paid services for their middle income and often times upper income clients. These "schemes," as I call them, have ranged from purchase of cattle (cattle are exempt from Medicaid spend-down for ranchers) to privately structured financial arrangements (actuarially sound, of course) made with family members.

Alas, in recent months, I've noticed that a growing number of insurance marketers have decided to jump into the Medicaid planning game, too. And, in my region at least, they are doing it big time. They are "inviting" all classes of consumers to attend seminars to explain how they, too, can get something for nothing with a little strategic money management, courtesy of joint annuities.

In my opinion, the people who attend these seminars are gullible and uninformed individuals who hope to avoid the fate of a LTC nursing home expense by a loophole (soon to be filled) provided through the unique characteristics of the annuity contract.

Annuities are financial vehicles that allow for a lump sum of invested principle to be converted into a guaranteed income for the life of the annuitant or for a period certain. This ability of turning a lump sum into an income is the loophole that has made the annuity the hot ticket for those with money assets to guard and fears of nursing home expenses dancing in their heads.

In particular, a joint annuity allows a disabled individual co-owner of such a contract to qualify for Medicaid while avoiding Medicaid's normal and expected "spend-down your money first" requirements. This situation allows the marketer to perform a type of magic act-i.e., he or she recommends that the owners morph the joint annuity's invested principle into income for the other co-owner (the well spouse). Voila! You now have artificial impoverishment for the disabled joint annuity co-owner.

Remember, only the income of the disabled spouse is counted toward Medicaid eligibility and must be forfeited to care costs. The well spouse can--income wise--live like the rich and famous. All at taxpayers' expense--taxpayers who will now be picking up the tab for the care in the nursing home of the shrewd annuity client.

Well, not so fast. There remain a few details the customer doesn't hear about, when presented with these Medicaid planning "strategies."

First, the consumer's wish to avoid the cost of a nursing home expense is not a problem that should be solved by me or any other taxpayer. It is the consumer's problem.

Second, the stunning shortsightedness of placing a further burden on Medicaid--a system graciously funded by this country for the care of the poor--should be self-evident.

Third, the system these consumers so wish to be on, alongside the truly needy, is a system that experts everywhere agree offers no choice and, sorry to say, that is, as often as not, marred by second-class care. (Naturally, the latter point is a direct result of stretched resources. This is exacerbated further by to these Medicaid planning schemes.)

Let us not forget one more point. It is a message rarely delivered to the throngs of people who attend these joint annuity seminars for Medicaid planning. The message is this: The reason there are so many people in nursing homes on Medicaid is simply that institutional care remains the only care setting for which most state Medicaid programs will pay.

If a consumer has any kind of income at all--and I assume most of the throng-goers do, because why else would they be attending these seminars?--the truly professional financial advisor could feather-in some LTC insurance benefits for relative peanuts. That way, the client who needs care one day could go to a nice assisted living facility of his or her choice. Most importantly, the client could go there as a paying customer with head held high.

As it happens, this client and the professional advisor who worked with this client would also be assisting the Medicaid system--by keeping people of means off of it.

Lastly, and perhaps just as importantly, this client and advisor would be preventing the less ethical marketers out there from profiting on client fears and their own greed.

Carroll Busher, of Financial Care Services, Grand Rapids, Mich., is a senior product specialist who maintains a website on senior health care products. His email is

This article originally appeared in the August 2002 issue of LTC e-Wire, the electronic newsletter of National Underwriter Life and Health/Financial Services. It expresses opinions of the writer, not necessarily those of the publication. The article is reprinted here in full with permission from the publisher, The National Underwriter Company, Erlanger, Ky.

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