LTC Bullet: Medicaid Loopholes by State
Thursday, July 24, 2003
LTC Comment: Despite the conventional wisdom that one must be poor to qualify, Medicaid LTC benefits are routinely available to most seniors who need nursing home care anywhere in the U.S. without "spending down" assets significantly. But some states are much more lenient than others, which leads to "welfare immigration" and manipulation of Medicaid at the expense of taxpayers and the poor. More after the ***news.*** [omitted]
LTC Comment: Have you ever heard of welfare immigration? That's what happens when some states' public assistance programs are more generous than others. People move (or they relocate their elderly, infirm parents) to take advantage of marginal variations in public largesse. For example, in the 1980s and early 1990's, Medicaid nursing home eligibility rules in Florida allowed practically unlimited assets. Any adult child could add his or her name to a parent's bank account and withdraw everything from the joint account without incurring a transfer of assets penalty, thus instantaneously impoverishing the parent and achieving Medicaid eligibility. New York State, on the other hand, was stricter with regard to assets (until Medicaid planners discovered the "just say no" or "spousal refusal" gambit) but allowed practically unlimited income. New York's generous "medically needy" income eligibility system allows anyone to qualify for Medicaid who cannot afford the state's exceptionally high private nursing home rates. The end result was that New Yorkers with limited incomes but lots of assets moved to Florida where they could preserve their savings for heirs and still qualify for Medicaid nursing home care. Floridians with excessive income, but limited assets, relocated to New York where high incomes would not interfere with their Medicaid nursing home eligibility.
Gross variations in state-by-state Medicaid eligibility rules cause severe interstate inequities and invite manipulation like Medicaid planning and welfare immigration. We recently came across an article that documents several such differences between state Medicaid programs. The following examples come from "State Medicaid Practices Are All Over the Map" by Harry S. Margolis, in The ElderLaw Report, Volume XV, No. 1, July/August 2003, pps. 11-12. The ElderLaw Report is a monthly newsletter with a heavy emphasis on developing, identifying, describing and promulgating Medicaid estate planning (i.e. artificial self-impoverishment) techniques. The Margolis article describes the author's findings from "roundtable discussions of Medicaid rules with elder law attorneys around the country" at the May 14-18 National Academy of Elder Law Attorneys 15th Annual Symposium in Miami. Here are some excerpts and our comments:
ElderLaw Report Article: "By far, the two most lenient states are California and Florida." (p. 12, emphasis added)
LTC Comment: Interesting, isn't it, that the state with the worst budget deficit in the country whose Governor (Gray Davis) has proposed a 15-percent reimbursement cut for Medi-Cal nursing homes, is one of the most lenient states in the country for government-financed nursing home care. The other most lenient state, Florida, is the one with the biggest population of elderly people and one of the biggest vulnerabilities for long-term care in the future.
Article: Washington State may allow "partial interests in property" to have "no market value" and therefore "be exempt from [estate recovery] claim." Likewise: "Personal care contracts are accepted if the payments are for services that Medicaid would cover." (p. 12)
LTC Comment: Translation: if you own property with someone else who refuses to sell his or her share, your share is not vulnerable to Medicaid estate recovery in Washington. So, make sure you own all your excess assets with someone else who won't sell. Likewise: Set up a "personal care contract" in which you agree to provide services to your infirm parent for a fee so you can pocket the money that would otherwise have to be "spent down" to qualify for Medicaid.
Article: "Not only are the Medicaid programs different from state to state but also from county to county here. A recent New Jersey case barred guardians from doing Medicaid planning, but it is not followed in many counties. In some counties, Medicaid annuities must name the state as the remainder beneficiary. In others, this is not required." (p. 12, emphasis added)
LTC Comment: So-called "Medicaid friendly annuities" allow people with excessive nonexempt assets to convert them to nondisqualifying income, but the consequences are risky, including access and quality problems, tax planning considerations, the danger Medicaid will tighten the rules, and vulnerability to estate recovery, though not in certain New Jersey counties, evidently.
Article: "The home is not considered a probate asset [in Florida] and thus is exempt from estate recovery. Personal care contracts are permitted. . . . Transfers are rounded down. While the penalty devisor in Florida is $3,300, a current or prospective nursing home resident can give away $6,500 a month and still only be ineligible for one month for each transfer. The gift of a life estate is not a transfer. For couples, one way to spend down is to purchase I or E savings bonds. These are not counted, and thus the purchase is not considered to be a transfer." (p. 12-11)
LTC Comment: No wonder Florida is one of the two most lenient Medicaid eligibility states in the country.
Article: "Michigan is one of three states with no estate recovery program, although this is currently in the state legislature." (p. 12, emphasis added)
LTC Comment: The other two states with no Medicaid estate recovery programs are Texas and Georgia. Texas recently enacted a Medicaid estate recovery law under pressure from the federal government. It is important to note that although every other state has an estate recovery program, these programs vary widely in enforcement and effectiveness. Also, the estate recovery liability is relatively easy to avoid with early planning in most states. Finally, states rarely educate the public about estate recovery liability so it has little effect on consumer behavior such as the proclivity to purchase private long-term care insurance.
Article: "Some people in Tennessee move across state lines to nursing homes in Georgia because Georgia permits community spouses to keep the maximum CSRA [Community Spouse Resource Allowance], while Tennessee applies the one-half-of-snapshot-amount rule." (p. 12, emphasis added)
LTC Comment: Another example of welfare immigration. Not only is Medicaid nursing home eligibility easier in Georgia, you don't have to worry about recovery from the estate either.
Article: "The most amazing information I heard was California's application of the transfer penalty rules. . . . [A] California nursing home resident can give $4,000 a day to 10 different individuals for 30 consecutive days, and apply for MediCal the following month." (p. 12, emphasis added)
LTC Comment: No wonder California is one of the two most lenient Medicaid eligibility states in the country.
Article: "Like Florida, the giving away of a life estate is not considered to be a transfer [in North Carolina]." (p. 12)
Article: "Practitioners rely on spousal refusal [in New York] . . .." (p. 12)
Article: "Practitioners have created deeds with a term of years to lower the transfer penalty, similar to a qualified personal residence trust [in Minnesota]. (p. 12)
LTC Comment: The solution to inequitable variations and loopholes in state Medicaid eligibility rules is not to plug them one by one like the little Dutch boy with his fingers in the dike. The solution is to reform Medicaid eligibility along the lines of "LTC Choice." Eliminate all asset exemptions and require all applicants to consume their illiquid equity in currently exempt assets, such as homes and businesses, through reverse mortgages before they qualify for Medicaid benefits. Doing that will save Medicaid for the poor, protect lifetime home use by the middle class, enhance access to quality care for rich and poor and in between, relieve taxpayers, encourage home equity conversion and long-term care insurance, pump desperately need private financing to LTC providers, and put Medicaid estate planners out of business. For a concrete strategy, see "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" at http://www.centerltc.com/pubs/CLTCFReport.pdf .