LTC Bullet: What Goes Around Comes Around

Thursday, August 14, 2003

Marathon, TX--

LTC Comment: After several years of quietude, the media are tuning in again to Medicaid's financial crisis and the Medicaid estate planning techniques that aggravate it. More after the ***news.*** [omitted]


LTC Comment: In the early 1990s, Medicaid costs were doubling every three or four years, state and federal budgets were hurting badly, and policy makers were focused on how to get the "Medicaid monster" under control. Media coverage of the issue was intense and unremitting. Something had to give.

In the Omnibus Budget Reconciliation of 1993 (OBRA '93), Congress and President Clinton closed many Medicaid "loopholes" and mandated "estate recoveries." When OBRA '93 didn't have the desired effect, they criminalized Medicaid planning in the Health Insurance Portability and Accountability Act of 1996 (HIPAA '96). When senior advocates excoriated HIPAA '96 as the "throw granny in jail" law, Congress replaced it with the "throw granny's lawyer in jail" law, the Balanced Budget Act of 1997 (BBA '97).

Of course, it wasn't constitutional to hold an attorney criminally liable for recommending asset transfers to qualify for Medicaid, once that practice was made legal again with the repeal of HIPAA '96. So, by the time the economy started booming in the late 1990s, Medicaid planning was back in business big time. The Medicaid financing crisis became less immediate as welfare rolls declined and tax receipts increased with the newly surging economic growth. For several years, it was much easier for state and federal politicians and bureaucrats to ignore the systemic problems of long-term care than to implement the politically sensitive measures needed to solve them.

Alas, those days of bulging coffers and easy denial are gone again. Medicaid costs, especially for long-term care, are exploding anew. Most states are under severe fiscal duress and the federal budget has ballooned from a triple-digit surplus to a triple-digit deficit in a single year. As state Medicaid programs have turned to draconian cuts in Medicaid coverage, services and reimbursement to make ends meet, media interest in the issue has returned.

Reporters are beginning to ask once again why it is that Medicaid, ostensibly a means-tested safety net for the poor, routinely makes its most expensive benefit--nursing home care--available to middle- and upper-middle-class people, and even to the affluent who have access to the arcane advice of Medicaid planners.

Here are links to and excerpts from two recent articles that make the point:

Bruce Ramsey (Times editorial columnist), "Insure Care for The Poor, Not Houses for Boomers," Seattle Times, July 30, 2003, Excerpts:

"The Seattle Times ran a story June 23 of a woman who feared that her husband, 78, might need a nursing home. It might cost $4,000 or $5,000 a month. As a former social-services employee, the woman knew just what to do:

"'She spent about $35,000 in six weeks... ,' the story said. 'She got new windows, kitchen counter tops and sink, fixtures for the bathrooms, a washer and dryer and painted the house... She traded her 1996 Honda for a newer car . . . '

"She was trying to spend down her savings to less than $90,660. Below that point her husband would qualify for Medicaid, and his nursing-home bills would be paid by the taxpayers.

"Not so coincidentally, on the day the article appeared a bill sat on Gov. Gary Locke's desk to reduce the threshold from $90,660 to $40,000. Locke signed the bill. . . .

"Here is an important detail in the case of the woman with the 78-year-old husband: Medicaid does not count her house. She really is not 'wasting' assets by spending money on her house. She is moving assets from a category that is counted to a category that is not.

"Shall Medicaid count her house? That is a question worth asking. If the equity in the house can pay for care, then having Medicaid pay does not protect access to care. It protects ownership of a house. In this way, a program to insure care for the poor becomes a program to insure houses for baby boomers to inherit.

"Two bills in the last session aimed to change that. Senate bill 5730 and House bill 2022, sponsored by a group of Democrats and Republicans who usually disagree, would have instructed the state to ask for a federal waiver so that Medicaid could count the house. The bills failed, but the idea remains. Former state Medicaid director Jerry Reilly says such a change is necessary 'so that public assistance can remain focused on the poor.' . . .

"Suppose it could also count real estate. How would that work? Steve Moses, who runs a Seattle nonprofit organization called the Center for Long Term Care Financing, says the answer is the reverse annuity mortgage. Older people, who typically own houses free and clear, could slowly sell them back to the bank while still living in them. Knowing that this was required, many more Americans would buy long-term care insurance - something that only about 7 percent now do.

"After a few years, says Moses, Medicaid might pay only for the neediest 25 to 30 percent of nursing-home care. Now it pays, in part, for nearly 80 percent of patient days, and sets the (skimpy) reimbursement rate for those days.

"Could government achieve that? Dennis Braddock, director of DSHS, notes that there is a whole industry of making people look poor. Defeating it may be impossible, but one may at least dream of limiting it.

"'Even if we could get 10, 15 or 20 percent fewer people on Medicaid, that would make some more money available,' Braddock says. As it is now, he says, 'We're making the Medicaid beds too attractive. And so people say, 'Put mom in a Medicaid bed.'

"Bruce Ramsey's column appears regularly on editorial pages of The Times. His e-mail address is "


Kelly Greene, "Don't Just Chuck Out Long-Term Care Insurance, The Wall Street Journal, August 3, 2003,,,SB105983254878448100,00.html , subscription required. Excerpts:

"If you already have long-term care insurance -- but now think you can get Medicaid to pay for future nursing-home needs -- should you cancel your policy?

"That was one of the most common questions we received from readers after writing about individual retirement accounts and so-called Medicaid planning. The latter is the controversial strategy of protecting assets, including IRAs, for spouses and other heirs when seeking public assistance to help pay for nursing-home care. . . .

"On this question, experts both in favor of Medicaid planning and opposed to it largely agree that most couples should hang onto their coverage -- particularly if they purchased insurance several years ago. 'You might want someone to review the policy, but in most cases you should keep it,' says Harry Margolis, an elder-law attorney in Boston. . . .

"It's also important to keep in mind that with your own insurance policy, you probably would have more say in the type of care you would receive and who would provide it, says Stephen Moses, president of the Center for Long-Term Care Financing, a nonprofit group in Seattle.

"With state governments struggling to make ends meet, he contends that relying on Medicaid could 'leave you vulnerable to care that's completely unacceptable.' Medicaid, after all, pays a large chunk of nursing-home care in the U.S. A recent study by the General Accounting Office, Congress's investigative arm, found that serious deficiencies or harm to residents occurred in 20% of the country's 17,000 nursing homes during an 18-month period ended in January 2002.

"And in a separate survey, Medicaid programs that promised to provide services at home to people eligible for nursing-home care often failed to do so, or had quality problems. . . ."