LTC Bullet: LTC Financing Irony

Tuesday, January 6, 2004

Portland, OR--

LTC Comment: States are making severe cuts in Medicaid for poor women and children, but affluent seniors routinely employ abusive annuities to obtain expensive welfare-financed LTC benefits without spending down. Can't CMS help? More after the ***news.***

*** Read Liz Taylor's excellent six-part series on LTC insurance online at [free access but registration required]. The Seattle Times sells hard copies of the series for $6.10. After citing two excellent books on LTCI for consumers by Phyllis Shelton and Marilee Driscoll (see our reviews in the LTC Bullets archives at, Ms. Taylor writes "One of the most respected - and controversial - national nonprofits working in the aging field is the Center for Long-Term Care Financing of Seattle. Intent on waking up public policymakers about the looming crisis in long-term care funding in this country, this organization publishes well-researched, often humorous, always interesting articles at"

*** Don't miss the Society of Actuaries' Fourth Annual Intercompany LTCI Conference February 8-11, 2004 in Houston, Texas. You can find complete information on this excellent conference at . Not sure this is the industry meeting for you? If you're a Center donor with access to The Zone, just click here to find our "Virtual Visit" to the last SOA-LTCI conference which was held in Las Vegas, January 26-29, 2003 . Our virtual visits to major industry conferences are designed to give you a feel for what the meeting is like, including summaries of sessions, interviews with attendees, photographs of prominent participants, and details about cost and venue. If you haven't Zoned In yet, learn how in the section below titled "LATEST DONOR-ONLY ZONE CONTENT." (Misplaced your user name and password? Just drop a note to or call him at 206-283-7036 for a quick reminder.) ***

*** If you would like to attend an LTC Graduate Seminar immediately following the SOA LTCI conference in Houston on Thursday, February 12, 2004, contact Center Executive Director Amy McDougall at 425-377-9500 or For details on the grad seminar, please go to . We will schedule the program if ten or more people register. ***

*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe so you can receive these critical epistles daily by email.

The LTC Data Update #4-001--Boomers Will Drive Elderly Health Care Cost Explosion (Any potential future savings from "compression of morbidity" may be lost to boomer extravagance.)

Don't miss our "virtual visits" to major LTC industry conferences in The Zone. You'll find our comparison of the conferences, session summaries, interviews and pictures at .

Individual donors of $150 or more and corporate donors to the Center for Long-Term Care Financing receive our daily email LTC Bullets, LTC E-Alerts, LTC Readers, and LTC Data Updates for a full year. You'll also get access to the donor-only zone where these publications are archived along with other donor-only features. If you already qualify for The Zone, you can click the following link, enter your user name and password, and go directly to the latest donor zone content and archives: . If you do not already qualify for The Zone, mail your tax-deductible contribution of $150 or more to the Center for Long-Term Care Financing, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109. Then email your preferred user name and password (up to 10 characters each). You can also contribute online by credit card or direct withdrawal at . ***


LTC Comment: What an irony! The wealthier you are, the easier it is to get Medicaid. Everything you read says Medicaid is the health care financing program for the poor. Yet, as the following excerpts from USA Today and the New York Times explain, states all across the country are whacking Medicaid benefits for poor women and children. In the meantime, income and asset eligibility standards for seniors in need of long-term care remain extremely generous. Add creative legal manipulation by Medicaid planners and the program's most expensive benefit is routinely available to nearly anyone in need of LTC.

States can and should take more aggressive measures to target Medicaid long-term care benefits to the genuinely needy. Unfortunately, the states' hands are tied by federal law when it comes to discouraging abuse of Medicaid's elastic eligibility rules. A critical case in point is the use of annuities to qualify the well-to-do for Medicaid. Below, you can read the "Executive Summary" and "Introduction" to a report by the National Association of State Medicaid Directors practically begging the Centers for Medicare and Medicaid Services (CMS) to give them the needed legal and regulatory authority to stop the egregious abuse of annuities by Medicaid planners (including attorneys, financial planners, and insurance agents.) Forceful federal action to discourage all forms of Medicaid planning are needed to save Medicaid for the poor and encourage private financing alternatives for long-term care.

The Center for Long-Term Care Financing assists state Medicaid programs to control Medicaid estate planning and encourage private long-term care financing alternatives. Our reports provide numerous recommendations on how to do so while improving access to and quality of long-term care for rich, poor and in between. Here are a few examples:

Read "The Heartland Model for Long-Term Care Reform: A Case Study in Nebraska" at

Read "The Myth of Unaffordability: How Most Americans Should, Could and Would Buy Private Long-Term Care Insurance" at

Read "The Florida Fulcrum: A Cost-Saving Strategy to Pay for Long-Term Care" at


Excerpts from New York Times editorial, "The Budget Politics of Being Poor," December 31, 2003,

"Quietly and painfully, most states are choosing to crimp the health-care safety net for their poorest and most politically defenseless residents. An ominous new study shows that up to 1.6 million impoverished and working-poor Americans - at least a third of them children - have been deliberately knocked from publicly financed health care programs in the last two years. Officials in 34 states are opting to slash Medicaid and poor children's health insurance coverage as a path of least resistance to the balanced budgets mandated by law.

"States have raised poverty standards beyond federal requirements, increased bureaucratic delays and even shut down children's health programs entirely to keep entitled poor people off the rolls. For each dollar thereby saved in the state budget, statehouses are losing $4 to $7 in federal aid. . . ."

URL for report cited in editorial:


Excerpts from Larry Wheeler and Robert Benincasa, "State Budget Belt-Tightening Squeezes Health Care for Kids," Gannett News Service/USA Today, 12/24/3,

"Children across the country are being cut off from doctors because cash-strapped states are rolling back health insurance for the working poor, an investigation by Gannett News Service has found.

"Twenty-two states have restricted children's health insurance programs over the past 18 months. More cuts are possible in 2004 as states face another round of daunting budget deficits.

"For many families, especially those with chronically ill children, the state cutbacks have resulted in immediate hardship. . . .

* About 270,000 children of low-income, working parents have been barred from health insurance programs in the nine states where estimates are available.

* Texas and Florida lead the country in the number of low-income children shut out of state health insurance programs.

* Changes to state programs are expected to hurt immigrant children, especially Hispanics. The Urban Institute says Hispanic kids are an estimated 18% of all U.S. children but represent approximately 37% of all uninsured children. . . ."


The Annuities Work Group of the Eligibility Technical Advisory Group of the National Association of State Medicaid Directors, "The Role of Annuities in Medicaid Financial Planning: A Survey of State Medicaid Agencies," October 2003, for the full report, go to Workgroup Product_October 2003.pdf

"Executive Summary

"At a time when state governments are facing deficits not seen since World War II, it is crucial that each dollar spent for the Medicaid population be utilized for truly needy individuals. An increasingly high percentage of those who enter long-term care facilities eventually have a substantial portion of their costs paid by Medicaid. The Medicaid program is, in essence, the only publicly-funded source of long-term care coverage. Given the limited options available for such coverage in the private insurance market and the lack of incentive to purchase private long-term care insurance, states are faced with growing estate planning and asset sheltering activities as a means to help persons qualify for Medicaid coverage of their long-term care expenses. Based on responses by 40 states to a survey of treatment of annuities, results indicate that over $1 BILLION IN FEDERAL AND STATE GOVERNMENT MONEY IS LOST EACH YEAR DUE TO AN UNINTENDED FEDERAL LOOPHOLE THAT ALLOWS PEOPLE SEEKING MEDICAID LONG-TERM CARE TO SHELTER EXCESS RESOURCES IN ANNUITIES. [Emphasis added]

"The survey sought state opinion on the extent of the annuity problem, as well as steps states have taken to address the issue. Findings indicate that most states feel annuities are a major source of asset-sheltering activity, though there is little consensus on how best to combat this program abuse. Attempts to control abusive annuities include restricting balloon annuities, expanding the definition of estate, divining the intent of transfers to annuities, and treating annuities as trusts, all of which are of limited effectiveness because of current ambiguities in federal law. The Annuities Work Group suggests that the problem would be ameliorated if states could count annuities as available resources regardless of whether they are labeled assignable or non-assignable, limit the amount of money that could be sheltered in annuities, revise the life expectancy determination process, and/or treat annuities similar to trusts.


"Under Medicaid statutes, a married couple is usually able to protect certain assets from consideration in accessing the program such as the home, a vehicle, and monies set aside for burial purposes. These statutes also include spousal impoverishment protections to ensure that when one spouse enters a nursing home, the other spouse-the community spouse-does not lose all income and other assets such as money in savings thereby becoming impoverished and needing financial assistance from the government. This is done by setting a reasonable amount of the couple's assets aside for the community spouse and requiring that the remainder be spent down prior to Medicaid helping to pay for the institutionalized spouse's care in the nursing home. Current law permits half of the couple's total countable assets to be protected with a maximum cap of just over $90,000. The spousal impoverishment provisions also allow for a fair hearing process to increase the amount of assets that can be protected for the community spouse in situations where that spouse's income is not sufficient to meet the spouse's needs in the community.

"However, STATES REPORT THAT ELDER LAW ATTORNEYS AND ESTATE PLANNERS ARE AGGRESSIVELY USING SO-CALLED 'MEDICAID ANNUITIES' TO SHELTER MORE OF A COUPLE'S ASSETS THAN ORIGINALLY INTENDED BY STATUTE. [Emphasis added] These annuities, marketed as Medicaid estate planning devices, artificially impoverish the couple, in order to allow the institutionalized spouse to qualify for Medicaid long-term care. In effect, couples with substantial resources are protecting any assets in excess of the community spouse resource allowance mandated by federal statute. These applicants and recipients claim the annuities are 'irrevocable and nonassignable,' that is, they supposedly cannot be redeemed or sold, leaving them no market value as a resource during Medicaid eligibility determinations."