LTC Bullet: Medicaid Planning and Estate Recovery Issues Are Heating Up
Wednesday, May 12, 2004
LTC Comment: Medicaid is supposed to be a safety net ensuring long-term care for the needy, not a substitute for private insurance nor an inheritance guarantee for baby-boomer heirs. Nevertheless, Medicaid planning and estate recovery remain controversial.
LTC BULLET: MEDICAID PLANNING AND ESTATE RECOVERY ISSUES ARE HEATING UP
LTC Comment: Ever since the Omnibus Budget Reconciliation Act of 1993, state Medicaid programs have been required by law to recover the cost of benefits legally paid to eligible recipients from their estates.
Failure to do so could jeopardize federal medical assistance matching payments. Could. But didn't. Three states--Georgia, Michigan, and Texas--thumbed their noses at the feds and refused to participate with impunity for over a decade. Most other states have done little to implement estate recoveries, with predictably under-whelming results.
Without estate recoveries, however, anyone who shelters large assets in exempt form--such as in a home, business, car, trust, annuity, term life insurance, etc.--gets off scot-free while shifting the cost of long-term care to taxpayers. Even more serious and damaging is the fact that the more Medicaid pays for people with large, sheltered, unrecovered assets, the less able the program is to provide quality care for the needy and or to pay adequate reimbursement for care providers.
Of course, the whole issue of estate recovery is moot if Medicaid recipients jettisoned all their assets by means of Medicaid estate planning before receiving their publicly financed long-term care benefits in the first place.
Is it any wonder that so few people buy insurance or take out reverse mortgages for long-term care when Medicaid routinely protects their biggest asset from their biggest financial risk? After years of neglect, the pros and cons of Medicaid estate planning and Medicaid estate recovery are finally being aired again in the national media. Following is a sampling from recent stories.
LTC Comment: People who make their living artificially impoverishing seniors to qualify them for Medicaid, tend to look askance at any rule that protects the program for the poor. The following excerpts are a good example:
Source: ElderLawAnswers.com, "Estate Recovery: States Are Leaving No Gravestone Unturned," April 15, 2004
"As Erin Madigan, a writer for Stateline.org, aptly puts it, 'states are leaving no stone unturned in their search for ways to save money in health care - not even gravestones.'
In 1993, Congress passed a law requiring that states try to recover from the estates of deceased Medicaid recipients whatever benefits they paid for the recipient's care. Those states that don't implement such 'estate recovery' laws risk losing some or all of their federal Medicaid funding. . . .
"'There's a great deal of opposition to the idea of the state taking people's homes after their death, particularly when you're dealing with low-income and middle-class folks,' said Charles Sabatino of the American Bar Association Commission on Law and Aging. [Sabatino is a former President of the National Academy of Elder Law Attorneys. NAELA is the trade association of Medicaid planners. Sabatino is leading a national review of estate recovery programs for the federal government, a classic example of the fox being invited to guard the henhouse.] . . .
"The Massachusetts legislature recently voted overwhelmingly to postpone expanding estate recovery to the non-probate estate, overriding Republican Gov. Mitt Romney's veto. Elder law attorneys and other advocates there will be working to repeal expanded estate recovery altogether, and the prospects look good. . . .
"Some states have passed estate recovery laws but couldn't be accused of actually enforcing them. In 1995, West Virginia implemented an estate recovery program, although the legislature directed the state Attorney General to determine whether the federal mandate was constitutional. The state attorney general sued the federal government, arguing that the choice of creating an estate recovery program or losing all or part of desperately needed Medicaid funds is unconstitutionally coercive and a violation of the Tenth Amendment.
"A federal appeals court ruled that the estate recovery program requirement is constitutional. Now the West Virginia Attorney General posts on his Web site tips on how state residents can avoid estate recovery. . . .."
LTC Comment: Following are excerpts from two Los Angeles Times articles that convey clearly why states, especially California which is mired in budgetary red ink, are trying to administer their Medicaid (Medi-Cal in California) long-term care programs more responsibly. Links are provided to the full LA Times articles, but you may have to pay a fee to consult them after they are archived.
Source: Evan Halper, "Public Pays for Wealthy Seniors' Care," Los Angeles Times, May 2, 2004, http://pqasb.pqarchiver.com/latimes/results.html?QryTxt=halper .
"For older Californians distressed by the thought of nursing home bills devouring their savings, the words of a Los Angeles attorney may seem astonishing: 'We can qualify even a millionaire for Medi-Cal benefits.'
"But as troubled as they may be by such an offer, officials at California's healthcare program for the poor admit it's possible.
"At a tremendous cost to taxpayers, aging Americans in California and across the nation are transforming themselves, at least on paper, from affluent seniors to needy individuals eligible for state health benefits.
"'It's a huge public health problem,' said Thomas Scully, who ran the country's $269-billion Medicaid system for the Bush administration until December. Medi-Cal is California's version of that program.
"'There is an entire industry around the country set up to coach people to transfer their assets to their children, so the state can pay for their care,' Scully said. 'Every time you pay for one of these people to go to a nursing home, you are taking money away from the people who are truly poor.' . . .
"Jack Christy, director of public policy for the California Assn. of Homes and Services for the Aging, said the policymakers need to do something.
"'A lot of the things California is allowing just defy common sense,' he said. 'You end up with people paying taxes into the system -- like a gardener making $20,000 or $30,000 a year -- so some millionaire can get on Medi-Cal. It's not right.'
"Nursing home administrators see the asset transformation firsthand. At the Pilgrim Haven Retirement Community's nursing home in the affluent San Francisco suburb of Los Altos, the staff was baffled when a patient with a $2-million house, pricey commercial property in San Jose and considerable savings recently became eligible for the program. . . .
"A cottage industry of attorneys and estate planners is marketing Medi-Cal as a kind of inheritance insurance through which parents can give their money to relatives, declare poverty and get state assistance. Some of those attorneys say they can get just about anybody on the system. . . .
"Los Angeles attorney Judd Matsunaga says in a videotaped presentation: 'We can qualify even a millionaire for Medi-Cal benefits.' . . .
"Clients can pour all of their money into an expensive new house and still qualify. If they tell the state that their intention is to return to that home, the state can't take it. The house can then be transferred to relatives while the patient is in a nursing home, and the state can't go after it once the patient dies.
"Other exemptions are certain kinds of investments. Some insurance companies, for instance, market 'Medi-Cal friendly' annuities, into which seniors can move their savings to keep them from the state. . . .
"'We have tried to tighten all the loopholes we are aware of that can be tightened under federal law,' said Stan Rosenstein, who oversees the Medi-Cal program. 'There are some loopholes in the federal law that we can't touch.' . . .
"Advocates also say they are offended by financial makeovers used to exploit a beleaguered Medi-Cal system, in which nursing home beds are in short supply and waiting lists are common. "We've got a huge mess here," said Stephen Moses, president of the Center for Long Term Care, an insurance industry-backed think tank in Seattle. "The well-to-do use 'Medicaid planning' to get into nice homes and the poor people lose everything and end up in Medicaid hellholes." . . .
"Rosenstein calls such shielding assets to get on Medi-Cal 'inappropriate.' He and other state officials say Medicaid was always meant to be strictly a safety net for the poor. But he acknowledges that the law is porous and that there are ways to move money around to keep the state from getting at it. . . .
"'That offends me,' said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento), when told of the seminar. 'The fact of the matter is: We are living in a time of scarce resources. It is just not fair that people of real means can find ways to shelter their assets and have the public pick up the cost of care. We have to change the law.'
"He wants the state to conduct a thorough study to figure out exactly how much it is costing. . . .
"Rosenstein acknowledges that California has been 'one of the least aggressive' states in closing the loopholes. THE STATE TRIES TO MAKE UP FOR THAT, HE SAYS, WITH ONE OF THE COUNTRY'S MOST AMBITIOUS PROGRAMS OF COLLECTING MONEY FROM PATIENTS AFTER THEY DIE -- USUALLY BY PLACING A LIEN ON THEIR HOMES. [Emphasis added.] . . .
"Most elder-law experts, however, say that if recipients fill out the paperwork properly before entering the system, they can keep the state from ever having a claim on their property. . . ."
LTC Comment: Is statutory help on its way in California? Don't hold your breath, but at least the conversation has begun.
Source: Evan Halper, "Action Sought on Wealthy Seniors' Use of Medi-Cal," Los Angeles Times, May 6, 2004, http://www.latimes.com/news/local/la-me-medical6may06,1,4734730.story
"Incensed by reports of well-to-do seniors finding ways to get Medi-Cal to pay for their nursing home care, a bipartisan group of lawmakers demanded Wednesday that state officials do more to crack down on the practice.
"Wealthy seniors are increasingly exploiting loopholes that allow them to qualify for the state's healthcare program by sheltering assets.
"Lawyers and estate planners who help clients qualify for Medi-Cal through legal loopholes say the practice is no different from taking the full benefit of tax laws to save money. Their clients have paid tens of thousands of dollars in state and federal taxes over the years and are entitled to get benefits in return, they say. . . .
"'I cannot believe that the savings involved in ending this practice is only a few million dollars,' said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento). 'That defies what everybody knows is going on. People are making a full-time living advising people how to do this. The total amount of attorney fees made off this is probably more than the savings the department has identified.' . . .
"Stan Rosenstein, who oversees Medi-Cal for the administration of Gov. Arnold Schwarzenegger, acknowledged that he had no reliable figures on how much it is costing the state to provide nursing home care for well-to-do Californians.
"'Clearly when we look at what is going on and all the evidence, it is far more than $4 million,' he said. 'It's clear it is rampant.'
"An ongoing investigation by the state attorney general's office has revealed one lawyer alone who has been able to shield the assets of 1,000 seniors, costing the state an estimated $50 million. . . .
"Medi-Cal has a program in place to put liens on the homes of some patients upon their death, but enforcement is uneven. The program sends out 7,000 letters a month to the estates of patients notifying the estates that they may need to reimburse the state, but only half are answered. Until this month, the state was not following up on the unanswered letters. . . .
"Medi-Cal officials said they planned to work harder to recover funds where they could.
"'If someone has a house worth $2 million, you would like that house to fund their healthcare, not tax dollars,' said Sheila Nolan, a Medi-Cal official working on the proposal. . . ."
LTC Comment: Medicaid applicants and their representatives are routinely advised when they apply for public assistance that Medicaid is a loan not a grant for people who retain exempt assets and that their estates will be accountable to reimburse the state for care financed by Medicaid. Nevertheless, personal representatives of deceased Medicaid recipients are often shocked to learn than the estate is liable to repay the recipient's cost of care. These are delicate situations that should be handled with care and respect, but firmly. Here's an example from Ohio, where the state Medicaid program is clamping down on estate recovery.
Source: Susan Jaffe, "Demands to Repay Medicaid Unnerve Relatives," Cleveland Plain Dealer, April 27, 2004, http://www.cleveland.com/search/index.ssf?/base/news/1083063306123810.xml?nnmedNews
"Gloria Selvaggio was stunned when she opened a letter from the Ohio attorney general with her dead sister's name and the words 'Amount Due: $131,938.79.' . . .
"The attorney general's office hired 22 more private lawyers last summer to check property and probate court records across the state for assets of deceased Medicaid recipients that could be used to offset costs. The hirings are part of an expanded pilot project that started in 1999 with two lawyers.
"The only payment the outside lawyers receive is 20 percent of the money they collect for the state.
"Under federal Medicaid rules, Ohio is required to collect the money. For the year ending Sept. 30, 2003, the attorney general's office reported collecting $14.6 million from the estates of deceased Medicaid recipients. Between 2,000 and 2,500 people on Medicaid in Ohio die every month.
"The letter Selvaggio received three weeks ago was from the office of Casey O'Brien, a lawyer in Chardon under contract to handle 1,129 Medicaid estate accounts in Lake, Geauga, Ashtabula and Trumbull counties. . . .
"'The letters induce panic,' said Goddard [a long-term care ombudsman]. 'They are needlessly intimidating and misleading.'
"Bob Byrne, a senior assistant attorney general, said the letters were not misleading.
"'We've gotten them as soft as we can without compromising what we are required to disclose,' he said.
"'It says it is a claim against the estate, not a person.' . . .
"The letters used to be 'more innocuous' said Sandra Buzney, an attorney specializing in elder law at the Cleveland law firm of Hickman & Lowder. But she is not surprised by the more aggressive approach because the state is using private lawyers who are paid only if they collect money. Added pressure comes from pending cutbacks in the state Medicaid budget, Buzney said. . . .
"Goddard said her office wants people to know they shouldn't run out and pay this bill. She compared it to getting a bill from Sears 'and they are asking you to prove you don't owe it.'
"'It is the estate that pays,' said Byrne. 'If there are no assets in the estate, that's the end of the story and we close the account.'"