LTC Bullet: Transfer Your Home to Get Medicaid?
Thursday, February 10, 2005
LTC Comment: NCOA's new report says "Use Your Home to Stay at Home"
with a reverse mortgage (i.e., pay fees and pay for your own LTC), but a
prominent elder law attorney says transfer your home to get Medicaid (i.e., your
kids get the house and you get free LTC). Which message are people more likely
to hear and act upon? More after the ***news.*** [omitted]
LTC BULLET: TRANSFER YOUR HOME TO GET MEDICAID?
LTC Comment: Transfer your home to get Medicaid? Can you do that? Are people really doing that? Why wouldn't they do that to get free or subsidized long-term care and other medical benefits from Medicaid that Medicare does not cover? These are questions that policy makers should be asking and researchers should be answering, but they aren't. Here are some facts.
Nearly 80 percent of seniors own their homes and 74 percent of senior homeowners own their homes free and clear, according to the National Council on the Aging. By the time they're on Medicaid, however, only 14 percent of older people still own their homes, according to the Government Accountability Office. What happened to the other 60 percent?
Problem number one is that researchers never ask that question. Problem number two is that they don't ask the question because they think, erroneously, that they already know the answer. Obviously, they assume, older people are selling their homes, spending down into impoverishment, and then finally going on Medicaid.
But that explanation has been proved false. Two dozen "Medicaid spend-down" studies in the late 1980s and early 1990s showed that over 75 percent of people who enter nursing homes are already eligible for Medicaid at admission. Furthermore, the vast majority of all formal long-term care services (nursing home and home care) are paid for by direct government funding, indirect government funding or personal income, not assets. (See "LTC Bullet: So What If the Government Pays for Most LTC, 2003 Data Update" at http://www.centerltc.com/bullets/current/534.htm .) There simply is no evidence of widespread catastrophic long-term care asset spend-down.
So, what might be going on with home equity of the elderly and where should researchers be looking for explanations?
A recent New York Times article suggested an answer. The following excerpts are from
"Your Home: Transferring Title in a Home to the Children," by Jay Romano in the Times' January 2, 2005 edition. As of this morning, we were still able to find this piece here without having to pay the Times' archival fee.
"Aging homeowners often transfer title in their cherished family home to a child or children long before the parents die. That kind of estate planning, which seeks to protect the home from claims for end-of-life medical expenses or nursing-home costs covered by Medicaid, is permitted, with certain restrictions, by Medicaid regulations.
"But in most cases, estate-planning experts say, simply deeding a home to children can end up being frustrating for the parents, who lose control over the property, and costly for the children, who could wind up paying significant capital gains taxes when they sell. There is a way, however, for parents to accomplish their estate-planning goals while retaining some control and minimizing the tax the children will ultimately have to pay.
"Alexander A. Bove Jr., an estate-planning lawyer in Boston and author of 'The Medicaid Planning Handbook' (Little, Brown, 1992), said that under current law, people with insufficient funds may be eligible to have their long-term nursing home care covered by Medicaid. But if the individual owns a home, Medicaid can place a lien on it to recover benefits paid. . . ."
The remainder of the article explains how Medicaid planners like Mr. Bove can use "special powers of appointment" to transfer the house to the kids, get the parents on Medicaid for their long-term care costs, avoid any negative capital gains tax consequences, and dodge the federal government's Medicaid estate recovery mandate.
That sounds like a sweet deal to most people. And no doubt some readers of this Bullet will open their Yellow Pages to find a lawyer who can wangle welfare for their parents in this way. Jane Bryant Quinn, the nationally syndicated financial columnist has written several columns excoriating Medicaid planners for abusing the public assistance program. But she's reluctant to write more such articles: "My phone rings off the hook for the next six months with people who want me to tell them where to find a Medicaid planner!"
If you have the slightest doubt that Medicaid estate planning advice is universally available to all Americans, try a Google search for "Medicaid planning" and check out over one million hits. The average attorney's fee to qualify virtually anyone for Medicaid LTC benefits quickly and without significant asset spend-down is equal to the cost of one month in a private nursing home. Call it $10,000 in Manhattan and maybe $4,000 in the Deep South. Compare that with the expense of paying years of long-term care insurance premiums or taking out a reverse mortgage and paying for your own long-term care.
Does it begin to make sense why so few Americans buy long-term care insurance or use home equity conversion to fund their long-term care? Do you see why Medicaid has become the primary financier of long-term care for all Americans, not just a safety net for the poor? The long-term care financing status quo in America is replete with perverse incentives that reward irresponsibility (with easy access to government-financed care), but punish responsible planning (with loan fees, insurance premiums, and high private-pay rates for care).
The solution is as simple as the problem is complicated. Re-target Medicaid to the genuinely needy and use the savings to incentivize private financing alternatives like insurance and home equity conversion. But lawmakers had better do it soon. The bottom is about to fall out of America's long-term care "safety net."
For details, analysis, and concrete recommendations, see "The Realist's Guide to Medicaid and Long-Term Care" at http://www.centerltc.org/realistsguide.pdf and "How to Save Medicaid $20 Billion Per Year AND Improve the Program in the Process" at http://www.centerltc.com/pubs/howtosavemedicaid.pdf .
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