LTC Bullet:  GAO on TOA 

Friday, May 6, 2005 


 LTC Comment:  Transfer of assets (more broadly, Medicaid planning) has transformed America's long-term care safety net into a fiscal sieve.  But how big a problem is it?  Maybe we'll find out soon.  More after the ***news.*** 

*** Welcome to the new "Center for Long-Term Care Reform's" LTC Bullets newsletter.  You can also find this material on the "Moses LTC Blog" at .  That's where you can get the Bullets first, usually a day before they're emailed to our dues-paying members. 

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LTC Comment:  Congress voted to cut $10 billion from Medicaid over five years in the 2006 federal budget.  The big question is:  How will those cuts be achieved?  Will they deny needed medical care to poor women and children?  Will they cut off poor elderly from critical long-term care services?  Will they further undercut LTC providers' ability to deliver quality care?  Will they drive state budgets deeper into the red?  Or, will they simply reduce the lucrative profits of Medicaid estate planning attorneys? 

One way to avoid the more negative outcomes is to achieve the Medicaid savings by reducing waste and abuse of the program's scarce resources.  What if we could target Medicaid more effectively to the genuinely needy and encourage everyone else to plan early and save, invest or insure so they can pay privately for long-term care?  That would save money on Medicaid's most expensive benefit and pump much-needed new revenue into America's financially starved LTC service delivery system. 

Transfer of assets (TOA) as a means to qualify for Medicaid long-term care benefits is a hot topic these days.  How much of the needed $10 billion in Medicaid savings could come from curtailing asset sheltering and divestiture in particular and Medicaid estate planning in general?  Nobody knows for sure.  The hard, empirical research has just not been done . . . yet!  But word is out that GAO, the Government Accountability Office, is going to tackle that question. 

It is not an easy question to answer.  We've explained the problem this way.  Adult children who put their parents in nursing homes on welfare in order to take an early inheritance are often ashamed.  They don't talk.  The elders who lose their assets are frequently cognitively impaired or they feel an obligation to give their money to their adult children.  They don't talk.  Medicaid planners who facilitate the divestiture process hide behind attorney/client privilege.  They don't talk.  Nursing home staff and other LTC providers are angry and frustrated by Medicaid planning, but they're silenced by confidentially rules.  They can't talk.  Neither can Medicaid eligibility staff speak up when they're used as free paralegals by lawyers calling in "looking for loopholes."  Because of confidentiality, they can't talk freely either.  And, on top of everything else, it is usually impossible to tell from Medicaid eligibility case records whether or not Medicaid planning is involved without extensive, time-consuming, and expensive research into public records and private financial institution accounts.  Bottom line, the system is a de facto "conspiracy of silence." 

As GAO begins to tackle this difficult topic, it is worth our while to have a look at what the agency has done before in the same area.  GAO conducted an excellent study of Medicaid estate recoveries published in 1989.  You can still read "Medicaid:  Recoveries From Nursing Home Residents' Estates Could Offset Program Costs" (HRD-89-56) in its entirety at .  (Medicaid estate recoveries and transfer of assets are integrally related.  You can't collect from an estate that does not exist because it was divested to qualify for Medicaid in the first place.)  Here's a sampling from the first GAO report's purpose and findings sections: 

"Concerns about the treatment of the recipients' assets have included: 

-- that the elderly will dispose of their assets for less than their real value in order to become eligible for Medicaid, and 

-- that the elderly whose assets include a home may not have to contribute as much toward the cost of their care as those whose assets are more liquid. 

"Such actions cause the taxpayers to shoulder a greater portion of the cost of care than would otherwise be required."  (p. 2) 

Here's what GAO said about "potential recoveries": 

"About 14 percent of the Medicaid nursing home residents in the eight states GAO reviewed owned a home with an average value of about $31,000, based on county records. GAO based this estimate on examination of Medicaid applications filed for random samples of residents admitted to nursing homes during fiscal year 1986 in the eight states. (see pp. 19-20) 

"By using home equity to defray Medicaid costs as Oregon does, the six states that now lack recovery programs could recover about $85 million from recipients admitted to nursing homes in fiscal year 1986. This represents 68 percent of the approximately $126 million cost to Medicaid of nursing home care for those recipients who owned homes. (See pp. 20-22.)" 

LTC Comment:  According to Center for Long-Term Care Reform president Steve Moses:  "In this outstanding study, GAO examined a valid random sample of Medicaid long-term care applications AND reviewed them thoroughly by examining county recorder's and assessor's records to verify any asset transfers or ownership that were unreported in the case records.  I know because I worked closely, while employed by the USDHHS Inspector General's Office, with the GAO project staff on every step of this study from project design, through data collection and analysis, to framing the conclusions and recommendations." 

In 1993, GAO did another related study.  Their letter report, titled "Medicaid Estate Planning" and published July 20, 1993, responded to an inquiry from the Senate Finance Committee and the Senate Special Committee on Aging.  You can still find the full report at .

Here's a summary of the findings of this second study:   

"This correspondence provides information on these issues on one state--Massachusetts. Because little more than anecdotal information is available on Medicaid estate ' planning, we reviewed a random sample of 403 Medicaid application files for nursing home benefits in Massachusetts. In brief, we found: 

-- More than half of the Medicaid applicants had either converted assets, thereby making them unavailable for nursing home costs, from one form to another or transferred assets to another party during the preceding 30 months. 

-- Asset conversions, the most common form of Medicaid estate planning, averaged $5,600 and typically involved setting aside money for burial arrangements. Other less common types of conversions included home repairs and automobile purchases. 

-- Asset transfers were far less frequent, but involved larger amounts of money. Slightly more than 10 percent of the total cases involved asset transfers that include cash transfers, real estate transfers, and trusts. [footnote omitted] Transfers, typically to family members, averaged $46,000 with one of every three transfers for less than $10,000. 

-- Of those applicants that transferred assets, half were denied eligibility. Six of the seven applicants that transferred more than $100,000 in assets were denied eligibility, though even these applicants could become eligible for Medicaid funding of their nursing home care 30 months after making the transfer."  (p. 2) 

LTC Comment:  According to Steve Moses:  "Although GAO's 1993 Massachusetts findings were impressive, they have recently been cited (at Congressional hearings) as evidence that Medicaid planning is not very widespread or costly.  We thought at the time that the GAO study undershot considerably the true incidence of Medicaid estate planning.  I wrote a report for the Senate Finance and Special Aging Committees that critiqued the GAO findings and suggested what would have to be done in the future to develop accurate estimates of the true incidence of this practice." 

Center for Long-Term Care Reform dues-paying members can access Steve's July 30, 1993 report titled "Medicaid Estate Planning:  Analysis of GAO's Massachusetts Report and Senate/House Conference Language" at .  Media and public officials may obtain a temporary user name and password to access this material by emailing

In brief, Steve observed that: 

"GAO overlooked a large and rapidly growing literature on Medicaid estate planning much of which deals with frequency and magnitude as well as methods of divestiture and sheltering."  (pps. 1-2)  He lists numerous sources that GAO did not review or cite.    

"Because GAO relied only on case records and did not seek independent verification from recipients and public records, it missed cases with unreported or under-reported property, transfers, or shelters.  Although independent verification is difficult and requires considerable detective work, it is not at all unwieldy on a small sample like GAO's."  (p. 4) 

"GAO reports evidence of staggering amounts of asset transfers for the purpose of qualifying for Medicaid.  Then, almost in the same breath, the agency emasculates its own findings.  Supposedly, the enormous asset transfers documented in the report do not increase Medicaid spending because most of them occur in cases denied eligibility by the state Medicaid program. This conclusion is a glaring display of naiveté and gullibility on GAO's part.  State Medicaid agencies routinely deny cases with large asset transfers or other egregious Medicaid planning gimmicks on the off-chance that the applicants will not appeal or reapply.  Usually, however, they do appeal or reapply and they do so successfully.  If an attorney was consulted in the first place, the applicant will probably win quickly on appeal.  If an attorney was not consulted in the first place, one will be consulted after the case is denied.  Then, a new application will be submitted with the help of the attorney reflecting a different, more effective transfer or sheltering technique.  As documented in the Inspector General's report on transfer of assets cited above, 'fifty-eight percent of the Washington Medicaid nursing home cases that were initially denied assistance...became eligible within a few months by transferring or sheltering their assets.'  If GAO were to re-review their Massachusetts sample in one year, they would find that cases initially denied Medicaid eligibility were subsequently approved and are very expensive indeed.  (By the way, the exact same thing is happening in Medicare home care and it is costing the federal government a fortune.)"  (p. 5) 

"One of the simplest and most common Medicaid estate planning techniques is to transfer assets 30 months or more in advance [changed to 36 months by OBRA '93].  Although not required to do so, 16 of GAO's sample cases reported having transferred assets this far in advance.  The 13 of these advance planning cases that also reported dollar amounts, transferred a total of $1.4 million.  Most people, especially those advised by attorneys, would not report transfers they are not required to report.  Therefore, this hidden loss (approximately $4 million for the review month or $48 million for the year when projected to the sampling universe) is only the tip of the iceberg.  If GAO had checked all cases in their sample against county assessors' and recorders' records going back five years (as HCFA did in its study of Idaho in 1985), it could have documented much more of this hidden loss."  (pps. 5-6) 

LTC Comment:  In other words, what reviewers find when they study Medicaid case records in search of asset transfers and other Medicaid planning techniques depends entirely on how they conduct the review and how deeply they probe sources of verification beyond the case records themselves.  

To date, no comprehensive, national study of Medicaid estate planning has ever been done.  We sincerely hope that GAO's new project will fill that void.  Steve Moses and the Center for Long-Term Care Reform offer to help with decades of background material and specific ideas, from having personally examined thousands of public assistance case records over the years, on how to identify and confirm asset transfers, hidden resources, and sheltered wealth.