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
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LTC BULLET: GAO
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
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 http://archive.gao.gov/d15t6/138099.pdf
. (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:
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.
actions cause the taxpayers to shoulder a greater portion of the cost of care
than would otherwise be required." (p.
what GAO said about "potential recoveries":
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)
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.)"
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."
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 http://archive.gao.gov/d43t14/149635.pdf
a summary of the findings of this second study:
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)
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
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 http://www.centerltc.org/members/medicaid_estate_planning.htm
. Media and public officials may
obtain a temporary user name and password to access this material by emailing firstname.lastname@example.org
brief, Steve observed that:
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."
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.
"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."
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.