LTC Bullet:  Where There's Smoke, There's Fire 

Wednesday, May 18, 2005 



Ring, ring.

 "Fire department." 

"Help, my house is on fire!" 

"Calm down, madam, what exactly do you see?" 

"There is smoke everywhere, come quickly!" 

"Do you see flames?" 

"Well, no, but smoke is pouring out of all our windows.  The neighbors screamed 'Call the fire department.'" 

"Unfortunately, we can't investigate your problem without incontrovertible empirical evidence of a fire.  Please call back when your home is totally engulfed in flames." 


That's the scenario that comes to mind when you read "Medicaid's coverage of nursing home costs: Asset shelter for the wealthy or essential safety net?" by Ellen O'Brien of the Georgetown Long-Term Care Financing Project.  Check this new paper out at

Here's the conclusion Georgetown reached:  "The argument that something needs to be done about abuses of the Medicaid eligibility rules is not supported by the facts.  The studies reviewed in this paper do not support the claim that asset transfers are widespread or costly to Medicaid, or that restricting Medicaid eligibility would substantially increase savings or purchases of private long-term care insurance." 

How did they get to that conclusion from the overwhelming evidence, obvious to anyone with eyes and ears open, that Medicaid estate planning is commonplace, that Medicaid nursing home census is inordinately high, that Medicaid long-term care costs are out of control, and that empirical evidence of widespread LTC asset spend-down is non-existent? 

Let's have a look.  First, Georgetown misrepresents the opposing position:  "[C]ritics contend that . . . Medicaid pays for the care of most nursing home residents because people with the resources to afford their own care--middle-income and wealthier people, even 'millionaires'--transfer their assets to qualify for public subsidies intended for the poor."  (p. 2, footnotes omitted) 

That's ridiculous.  Everyone knows, and no one claims otherwise, that most people in nursing homes on Medicaid are either genuinely poor or qualify for benefits because of Medicaid's generous eligibility rules.  Sophisticated Medicaid estate planning and egregious self-impoverishment occur.  They are even widespread, but they affect only a relatively small percentage (perhaps 10 percent to 25 percent) of all Medicaid LTC cases.  Medicaid planning, in other words, is the fiscal straw that breaks the budget camel's back.  It is unconscionable.  It is expensive.  And it should be stopped.  But no one suggests that Medicaid planning accounts for the eligibility of "most nursing home residents." 

Wait a minute.  What did you mean by "Medicaid's generous eligibility rules?"  Isn't Medicaid a severely means-tested welfare program that forces people into total impoverishment before they can become eligible?  If you believe that, then you (like Georgetown) have not done your homework.  There is no limit on how much income someone can have and qualify for Medicaid nursing home benefits.  All you need is a cash flow problem, i.e. too little income to pay all your medical expenses, including private nursing home care.  Most people qualify easily on those grounds.  (In a minority of "income cap" states, Miller income trusts allow people to qualify when their incomes exceed 300% of SSI limits.)  Assets too are unlimited as long as you hold them in exempt form, e.g. a home and all contiguous property, home furnishings, a car, a business including the capital and cash flow, all of unlimited value.  Medicaid planning only becomes necessary when someone has much more than all this and requires sophisticated legal advice to divest or shelter assets. 

Does this sound new to you?  Then, like Georgetown, you have not read nor cited "The Realist's Guide to Medicaid and Long-Term Care" where it is all explained clearly with hyperlinked citations to the Medicaid eligibility rules online.  Check it out at

The next step in Georgetown's argument is to reference a long series of so-called "empirical" studies that purport to show that (1) most people qualify for Medicaid upon admission to nursing homes, (2) that there is little evidence that large numbers of people plan their estates to qualify for Medicaid, and (3) that very little evidence suggests that Medicaid prevents people from buying private LTC insurance.  The Georgetown paper then recounts the findings of these studies in mind-numbing detail. 

It would be pointless, and equally dull, to address here each of the studies referenced there.  The fundamental problem is that Georgetown's reasoning is specious.  Here's why: 

Naturally, most people are eligible for Medicaid upon admission to nursing homes.  The average person, in terms of income and assets, qualifies even without any fancy legal Medicaid planning.  That's what our "Realist's Guide" explained.  Anybody with more than average income and assets, qualifies easily by hiring a Medicaid planning attorney.  Google "Medicaid planning" to find over two million hits for advice on this arcane practice of legal self-impoverishment.  Read the bulging, two-decade-long legal literature on Medicaid planning.  Go to a public seminar on how to get free nursing home care at "virtually no cost."  In other words, wake up and smell the coffee.  Incidentally, the rule of thumb is that the cost in legal fees to qualify for Medicaid virtually overnight is equal to one month in a private-pay nursing home. 

Of course there is little empirical evidence that large numbers of people plan their estates to qualify for Medicaid.  That's not how it works.  The reality is much more nuanced.  Most people don't know who pays for long-term care:  Medicaid, Medicare, Santa Claus?  Who cares?  Somebody must pay, they figure.  You don't see Alzheimer's patients dying in the gutter.  Someone must be looking after them.  Guess what?  The public is right.  Somebody does pay.  Medicaid.  And you don't have to plan years in advance to qualify for reasons already explained and developed in detail in our "Realist's Guide" report.  Either the person is eligible based on Medicaid's generous nursing home eligibility rules or they've consulted a Medicaid planner.  If the latter, the planner will usually have filled out the Medicaid application personally and scrubbed it clean of any hint that assets were transferred or sheltered.  When disclosure is mandatory, the planner will carefully document any and every legal loophole used to justify eligibility.  If eligibility is denied, the planner will represent the client at a review hearing and frequently win on appeal. 

Nevertheless, some people do plan years in advance to qualify for Medicaid.  If you transfer her assets the first time Grandma forgets to turn off the stove, she's eligible for Medicaid nursing home benefits three years later no matter how much she gives away.  The Medicaid eligibility workers don't even ask about transfers more than three years prior to application (five years in the case of trusts).  There is no way there could be any evidence in the case record of such transfers. 

Is there little evidence that Medicaid chills the market for private long-term care insurance?  What about the recent study by Jeff Brown and Amy Finkelstein, that says precisely that?  Georgetown downplays it but read "The Interaction of Public and Private Insurance:  Medicaid and the Long-Term Care Insurance Market" at and reach your own conclusions.  The case is overwhelming. 

But even that study failed to muster the strongest evidence that Medicaid crowds out private LTC insurance.  Medicaid has paid for the vast majority of all formal long-term care in this country for 40 years.  While it pays less than half the cost of nursing home care, it covers two-thirds of all nursing home residents and touches 80 percent of all nursing home patient days.  The fastest growing portion of Medicaid long-term care is home and community-based services.  There is no evidence of widespread private spend-down for long-term care.  The "Medicaid spend-down" studies of the late 1980s and 1990s proved exactly the opposite.  And those studies didn't even distinguish between people who spent down the old-fashioned way by writing big monthly checks to nursing homes and people who spent down the new-fangled way by writing one check to a Medicaid estate planner.  The truth is that Medicaid and Medicare financing of long-term care have gone up steeply as a percentage of total LTC costs over the last 15 years, whereas so-called out-of-pocket costs have declined radically.  And over half of what the Centers for Medicare and Medicaid Services reports as out-of-pocket nursing home costs, is really just Social Security income of people already on Medicaid!   

This is complicated stuff.  That's why the simplistic arguments and questionable studies referenced by Georgetown cannot be given credence out of context.  Again, read "The Realist's Guide to Medicaid and Long-Term Care" at if you want to understand what is really going on. 

Why do we say the studies referenced by Georgetown are questionable?  So far there has not been a published study done that would have any reasonable hope of documenting the practice of Medicaid estate planning.  I have neither the time nor the inclination to rebut each of the studies mentioned by Georgetown.  Just consider for example the 1993 review of Medicaid planning in Massachusetts conducted by the (then) General Accounting Office, (now) Government Accountability Office.  Georgetown cites this report as evidence that:  "Audits of Medicaid applications also reveal that only a small fraction of individuals who applied for Medicaid, and an even smaller share of those found eligible for Medicaid, transfer assets for the purpose of qualifying for free care under Medicaid." 

Nonsense.  That GAO study proves no such thing.  I clarified its findings and rebutted similar misinterpretations of it in a report to the U.S. Senate Finance Committee and Senate Special Committee on Aging on July 30, 1993.  Read that report at .  In brief:

"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)  My report 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)

Finally, to conclude, what is really going on with Georgetown's broadside against the logic and evidence of Medicaid estate planning?  Simple.  It is more an effort to hide the obvious than to uncover the truth.  Here's how I explained the situation in testimony before the House Energy and Commerce Committee's Health Sub-Committee on April 27, 2005:

"Why so little empirical evidence of 'asset transfers' or Medicaid planning?   

"Two reasons. 

* Dirty little secret 

o Adult children, who take early inheritances and put their parents in nursing homes on welfare, are ashamed.  They don't talk. 

o Seniors whose assets are taken are usually cognitively impaired and/or intimidated.  They don't talk. 

o Medicaid planners easily hide from scrutiny through attorney/client privilege.  They don't talk. 

o Nursing home staff are silenced by confidentiality.  They can't talk. 

o State Medicaid staff also silenced by confidentiality.  They can't talk either. 

* Despite these obstacles, it is possible to get the truth.  I've done many national and state-level studies that prove that's true.  [Check some of them out at .  Contact the Center for Long-Term Care Reform for others: .] 

o Medicaid eligibility workers tell me 80 percent of all Medicaid LTC recipients do some form of asset sheltering or divestiture 

* So, why don't we have more solid empirical evidence of the extent of Medicaid planning? 

o Ideological bias among academics, foundations, and thinktanks 

* Research money is controlled by people who promote public financing of LTC and denigrate private financing alternatives. 

* Examples are Georgetown, Kaiser, Robert Wood Johnson, Brookings and Urban Institute. 

o Conservative and libertarian thinktanks have mostly ignored Medicaid and LTC to focus on Social Security and Medicare. 

o Irony:  Political "liberals" should support targeting Medicaid to the needy.  It is a fairness issue. 

* Why use scarce public welfare resources to indemnify affluent heirs of well-to-do seniors who are probably all Republicans anyway?!

You can view this testimony at .  Just bring up the hearing and skip ahead to three hours and six minutes in.  You'll get my testimony followed by Bernie Krooks', a Medicaid planner and past president of the National Academy of Elder Law Attorneys. 

If that doesn't clarify the issue of Medicaid planning for you, nothing further I could write here will.

Steve Moses