LTC Bullet:  What Goes Around, Comes Around:  The IG and Estate Recoveries  

Thursday, December 1, 2005 


LTC Comment:  The DHHS Inspector General will review Medicaid asset transfers and estate recoveries next year.  What's changed since its first such study in 1988? 



LTC Comment:  The Office of Inspector General of the United States Department of Health and Human Services has announced its intent to study whether states are adequately enforcing Medicaid transfer of assets and estate recovery requirements.  Here's the relevant section from the agency's 2006 Work Plan. 

"Medicaid Asset Transfers and Estate Recovery Provision for Nursing Home Care 

"We will determine whether States have adequate procedures for determining the appropriateness of beneficiary eligibility for Medicaid nursing home care.  States are required to impose penalties on individuals who transfer assets at less than fair market value within 3 years of applying for Medicaid benefits.  States are also required by Federal law to seek recovery of amounts correctly paid by the State for certain Medicaid beneficiaries.  We will also review State procedures for recovery of payment from individual estates to determine whether States are complying with applicable Federal laws and requirements.  (OAS; W-00-06-31113; various reviews; expected issue date:  FY 2006; new start)" 

To review the OIG's entire Work Plan for 2006, go to   

The last time the Inspector General did a comprehensive study of Medicaid long-term care eligibility, asset transfers, and estate recovery, I directed it and wrote the report.  It was titled "Medicaid Estate Recoveries" and published in June 1988.  I am very pleased to announce that after being out of print for many years, that report is once again available at  Many pages of the report were copied cock-eyed, but they are readable.  Here's an excerpt: 

"Medicaid estate recoveries are only the tip of the iceberg.  Current estate recoveries are only $42 million per year.  Because of statutes and policies which exempt home equity and discourage estate recoveries, the Medicaid program recovered only $42 million last year from estates.  It is reasonable to ask how much might be recovered to help care for the needy if the statutes and policies encouraged estate recoveries.  The home equity of the elderly is $750 billion in the U.S.  . . .  During 1985, this country spent $35 billion on nursing home care.  Thus, the annual cost of nursing home care is 4.7 percent of the elderly's home equity.  At any given time, however, only 5 percent of the elderly reside in nursing homes.  We know that Alzheimer's Disease, Parkinson's and stroke--the debilitating illnesses which fill America's nursing homes--afflict rich and poor alike.  Therefore, it is not unreasonable to believe that much of the long-term care funding crisis could be resolved by harnessing the home equity of the elderly.  Using recommendations made in this report, home equity conversion could be achieved with a minimum of disruption to the families of the stricken."  (p. 49) 

Isn't it fascinating how little has changed since that assessment of the problem over 17 years ago?  The numbers are bigger.  Seniors' home equity has at least doubled and probably tripled given the latest boom in housing values.  Nursing home costs have tripled too.  But home equity is still untapped for long-term care, Medicaid estate planning remains rampant, estate recoveries are still insignificant, few people buy LTC insurance, and Medicaid is closer than ever to collapse.  In the meantime, we're nearly two decades closer to the Age Wave that will engulf Medicaid even before it swamps Medicare and Social Security. 

Many of the recommendations in the 1988 Inspector General Medicaid Estate Recovery report have been implemented, although unfortunately, they have not been adequately enforced.  Transfer of assets restrictions were made mandatory in the Medicare Catastrophic Coverage Act of 1988 (MCCA '88).  Spousal impoverishment protections were also implemented in MCCA '88.  Medicaid estate recoveries became mandatory in the Omnibus Budget Reconciliation Act of 1993, which also made transfer of assets restrictions longer and stronger.  Nevertheless, exasperated when these and other measures did not restrain Medicaid's explosive LTC costs, Congress outlawed asset transfers in the Health Insurance Portability and Accountability Act of 1996.  When that "throw granny in jail" law backfired, Congress repealed it and passed the "throw granny's lawyer in jail law" as part of the Balanced Budget Act of 1997.  But that proved unenforceable, so Medicaid costs continued and still continue to explode.  At long last, Congress is once again tackling the issues of Medicaid planning and asset transfers as we've been covering in the Center for Long-Term Care Reform's publications.  But proponents and beneficiaries of the status quo like AARP are fighting efforts to fix these problems. 

Clearly, the problems with Medicaid and long-term care financing identified in the Inspector General's original 1988 report are still with us.  The biggest difference is that we have at most one decade to fix them now instead of three back then.  If you care about how America will pay for the baby boomers' long-term care, I'm proud to recommend that old study as a good place to begin analyzing the problem and seeking the solution. 

Steve Moses