LTC Bullet:  NAELA's New Nadir 

Thursday, March 16, 2006 

Santa Fe, NM--

LTC Comment:  Medicaid planners, as represented by their trade association NAELA, have sunk to a new low.  Details after the ***news.*** 

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LTC Comment:  Almost ten years ago, I published an article titled "NAELA's Nadir."  You can read that "golden oldie" below.  At that time, I thought the National Academy of Elder Law Attorneys' Medicaid-planner members had gone as low as they could go professionally.  Read the article and you'll see what I mean. 

But today, I'm sad--though unsurprised--to report, NAELA has reached a new low.  A dozen or more Center for Long-Term Care Reform members have sent me copies of an article titled "Medicaid Reforms Threaten Long-Term Care Insurance Industry" published yesterday in a NAELA newsletter called Eye on Elder Issues (February 2006, Vol. 3, Issue 1.)  Read the specious NAELA propaganda at  

Here's our take on it.  Following are quotes from the NAELA tract followed by our comments. 

QUOTE:  "Long-term care insurance is confusing and many of us avoid the subject. . . ." 

LTC COMMENT:  The second half of that statement is true.  Although Medicaid planners often give lip service to recommending LTCi, their lucrative legal work intentionally obviates the need for responsible early LTC planning and insurance.  NAELA members recommend LTCi out of one side of their mouths while saying out of the other side that most people can't afford or can't qualify medically for private insurance.  Neither assertion is true. 

QUOTE:  "Some Congressional leaders and proponents for the long-term care insurance industry believe that many more of us will be purchasing long-term care insurance due to recent Medicaid reforms that were included in the Deficit Reduction Act of 2005.  The reforms were intended to help curb the growth of Medicaid expenditures and to encourage individuals to have more personal responsibility for bearing the costs of long-term care.  Unfortunately, the legislation failed to address fundamental problems with the Medicaid program including demographic issues and rising health care costs.  THE NATIONAL ACADEMY OF ELDER LAW ATTORNEYS (NAELA) BELIEVES THAT THESE REFORMS WILL ACTUALLY RESULT IN FEWER AMERICANS PURCHASING THESE INSURANCE POLICIES.  [Emphasis in the original.] . . . 

LTC COMMENT:  Say what?  Discouraging the abuse of Medicaid by well-to-do seniors, their affluent heirs, and greedy lawyers will cause fewer people to buy LTCi?  How, pray tell? 

QUOTE:  "For example:  You give a gift to each of your three grandchildren for one year of college, totaling $60,000, along with a gift to the church of $20,000.  You also transfer the family farm, worth $100,000, to the two sons who have been working the farm for the past twenty years.  As a result, should you need long-term care and apply for Medicaid, you will face 60 months of penalty if the state divisor is $3,000 per month ($180,000 divided by $3,000).  IN OTHER WORDS, YOU MAY NOT BE ABLE TO RECEIVE THE CARE YOU NEED AT THE TIME WHEN YOU NEED IT MOST.  Even if you kept $100,000 in your savings account, based upon actual nursing home expense of $5,000 per month, your savings will have been depleted in 20 months. [Emphasis in the original.] 

LTC COMMENT:  Count the fallacies in that statement.  One, why should people be able to give away $180,000 and then turn to Medicaid to pay for your long-term care anytime in the future?  Why would people buy LTC insurance if they could do that?  Answer:  they wouldn't and they haven't.  When they could give away their assets and get Medicaid, most didn't buy LTCi.  Now that they can't abuse Medicaid, most will buy LTCi.  This isn't rocket science, as they say in DC. 

Two, where in the United States today can you find nursing home care for $3,000 per month?  The more likely state divisor would be $6,000 per month which is the average monthly cost of a nursing home nationally.  Thus, the probable penalty period for a transfer of $180,000 would be only 30 months instead of 60 months.  So much for NAELA's claim to expertise. 

Three, NAELA's whole premise is fallacious because the Deficit Reduction Act removes the incentive to transfer huge assets to qualify for Medicaid.  In other words, with the DRA changes implemented and enforced, nobody will have any reason to give away assets to qualify for Medicaid and no attorney in his or her right mind will recommend such a practice.  Thus, very few people will end up penalized for improper asset transfers that they no longer have any incentive to make. 

Four, and even if it were to happen that some hapless souls found themselves in need of long-term care, but technically ineligible for Medicaid because of an improper asset transfer, new stronger hardship waiver provisions protect such people by assuring that Medicaid will pay for care.  Either the recipients of the improper transfers will give the money back or, in cases of financial abuse where the money has been stolen or is irretrievable, Medicaid will pay for care anyway under an undue hardship waiver if the elder has no other recourse.  No one will be allowed to go without long-term care and no nursing home will have to provide uncompensated care without recourse.  NAELA's dire predictions that people will be unable to obtain long-term care are misleading, self-serving, and wrong. 


LTC Comment:  Five year penalty period?  There is no such thing.  To suggest that there is reflects gross incompetence on the part of NAELA which represents itself as an association of long-term care financing experts.  Medicaid has now a five-year LOOK BACK period for assets transferred for less than fair market value for the purpose of qualifying for Medicaid.  The resulting eligibility penalty is equal to the amount of uncompensated assets transferred divided by the average monthly cost of a nursing home in the state.  The eligibility penalty could equal anything from a fraction of month to many, many years.  There is no limit on the length of the penalty period.  There is no such thing as a "new five-year penalty period."  Nevertheless, as explained above, the Deficit Reduction Act has radically reduced the likelihood that there will be ANY penalty periods assessed by eliminating the incentive to transfer assets to qualify for Medicaid in the first place.   

Thus, any long-term care insurance protection people have or will have in the future retains its full value regardless of the DRA's new rules regarding Medicaid eligibility.  The ability to pay privately for care commands red-carpet access to top quality long-term care across the widest spectrum of services.  That was true before the DRA and it remains true now, notwithstanding any misrepresentations by NAELA about Medicaid transfer of asset eligibility penalties.   

QUOTE:  "A three year long-term care insurance policy for a 65 year old woman in good health costs approximately $3,024 per year* in premiums.  A lifetime policy for that same woman paying $100 per day carries premiums of $5,688 per year. . . ." 

LTC COMMENT:  I'll let my friend Jesse Slome, a real expert in LTC insurance, respond to those hypothetical premiums cited without a source in the NAELA article.  He writes in an email to the NAELA author:   "[Y]our numbers are way off.  I just had a producer run numbers for a policy for a woman age 65, $100 a day and a 3-year policy would be $1,600 not the $3,000+ you mentioned.  A lifetime policy would be $3380 not over $5,000." 

QUOTE:  "Ironically, the Medicaid reform passed as part of the DRA concerning increasing the look-back period from three years to five years, as advocated by some proponents for the long-term care insurance industry, may actually lead to the industry's demise." 

LTC COMMENT:  That preposterous conclusion is wishful thinking on NAELA's part, nothing more.  The DRA will radically increase the market for private long-term care insurance and home equity conversion, the two major alternatives to welfare financing of long-term care.  With more people insured and paying privately for long-term care, fewer people will depend on Medicaid and that welfare program will be better able to pay adequately for higher quality care for people genuinely in need.  In turn that will help long-term care providers remain financially solvent.   

If any industry faces demise as a result of the Deficit Reduction Act of 2005, it is the morally, intellectually, and financially bankrupt practice of Medicaid estate planning.  And if the DRA doesn't finish off Medicaid planning abuse, we'll just have to go back to Congress for more of the same. 

Now here's the promised article about NAELA from ten years ago.  Read it to learn about the irresponsible practices we've put a stop to, or at least impeded, by passage of the DRA.  I sincerely hope I won't have to revisit this subject again ten years from now.  Thanks to the Deficit Reduction Act of 2005, that probably won't be necessary. 

"NAELA's Nadir"
Stephen A. Moses 

Originally published in LTC News & Comment, Vol. 6, No. 11, July 1996, pps. 5-8. 

Medicaid estate planning has sunk to a new low!  

Medicaid planners artificially impoverish upper middle class people to make them eligible for publicly financed nursing home benefits.  They siphon scarce resources from America's medical welfare program to indemnify their clients against catastrophic long-term care costs and to line their own pockets with big legal fees.  How could they sink any lower than that?  Listen up. 

Congress has struggled for 15 years to control Medicaid estate planning.  The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA '82) authorized transfer of assets restrictions, liens and estate recoveries to discourage Medicaid financial abuse.  The Omnibus Budget Reconciliation Act of 1985 (OBRA '85) attempted to clamp down on the misuse of trusts to hide assets.  The Medicare Catastrophic Coverage Act of 1988 (MCCA '88) made transfer of assets restrictions longer and stronger while implementing spousal impoverishment protections to eliminate the need for Medicaid planning altogether. 

None of this had any appreciable effect.  The Medicaid planning bar just became more creative and aggressive.  For every loophole Congress closed, private sector Medicaid planners and their allies in the publicly financed legal services bar poked open a dozen new ones.  Finally, President Clinton and a Democratic Congress became completely fed up.  In the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), the executive and legislative branches joined forces in a politically courageous effort to stop Medicaid estate planning once and for all.  OBRA '93 closed some key eligibility loopholes, made estate recovery mandatory, and sent the strongest message yet that aggressive Medicaid planning for upper middle class people will not be tolerated.  Did it work? 

Unfortunately, like the ghoul in Nightmare on Elm Street, Medicaid estate planning just refuses to die.  Strong new evidence that Medicaid planners continue to end-run the system with impunity comes from the National Academy of Elder Law Attorneys' (NAELA)1996 symposium convened May 16-19, 1996 in Cambridge, Mass.  NAELA is the trade association of the Medicaid estate planners.  This conference spawned the most egregious, in-your-face, cynical Medicaid planning shenanigans that I have observed in seven years of tracking the dubious legal practice of artificial impoverishment. 

For example, in a general session entitled "Medicaid Estate Counseling:  A Case Model," three prominent New York attorneys (including two past presidents of NAELA) portrayed their techniques for divesting an older couple's $652,550 estate in a humorous skit.  To a packed auditorium, these national experts explained how to qualify affluent people for Medicaid home care and nursing home benefits virtually overnight while evading estate recovery liability entirely. 

They waved a magic legal wand to make non-exempt assets disappear including a vacation home in Florida, $150,000 worth of stocks, another $150,000 in savings, and $20,000 of cash-value life insurance.  They took full advantage of exempt assets such as a $200,000 house, home furnishings of $40,000, and a $15,000 car.  The couple's $3,158 monthly income barely warranted discussion as it presented no significant obstacle to Medicaid eligibility. 

Strategies employed to achieve the goal of counterfeit pennilessness in this case included spousal refusal whereby the attorney advises the well spouse to "just say no" when billed for the ill spouse's health care.  Let the welfare agency try to sue if it dares!  The presenters urged the audience to spread this technique throughout the United States.  Other methods recommended were to purchase exempt assets, buy annuities, fund a special trust, enhance the Community Spouse Resource Allowance (CSRA), transfer the home with a retained life estate, etc., etc. 

The end product of this counseling session was a 17-page Medicaid plan that included an offer to "assist [the client] in the preparation and filing of Medicaid applications and the coordination of Medicaid coverage, including monthly budgeting."  The standard fee for this service is $275 per hour.  No wonder Medicaid planner trainees filled every seat in the house, stood in the aisles, and sat on the floor to learn the tricks of this trade.  Obviously, marketing Medicaid planning to desperate families after the insurable event has already occurred is considerably easier and more profitable than selling private long-term care insurance to skeptical seniors who think (correctly it would seem) that the government will pay for their care anyway. 

To give you a flavor of the rest of the NAELA conference, here are some of the other seminar offerings:  "Making Resources Disappear:  The Magic of Annuities and Self-Canceling Notes;" "Medi-Ready:  Medicare, Medicaid, Trusts and Personal Injury Settlements;" "Testamentary Trusts in Medicaid Planning;" "Protecting and Preserving the Principal Residence;" "Gift Provisions in Durable Powers of Attorney;" and "Keeping the Wolf from the Door:  Challenging Estate Recovery in an Aggressive State."  

One ingenious session called "Viatical Settlements and the Elderly:  An Emerging Market" proposed eliminating non-exempt insurance cash value by viatication of the policy and conversion of the proceeds into exempt assets such as a more expensive home or a new car.  Another session named "Uses, Terms and Provisions of Lifecare Contracts for Elders" encouraged families to promise to care for an ailing parent until institutionalization becomes necessary in exchange for the senior's life savings.  Thus, according to an example provided in the program materials:  "...a one lump sum payment of $540,000 is a transfer for value and outside of the Medicaid rules...IT DOESN'T MATTER IF MOM HAS A MASSIVE STROKE AND IS A CANDIDATE FOR LONG TERM CARE SIX MONTHS LATER.... [double emphasis in the original]."  In other words, using this method, you can legally expropriate your parents' wealth and when the going gets rough, turn over their long-term care to Medicaid and the tax-payers without incurring a transfer of assets penalty. 

Although gimmicks like these may be technically legal, no serious, objective observer considers them legitimate.  Many opinion leaders have voiced their opposition and repugnance.  For example, on April 14, 1996, The New York Times editorialized against "the blatant and often unethical misuse of the [Medicaid] program by well-to-do patients in nursing homes.  These patients exploit legal loopholes to transfer their wealth to their children, thus technically impoverishing themselves and providing themselves with inexpensive nursing home care.  What was supposed to be a program for the poor has turned into a boondoggle for everyone else...The system is a scandal." 

Instead of being ashamed of their self-serving manipulation of a public welfare program, Medicaid planners cloak their activities in self-righteous expressions of altruism and a patina of professionalism.  But what is altruistic or professional about employing government force to shift money from one group of middle class Americans to another while extracting a big cut for yourself as middle-man?  I used to defend elder law attorneys because they do a lot of good for seniors in other areas.  Unfortunately, the damage they are doing today to America's fiscal health and, even more seriously, to the prosperity of future generations, greatly overrides the good they do for their individual, financially well-off clients. 

In the meantime, the National Academy of Elder Law Attorneys and its members are prospering more than ever before.  The organization's 1995 Annual Report boasts that "NAELA has experienced tremendous membership growth...The membership base continues to grow from the original instigator in 1988 to almost 3,000 members in 1995." (Pps. 1, 3)  NAELA's annual budget tripled from $300,000 in 1990 to $900,000 in 1995.  With plenty of grass-roots members and a big financial war chest, NAELA has been extremely successful in lobbying state legislatures, Medicaid agencies, and Congress against stronger controls on Medicaid planning.  In fact, NAELA claims to be co-opting the very dissemination of information on Medicaid eligibility policy:  "NAELA continues its open dialogue with the staff of the Health Care Financing Administration...NAELA has become the main distribution channel for HCFA information."  (Ibid., p. 2) 

The time has come to send NAELA and the Medicaid estate planners among its members a message they cannot ignore.  Fortunately, the statutory stake we need to drive through the heart of Medicaid planning is readily available.  The U.S. House of Representatives' version of health reform entitled "The Health Coverage Availability and Affordability Act of 1996" (H.R. 3103) contains language intended to outlaw Medicaid estate planning outright.  The bill applies to whoever "knowingly and willfully disposes of assets (including by any transfer in trust) in order for an individual to become eligible for medical assistance under a State plan under title XIX [i.e., Medicaid], if disposing of the assets results in the imposition of a period of ineligibility for such assistance...."  It is not clear whether this practice will be considered a felony punishable by a fine of $25,000, five years in prison or both, or a misdemeanor punishable by a fine of $10,000, one year in prison or both.  It is clear that the provision does create a criminal liability for Medicaid estate planning attorneys in such routine legal practices as the "half-a-loaf" strategy, whereby one gives away half the estate to become eligible for benefits in half the time and with half the penalty intended by Congress.  The Medicaid planners are scared to death by this threat of criminal prosecution and they have pulled out all the stops to exercise their considerable influence to waylay this legislation. 

If you care about stopping the abuse of Medicaid estate planning, now is the time to act.  Contact your state legislators, Medicaid administrators, and Congressional representatives.  Tell them what the Medicaid planners are doing and tell them that it has to stop.  If we all pull together this year, we can bury Medicaid estate planning--the Freddy Krueger of welfare law--permanently this time!