LTC Bullet:  Who Still Gets Medicaid LTC Without Spending Down? 

Thursday, April 20, 2006 


LTC Comment:  Do you think Medicaid requires impoverishment?  Think again.  Even after the Deficit Reduction Act, the vast majority of seniors who need long-term care can get it from Medicaid without spending down their own assets for care.  Explore the evidence and the consequences after the ***news.*** [omitted]  


Let me introduce today's LTC Bullet a little differently than usual. 


TO:  CEOs of long-term care insurance, reverse mortgage, nursing home, assisted living and home care companies who are not yet corporate members and financial supporters of the Center for Long-Term Care Reform. 

FROM:  Steve Moses, President, Center for Long-Term Care Reform  

Please sit your "government affairs" staff and highly-paid lobbyists down in a locked room and don't let them out until they explain what they've done about the problem described in today's LTC Bullet.  If the answer is "nothing," and in the vast majority of cases it will be, then do this:  join the Center and help us fight on your behalf for rational long-term care public policy that (1) saves Medicaid for the poor by (2) freeing up private financing alternatives (like LTCi and HEC) to (3) fund all levels of long-term care service delivery more adequately than Medicaid or Medicare ever will.  

We'll do what needs to be done and we'll keep you informed with daily LTC Bullets or LTC E-Alerts.  You'll get the value of our information and our public policy advocacy for much less than the cost of even a single clerk.  Remember:  "You can't sell apples on one side of the street when they're giving them away on the other."  And "You can't provide quality care without adequate funding."  We're fighting to save Medicaid by making your product more profitable--or at least financially viable for you non-profits--whether your product is insurance, home equity conversion, or long-term care services.  Contact the Center at for details.  

If you already support the Center, thanks.  You're part of the solution instead of part of the problem.  Now, lean on your competition who remain free riders so you don't have to carry their share of the load too.  But if they won't listen, don't worry.  Your competitive advantage from membership in the Center for Long-Term Care Reform will more than make up the difference. 



Critics of the Deficit Reduction Act's recent reform of Medicaid long-term care eligibility rules whine that "DRA" is shorthand for "draconian."  They claim that "millions" of elderly Americans will be denied critical long-term care because of this legislation.  They've even sued the federal government to enjoin implementation of the new rules.  

Their "sky-is-falling" claims are ridiculous, of course, and based on specious "evidence" as we've explained over and over again in this space.  For example:   

LTC Bullet:  Where There's Smoke, There's Fire, May 18, 2005,  

LTC Bullet:  LTC Demagogy, December 7, 2005,  

LTC Bullet:  LTC Doubletalk, January 24, 2006,  

LTC Bullet:  Georgetown, GAO and Kaiser:  The Bermuda Triangle of Good LTC Policy, January 25, 2006,  

LTC Bullet:  LTC Insanity, February 14, 2006,  

LTC Bullet:  Microsimulate This!, March 28, 2006, 

But here's another reason to discount everything the opponents of Medicaid reform claim:  the vast majority of all Americans can still qualify for Medicaid long-term care without spending their own money for LTC services. 

How can that be?  Didn't the DRA just extend the transfer of assets look back period to five years, and delay the eligibility penalty to stop the "half-a-loaf" giveaway strategy, and cap home equity at $500,000, and make the abuse of annuities, self-canceling installment notes, and life estates to qualify for Medicaid much harder? 

It sure did, and those changes are important because they put the country on notice that Medicaid is clamping down.  It won't be quite the wide-open boondoggle for greedy lawyers, their wealthy clients, and affluent heirs in the future that it has been in the past.  Medicaid is going back to its roots as a safety net ensuring long-term care for the poor.  But it isn't there yet, and much more needs to be done.  Let me explain. 

Eligibility for Medicaid's long-term care benefits requires that people qualify based on some very generous and elastic income and asset limits.  Critics of Medicaid reform say that the welfare program's recipients must be "low-income" and "impoverished" of assets in order to qualify.   Nonsense.  Here's the truth. 

Thirty-five states have "medically needy" Medicaid income eligibility systems.  That means they deduct applicants' out-of-pocket medical expenses, including the cost of private nursing home care, from their income before determining their eligibility for Medicaid.  According to the U.S. Census Bureau, only 1.6 million of the 22.1 million elderly households in America (7.2 percent) have incomes over $5,988 per month.  That's barely enough to pay the average cost of private nursing home care (roughly $72,000 per year).  Considering that people in nursing homes are apt to have other medical expenses not covered by Medicare, such as foot care, eye care, dental care, and non-covered drugs, it's clear that the other 92.8 percent of elderly Americans with less than $6,000 per month of income--at least those in "medically needy" states--would qualify easily for Medicaid based on income.  (Source:  see Footnote 1.) 

What about people in Medicaid's "income cap" states?  They're allowed to have no more than 300 percent of the Supplemental Security Income (SSI) monthly allowance ($603 as of 2006, and thus $1,809 altogether).  According to the Census Bureau, the median annual income for all elderly households is $32,746 (or $2,729 per month).  But very few of the "young" (65-74) elderly require long-term care.  The median annual income of elderly households over the age of 75 is only $19,470 (or $1,623 per month), well within the Medicaid "income cap" eligibility limit.  Furthermore, income solely in a spouse's name isn't counted.  Now, consider this:  ever since the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), people in Medicaid's income cap states have had the option to divert any excess, disqualifying income they might have into "Miller income trusts" in order to become eligible for Medicaid.  Thus, for all intents and purposes, Medicaid's income caps are moot; "income cap" states are de facto "medically needy" states for anyone who creates a Miller trust.  (Source:  see Footnote 1.) 

Bottom line:  virtually everyone who needs nursing home care can qualify for Medicaid long-term care benefits based on their income anywhere in the United States. 

But what about assets?  Don't you have to spend down into impoverishment to qualify?  That's a myth propagated by the people and organizations who profiteer off Medicaid or seek to expand public financing of long-term care for ideological reasons.  Here's the truth. 

In addition to the usual limit of $2,000 worth of otherwise non-exempt assets, which most state Medicaid programs allow recipients to keep, they can also retain a home and all contiguous property with up to $500,000 of equity (since the DRA, $750,000 at state option) plus the following assets of unlimited value:  one business including the capital and cash flow, one automobile, home furnishings, term life insurance, and prepaid burials for the recipient and all of the recipient's close relatives.  Many other assets are exempt although in limited amounts.  

So, let's ask this question:  based on U.S. Census Bureau data, how many elderly Americans would Medicaid's asset limits exclude from eligibility for long-term care benefits?  (Source:  see Footnote 2.)  The answer is "not very many." 

Households over the age of 65 have a median net worth of $108,885, of which all but $23,369 is home equity.  Given Medicaid's home equity limit of half a million dollars, it's obvious the median elderly household only has a little over $20,000 ($23,369 minus the $2,000 allowance in most states) to spend, divest or shelter to qualify for Medicaid.  Such an amount is easily converted to an exempt asset simply by purchasing items that don't count in determining Medicaid eligibility.  Thus, achieving Medicaid LTC eligibility immediately without spending anything for long-term care is very easy for the median elderly American in need of care. 

But what about people who are wealthier than the median household?  Letís consider the 2,334,000  elderly households (10.5 percent of the total) that fall within the fourth highest income quintile (the second wealthiest senior cohort in the country).  According to the Census Bureau, that group has median incomes between $3,813 per month and $5,988 per month.  Their median net worth is $284,565 of which all but $124,733 is home equity.  Obviously, their $159,832 worth of home equity is no obstacle to getting Medicaid.  What about the $124,733 in other assets?  If it's a married couple, the well spouse can keep half the joint assets plus the always exempt $2,000 (thus almost $65,000) in most states and up to the federal maximum of $99,540 plus the $2,000 in a few more generous states.  Even if there is no spouse involved, a single-member elderly household with only a little over $120,000 could get down to Medicaid's asset limit easily by purchasing a more expensive home; fixing up the existing home; investing in more or better, home furnishings; buying a more expensive car; or prepaying burials for the whole family.   

What about people in the highest income quintile, the 7.2 percent of the elderly population who are the wealthiest of all?  They have a median net worth of $499,015 of which only $170,583 is home equity.  Clearly, their home equity is no obstacle because it is far below the $500,000 limit.  One simple way for them to qualify for Medicaid without spending down their wealth for care, is to buy a more expensive house with the remainder of their assets.  They'd still be below Medicaid's generous home equity allowance.   

But if they don't want to buy a costlier home, they have sufficient wealth that they probably know whom to call for Medicaid planning.  Even if their own attorney is not a Medicaid planner, he or she will know someone who is.  Or an internet search will turn up a professional purveyor of penury quickly and easily.  Medicaid planning is harder to do since the DRA but many techniques still remain available.  One example, especially in New York or Florida, is "spousal refusal," an artificial impoverishment technique whereby a healthy spouse expropriates all of the couple's wealth and refuses to abide by Medicaid's cost-sharing and spend down requirements.  Federal law guarantees Medicaid eligibility despite such behavior which under any other circumstances would be criminal.  The state Medicaid program can sue, but that's politically sensitive and usually doesn't happen.   

NAELA, the National Academy of Elder Law Attorneys, is meeting in Washington, DC today and for the remainder of this week "looking for loopholes."  The focus of the Medicaid planning profession now is on finding new artificial impoverishment techniques and on maximizing methods that will still work after the DRA.  Here's a provisional list of their latest ideas to rip off public welfare benefits for their clients and themselves:  reverse half-a-loaf; promissory notes/private annuities/grats, i.e., grantor retained annuity trusts; personal care contracts; commercial annuities; home equity reduction; hardship waivers; and no medicaid intent.  We'll report the details on these legal scams when we have them, but that information is harder to obtain now that NAELA denies non-attorneys access to their meetings.  They are hiding out and it is easy to understand why. 

The most important point for us to make here, however, is that Medicaid planning isn't even necessary except for the richest of the rich elderly.  Everyone else qualifies without fancy legal planning and without spending much, if any, of their own money for long-term care. 

Now, under the set of facts I've just explained, answer me these questions.  Or better yet, ask your government affairs people and lobbyists.  If they can't provide satisfactory answers, then get in touch with me. 

Why are you surprised so few people buy LTC insurance when they can ignore the risk, avoid the premiums, and the government pays? 

Is it any wonder that 80 percent of the potential market for LTCi and home equity conversion never becomes concerned enough about the risk to speak with an agent or a lender? 

How can you remain in denial when these facts about your market are so obvious and well-documented? 

And you nursing home providers, where do you think your residents will come from and how will they pay when Medicaid collapses altogether? 

If you're unprepared to tackle these complicated, politically sensitive subjects, why don't you at least support the work of the Center for Long-Term Care Reform?   

We have the credibility to do this work because we're trying to save Medicaid and improve long-term care, not to promote products. 

But the only way to achieve that objective is to get more people insured or using their home equity so they can pay privately for their own long-term care and Medicaid can do a better job for fewer recipients who are genuinely in need. 

So . . . join the Center for Long-Term Care Reform today and fight with us for rational long-term care policy to save Medicaid by improving your business. 

Steve Moses

Footnote 1:  Wan He, Manisha Sengupta, Victoria A. Velkoff, and Kimberly A. DeBarros, U.S. Census Bureau, Current Population Reports, P23-209, 65+ in the United States: 2005, U.S. Government Printing Office, Washington, DC, 2005, Figure 4-13, "Median Household Money Income for Older Households by Age, Race, and Hispanic Origin of Householder:  2003," p. 101,

Footnote 2:  Ibid., Table 4-10, "Median Net Worth and Median Net Worth Excluding Home Equity for Households by Age of Householder and Monthly Household Income Quintile:  2000," p. 108.)