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]
LTC BULLET: WHO
STILL GETS MEDICAID LTC WITHOUT SPENDING DOWN?
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.
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
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 firstname.lastname@example.org
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.
LTC BULLET: WHO
STILL GETS MEDICAID LTC WITHOUT SPENDING DOWN?
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.
"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:
Bullet: Where There's Smoke,
There's Fire, May 18, 2005, http://www.centerltc.com/bullets/archives2005/558.htm
Bullet: LTC Demagogy, December 7,
Bullet: LTC Doubletalk, January 24,
Bullet: Georgetown, GAO and Kaiser:
The Bermuda Triangle of Good LTC Policy, January 25, 2006, http://www.centerltc.com/bullets/archives2006/605.htm
Bullet: LTC Insanity, February 14,
Bullet: Microsimulate This!, March
28, 2006, http://www.centerltc.com/bullets/archives2006/622.htm
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
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
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
see Footnote 2.) The answer is "not very many."
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
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.
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
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
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.
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.
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.
are you surprised so few people buy LTC insurance when they can ignore the risk,
avoid the premiums, and the government pays?
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?
can you remain in denial when these facts about your market are so obvious and
you nursing home providers, where do you think your residents will come from and
how will they pay when Medicaid collapses altogether?
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?
have the credibility to do this work because we're trying to save Medicaid and
improve long-term care, not to promote products.
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.
. . . 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.
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, http://www.census.gov/prod/2006pubs/p23-209.pdf.
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.)