Wednesday, May 2, 2007 


LTC Comment:  The Government Accountability Office has again displayed stunning miscomprehension of the Medicaid eligibility, Medicaid planning and transfer of assets issues.  After the ***news.*** [omitted]



LTC Comment:  GAO recently published another in its series of misleading reports on Medicaid asset transfers.  Search "GAO" with a "Control-F" at for my comments on those earlier reports: 

Their latest is:  "Medicaid Long-Term Care:  Few Transferred Assets before Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on Eligibility Is Uncertain."  GAO-07-280, March 26, 2007.  Public release date:  April 26, 2007.  Full report:  Highlights:  

Advocates for expanding government financing of long-term care delighted in GAO's latest findings: 

John Dingell, Chairman of the House Energy and Commerce Committee (curiously the germane committee for Medicaid in the U.S. House of Representatives) effused:  "This report confirms that the Medicaid long term care program is not rife with cheats and scam artists. . . .  The seniors who enter nursing homes and end up being covered by Medicaid are truly needy." 

Elder lawyers gloried in the GAO's conclusion that "few of the elderly are transferring assets in order to become financially eligible for Medicaid coverage of long-term care, and that of the transfers that are made, the amounts are modest."  (ElderLaw News, May 1, 2007) 

Yet, isn't it peculiar that the very same issue of that e-newsletter for Medicaid planners contains a review of a new $47 book titled "How to Protect Your Family's Assets from Devastating Nursing Home Costs:  Medicaid Secrets" which "provides advice on how readers can qualify for Medicaid without losing all their assets." 

How is it that GAO can find little evidence of widespread improper asset transfers but lawyers and other financial advisors continue, almost omnipresently, to advertise their services to qualify people for Medicaid without spending down?  A Google search this morning for the term Medicaid planning turned up over one million hits, including the elder law newsletter just cited. 

Allow me to explain. 

Abusive asset transfers, AKA "millionaires on Medicaid," are not and never have been the big problem.  They happen.  They're unfortunate.  They drain desperately needed funds from the Medicaid safety net for the poor.  They're the "cash cow" that keeps Medicaid planning attorneys in a very profitable business.  But they are only the tip of the iceberg.  Or, to use a different metaphor, the frosting on the cake for people who make their livings artificially impoverishing affluent clients to get them on Medicaid.   

By definition, asset transfers involving large amounts by people with lots of money are uncommon.  Not that many elderly people have so much money.  But some do.  That's why Medicaid estate planning is such a lucrative practice of law.  It's also why few big asset transfers show up when GAO studies random samples of long-term care eligibility cases and then reports their findings based on "median" averages.  It is not the median that matters in these cases, but rather the outliers, the tip of the iceberg.  The proper emphasis for GAO's findings would have been to focus on the relatively uncommon, but enormously costly, examples of large asset transfers done to qualify successfully for Medicaid.  GAO mentioned these but only in passing. 

What's underneath the asset-transfer "tip of the iceberg"?  The real problem with Medicaid and long-term care financing is that most people do not need to transfer assets or use any of the other myriad techniques employed by Medicaid planners.  Most elderly people who need long-term care qualify for Medicaid without spending down their own assets.  Income is no obstacle for most because Medicaid subtracts medical expenses, including the high cost of nursing home care, before determining income eligibility.  Assets are no obstacle because unlimited assets can be retained in a combination of exempt assets, such as a home (up to $750,000) and a business, car, term life insurance, prepaid burial funds, and personal belongings of unlimited value. 

The reality that most people qualify for Medicaid long-term care without fancy legal shenanigans is the "iceberg" of which asset transfers are only the tip of the very top.  Easy eligibility for Medicaid is why the public is anesthetized to the risk of long-term care.  It's why they don't plan responsibly for this risk and cost.  It's why they don't buy long-term care insurance.  It's why they don't tap their home equity with reverse mortgages to fund long-term care.  It's why economists at the National Bureau of Economic Research concluded that Medicaid crowds out two-thirds to 90 percent of any potential market for private LTC insurance. 

On top of easy eligibility for Medicaid LTC benefits, lying near the top of the "iceberg" but below the tip, is Medicaid estate planning.  This is a practice engaged in by lawyers and other financial advisors who help people with more income and assets than the generous Medicaid rules allow, to restructure their income and assets so as to qualify without spending their own money for care.  Medicaid planners use a wide variety of techniques including trusts, annuities, and life-care contracts to make large sums go away for purposes of qualifying for public assistance.  To learn more about those techniques, buy the book referenced above, or any of scores of similar books readily available that explain the more esoteric methods of self-impoverishment.  Better, however--if you'd rather not subsidize the Medicaid planning industry--check out the hundreds of articles we've published on the subject which are archived at    

Asset transfers are one, relatively minor Medicaid planning technique.  Assets transferred five years before applying for Medicaid are not counted, so Medicaid planners routinely advise clients to "plan early" for long-term care.  Such early transfers are not even recorded in Medicaid case records.  Therefore, GAO could not have found any evidence that they occur.  Finally, so-called "illegal" asset transfers, transfers done for less than fair market value for the purpose of qualifying for Medicaid, are an even smaller subset of legal asset transfers which are a small subset of Medicaid planning techniques, which affect only a small number of relatively affluent people who consult Medicaid planning specialists.   

Without going on at much greater length, this is why GAO's findings are specious.  GAO focused on a relatively minor problem affecting relatively few people while ignoring the "elephant in the room," i.e. easy Medicaid eligibility for LTC as exacerbated by Medicaid planning specialists.  GAO didn't mention Medicaid planning anywhere in its report even though the practice is rampant in one of the states reviewed (Maryland), commonplace in a second (Pennsylvania) and occurs in the third (South Carolina).  Naturally, they found little to get excited about.   

In its defense, GAO was only asked by Congress to explore this relatively minor issue.  The reason for that is that defenders of Medicaid planning--including members of Congress--routinely use the "straw man" fallacy to debunk their critics.  In other words, they misrepresent their opponents' position and then attack this straw man, rather than addressing the much more powerful argument (ours) for which they have no explanation.  I explained this illegitimate debate strategy as used by Urban Institute "scholars" in "LTC Bullet:  Kaiser Cover-Up Continues, April 27, 2006" at

Having rebutted GAO's findings in logic and principle, let me quickly make this observation about their flawed methodology. 

GAO examined a judgmental sample of Medicaid nursing home cases in three states.  Never mind that their findings are not generalizable in any significant way.  The big problem is that GAO did no independent verification of the states' Medicaid eligibility determinations.  

Here's proof:  "Since the selected counties used the information in these application files to determine eligibility for Medicaid coverage for nursing home services, We Did Not Independently Verify The Accuracy Of The Information Contained In The Files."  (p. 48, emphasis added) 

I learned as a Federal AFDC Quality Control Re-Reviewer in the 1970s that state welfare eligibility determinations are routinely wrong in half or more of the cases.  That's because state welfare programs are overworked and understaffed.  Without independent verification, e.g. checking with banks for resources, assessors' offices for home ownership, and recorders' offices for real estate transfers, GAO's findings and conclusions are worse than meaningless--they're grossly misleading. 

Unfortunately, my little internet megaphone reaches few, but GAO, Congress, and Medicaid planners reach many.  What can I tell you?  That's why this corrupt, counterproductive system continues.  But at least now you understand what's going on.  So stand up, keep the faith, and do your best to protect people from the risks and costs of long-term care.  When the creaky superstructure of publicly financed LTC finally comes crashing down, you and your clients will be the only ones left standing.