LTC Bullet:  WSJ Advises on Medicaid Planning 

Thursday, July 26, 2007 


LTC Comment:  The Wall Street Journal published an advice column Tuesday how to self-impoverish to qualify for Medicaid LTC.  Excerpts, our analysis, a letter to the editor, and his reply, after the ***news.*** 

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LTC Comment:  Tuesday's (July 24, 2007) Wall Street Journal contained an article by Tom Lauricella titled "Solving Medicaid Assets Math:  Trusts Can Be Used To Pass On a Home; Annuities for Income" on page D3.  WSJ Online subscribers can find the piece at  

The same article was published in the WSJ's weekend "Encore" section, hence my July 22 email letter to the author and his editor's reply, which follow.  After that set up, we'll analyze excerpts from the article and tell you where to address your own concerns. 


July 22, 2007 

Dear Mr. Lauricella:  

I read your article in today's WSJ with dismay.  You write about Medicaid estate planning without observing that Medicaid is a means-tested public welfare program fraught with problems of access, quality, reimbursement, discrimination and institutional bias.  You cite Medicaid planning attorneys who make their livings artificially impoverishing affluent clients so they can fill Medicaid beds intended for people in genuine need.  You miss entirely the point that Medicaid has become a long-term care payor for nearly everyone and has thus crowded out responsible LTC financing alternatives, such as savings, investments, insurance or home equity conversion.  

I hope you will revisit this topic and give the other side of the story.  My professional bio is attached and so is a monograph I wrote for the Cato Institute that puts this issue in context.  I've written on the topic since the 1980s, first as a career U.S. government employee for the Office of Inspector General of the Department of Health and Human Service and later as president of an organization dedicated to ensuring quality long-term care for all Americans.  My article titled "Welfare for the Well-to-do" was published in the WSJ on December 17, 2005.  []   


Steve Moses 

Stephen A. Moses, President
Center for Long-Term Care Reform, Inc.
2212 Queen Anne Avenue North, #110
Seattle, WA  98109
Office: 206-283-7036
Fax: 206-283-6536
Web site: 

The Center for Long-Term Care Reform, Inc. is a private institute dedicated to ensuring quality long-term care for all Americans.  Sign up for our LTC Bullets online newsletter and become a member of the Center at 


Editor's Reply: 

July 23, 2007

Mr. Moses: 

Hello from The Wall Street Journal.  Thank you for your note and comments, which we will forward to Mr. Lauricella. 

Needless to say you make some excellent points -- and we have addressed the problems and/or pitfalls associated with Medicaid planning in other articles in the Journal.  For better or worse, readers ask us questions about Medicaid planning -- and Mr. Lauricella was trying to address some of these questions/issues in his column. 

We will do our best to look at all sides of Medicaid planning in the months and years to come. A gain, thanks for writing -- and thanks for the monograph. 


Glenn Ruffenach
Editor -- Encore/The Wall Street Journal


LTC Comment:  Now, here specifically is what is wrong with the Wall Street Journal's article on Medicaid planning. 

Excerpts from and analysis of "Solving Medicaid Assets Math:  Trusts Can Be UsedTo Pass On a Home; Annuities for Income," by Tom Lauricella, Wall Street Journal, July 24, 2007, page D3:  

QUOTE:  "More than a year has passed since the federal government changed the rules for qualifying for Medicaid assistance for long-term care, and experts in the field are still sorting out the implications for those who want to pass assets on to their children. 

"The new rules made it tougher, for example, to give gifts to children or grandchildren to help pay for their college education.  Individuals who make such gifts can find themselves ineligible for Medicaid benefits after they are already in a nursing home. 

"But estate-planning experts say some options remain open for those who want to pass on assets such as a home, through a trust, or preserve some income for a spouse in certain kinds of annuities." 

LTC COMMENT:  The "new rules" come of course from the Deficit Reduction Act of 2005 (DRA '05), the objective of which was to ensure that affluent people pay for their own long-term care so Medicaid can do a better job of helping the needy. 

QUOTE:  "Before the new law, if you gave away money within the past three years, you would be ineligible for Medicaid for a period of time based on how much money was transferred or given away.  For instance, if you gave away, say, the equivalent of nine months' aid, you would be denied Medicaid help for that period of time -- starting from when you made the gift.  For those who were healthy, it was a risk many were willing to take. 

"Now the so-called look-back period for any gifts or transfers you may have made extends back five years from when you apply for Medicaid.  And significantly, the period of time you will be denied aid begins not from when you made the gift, but when you apply for assistance and are otherwise fully qualified." 

LTC Comment:  This is a perfect example of why responsible journalists should never take information from biased sources (Medicaid planning attorneys) at face value without considering other, more objective sources. 

Before the DRA '05, anyone could give away any amount of money and be eligible for Medicaid's LTC benefits within three years.  Now the look back is five years.  But it's ten years in Germany, a socialized health care system.  We're much more lenient still. 

And now the penalty period starts at the date of Medicaid application instead of the date of the transfer.  Know why?  Because Medicaid planners like the ones cited (as the only sources) in this article used to advise the "half-a-loaf" strategy.  In other words, give away half your assets, stow the rest, and apply for Medicaid in half the time without incurring any further penalty and without ever spending any of your own money for care.  The new law stopped that abuse, and eliminated the Medicaid planners' biggest cash cow. 

QUOTE:  "That means you could be in a nursing home, have exhausted your savings and be unable to receive Medicaid for months or even years, depending on the value of what you gave away or transferred.  That could leave your family potentially liable for unpaid bills, even if they didn't receive any of the gifts. 

"This affects not only those trying to shelter assets from future nursing-home costs, but even those who simply want to make a gift to a child or grandchild, say, to help pay for college education.  (Gifts or transfers made before the new law was signed in February 2006 were grandfathered.) 

"'You give your grandchild money for college and three years later you're in a nursing home, you use up your remaining money over the next year -- it's only then that the penalty starts,' says Jeffrey Marshall, an elder-law attorney in Williamsport, Pa.  'That's why it's so devastating -- there's no other way you can make the payments to the nursing home.'" 

LTC Comment:  That is pure nonsense.  Federal law guarantees that no Medicaid eligibility penalty can be levied because of an asset transfer unless the transfer is done for less than fair market value and for the purpose of qualifying for Medicaid.  Reasonable gifts to charity or grandkids, done before the need for LTC, do not cause a transfer of assets penalty.  The DRA '05 did not change that rule.  In fact, the DRA strengthened "hardship waiver" protections that are in place in case someone were to get into a bind, having given away assets improperly to someone who won't or can't give them back. 

Furthermore, do we really want Medicaid, which is a means-tested public welfare program to be indemnifying wealthy seniors for giving away their money to relatives or charities?  Shouldn't they save their wealth against the risk of a catastrophically expensive long-term care need?  Or buy insurance against that risk before they give away all their resources?  Rewarding irresponsible financial behavior is crazy public policy that discourages sensible long-term care planning.  

QUOTE:  "While the new Medicaid rules complicate estate planning, they don't make it impossible.  Philip Bouklas, a New York lawyer, says the change in the rule for gifts removed a disadvantage for trusts used to protect assets.  Trusts previously had a five-year look-back period while gifts had the three-year period (presumably because people who used trusts were wealthier or more sophisticated and were doing so to skirt the Medicaid rules). 

"Now that it is a level playing field, Mr. Bouklas is more often using what are known as irrevocable income-only trusts in situations where individuals want to pass on a house or other assets to a child.  By using an income-only trust -- as opposed to just deeding the property over to a child -- the parent can still live in the house and even sell it.  Plus, the trust offers tax advantages over just changing the name on the deed.  'You might as well use a trust since there's no extra penalty period and there's more flexibility,' he says." 

LTC Comment:  This advice is unspeakably irresponsible.  People with wealth, including home equity (seniors hold $4.3 trillion in home equity) should use it to fund their own LTC.  When they hide their money in trusts to get Medicaid and avoid estate recovery, they're passing on a personal financial responsibility to overburdened taxpayers and hurting the poor whom Medicaid is supposed to help.  Furthermore, because of Medicaid's terrible reputation for problems of access, quality and institutional bias, people who listen to Medicaid planners (and now the WSJ) leave themselves vulnerable to loss of choice and independence and dependent on whatever care a virtually bankrupt welfare program can provide.  The idea that an otherwise responsible national publication like the Wall Street Journal would pass on such awful advice without scrutinizing the self-serving source is disturbing. 

QUOTE:  "The changes to the Medicaid rules also tightened -- but left somewhat open -- another planning loophole.  It used to be that many annuities weren't counted as an asset when determining Medicaid eligibility.  It is still possible to put money in an annuity and have the funds protected, but there are now greater restrictions. 

"Here's how it would work.  If a couple has $200,000 in assets and one spouse has to go into a nursing home, the rules would likely require spending half that money before the ill spouse is eligible for Medicaid.  However, by putting $100,000 into an annuity, the healthy spouse could collect the income off the annuity and the spouse in the nursing home would be eligible for Medicaid. 

"'You're converting a countable resource into one that's not countable,' says Mr. Marshall." 

LTC Comment:  My understanding is that follow-up legislation closed the "spousal annuity loophole" left after the DRA '05, but since the WSJ author didn't check his "facts," most readers will take this Medicaid planner's statement for truth. 

I guess what bothers me most is that Medicaid planners rake in six-figure incomes and seven-figure firm revenues purveying this miserable advice, while responsible LTC insurance agents and other financial advisers struggle to scrape out a living by telling Americans they should plan responsibly to pay privately for LTC when the time comes.  "You can't sell apples on one side of the street, when they're giving them away on the other."  

The consequences for America's LTC service delivery and financing system are devastating.  Too many people end up on Medicaid in under-funded nursing homes and receive questionable care.  The rich get the best beds because their Medicaid planners advise them to keep back "key money" to buy their way into the best Medicaid beds.  Poor people, for whom Medicaid is supposed to be a last resort, have no key money and end up in the 100%-Medicaid hellholes that 20/20 featured in its exposÚs. 

I could go on and on but the fundamental point is this:  the Wall Street Journal did the public and all responsible LTC advisors a major disservice by publishing this article without getting and presenting the other side of the story. 

Please be civil, evidence-based and logical, but by all means write to the author of this article Tom Lauricella at and his editor Glenn Ruffenach at and give them a dose of reality on this subject. 

But seriously, I MEAN IT, present your comments in a professional and responsible way.  However passionately you may feel and however right you may be, emotional rants reflect badly on the Center for Long-Term Care Reform and our membership.