LTC Bullet: Why Stimulate Medicaid Planning?

February 4, 2009


LTC Comment: The stimulus bill could help the poor elderly, the states, LTC providers, and encourage responsible LTC planning by closing Medicaid loopholes, but it doesn't. 

*** Today's LTC Bullet is our 800th since the Center for Long-Term Care Reform's founding in April 1998. ***

*** GOOGLING "Medicaid planning" this morning gave 389,000 hits in .3 seconds. Try it yourself; read some of the entries; then read this Bullet. ***


The economic stimulus package includes $127 billion for health care. $87 billion of this (69%) is aid to the states for Medicaid. And much of that will relieve Medicaid's hemorrhaging long-term care (LTC) budget.

Heaven knows LTC providers and LTC recipients need help. Medicaid pays nursing homes and home health aides less than the cost of providing the care. Access to and quality of care is wanting.

But several common sense corrections to Medicaid LTC eligibility rules should be part of the deal. Otherwise these problems will get worse instead of better. Here's why Medicaid's LTC costs are skyrocketing while care access and quality plummet.

Medicaid is supposedly for low-income people, but if you're 65 or older and you need LTC, you're eligible if your income is less than the cost of a nursing home. That's over $6,000 per month. Low income? Not by any standard.

But doesn't anything over $2,000 in assets disqualify you? Yes, if you hold it in cash or negotiable securities. No, if you hold it in exempt assets.

What's exempt? 

A home and all contiguous property up to an equity value of $500,000. Make that $750,000 in "generous" states like New York, California, and Idaho.

A business including capital and cash flow of unlimited value. Got extra assets? Want Medicaid to pay for your LTC? Buy a rental house.

One auto of unlimited value as long as it benefits the Medicaid recipient. Use Grandma's money to buy a sports car and take her for a ride. That counts.

Because the car's exempt, it isn't a penalizable transfer of assets if Grandma gives it away. So buy one, give it away, buy another and so on until you get down to the $2,000 limit. That's the "two Mercedes" rule.

Unlimited prepaid burial plans for the Medicaid recipient AND family members. Own your own pyramid and qualify quicker for Medicaid LTC.

Unlimited term life insurance. Why would a 90-year-old buy a $1,000,000 term life policy? Instantaneous self-impoverishment, eligibility for Medicaid, and the benefit passes directly to heirs dodging probate and evading Medicaid's mandatory estate recovery.

Still having trouble getting down to that $2,000 limit? Medicaid planners (lawyers who specialize in artificially impoverishing affluent clients to qualify them for Medicaid) advise "take a world cruise" or throw "a party of Ziegfield-follies proportion." Medicaid doesn't care how you spend the money as long as you don't give it away for less than fair-market value.

Medicaid planners keep long lists of "exempt resources" clients can buy to reduce their countable assets.

But they won't leave you with nothing. They'll hold back enough cash so you can pay privately for a while and buy your way into a high-quality nursing facility. That's called "key money." You'll need it because the best nursing homes roll out the red-carpet for private patients who pay half again as much as Medicaid. Of course, poor people don't have key money so they end up in the less desirable, all-Medicaid facilities.

Finally, if you still don't qualify for Medicaid long-term care, don't despair. Medicaid planners have a big bag of tricks including spousal annuities, trusts, life care contacts, reverse half-a-loaf strategies and many others.

After the recession following 9/11, Congress passed the Deficit Reduction Act of 2005 (DRA '05). It put the first-ever limit on Medicaid's home equity exemption and it raised the transfer of assets look-back period to five years from three. 

But compared to limits on home equity and asset giveaways in the UK and Germany (socialized health care systems) we're still much more generous. Citizens can only shelter $42,000 in home equity in the United Kingdom and get government help with LTC. Germany looks back 10 years for improper asset transfers, compared to our five years.

Before the federal government spends billions more to subsidize this leaking welfare program, Congress should target Medicaid LTC to people with real financial need. Close the remaining loopholes listed here and encourage the public to plan responsibly for LTC risk and costs.

Making affluent people spend their own money for LTC, including their home equity through reverse mortgages, would save Medicaid money, ensure easier access to better care for the poor, divert more people to private insurance and reverse mortgages thus generating more tax revenue from those businesses, and relieve taxpayers of a heavy burden they should never have had to carry in the first place.