LTC Bullet: How Estate Recovery Protects the Poor AND the Affluent

Wednesday, July 1, 2009


LTC Comment: Should Medicaid be free "inheritance insurance" for baby boomers or a LTC safety net for the needy? Considerations and consequences [follow].


LTC Comment: Pennsylvania Governor Rendell, Chairman of the National Governors Association (, said recently: "Ending vital programs for sick children and adults with disabilities would simply increase unfunded costs to hospitals and nursing homes, many of which are already near the brink of financial collapse."

So true. And yet that's exactly what governors and state legislatures are doing all across the country to cope with huge Medicaid-driven budget shortfalls.

But here's what I don't get. While they whack programs for the poor, they protect a program that benefits the prosperous exclusively. Why would Democrats, in control of most states, Congress and the Presidency, squeeze the poor to benefit the affluent, who are disproportionately Republicans?

How can that be? Give us an example, please.

All right.

For now, never mind the Medicaid long-term care eligibility rules that allow anyone with income below the monthly cost of a nursing home to qualify for the ostensibly "means-tested" program.

Never mind the loose and elastic asset eligibility rules that allow Medicaid LTC applicants to preserve unlimited exempt resources, including a home (up to $750K), a business, a car, prepaid burial plans, term life insurance, etc.

Never mind the wide-open "loopholes" Medicaid planners use to promise "nursing home care virtually free for life." Many examples here.

Let's just focus on one big hole in the Medicaid system that traps hundreds of thousands of Americans in nursing homes on public welfare and crowds out responsible LTC planning.

Until the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA '82), there was no explicit authority under federal law permitting state Medicaid programs to recover the cost of care they provide, from the estates of deceased recipients.

People with hundreds of thousands of dollars worth of exempt assets could get the government to pay for their long-term care and count on their estates passing unencumbered to their often-already-affluent heirs.

As I wrote in a 1988 study for the Office of Inspector General of the U.S. Department of Health and Human Services: "It is their children, after all, who stand to inherit whatever property remains after the costs of long-term care are paid and who currently reap the windfall of Medicaid subsidies. We must emphasize that the issue is enrichment of non-needy adult heirs, not denial of care to the elderly. For those who opt to rely on Medicaid, or have no other choice, eligibility conditional upon a promise (secured by an automatic lien) to repay benefits from their estates would assure all elderly people of (1) access to care , (2) retention of home property as long as it is needed by spouse and dependents, and (3) the dignity of paying their own way in the end." (pps. 47-8)

Congress and President Clinton saw the wisdom of this argument. They made Medicaid estate recovery mandatory in the Omnibus Budget Reconciliation Act of 1993 (OBRA '93).

Unfortunately, some states (including Texas, Michigan and Georgia) ignored the estate recovery requirement; most states enforced it only minimally; and only a few states (Oregon for example) maximized estate recovery potential. While all states now have some semblance of an estate recovery program, it remains only a shadow of the revenue source it could be.

So, Medicaid--ostensibly a welfare program--often remains free inheritance insurance for baby boomer heirs and the main reason most people don't plan responsibly for long-term care or buy private LTC insurance. (Brown and Finkelstein found Medicaid alone crowds out 2/3 to 90 percent of the potential market for private long-term care insurance. See

How can this be? Why is such abuse of the welfare program allowed? Don't governors, state legislatures and public officials care about the poor? Are they trying to buy the political support of middle-class and affluent constituents by plying them with scarce welfare resources more rightfully targeted to people in need?

Let me give you an example of why this huge potential non-tax revenue source for state Medicaid programs remains mostly untapped even as programs for the poor are slashed to make budget ends meet.

In his June 11, 2009 "Elder Law Alert", Pennsylvania Medicaid planner Jeffrey A. Marshall says "Estate recovery is a Medicaid 'death tax' imposed only on the elderly. The program has been referred to as 'picking the bones of the poor,' and 'sucking the last ounce of blood from the corpse.'" Lovely metaphors from someone who makes his living diverting funds desperately needed by the poor to affluent heirs while lining his own pockets with big Medicaid-planning fees.

Now do you see why Medicaid goes on decade after decade unable to pay adequately to ensure quality nursing home care, much less home and community-based services?

Do you wonder how attorneys like Marshall get away with shunting affluent clients off to welfare homes? Don't the adult children reaping this "windfall," as the OIG report described it, feel shame?

No, and here's why. The elder law attorneys assure families they have nothing to worry about from Medicaid's poor reputation for access and quality. "We know the best nursing homes and we'll get your Mom or Dad in," they say. "Once in, state and federal law forbid the homes from kicking your parents out just because their source of payment changes to Medicaid." True even though the payment to the nursing home drops 30 percent on average to below the cost of providing the care.

How do the Medicaid planners perform this miracle? It's called "key money." They used it to open doors for their well-to-do clients that are closed to poor people on Medicaid. When the attorney artificially impoverishes the frail and infirm elders to pass an early inheritance to the heirs, he or she holds back $50,000 or $60,000 so the seniors can pay privately for awhile. Because nursing homes are desperate to attract private payers who pay half again as much as Medicaid, people who are able to pay privately for awhile can buy their way into the best facilities. This is why one hears so often that care is identical for Medicaid and non-Medicaid nursing home residents. That's true for middle class and affluent Medicaid recipients who can buy their way into the nicest facilities.

But it leaves only the dregs of long-term care available to the poor for whom Medicaid was supposed to be a "safety net." They often end up in the kinds of places 20/20 visits with its hidden mini-cams. The kind of place with mostly Medicaid residents, too few staff, and not enough cash flow for quality care where patients lie in their own waste and develop bedsores down to the bone.

How do the elder lawyers respond to this outcome? They sue the nursing homes for providing deficient care, win big settlements for victims' adult children (who shunted their parents into welfare homes in the first place), and they pocket, yet again, huge fees for themselves.

Do you think long-term care public policy is just esoteric arguments between academics, politicians, and policy-makers? It's not. Policy has consequences. We have an underfunded, welfare-financed, nursing-home-based LTC system in the wealthiest country in the world where no one wants to go to a nursing home but the public's asleep about LTC risk and cost. Easy Medicaid LTC eligibility and the lack of strong lien and estate recovery programs have caused the mess were in.

On the other hand, targeting Medicaid's scarce resources to people truly in need and enforcing strong lien and estate recovery programs ensures better care for the poor and creates a strong incentive for everyone else to plan early and save, invest or insure for long-term care. And the more people plan responsibly to pay privately for long-term care, the fewer people will be dependent on Medicaid in the future, enabling that program to do a better job for a smaller caseload.

That's how Medicaid estate recovery protects the poor AND the affluent.