LTC Bullet: How Medicaid LTC Sprung a Leak
Monday, September 14, 2009
LTC Comment: When state Medicaid agencies fail to recover from estates, the program becomes free inheritance insurance for boomer heirs and crowds out private LTCI. Our op-ed explains, after the ***news.*** [omitted]
LTC BULLET: HOW MEDICAID LTC SPRUNG A LEAK
LTC Comment: The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) closed several Medicaid eligibility loopholes and made estate recovery mandatory.
The reasoning behind those provisions in OBRA '93 was this: Medicaid does not force people into impoverishment just because they're unlucky enough to need long-term care. The program lets people qualify with large incomes (as long as they don't have enough cash flow to cover nursing home care) and unlimited assets (as long as they hold the assets in exempt form, i.e. a home, business, furnishings, auto, etc.).
This is very generous, but public policy should not discourage people from planning for long-term care by saving, investing or insuring. So, Medicaid needs to recover benefits correctly paid during the recipients' lifetimes from their estates after they die. That way, the program's generous long-term care benefits won't constitute a windfall for heirs, rewarding them for ignoring their parents' long-term care needs.
That was the theory. How do I know?
Because I conducted the study and wrote the 1988 report for the Office of Inspector General of the U.S. Department of Health and Human Services that, according to a former head of the Medicaid planners' association (NAELA), "forged the framework" for OBRA '93. You can still read that report here. Compare the recommendations with the law. You'll see that many of the recommendations and the crux of the theory found their way into the statute.
So when I conducted our study of Medicaid long-term care in Rhode Island and found that RI Medicaid recovers only $2 million per year from recipients' estates, I included this recommendation in the report: "Examine estate recovery programs in other states (especially Oregon) to show how Rhode Island can recover at least $15 million per year from this source."
For a state that is so financially in the hole it's trying to furlough workers for 12 days, why leave $13 million on the table? Especially when failing to collect this money from estates sends a strong negative message to heirs. It seems to say Medicaid LTC is an entitlement that not only guarantees their inheritance but will someday cover their own long-term care too.
It really is bad public policy and we're pretty sure Rhode Island Medicaid management would agree. Problem is Medicaid estate recoveries can be very politically sensitive. Demagogues who profiteer on Medicaid by taking big fees to get affluent clients on the dole while helping them evade estate recoveries call the program "picking the bones of the elderly." That can make it hard for public officials to enforce recoveries even though they're mandatory under federal law.
So to help establish the moral high ground of Medicaid estate recoveries, we wrote the following "op-ed" and asked the Ocean State Policy Research Institute (OSPRI, www.oceanstatepolicy.org/) to submit it to the Providence Journal, RI's only statewide newspaper, for publication. We're waiting to see if it will find its way into print there. In the meantime, it is here for you to read now.
"Rhode Island Medicaid Has Sprung a Leak"
Stephen A. Moses
Social safety net spending consumes 46 percent of RI's state budget. Most of that money goes for Medicaid, the state/federal health care program ostensibly for the poor. Projo [the Providence Journal's nickname] reported August 20 that "80 percent of those Medicaid dollars are spent on just 30 percent of Medicaid enrollees." That's because the frail or infirm elderly account for the lion's share of Medicaid costs, especially for long-term care, all across America.
But, what do I mean that Medicaid is "ostensibly" for the poor? Isn't Medicaid a means-tested public assistance program, i.e. welfare? Doesn't it enforce strict income and asset limits that allow only the poorest of the poor to qualify?
All true for poor women and children who need preventive, acute or emergent care. But not true at all for people 65 years of age or older who have a medical need for long-term care. The elderly qualify for Medicaid under a totally different set of rules.
Do they have to be low income to qualify? No, anyone with income below the cost of a nursing home ($7,777 per month) qualifies based on income. RI Medicaid has denied only two applicants ever based on excessive income. So income is no obstacle.
But what about assets? Anything over $4,000 disqualifies you, right? Yes, but that's only cash or resources easily convertible to cash. Medicaid applicants and recipients can also keep unlimited exempt assets, e.g. home equity up to $500,000 and, without any dollar limit: one business including the capital and cash flow, one automobile, prepaid burial plans, term life insurance, home furnishings and others. Converting non-exempt assets to exempt assets is as easy as buying a new car or adding a room to Grandma's house.
For the truly affluent who still don't qualify under these already extremely generous rules, Rhode Island has many "Medicaid estate planning" specialists who make their livings artificially impoverishing people to qualify them for Medicaid benefits. These lawyers use techniques like "reverse half-a-loaf," purchase of "life estates," irrevocable income-only trusts, legal (beyond the 5-year look back) asset transfers, purchase of exempt assets and many other less common practices.
Now, here's the kicker.
In 1993, the federal government made it mandatory for state Medicaid programs to recover the cost of benefits paid to older people with exempt (sheltered) assets out of their estates. In research I conducted for the Health Care Financing Administration in 1988, we found that Oregon, for example, recovered 5.2 percent of its Medicaid nursing home expenditures from the estates of deceased recipients.
The comparable number for Rhode Island is only .67 percent. In other words, Rhode Island, which recovered only $2 million last year from estates, is leaving over $13 million on the table by not pursuing this non-tax resource more vigilantly.
Whoa! Wait a minute. Isn't estate recovery like "picking the bones of the elderly?"
Not at all. With extremely generous income and asset eligibility rules, easy ways to self-impoverish, and little estate recovery, Rhode Island's Medicaid long-term care program has become, in effect, free inheritance insurance for baby boomer heirs. Is that really how Ocean Staters want to use their scarce public welfare resources?
Wouldn't it be much better for all concerned to recover Medicaid expenditures from the estates of deceased recipients and put that money back into the budget to relieve taxpayers and fund better care for those in need?
If everyone knows there's no free lunch, that they'll have to pay for their own long-term care up front or after the fact anyhow, won't the public be more likely to plan responsibly; save, invest or insure; pay privately for their LTC, and leave welfare for the poor?
Low Medicaid estate recoveries in Rhode Island is one big leak in the budget bucket that can be easily plugged to the benefit of everyone concerned.
Stephen A. Moses is Health Care Policy Fellow for the Ocean State Policy Research Institute (OSPRI, www.oceanstatepolicy.org) in Providence and President of the Center for Long-Term Care Reform (www.centerltc.com) in Seattle, Washington. His recent report titled "The Age Wave, the Ocean State, and Long-Term Care" is available here: http://www.centerltc.com/pubs/TheAgeWaveTheOceanStateandLong-TermCare.pdf.