LTC Bullet:  Friendly Fire in the Class War
(LTC Embed Report #6)

Thursday, September 22, 2011

Washington, DC--

LTC Comment:  Steve Moses's Congressional testimony on Wednesday was well-received except for an ad hominem attack, "friendly fire" in the class war.  An explanation, witness testimonies, and a video of the hearing follow.



LTC Bullet:  On Wednesday, September 21, 2011 the House Oversight and Government Reform Committee's Subcommittee on Healthcare, District of Columbia, Census and the National Archives conducted a hearing titled "Examining Abuses of Medicaid Eligibility Rules."  Read witnesses' testimonies and watch the entire hearing here.  A transcript of the hearing will be available in approximately two weeks and we'll bring it to you then.

Hearing witnesses included Stephen Moses of the Center for Long-Term Care Reform; New York elder law attorney David Dorfman; Suffolk County (Long Island) New York Medicaid eligibility specialist Janice Eulau; and Julie Hamos, Director of the Illinois Department of Healthcare and Family Services, Illinois' Medicaid agency.  After opening statements by the Subcommittee Chairman Trey Gowdy (R, SC) and by ranking member Danny Davis (D, IL), witnesses had five minutes each to present their testimonies. 

Steve Moses explained how most elderly people who need long-term care qualify easily for Medicaid benefits without spending down their savings.  (Steve's testimony follows below.)  Attorney David Dorfman defended Medicaid planning for people who would not qualify otherwise based on their income and assets.  Eligibility expert Janice Eulau explained that her county's average Medicaid applicant has $300,000 in assets, that those with $500,000 are common, and that people with over $1,000,000, though less frequent, do qualify easily.  Illinois Medicaid agency director Hamos derided Medicaid planning abuses and explained how her program is trying to end them.

In the question and answer period after witnesses testified, subcommittee members probed for details.  Chairman Gowdy's first question went to attorney Dorfman.  He asked whether the Medicaid planner considered Medicaid a program for the indigent or "universal health care" for all.  Mr. Dorfman replied that Medicaid is a program for people who qualify, implicitly acknowledging that he believes Medicaid is for all people who can arrange their income and assets to qualify legally.  He stated that his average client has a home worth $500,000, $100,000 in retirement savings, and around $30,000 in liquid assets.

Eligibility expert Eulau said most of the Medicaid applicants she sees have much more wealth than Mr. Dorfman's average client.  Nevertheless, they qualify for Medicaid LTC benefits easily using techniques such as transfers, annuities, and promissory notes.  She explained in detail the most common Medicaid planning practice in her county, which involves using promissory notes to reduce spend down liability.

The most confrontational episode in the hearing occurred when some members attacked Steve Moses for receiving financial support from the insurance industry.  Moses responded by pointing out that such an ad hominem argument is a logical fallacy and that he would respond only to questions about his analysis, evidence and logic.  He refused to list his organization's corporate donors on the grounds that he receives no federal funds and it is none of the questioners' business.  "How ironic," Steve remarked after the hearing, "to attack me as a tool of corporate interests when I live in a trailer 3,000 miles from home fighting to save Medicaid as a long-term care safety net for the poor."

Steve's testimony follows.  He titled it "Medicaid Long-Term Care:  Friendly Fire in the Class War" for this reason:  Easy access to Medicaid LTC benefits since 1965 has led to middle class and affluent seniors crowding out the poor from access to quality care.  When your own troops shoot at you in war, it's called "friendly fire."  Politicians who oppose targeting Medicaid to people most in need are really helping the well-to-do and hurting the poor, the opposite of their stated objectives.  Hence, friendly fire in the class war.


Testimony before the House Oversight and Government Reform Subcommittee on Healthcare by Stephen A. Moses, President, Center for Long-Term Care Reform ( on September 21, 2011

"Medicaid Long-Term Care Benefits: Friendly Fire in the Class War"

Mr. Chairman and members of the Committee: thank you for inviting me to speak to you about Medicaid and long-term care financing.

I've worked in this field since 1981, first as a career federal employee with the Health Care Financing Administration, then for the Inspector General of the U.S. Department of Health and Human Services, and since 1989 in the private sector. I am currently president of the Center for Long-Term Care Reform. In each of these roles, I conducted national and state studies of Medicaid and long-term care financing policy. My remarks today are fully developed and documented in published reports available on our website at

Medicaid is supposed to be a long-term care safety net for people in dire financial need. Instead it has become the dominant payer for most Americans who require extended care at home or in a nursing home, including the middle class and even the affluent. How can this be true if Medicaid is a means-tested, public assistance program? That is the key question before you today. Here's the answer.

Although everyone says Medicaid eligibility requires low income, that is untrue for people over the age of 65 who need long-term care. Federal rules require most states to deduct medical expenses, including the cost of nursing home care, from applicants' incomes before determining eligibility. Some states apply "income caps" but those are easily evaded by means of special "income diversion trusts." Bottom line, income almost never disqualifies anyone for Medicaid long-term care eligibility.

But what about assets? It is true that cash or negotiable securities over $2,000 are disqualifying in most states, but it doesn't matter how people spend down to that level as long as they don't give their money away. Financial advisors frequently tell clients to purchase exempt assets, take a world cruise, or throw a big party, all non-disqualifying spend down methods.

Just how many exempt assets can applicants retain and still qualify for Medicaid LTC benefits? There really is no meaningful limit. Exempt home equity is capped at $500,000 or $750,000--13 to 20 times the amount protected in England's socialized health care system--but the following resources are exempt without any limit:

One business including the capital and cash flow
Individual retirement accounts (IRAs)
One automobile
Prepaid burial plans for the Medicaid recipient and immediate family members
Term life insurance, which allows recipients to evade Medicaid's estate recovery mandate
Household goods and personal belongings

The federal regulations and policies that require these exemptions are documented in our report titled "Medi-Cal Long-Term Care: Safety Net or Hammock?," a copy of which has been made available to the Committee.

Married applicants for Medicaid LTC benefits can retain substantially more income and assets than single people: up to $2,739 per month of income and half the couple's join assets not to exceed $109,500. If the healthy spouse's personal income and assets are below these levels, the Medicaid spouse's income and assets are transferred to bring her or him up to the limit. These "spousal impoverishment" protections increase annually with inflation.

Because of these very generous basic eligibility rules, the vast majority of America's elderly qualify easily for Medicaid when they need long-term care. The conventional wisdom that people must spend down into impoverishment before Medicaid will help is demonstrably untrue. Only the most affluent need to consult Medicaid planners and use special legal techniques--such as trusts, transfers, annuities, life estates, life care contracts and promissory notes--to qualify. The other panelists will discuss Medicaid planning. The key point to remember is that egregious Medicaid planning is only the tip of the iceberg. The bigger problem is that Medicaid's basic eligibility rules allow most people to qualify after they need long-term care and without spending down their wealth first.

Easy access to Medicaid has the effect of desensitizing the public to LTC risk and cost. Medicaid's home equity exemption prevents people from using reverse mortgages to finance home care. With most of their assets protected by Medicaid, few people plan early to save, invest or insure for long-term care. Well intentioned public policy has turned into a perverse incentive discouraging responsible LTC planning. Furthermore, consuming scarce public welfare resources to indemnify affluent baby-boomer heirs of well-to-do seniors hurts the poor instead of helping. It's like friendly fire in the class war.

Medicaid could save up to $30 billion per year if people had to consume their home equity before qualifying for public benefits as is true in England. The program's most expensive "dual eligible" recipients could be reduced by 20 percent. Reverse mortgages to fund long-term care would thrive and generate new jobs and tax revenue. The private long-term care insurance market would expand creating even more jobs and revenue. But most importantly, relieving the financial pressure on Medicaid in this way would enable the program to survive as a quality safety net for the truly needy.

My analysis explaining how Medicaid can save $30 billion per year by encouraging financing of long-term care through reverse mortgages and private insurance has been provided to the Committee.

Thank you for your attention.