LTC Bullet:   Challenge Medicaid’s MOE Mandate

Friday, August 10, 2012


LTC Comment:  ObamaCare threatens states’ federal Medicaid matching funds, arguably illegally since the SCOTUS decision.  Why it matters after this ***Spotlight On.***


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LTC Comment:  No introduction is necessary as the following article speaks for itself.

“Challenge Medicaid’s MOE Mandate”
Stephen A. Moses

The Affordable Care Act (AKA, the ACA, health reform or ObamaCare) threatens state Medicaid programs with loss of all federal funds if they tighten eligibility beyond rules in effect on March 23, 2010, the law’s enactment date.  Billions of dollars, states’ budget solvency, and Medicaid’s fairness are at stake because of this “maintenance of effort” (MOE) requirement.

But can’t a state opt out of expanding Medicaid and avoid penalties in ObamaCare that would otherwise apply?  Not with regard to MOE, according to the Congressional Research Service, the Centers for Medicare and Medicaid Services and the White House.  Nevertheless, this question is litigable and states opting out of Medicaid expansion should challenge MOE in court.  Here’s why.

Federal Medicaid rules compel states to apply extremely generous income and asset eligibility limits, especially for long-term care benefits, which account disproportionately for program outlays. 

For example, income almost never disqualifies anyone from Medicaid LTC eligibility because most states deduct medical and LTC expenses before testing applicants’ income.  Federal law forces other states to allow Miller income diversion trusts. 

Exempt assets are also practically unlimited, including home equity up to $786,000 and without any dollar limits--one business, one car, term life insurance, prepaid burial funds, personal belongings, and Individual Retirement Accounts.

On top of these already generous eligibility rules, “Medicaid planners” use sophisticated legal techniques, such as trusts, transfers, annuities, life care contracts, and reverse half-a-loaf strategies, to impoverish affluent people artificially and qualify them for Medicaid.

ObamaCare’s maintenance of effort rule prevents state Medicaid programs from reducing these excessive income and asset limits even within the limited parameters allowed by federal law before MOE took effect.

Eleven states, including four that may opt out of expanding Medicaid (Idaho, Maine, Wisconsin and New Jersey), chose in better economic times to allow the maximum home equity exemption, currently $786,000 instead of the minimum, $525,000.

Now, the MOE rule locks these states into a home equity exemption 22 times what England’s socialized system permits, $36,000.  States cannot reduce their home equity exemption without risking the loss of their entire federal Medicaid funding.  

Median home equity of the elderly is only $141,610, less than one-fifth of the exemption these states are now compelled to maintain.  Consequently, most elderly people can qualify for Medicaid’s most expensive (LTC) benefit simply by purchasing a more expensive home.

If they shuck the MOE’s handcuffs, states could reduce expenditures by applying more sensible eligibility rules in other areas as well.  But reducing the home equity exemption alone, as I’ve argued elsewhere, could save Medicaid $30 billion per year.

It’s not just money at stake.  Challenging the MOE opens a new and desperately needed opportunity to re-envision long-term care financing policy.  If Medicaid LTC were not so easy to get after long-term care is needed, and if people had to use their home equity for care before relying on Medicaid, more people would plan early and save, invest or insure for this risk.  With fewer LTC recipients, Medicaid could provide better care to the truly needy and compensate LTC providers more adequately.

Any state that may opt out of ObamaCare’s Medicaid expansion should calculate the potential savings from regaining control of Medicaid LTC eligibility determination.  In a phrase Sue the MOE.

Steve Moses is president of the Center for LTC Reform, 206-283-7036.