LTC Bullet:  The Role of Estate Recoveries in LTC Financing

Friday, June 7, 2013

Richmond, Virginia—

LTC Comment:  When Medicaid pays for expensive LTC without recovering from estates, it subsidizes irresponsibility and hurts the poor.  Details after the ***news.*** [omitted]



LTC Comment:  The Center for Long-Term Care Reform has published a new report titled “Maximizing NonTax Revenues from MaineCare Estate Recoveries.”  It explains the need for estate recoveries, recounts best practices from leading estate recovery states, recommends 20 actions MaineCare (Maine’s name for Medicaid) should take to increase recoveries, and includes an annotated bibliography of publications both for and against estate recovery.  We thank the Maine Heritage Policy Center and the Maine Health Care Association for their support of this work.  Check out the report here:  “Read the Executive Summary” below.  But first some background:

The DHHS Inspector General’s 1988 report titled “Medicaid Estate Recoveries,” which I wrote by the way, made three major recommendations:

  1. Tighten Medicaid LTC eligibility so that it isn’t so easy for people to qualify for benefits without spending down some of their own money.
  2. Encourage liens on real property to ensure recipients’ will either retain ownership during their lifetimes or that Medicaid will be repaid if the property is sold.
  3. Recover from estates of deceased Medicaid LTC recipients to (a) recoup program expenditures, (b) prevent Medicaid-financed windfalls for heirs who take early inheritances to impoverish their parents, (c) incentivize others to plan early and responsibly for LTC so they don’t end up on Medicaid, and (d) return non-tax dollars to Medicaid to relieve taxpayers and support quality care for the truly needy.

Federal law (OBRA ’93) implemented all three of those recommendations creating what has been called a “government-sponsored home equity conversion program.”  The plan was that Medicaid would retain its huge asset exemptions so that people stricken by the chronic illness of old age would not be forced into poverty, but neither would they be rewarded for failing to save, invest or insure for long-term care.

On the way from federal legislation to nationwide implementation, however, the plan went awry.  State Medicaid programs didn’t implement strongly, the federal government didn’t enforce aggressively, the media didn’t report, and the public remained unaware and hence uninfluenced by the positive incentives in the law to plan for LTC.  

Two decades later, Medicaid coverage for LTC expenses remains easy to obtain without spending down, most states do not utilize liens to secure exempt property, and estate recoveries—though mandatory—remain spotty.  Consequently, Medicaid continues to discourage responsible LTC planning, rewards failure to plan for LTC, and therefore crowds out both privately financed home and community-based care and private LTC insurance to pay for care.

Bottom line, Medicaid LTC financing remains a quagmire of perverse incentives and unintended consequences that will get much worse as the baby-boom generation retires and finally needs LTC in big numbers.  So, what does our new report have to say about the situation as it is manifested in Maine and the eight other leading states we reviewed?


Executive Summary from “Maximizing NonTax Revenue from MaineCare Estate Recoveries”:

MaineCare is Medicaid in Maine, a means-tested public assistance program, partially funded by the state and federal governments.  It is the dominant payer for institutional and home and community-based long-term care in the state.

MaineCare, especially its long-term care component, is a huge expense to the state budget, at risk of crowding out expenditures for other critical state programs, facts explained and documented in our earlier report titled “The Maine Thing About Long-Term Care Is that Federal Rules Preclude a High-Quality, Cost-Effective Safety Net.”[1]

Federal law exempts substantial assets from Medicaid’s resource limits, such as for example, home equity up to a minimum of $536,000.  But federal law also mandates that state Medicaid programs recover the cost of care provided from the estates of deceased recipients or from the estates of their surviving exempt relatives.

Thus, although Medicaid is intended as a health and long-term care safety net for the poor, it has also become the predominant funder of most expensive long-term care for the middle class and often for the affluent as well.  Without strong estate recovery, state Medicaid programs become free inheritance insurance for baby-boomer heirs.

MaineCare operates an inexpensive and quite effective estate recovery program that returns an average of $6.7 million per year in state and federal funds to the state which can be re-invested in the program to benefit citizens who need help with the catastrophic cost of long-term care in the future.

By interviewing experts in eight of the leading Medicaid estate recovery states, we identified numerous ways in which MaineCare might increase its estate recoveries by as much as double or triple the amount of current recoveries to a total of $13.4 million or $20.1 million, respectively.

To achieve such dramatic results, MaineCare would need to seek new state statutory authorities such as an expanded definition of “estate,” the ability to place liens on real property during a recipient’s lifetime, and elimination of the current “family allowance” which prevents recovery from estates with less than $10,000 in most cases.

Operationally, MaineCare would need to invest more in its estate recovery unit to reduce its cost-effectiveness ratio from $25 in recoveries for each dollar of cost to something more closely approaching a ratio that maximizes total recoveries, perhaps $10 to $15 in recoveries per dollar of cost.  With additional staff resources, the MaineCare estate recovery unit could pursue all of the best practices listed in the “Recommendations” section below.

MaineCare’s long-term care program performs a valuable service for Mainers, enabling them to obtain expensive long-term care when they need it without financial devastation.  The program’s federally mandated quid pro quo is that beneficiaries of the state’s and federal government’s largesse repay the program from their estates.

That is the moral high ground MaineCare’s estate recovery program occupies.  Citizens, policy makers and law makers who support and encourage the program help to ensure that MaineCare will continue to provide a long-term care safety net for Mainers without busting the state’s budget.