LTC Bullet: Wisconsin Tackles Medicaid Planning
Friday, July 12, 2013
Cream Ridge, New Jersey—
LTC Comment: Easy access to Medicaid LTC benefits after care is needed and without spend down or estate recovery overloads the safety net and minimizes responsible LTC planning. Wisconsin is trying to fix that problem, but Medicaid planners object, after the ***news.***
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LTC BULLET: WISCONSIN TACKLES MEDICAID PLANNING
LTC Comment: Twenty-one years ago I wrote the following in “The Senior Financial Security Program: A Plan for Long-Term Care Reform in Wisconsin.”
Medicaid nursing home eligibility is so generous in Wisconsin that most seniors who need long-term care qualify financially even without sophisticated legal planning. Anyone else can qualify quickly, often overnight, by using techniques such as joint accounts, trusts, purchase of exempt assets, or multiple divestment. Estate recovery is easy to avoid using joint tenancy with right of survivorship and other techniques. Formal, lawyer-assisted Medicaid estate planning is still fairly limited in Wisconsin, but it is growing rapidly. Predictably, private long-term care insurance is stunted. (p. 1)
Despite Wisconsin’s having adopted some of the corrective actions we recommended in that report, the fundamental problem still exists. Easy access to Medicaid LTC benefits without significant spend down or estate recovery continues to plague the Badger State. Now, however, Wisconsin is trying to do something about it.
Following are quotes from a Wisconsin Medicaid planner’s essay. She laments actions taken by the state to (1) ensure that scarce public resources go to the needy and (2) encourage affluent people to pay their own LTC expenses. We provide our “LTC Comment” after each of her remarks.
Quotes from “What the New Budget Bill Does to Elderly and Disabled Families,” by Attorney Carol Wessels.
Medicaid planner: "On Sunday, June 30th, 2013, Governor Walker signed Wisconsin's 2013-2014 Budget into law. The New Budget Bill has changes to the Medicaid program that create severe consequences for the elderly and disabled, and for family businesses and farms."
LTC Comment: The need for expensive long-term care IS a severe consequence for which people should plan, save, invest and insure. They should not ignore the potential risk and cost until they seek indemnification from Medicaid. What does the new Wisconsin budget do?
Medicaid planner: "Prevents families from transferring family business or the family farm, if original owner needs Medicaid. . . . If he transfers it for nothing, or for less than fair market value, he will be penalized and disqualified from receiving Medicaid for a period of time for up to five years following the transfer. If the business stays in Joe's name, when he dies the state will be able to recover up to the amount paid out in Medicaid, as a lien on the business or from the proceeds of the sale. Elder Law Attorneys believe this provision is contrary to federal law."
LTC Comment: Is the purpose of Medicaid to be a long-term care safety net for the needy or free, publicly financed insurance for business owners and their families?
Medicaid planner: "Prevents the spouse ('community spouse') of a person in a nursing home or on Family Care ('institutionalized spouse'), from transferring the community spouse's assets to anyone else until the institutionalized spouse has been on Medicaid for five years. If the community spouse transfers assets in the first five years after an institutionalized spouse is receiving Medicaid, then the institutionalized spouse will be penalized."
LTC Comment: Did you know that under current federal law, the community spouse can give away everything, including the home, with impunity preventing Medicaid estate recovery? That’s what Wisconsin is apparently trying to avoid.
Medicaid planner: "Provides that any property that was marital property within five years before the time that a spouse applied for nursing home Medicaid or Family Care, can be subjected to estate recovery. Where the state pursues estate recovery from the surviving spouse, there is no 'hardship waiver'. Hardship waiver is the process where a person can request that estate recovery provisions not be enforced due to circumstances that would cause a hardship. This provision is required by federal law but yet, Wisconsin's new budget eliminates it in certain cases."
LTC Comment: How could anyone consider deliberate self-impoverishment to be a “hardship” tax payers should compensate?
Medicaid planner: “Prevents a community spouse from transferring assets free and clear upon death of the community spouse. These assets will be subject to estate recovery first.”
LTC Comment: That is the purpose of the estate recovery mandate added to Medicaid in 1993. The principle is that Medicaid LTC benefits received while preserving substantial assets for a surviving spouse should be repaid to Medicaid when the surviving spouse dies and no longer needs the wealth. Otherwise, the money passes to heirs and becomes a reward for failing to plan for long-term care.
Medicaid planner: “Puts very restrictive requirements on trustees of living trusts, where a grantor received Medicaid benefits. The trustee must provide specific notice prior to distributing any trust property, and must distribute assets to estate recovery within specific deadlines if a claim is made.”
LTC Comment: Medicaid planning abuse of trusts is a loophole properly closed.
Medicaid planner: “Makes trustees of ‘Special Needs Trusts’ personally liable if they fail to follow the proper procedures for estate recovery.”
LTC Comment: So improper trust management is OK? Come on.
Medicaid planner: “Allows estate recovery from living trusts, life insurance, POD [pay on death] accounts of either the Medicaid recipient or the surviving spouse.”
LTC Comment: Did you know people could evade estate recovery using those financial products? Other states have already closed that loophole.
Medicaid planner: “Penalizes families who have loaned (not gifted) funds to other family members.”
LTC Comment: The purpose of such loans is to dodge spend down requirements using a complicated technique called the “reverse half-a-loaf” designed to evade measures in the Deficit Reduction Act of 2005 (DRA ‘05) intended to prevent the “half-a-loaf” divestment gimmick.
Medicaid planner: “Prevents a return of funds that have been gifted by maintaining all divestment penalties unless the full gifted amount is returned, which in many cases is not possible.”
LTC Comment: Ditto the LTC Comment immediately above.
Medicaid planner: “Creates very complicated procedures regarding transfers of real estate where a Medicaid recipient is involved. Allows the state to go so far as to void a transfer under certain circumstances. These changes will make it very complex for people on Medicaid to transfer real estate, give clear title, etc.”
LTC Comment: Taking measures to prevent asset transfers for the purpose of self-impoverishment to qualify for Medicaid is not a problem. It is a solution.
Medicaid planner: “What this means . . . : It will be extremely important for couples to plan well ahead of the need for care, if the ability to leave anything to their families – or to maintain adequate financial resources for the spouse in the community - is important to them.”
LTC Comment: We agree this means people need to plan early for long-term care. We disagree that the way to plan is to use a Medicaid planner to dodge rules intended to preserve the Medicaid safety net for people in need.
I’ve been fighting the Medicaid planners’ self-serving arguments like those above for 30 years. We’ve had major successes in federal law including OBRA ’93 and DRA ’05, but clearly there is more to do. Thanks and kudos are due Wisconsin for taking action to discourage Medicaid dependency and encourage responsible LTC planning.