LTC Bullet:  IG Report Reveals Medicaid Estate Recovery Weakness

Friday, December 5, 2014


LTC Comment—A newly released USDHHS Inspector General report shows few states do Medicaid estate recoveries well resulting in a potential annual loss, we infer, of $2.5 billion.  Details, numbers, and why it matters after the ***news.*** [omitted]


LTC Comment:  Federal and state Medicaid programs leave upwards of $2.5 billion in potential estate recoveries on the table.  You won’t find that number in a newly released IG report, but our fuller analysis provided below reveals it.  By allowing huge income and asset exemptions from LTC spend down requirements without strong estate recovery, Medicaid rewards failure to plan for long-term care, crowds out private LTC financing alternatives, and incurs huge unnecessary expenditures.  The consequences of this short-sighted policy plague the financing and delivery of long-term services and supports throughout the USA.

Background.  Medicaid is a means-tested public assistance program, i.e., welfare.  Applicants for the program’s expensive long-term care benefits must qualify based on limited income and assets.  Wealthier people and their legal advisors have found many ways to hide or transfer excess assets in order to take advantage of Medicaid benefits.  The federal government has attempted to discourage this so-called Medicaid planning with two major statutes.  The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) made transfer of assets restrictions longer and stronger and required recovery of costs from recipients’ estates.  The Deficit Reduction Act of 2005 (DRA ’05) placed the first cap ever on Medicaid’s home equity exemption and prohibited several of Medicaid’s more egregious loopholes.  Over time, evidence accumulated that some states did not implement some or all of the requirements in these two laws.  See for example the Center for Long-Term Care Reform’s report for the Pacific Research Institute titled Medi-Cal LTC: Safety Net or Hammock?  In 2011, two members of the U.S. House of Representatives and two Senators asked the USDHHS Inspector General to investigate “whether States are implementing provisions of Federal law that are meant to limit individuals with above-average wealth from accessing Medicaid.”  They also asked the IG to “provide data on States' efforts with regard to estate recovery, including the amount of resources States put into estate recoveries; and [to] update estate recovery figures for each State.”

The IG Report:  On July 7, 2014, the Inspector General issued a letter report responding to the Congressmen’s and the Senators’ inquiry.  For reasons related to their concern that negative findings in the report could influence the recent midterm election, public release of the IG’s report was postponed until recently, Monday, November 17, 2014.  You can now read the IG’s full report on the Center for Long-Term Care Reform’s website here:

We reported two weeks ago on the IG report’s findings regarding states’ failures to implement mandatory provisions of OBRA ’93 and DRA ’05:  “LTC Bullet:  IG Report Reveals Costly Medicaid Enforcement Failures,” Friday, November 21, 2014.  This week we report on the IG’s findings with regard to estate recoveries.

Major Findings and Analysis.  Quotes from the IG report and our comments follow.

IG Report:  “All 51 States reported that they have implemented the estate recovery requirements of the OBRA [Omnibus Budget Reconciliation Act of 1993].  All States reported that they are recovering assets from the probate estates of deceased Medicaid recipients when the recipients are not survived by spouses.”

LTC Comment:  It took more than a decade for all states to implement even the minimum estate recovery effort mandated by OBRA ’93.  According to details in the IG report’s “Enclosure B,” nine states—including staunch holdouts Texas, Michigan and Georgia—waited a decade or more to begin estate recoveries after the program became legally mandatory.  The Centers for Medicare and Medicaid Services (CMS) failed to enforce the law during that period.

IG Report:  “States reported total yearly recoveries nationwide that ranged from $429.5 million in fiscal year (FY) 2005 to $497.9 million in FY 2011.”

LTC Comment:  This is the first official public accounting of Medicaid estate recoveries since a 2005 report by the DHHS Assistant Secretary for Planning and Evaluation (ASPE) based on 2004 data:  “Medicaid Estate Recovery Collections:  Policy Brief #6.”
That earlier report showed 2004 recoveries totaling $362 million ($431 million in 2011 dollars).  Thus, adjusting for inflation, total annual estate recoveries have increased only $67 million or 16% between 2004 and 2011. 


IG Report:  “The yearly amounts of resources used to achieve these recoveries ranged from $20.5 million in FY 2005 to $34.2 million in FY 2011.  Enclosure C includes estate recovery figures for each State.”

LTC Comment:  Overall in 2011, states spent $34 million to recover $498 million, a recovery success ratio of 14.6 to one.  Not bad.  Who wouldn’t invest one dollar to receive $14.60 in return?  States vary widely on this cost ratio from Nevada that recovers only $3 per dollar invested to Missouri that recovers $52 for the same dollar of program cost.  Estate recovery experts understand, however, that very low or very high recovery ratios indicate program inefficiency, i.e., that a state is spending too much or too little to maximize total recoveries.  States maximize estate recoveries by investing more in their programs until they reach a point of diminishing marginal returns.

IG Report:  “As of November 2013, 26 States had reported that they have adopted an expanded definition of an estate to allow recovering medical assistance costs from the assets that are not included in the definition of an estate in State probate law. These States are: California, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, North Dakota, Ohio, Oregon, South Dakota, Virginia, Washington, Wisconsin, and Wyoming.”

LTC Comment:  Before OBRA ’93 Medicaid estate recovery programs were restricted to recovery only from probate estates.  Because many assets pass outside of probated estates, as for example through joint tenancy with right of survivorship, substantial wealth was retained by heirs and lost from estate recovery.  It is impressive that over half the states have taken advantage of this important voluntary option.

IG Report:  “Further, 42 States reported that they have also implemented the optional provision for recovering all medical assistance costs from the individual's estate. The nine exceptions were Louisiana, North Carolina, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, and Washington.”

LTC Comment:  OBRA ’93 required states to recover LTC costs from estates of deceased recipients, but the statute also gave states the option to recover other medical costs incurred by Medicaid.  This provision attracted media attention when ObamaCare added millions of non-LTC recipients to the Medicaid rolls making them theoretically though not practically liable to estate recovery.  The new recipients are younger, less likely to have significant assets and less likely to die leaving an estate than elderly recipients.

IG Report:  “All 51 States appear to be recovering the assets in the probate estate of a deceased Medicaid recipient when the recipient is not survived by his or her spouse. However, we noted that certain provisions within the Act and State laws have prevented some States from recovering medical assistance costs after the death of a surviving spouse.”

LTC Comment:  Spousal recoveries have enormous potential.  In a 1989 report titled “Medicaid:  Recoveries From Nursing Home Residents' Estates Could Offset Program Costs,” GAO concluded

Because about one-third of Medicaid nursing home residents who own a home have a spouse living in the community, a significant portion of potential recoveries is lost unless a state authorizes recoveries from the estates of surviving spouses. For example, GAO estimates that California will recover about $15.8 million from the estates of Medicaid recipients admitted to nursing homes in 1985 under its existing recovery program.  But it could recover an additional $11 million if the state enacts legislation to authorize recoveries from the estates of the surviving spouse when he or she, in turn, dies. (See pp. 22 and 37.)” (p. 4)

Failure to recover from deceased Medicaid recipients’ spouses’ estates results in assets protected by Medicaid’s generous income and asset eligibility rules going to heirs and being lost forever to the program at taxpayers’ expense.  Obstacles to spousal recoveries identified in the IG’s report should be removed by new federal legislation.

IG Report:  “We hope that this information is responsive to your request. We look forward to working with you and your staff on these and other oversight issues.”

LTC Comment:  Unfortunately, the IG did not report the most important information about estate recoveries that analysts need to evaluate the program’s success or failure.  The aforementioned 2005 DHHS-ASPE study provided not only total estate recoveries by state, but also reported state-by-state recoveries as a percentage of each state’s Medicaid nursing home expenditures.  Without data comparing recoveries to expenditures, it is impossible to rank states’ estate recovery performance. 

It is not clear why the IG neglected to provide that critical information and analysis, but the Center for Long-Term Care Reform has corrected their oversight.  Here, here, and here you can find, respectively, (1) an alphabetical list of states showing their total estate recoveries, their recoveries as a percentage of their nursing home expenditures, and their recoveries as a percentage of their total long-term care expenditures (including home and community-based care), (2) a list of states with the same information in ascending order of their recoveries as a percentage of nursing home expenditures, and (3) a list of states with the same information in ascending order of their recoveries as a percentage of total long-term care expenditures.  [Source of data: Steve Eiken, et al., “Medicaid Expenditures for Long Term Services and Supports in 2011,” revised October 2013, Truven Health Analytics for the Centers for Medicare and Medicaid Services, State Summary Table:  Medicaid Expenditures for Long-Term Services and Supports: 2011.]

Our findings based on this analysis

  • The states with the highest percentage of nursing home costs recovered in 2011 were Idaho (5.4%), Oregon (3.7%), Iowa (3.6%) and Maine (3.1%).  (We exclude New Mexico [49.2%] because its extremely low nursing home expenditures compared to total LTC costs distorts the ranking.)
  • The same states show up in the top category based on percent of total LTC costs (including HCBS) recovered, but they are joined by Delaware and Wisconsin:  Idaho:  2.2%; Iowa, 1.3%; Wisconsin, .9%; Delaware, .8%; Oregon, .8%; Maine, .8%.
  • Do the percentages sound small?  Well, they are.  Federal law and regulations severely limit states’ ability to recover from estates fully and efficiently.  Last year, we analyzed ways to maximize recoveries in spite of existing constraints in a study of the leading Medicaid estate recovery states aimed at increasing Maine’s recoveries:  “Maximizing NonTax Revenue from MaineCare Estate Recoveries.”
  • Nevertheless, actual and potential dollar recoveries are nothing to sneeze at:  For example, what if every state in the country recovered at the same rate as the most successful state, Idaho?  Total recoveries would have been $2,845,253,843 instead of $497,905,382 based on percentage of nursing home expenditures recovered and $2,941,856,963 instead of $497,905,382 based on percentage of total LTC costs recovered.  That’s nearly $2.5 billion in money now allowed to pass unencumbered to heirs.  Those lost funds have the effect of converting Medicaid from a long-term care safety net program for the needy to free inheritance insurance for prosperous baby boomers.

LTC Comment:  To unleash the full potential of Medicaid estate recoveries federal legislation is needed to (1) close eligibility loopholes that allow affluent individuals to take advantage of Medicaid LTC benefits while retaining large, often huge, financial resources; (2) encourage recoveries from surviving spouses’ estates, (3) enable recoveries from abusive Medicaid-compliant annuities and trusts, and (4) maximize many other potential recovery sources currently inhibited by existing law and regulations.