LTC Bullet:  The Early History of LTC Financing (and Why It Matters)

Friday, June 24, 2016

Seattle—

LTC Comment:  Did you know the original Medicaid law expressly permitted asset transfers to qualify for long-term care benefits?  Learn the early history, what changed, and how it has affected LTC financing after the ***news.***

*** LTC CLIPPINGS this week included the following two, which fit right in with today’s LTC Bullet topic.  The first, from a New York Medicaid planner, indicates one especially egregious artificial impoverishment technique lives on:

6/22/2016, “'Spousal refusal' helps save on nursing home costs,” by Bonnie Kraham, Times Herald-Record

Quote:  “Last week's column described the ‘gift and loan’ strategy, which is crisis planning that saves about half of the assets for single persons who are applying for Medicaid for nursing home costs. This technique is used on the eve of needing a nursing home when the client has not planned ahead to protect their assets.  In New York we also have a law called ‘spousal refusal,’ sometimes referred to as ‘just say no,’ to save assets from nursing home costs when one spouse needs a nursing home (the ‘institutionalized spouse’), the other spouse is at home (the ‘community spouse’), and they never planned ahead to save their assets.”

LTC Comment:  For the other side of the story on “Spousal Refusal,” see our take here:  They're Baaack, Part IV: "Abandon Your Spouse . . . Get Medicaid".

The other featured LTC Clipping laments America’s failure to expand “free” long-term care to even more seniors.

6/21/2016, “Report: How to get more benefits to seniors,” by Lois A. Bowers, McKnight's Senior Living

Quote:  “So what's keeping older adults from applying?  Stigma, for one. Medicaid and Supplemental Nutrition Assistance Program benefits carry much more stigma that Medicare and Social Security benefits, according to the survey …  ‘Concerns about estate recovery and states placing liens on homes affect applicants' willingness to apply as well,’ the report authors state, noting that such concerns can be legitimate for families applying for Medicaid coverage for long-term services and supports.

LTC Comment:  More stigma for Medicaid than Medicare?  Well, yeah, Medicaid is welfare (for which others pay taxes) and Medicare is social insurance (for which everyone pays “premiums,” actually payroll taxes.  The irony is that Medicaid has become a de facto entitlement for LTC because of easy and elastic eligibility rules, whereas Medicare is moving toward welfare status due to means-testing, i.e. charging higher income people more.  Do some people object to paying back the cost of their care from their estates (estate recovery)?  Well, yes, and other people (taxpayers) object to paying for their own care and the care of people who transfer the cost of their care to Medicaid.  This new report is a good example of the moral decay we described in “Losing Principles.”

To subscribe to our daily LTC Clippings, contact Damon at 206-283-7036 or damon@centerltc.com.

 

LTC BULLET:  THE EARLY HISTORY OF LTC FINANCING (AND WHY IT MATTERS)

LTC Comment:  The federal and state governments started funding long-term care in a limited way before Medicaid came along in 1965.  But the cost explosion didn’t occur until Medicaid made subsidized nursing home care easy to get.

The new Title XIX of the Social Security Act (Medicaid) provided federal funds to help states finance medical assistance, including nursing home care, for aged individuals “whose income and resources are insufficient to meet the costs of necessary medical services.” 

What’s really fascinating and little known is that the original Medicaid law expressly permitted elderly individuals in need of nursing home care to divest their assets with impunity in order to meet the new program’s relatively low resource eligibility limits.  Here’s the proof:

42 U.S.C. § 1382b(b) (1983) provides:  The Secretary shall prescribe the period or periods of time within which, and the manner in which, various kinds of property must be disposed of in order not to be included in determining an individual's eligibility for benefits.  Any portion of the individual's benefits paid for any such period shall be conditioned upon such disposal; and any benefits so paid shall (at the time of the disposal) be considered overpayments to the extent they would not have been paid had the disposal occurred at the beginning of the period for which such benefits were paid.[1]       

Does that citation not quite say to you:  “Go ahead, give away everything you own, and we’ll pay for your long term care”?  Right, me neither.  But the same source goes on immediately to explain:

A number of [court] decisions confirmed that states were not permitted to deny Medicaid eligibility to an applicant who had divested himself of resources for less than fair market value.  The conflict between the federal rule and state rules, which were promulgated to prevent applicants from divesting themselves of all resources in order to qualify for assistance, gave rise to litigation which prompted Congress to make a legislative attempt to resolve this problem.[2]

If you still have any doubt, check out some of these cases as listed in the source’s footnote 31:

See e.g., Blum v. Caldwell, 446 U.S. 1311 (1980); Fabula v. Buck, 598 F.2d 869 (2d Cir. 1979); Dokos v. Miller, 517 F. Supp. 1039 (N.D. Ill. 1981); Robinson v. Pratt, 497 F. Supp. 830 (D. Mass. 1980); Udina v. Walsh, 440 F. Supp. 1151 (D. Mo. 1977); Buckner v. Maher, 424 F. Supp. 366 (D. Conn. 1976).

I spot checked these citations and, sure enough, they involve courts striking down efforts by states to prohibit or penalize transfers of assets for less than fair market value for the purpose of qualifying for Medicaid.  For example, according to the decision in Buckner v. Maher, 424 F. Supp. 366 (D. Conn. 1976):

Connecticut's "transfer-of-assets" rule violates the Supremacy Clause by presuming that assets are available to welfare recipients, which are in fact not available. The statutory rule and the information requirements relating to establishing whether or not "reasonable consideration" was received for a particular transfer of property are contrary to federal law standards and found by this court to be unlawful and unenforceable.[3]

Here’s how another source describes the situation with asset transfers between 1965 and 1980:

Shortly after the creation of Medicaid and its adoption by the states, potential Medicaid recipients started exploiting "Medicaid planning" techniques. They structured assets to preserve Medicaid eligibility while retaining personal income and property above baseline levels. Congress responded to the creative lawyering surrounding Medicaid planning by passing the Omnibus Budget [sic] Reconciliation Act of 1980 (OBRA 1980). This act made asset transfers more cumbersome and increased the use of trusts to shelter funds.[4]

So, bottom line, between the passage of Medicaid in 1965 and enactment of the Omnibus Reconciliation Act of 1980 (including the Boren-Long Amendment empowered states to constrain asset transfers), there were no enforceable federal or state laws or regulations prohibiting asset transfers to qualify for Medicaid long-term care benefits.

Of course, that was only the beginning of federal efforts to control the transfer of assets problem, later broadened to include many additional techniques of “Medicaid estate planning.”  But that’s a story for another day, or if you can’t wait, read it here now, but you’ll need your user name and password to The Zone.  Lacking that, contact Damon@centerltc.com or 206-283-7036.

For now  . . .  So what if Medicaid allowed free asset transfers for its first decade and a half?  The cost of Medicaid exploded from the get-go beyond all expectations as this 1969 source explains:

The amounts expended to finance Medicaid in the first two years were surprisingly high. Estimates in 1965 of the annual federal cost of Medicaid ranged from $150 million to $238 million. Yet actual federal expenditures were $621 million in the calendar year 1966. In 1967 Congress estimated that the annual federal share would rise to $1.4 billion in fiscal 1968 and to $3.1 billion by 1972, provided no additional restrictions were placed on the 1965 program.[5]

It didn’t stop there of course and neither did the many ways people and their advisors qualify for Medicaid LTC benefits while preserving their wealth.  Medicaid expenditures as of Fiscal Year 2014 were $496 billion.  Of course, the program’s asset transfer and Medicaid planning giveaways only accounted for a portion of this cost explosion.  But direct cost of Medicaid to taxpayers is by no means the only or necessarily even the biggest problem.

Easy access to Medicaid LTC benefits after the insurable event occurred desensitized the public to long-term care risks and costs resulting in a vast decline of private revenue to LTC providers, excessive reliance on inadequate public funding, serious access and quality problems, institutional bias that stultified the private home care market, and a crowding out of major potential new LTC revenue sources such as home equity conversion and long-term care insurance. 

Consequently we find ourselves today with a public excessively dependent on a financially vulnerable and degrading welfare program for a critical human need, extended care at the end of life.  Perhaps as worrisome, our policy wonks and legislators are leaning toward new programs of even greater moral hazard by expanding government financing of long-term care. 

The lesson of the early history of Medicaid LTC financing is that when supply is free demand is infinite and consequences dire.


 

[1] Timothy N. Carlucci, “The Asset Transfer Dilemma:  Disposal of Resources and Qualification for Medicaid Assistance,” 36 Drake L. Rev. 369 1986-1987, p. 372:  [link].

[2] Ibid., footnotes omitted.

[3] Buckner v. Maher, 424 F. Supp. 366 (D. Conn. 1976): https://www.courtlistener.com/opinion/1444817/buckner-v-maher/. b

[4] Michael A. Bottar, “Robbing Peter to Pay Paul:  Medicaid Liens, Supplemental Needs Trusts and Personal Injury Recoveries on Behalf of Infants in New York State Following The Gold Decision [link],” 53 Syracuse L. Rev. 175 2003, pps. 181-2, footnotes omitted.

[5] ________, “Medicaid: The Patchwork Crazy Quilt,” Columbia Journal of Law and Social Problems, 5 Colum. J.L. & Soc. Probs. 62 1969, p. 65, footnotes omitted:  [link].