LTC Bullet: Half a Century of Bad Medicaid LTC Policy
Friday, August 5, 2016
LTC Comment: Medicaid long-term care policy is a classic story of good
intentions leading to unfortunate consequences, after the ***news***
LTC BULLET: HALF A CENTURY OF BAD MEDICAID LTC POLICY
LTC Comment: Political satirist P. J. O’Rourke says “If you think health care is expensive now, wait until you see what it costs when it’s free.” For all intents and purposes, long-term care has been free—or more precisely, very highly subsidized—since 1965. So, by now, we have a pretty good idea of what free long-term care costs—a lot!
I spent the last couple days compiling information and quotes that explain how Medicaid made long-term care free. Some highlights follow. Find the whole sorry story here: http://centerltc.com/Bibliography.htm. In a nutshell: Medicaid made nursing home care “virtually free for life” to anyone who couldn’t afford it. From 1965 until 1980, anyone could give away everything with impunity to qualify. Starting in 1980, many Congresses and Presidents have tried repeatedly to target Medicaid’s scarce resources to people in need. But Medicaid planners have always circumvented legislative intent in order to divert critically needed funds from the poor to their affluent clients.
A fascinating historical pattern evolved over the past 50 years. The U.S. suffers a recession, tax receipts plummet, welfare rolls skyrocket, public budgets go bust, and government clamps down on Medicaid planning. Then recovery sets in, tax receipts go back up, welfare rolls recede, and the politically sensitive rules intended to protect Medicaid for the poor go by the wayside. Then another recession occurs, and so on.
What’s different this time around is that after the Great Recession of 2007 to 2009, two things have not happened that always happened before. We’ve seen no new measures to discourage Medicaid planning abuses and we’ve experienced very little economic recovery. Why? Federal debt and unfunded entitlement liabilities have increased enormously, but this time around no one seems to care. Artificially low, Fed-induced interest rates have enabled careless deficit spending and political denial of the historically inevitable consequences. Hence no new legislation like DRA ’05 to control Medicaid planning.
Will the piper have to be paid? Will the next recession, following the biggest credit bubble in history, blow up federal entitlements, including Medicaid, and lead to a whole new world of long-term care financing? Or can the government and people go on forever defying economic gravity, borrowing to fund life styles they cannot afford, and pushing the unfunded liabilities into the future? That’s the climax we’ll have to wait to see, but you can follow the history leading up to it right now.
Excerpts from a Bibliography of Books, Elder Law Treatises, and Law
Journal Articles on Medicaid Planning Listed Chronologically
July 30, 1965: President Lyndon Johnson signed Medicaid into law providing “medical assistance on behalf of . . . aged, blind, or permanently and totally disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services.”
“Because of the attention focused on Medicare, Title XIX was passed by
Congress with little public notice. This relative obscurity was lost when
the cost of New York State's Medicaid program (effective May 1, 1966)
became known. Federal cost estimates for the entire Medicaid Program were
shown to have been grossly underestimated." (p. 63)
January to July 1980: Recession.
December 5, 1980: President Jimmy Carter signed the Omnibus Reconciliation Act of 1980, imposing the first restriction on asset transfers done in order to qualify for Medicaid.
Spring 1981: First law journal article on Medicaid planning published:
"Careful planning even under adverse state law will still be able to
achieve the goal of excluding an applicant's resources for purposes of
determining Medicaid eligibility."
July 1981 to November 1982: Recession
September 3, 1982: President Reagan signed the Tax Equity and Financial Responsibility Act authorizing state Medicaid programs to penalize asset transfers, place liens on real property, and recover benefits from the estates of deceased recipients.
"With long-range planning, the cooperation of relatives, some good health,
and maybe a little luck, couples will be in a position to negotiate
between the rock and a hard place that Congress has placed in the Medicaid
"By helping clients plan before the occurrence of disability, by advising
clients to make permissible transfers of assets, and by making them aware
of relevant administrative regulations on deeming, lawyers can aid in
preserving funds to the greatest extent possible."
April 7, 1986: President Reagan signed the Consolidated Omnibus Budget Reconciliation Act of 1985 restricting the use of Medicaid Qualifying Trusts.
"Many people assume that a family's resources must be virtually exhausted
before any help will be available through the Medicaid program. In fact,
people in Washington who need nursing home care can benefit from medicaid
without devastating their families."
"...many individuals find it desirable to shelter their income and assets
in order to remain eligible for public assistance. A trust is often
recommended to achieve such a shelter.... Trust mechanisms have been and
will continue to be an important aspect of planning for Medicaid
July 1, 1988: President Ronald Reagan signed the Medicare Catastrophic Coverage Act of 1988 making asset transfer penalties mandatory and expanding the look-back period to 30 months.
"So is there any practical way to juggle assets to qualify for
Medicaid--before losing everything? The answer is yes! By following the
tips on these pages, an older person or couple can save most or all of
their savings, despite our lawmakers' best efforts...Here are the best
options: Hide money in exempt assets...Transfer assets directly to
children tax-free...Pay children for their help...Juggle assets between
spouses...Pass assets to children through a spouse...Transfer a home while
retaining a life estate...Change wills and title to property...Write a
durable power of attorney...Set up a Medicaid Trust...Get a divorce...."
"...a common misconception among applicants is that excess
resources must be spent only on doctors, hospitals, nurses, medication,
and nursing homes. Nowhere in the law is this indicated. Quite
literally, an applicant could spend all of his or her assets on something
'frivolous,' such as a 90th birthday celebration of Ziegfield Follies
proportion and this should not be cause for denial of Medicaid, because
the applicant received 'value' for his or her money."
July 1990 to March 1991: Recession
"It's common...for people to have undocumented and untraceable assets,
such as cash and bearer bonds. If these items were to be surreptitiously
transferred, their existence would probably not become known to the
authorities. No doubt it is improper to tell clients to make such
transfers, but the temptation to hint at them, or to scrupulously avoid
finding out if the client has a safe deposit box or undocumented
assets, however reprehensible, is strong."
"While there are rules against giving away most assets, there are no
prohibitions against simply spending money...options might include travel
to visit relatives or see the world, or one last tour of Reno's finest
"The most common problem put to the elderlaw practitioner is how to keep
an older person's assets within the family and yet allow the person to
qualify for Medicaid."
"It is true, almost to the point of being a cliche, that benefit programs,
whether public or private, are bonanzas for lawyers."
"An alternative to resource gifting and conversion is the purchase of an annuity...the Medicaid estate can usually be reduced by the amount of countable assets used to purchase an annuity." Jonathan M. Forster, "Favorable Investment Vehicles for Public Benefits Planning (Part 1: Resource Planning and the Annuity," Elder Law Advisory, No. 7, October 1991, p. 2
"The new amendment to the Social Security Act (Pub. L. No. 101-239, 103
Stat. 2465, amending 42 U.S.C. 1382b(a)(3)) allows for the
exemption of all income-producing property used in a trade or
business.... In other words, there is now an unlimited exemption
for such property.... Property used in a trade or business is excluded
regardless of its value or rate of return.... Critical provisions for
advocates to note are that liquid resources used in the trade or business
may be excluded from countable resources, and that no limit is placed on
such resources (POMS SI 01130.501C.5). Thus, advocates may exclude large
amounts of cash in business operating accounts, trust accounts, and the
like, that are necessary for use in the business.... Ultimately, Medicaid
recipients will want to transfer their property to avoid the imposition of
a lien and recovery from the estate for Medicaid expenditures. Since
business, farms, and ranches in current use are exempt property, they can
theoretically be transferred without penalty. No restrictions are placed
on the transfer of this exempt property, unlike the transfer of a home (42
"We have committed an act of piracy--we have broken into the Fort Knox of
Government benefits and uncovered the best legal strategies available to
you for claiming your share of the gold from the Government's treasure
chest.... We'll explain how you can 'strike gold' in the Social Security
[including SSI], Medicare, and Medicaid programs.... With this book we
are handing you the treasure map, deciphered from a mine of unintelligible
government rules and regulations."
"Another asset preservation strategy is for a community spouse to 'just
say no' to paying for the other spouse's nursing home care. Say Mrs.
Jones holds more money than the state allows for her husband to qualify
for Medicaid coverage. If it can be shown that she simply refuses to
spend her money on her husband's care, Medicaid coverage will be allowed
for Mr. Jones if other easily met requirements are satisfied. This
approach has been particularly successful in New York."
August 10, 1993: President Bill Clinton signed the Omnibus Budget Reconciliation Act of 1993 making estate recovery mandatory, expanding the look back period to five years, eliminating the cap of asset transfer penalties, and prohibiting “pyramid divestment.”
"Old Tactics That are Still Good: Give Assets Away. Giving assets
away [three years in advance] is still the simplest and easiest way to
deal with the problem, although it leaves the elderly client totally
dependent upon the good faith of their children or others. Spend
Assets on Exempt Items. Another tactic is to spend the assets on
property that won't count for Medicaid purposes...[such as] a home...a new
car...household goods...funeral expenses...and...a burial plot...A client
can also reduce his net worth by spending money on travel, which many
elderly people enjoy. Pay Children for Their Help. Be sure that
any payments to children for their services are pursuant to a written
agreement, so it's clear that they are not just gifts. Give Assets to
the Other Spouse, a Minor Child, or a Child Who is Disabled. [Such
gifts] will not be penalized. The Other Spouse Can Petition for an
Increased Asset Allowance. The other spouse can argue that additional
assets are needed to generate income...[thereby sheltering in one example
an additional] $200,000. The Other Spouse Can Refuse to Support the
Applicant.... In New York, this tactic can be successful even if the
spouse's refusal is completely artificial; it is used in that state
frequently. Divorce.... The idea is for the spouse to be given a
larger portion of the couple's assets, with little or no support awarded
to the applicant. Sign a Durable Power of Attorney. All clients
should sign a durable power of attorney so that if they become
incapacitated, someone else can shelter their assets."
"Medicaid is a middle-class entitlement, just like the deduction for mortgage interest and IRAs." Mark Heffner, former Rhode Island state legislator and RI Coordinator of NAELA in Providence, RI Journal, February 22, 1994
August 21, 1996: President Bill Clinton signed the Health Insurance Portability and Accountability Act (Throw Granny in Jail Law) making it a crime to transfer assets for less than fair market value for the purpose of qualifying for Medicaid.
"The chart at the end of these materials labeled 'The Home in Medicaid
Planning'...contains a matrix with 10 rows and 8 columns. Each row
contains a method of protecting the family home from Medicaid estate
recovery. Each column contains a Medicaid or tax issue which must be
considered when selecting a method of protecting the family home."
"As a practical matter, if your wife needs nursing home care in the future you may want to privately pay the nursing home (three months up front) for purposes of expediting your wife's placement in a nursing home, unless she is eligible for Medicare benefits. Once your wife is in the nursing home and eligible for Medicaid, you should immediately proceed to file for Medicaid Nursing Home Care.... Since your assets are in excess of the CSRA [$652,550] at the time your wife files a medicaid application for nursing home care, then it is critical that you submit a 'Spousal Refusal' to contribute your assets to pay for her care, or else she will be denied Medicaid.... We are available to assist you in the preparation and filing of Medicaid applications and the coordination of Medicaid coverage, including monthly budgeting.... If you receive a denial of benefits...[o]ur firm is available to assist you with regard to any Medicare claims and appeals.... [S]hould your wife require such care, you can obtain Medicaid eligibility for her by transferring assets into your name and your utilization of spousal refusal.... Another alternative would be for you to purchase an annuity with the assets in excess of the CSRA.... This approach will allow your wife to qualify for nursing home care without a transfer penalty and without spousal refusal.... Your wife can transfer her assets into a trust for your sole benefit. This transfer would not subject her to a Medicaid period of ineligibility.... [T]he CSRA should be enhanced to $200,000 from $76,740.... If the consultation exceeds the one-half hour, then you will be charged based upon my hourly rate of $275 and my legal assistant's rate is $100." NAELA Conference 1996 Proceedings, Session 9, pps. 34-38, 46
"The PAN [private annuity] and the SCIN [Self-Canceling Installment Note]
are clearly effective but highly underutilized tools in the Medicaid
planning area. As practitioners become more familiar with their tax,
legal, and Medicaid planning benefits, their popularity will undoubtedly
increase to the point where Congress will again change the laws."
"By using a LCC [Life Care Contract], the applicant is outside the purview
of the disqualifying transfer section of Title 42 because the contract
anticipates a transfer for value and not a gift. Therefore, to the extent
that the elder's assets are transferred pursuant to this contract, the
elder will incur no period of ineligibility.... The LCC is a transfer for
value and can either be structured as a lump sum transaction where the
entire property is transferred at one time, or can be structured to payout
on a month to month basis.... Using this one payment method, an elder can
transfer a large number of assets and shortly thereafter qualify for
Medicaid if the caregiver can prove that the medical condition causing the
disability was totally unanticipated (massive stroke).... IT DOESN'T
MATTER IF MOM HAS A MASSIVE STROKE AND IS A CANDIDATE FOR LONG TERM CARE
SIX MONTHS LATER...."
"Many of our clients own a second piece of real property--a summer home, a
mountain cabin, an investment. It is typically viewed as an impediment to
Medi-Cal eligibility when one spouse enters a nursing home. Assume that a
couple's second (non-exempt) residence is worth $225,000 and that other
cash assets are relatively modest, perhaps only $80,000. Rather than sell
this property, as Medi-Cal would likely advise, protect it. In tallying
their assets, the appraised value, not the fair market value,
determines the value of the real property asset for Medi-Cal purposes.
Assume further that the appraised value is $40,000, entirely likely in
light of [California] Proposition 13. The community spouse, the spouse
living at home, could take out a loan in the amount of $40,000 and, for
purposes of Medi-Cal, reduce its effective value to $0. The borrowed
money could then be used to add on to the residence, buy needed items,
invest in other exempt resources, or be protected by an increased
Community Spouse Resource Allowance (CSRA) order."
"Cemeteries may do a good or bad job of maintaining grave sites. And they
may do a good job today, but drop the ball years from now. A new service
is being offered to provide assurance that sites will be maintained for
the next 25 years. Depending on the plan purchased, the one-time fee
ranges from $3,800 to $13,500. The company offering the plan, Westland
Perpetual Trust, Inc., reports that payment of the fee has been permitted
as a legitimate Medicaid spend down. The service is offered nationwide."
"Medicaid planning is still practiced by competent people of all
socio-economic classes in all fifty states.... In this article, we argue
that guardians should be permitted to perform Medicaid planning for their
wards.... [T]he term 'Medicaid Planning' is used in this article to mean
the process of lawfully rearranging an individual's assets so that the
individual qualifies for Medicaid under the law while the assets are
sheltered for use by a spouse, children or others.... These
techniques...include: divesting assets generally, transferring assets
between spouses, transferring assets to trusts, converting assets, and
divorcing a spouse.... [T]he couple may avoid a claim by the state to
recover the Medicaid payments by transferring all spousal assets to the
sole ownership of the community spouse after the institutionalized
spouse's application for benefits has been approved.... Another
sheltering strategy is to convert available, countable assets into
noncountable exempt assets. For example, money in checking or savings
accounts may be used, without creating a period of ineligibility, to
purchase or improve a home, pay off a mortgage, buy a cemetery lot,
pre-pay funeral services, pre-pay residence-related taxes and insurance,
or even pay outstanding bills, including legal fees.... Divorce is one of
the more extreme Medicaid planning strategies. A successful divorce, in
which both parties are represented by independent counsel, and containing
an agreement in which most or all of the couple's assets are given to the
community spouse, can result in almost immediate Medicaid eligibility for
an institutionalized spouse.... The mere fact that Congress and the
states have enacted statutes and regulations expressly permitting and
endorsing Medicaid planning is clearly an expression of the public policy
to allow such planning."
August 5, 1997: President Bill Clinton signed the Balanced Budget Act (Throw Granny’s Lawyer in Jail Law) repealing the criminalization of asset transfer to qualify for Medicaid, but making it a crime to recommend asset transfers for the purpose of qualifying for Medicaid in exchange for a fee.
"Q: Can my parents give away a part of their life savings and still
qualify for Medicaid? A: Yes. The law lets people give a portion of
their savings to children or others to protect those funds from being
tabulated as assets. Giving away money can help your parents reduce their
funds to a level that makes them eligible for Medicaid. Q: How else can
my parents protect part of their life savings? A: Here are three of the
most popular planning strategies. ...1. Put money into exemptions [i.e.
home improvements, a new car, etc.]. ...2. Create specialized trusts.
Medicaid permits the creation of a variety of specialized trusts that
preserve assets. Your parents might transfer their home to an irrevocable
Medicaid trust, which allows them to live at home for life, obtain
Medicaid coverage if they must enter a nursing home, pass the residence to
heirs at death, and avoid capital-gains taxes. ...3. Purchase an
immediate Medicaid annuity or promissory note. Let's return to the
example of your parents with $100,000 in assets when dad enters a nursing
home. Your mom takes $50,000 of that and buys (in her name) an immediate
Medicaid-qualified annuity from an insurance company. ...Dad qualifies
for Medicaid immediately, and Mom remains financially secure because she
keeps all the income. She may even save and accumulate the annuity
payments without jeopardizing her husband's Medicaid coverage."
March 2001 to November 2001: Recession
“True, Medicaid planning remains a core element in any elder law practice
and is probably the leading source of clients and revenues for almost all
elder law attorneys.” (pps. 3-4)
“Unfortunately, members of the Medicaid planning bar have sometimes been
their own worst enemies. For example, at the May 1996 Symposium of the
National Academy of Elder Law Attorneys, two prominent NAELA members (one
a former President of the organization) gave a presentation on Medicaid
planning. Using the format of a skit in which other NAELA members played
the roles of the family, the presenters took the audience through a
session in which an elderly couple, whose net worth exceeded $750,000, was
counseled on how to arrange their affairs to attain Medicaid eligibility.
Among the assets in the couple's portfolio was a vacation home. The skit
became fodder for critics of Medicaid eligibility planning and indeed was
widely criticized by other NAELA members.” (p. 135)
February 8, 2006: President George W. Bush signed the Deficit Reduction Act placing the first cap ever on Medicaid’s home equity exemption, limiting the half-a-loaf loophole, amending the annuity rules, and unencumbering the Long-Term Care Partnership Program.
“Can an elderly husband really refuse to support his wife in a nursing
home by shifting the financial burden to Medicaid? Yes, says the U.S.
Court of Appeals for the Second Circuit, by employing a Medicaid-planning
strategy called ‘spousal refusal.’
“Now that the annuity rules have been greatly clarified, the annuity
industry will likely accept this gift from Congress and develop annuity
products which comply with DRA.” (p. 17)
December 2007 to June 2009: The Great Recession
“President George W. Bush, in a statement made when he signed the DRA,
“While Medicaid was arguably created as a ‘safety net’ program with the
sole purpose of providing health care for the poorest members of society,
it is common for Medicaid to pay for LTC services for elderly individuals
from a variety of economic backgrounds.” (p. 358)
“As discussed more fully in Section IX purchasing an annuity for the
community spouse with excess resources can immediately establish
eligibility of the institutional spouse irrespective of the amount of
excess resources.” (p. 169)
“Gifting and Waiting Out the Look-Back Period or the Ineligibility
Period” (p. 188)
“This Article suggests that the United States also maintains a secret
welfare state. The secret welfare state exists because of lawyers'
ubiquitous use of questionable practices in representing clients before
benefit-granting government agencies, which enable thousands of
individuals to collect public benefits who may not qualify for them.” (p.