LTC Bullet:  Behind AHEAD

Friday, September 2, 2016


LTC Comment:  The people and organizations advocating a new, compulsory, payroll-financed government program to fund catastrophic LTC expenses base their arguments on dubious sources and reasoning.  Details after the ***news.*** [omitted] 


LTC Comment:  After decades of searching for a better way to do long-term care financing, leading policy wonks have homed in on . . . well . . . let the government do it.  Not exactly radical new thinking. 

Their reasoning goes something like this:  Although the risk and cost of long-term care are huge, the public just won’t take the problem seriously; they don’t buy private insurance; they end up devastated by LTC costs, impoverished and dependent on welfare, i.e. Medicaid, government’s answer to LTC financing since 1965.

So, what can we do?  We must redouble our efforts to employ government’s monopoly on the use of force to compel people to take long-term care seriously.  Let’s have a new, mandatory, payroll-financed federal program to cover the back-end catastrophic cost of LTC. 

How in the world do they end up with such a stale proposal, yet another federal entitlement program doomed to add more unfunded liabilities to a government already hopelessly submerged in debt?

They rely on survey data, simulations and modeling.  And where do they find the big data to manipulate and analyze?  Two sources.  Today’s LTC Bullet examines those sources and concludes they are highly problematical and lead to conclusions that are misleading, mistaken and misguided.  The following analysis comes from the Center’s new draft report titled “Long-Term Care Financing:  The Myth and the Reality.”

First we explain how the assets analysts discover in the survey data are either entirely exempt from Medicaid resource limits under federal law (meaning they don’t need to be spent down) or they are easily converted into exempt assets.  Then we show why the sources of the data themselves are unreliable.  Finally, we invite analysts to “ask the people who know” instead of ignoring, as they have done for decades, the testimony of Medicaid staff, financial advisors, consumers, long-term care providers, Medicaid planners, the vast legal literature on Medicaid planning, and 143 LTC Bullets on the subject.



When economists and health policy analysts claim that older people approaching the need for long-term care retain few assets and spend down rapidly, they generally . . . draw their evidence from survey data provided by the Health and Retirement Study (HRS) and its auxiliary, the Asset and Health Dynamics among the Oldest Old (AHEAD) study. 

The AHEAD has information on the value of housing and real estate, autos, liquid assets (which include money market accounts, savings accounts, T-bills, etc.), IRAs, Keoghs, stocks, the value of a farm or business, mutual funds, bonds, and other’ assets.[1]   

Noteworthy is the fact that every one of these financial holdings is either expressly exempt under federal law or easily converted into an exempt asset for purposes of Medicaid long-term care eligibility.  Homes are exempt up to between $552,000 and $828,000 depending on the state.  Additional real estate such as a vacation home or homes may easily be made exempt.

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.  . . .  Rather than sell this property, as Medi-Cal would likely advise, protect it.  . . .  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.[2]


If a couple has a second vacation home, consider having the couple rent that home and then claim the rental income as necessary for maintaining the community spouse's minimum monthly maintenance needs allowance.  If the vacation home is considered necessary for this purpose, it is no longer a countable resource.[3]

One automobile is exempt regardless of value as long as it is used for the benefit of the Medicaid recipient.  Liquid wealth such as bank accounts or securities may be converted from countable to non-countable status by purchasing exempt assets.

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.[4] 

Farms and other businesses, including the capital and cash flow of unlimited value, are exempt.

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 U.S.C. 1396(c)).[5]

Tax-deferred retirement accounts, including IRAs, Keoghs, and 401Ks, etc. are exempt if the holder is receiving a regular payout.

At age 70 ½, individuals must begin taking required minimum distributions from their IRAs, which means the IRA is in payout status. You may also be able to choose to put your IRA in payout status as young as age 59 ½ if you elect to take regular, periodic distributions based on life expectancy tables. If an IRA is in payout status, depending on your state, it may not count as an available asset for the purposes of Medicaid eligibility, but the payments you receive will count as income.[6]

Risks of Relying on HRS/AHEAD Data

While the HRS/AHEAD surveys provide the most reliable longitudinal data ever available, they are not fool proof.  Stephen F. Venti found “data quality issues” when he focused “on measurement errors in the data, particularly those arising from item nonresponse and from inaccurate respondent reports of the ownership and level of assets.”[7]  He explains “The fault lies not so much in the sample design or the execution of the survey, but is instead a consequence of the extraordinary lack of knowledge displayed by respondents.”[8]  He adds “‘Noise’ created by inaccurate reports and non-response is a problem common to all asset variables in the HRS.”[9]  Venti concludes “It is difficult to reach consensus among research studies if each author must arbitrarily decide whether to exclude, censor, or impute particular observations.”[10]  Wiener  points out that HRS “information on people who are cognitively impaired and who die is derived from proxy respondents, often relatives, who may not know about specific long-term services and supports use or Medicaid eligibility.”[11]  HRS and AHEAD data provide a very dubious foundation on which to generalize about long-term care financing policy.

There are many reasons why HRS/AHEAD respondents and their representatives might fail to report income and assets to surveyors or even purposefully misrepresent the facts.  People who have reconfigured their wealth in order to qualify for public welfare benefits may be ashamed of having done so or simply unaware that their heirs did this on their behalf.  Seniors reporting on themselves may be cognitively impaired or intimidated by their self-interested loved ones.  Heirs who benefit from preserving parents’ estates may prefer to conceal the facts.  Lawyers who do Medicaid planning are protected from disclosure by attorney/client privilege.  Long-term care providers and Medicaid eligibility staff, who often know, especially in small rural communities, which wealthy locals are taking advantage of Medicaid, often seethe, but cannot disclose the information because of legally enforced confidentiality.  Getting to the truth in such matters is extremely difficult. 

Finally, the Health Retirement Study asks the wrong question regarding wealth transfer and does not address the larger issue of Medicaid planning at all.  According to Lee, Kim, and Tanenbaum,

Specifically, the HRS asked the following question: ‘Did you (or your husband/wife/partner) give financial help totaling $500 or more in the last two years (since the previous interview) to any of your children (or grandchildren) not counting shared housing or shared food?’[12] 

There are several problems with this question.  Transfers of assets relevant to qualifying for Medicaid long-term care benefits are not necessarily done to provide “financial help” to children or grandchildren.  The question is too narrow.  Looking back only two years is insufficient.  Medicaid’s two-year asset transfer look back period ended with the Medicare Catastrophic Coverage Act of 1988 when it became 30 months.  Effective with the Deficit Reduction Act of 2005, the asset transfer look back period is five years.  Finally, focusing narrowly as the question does on asset transfers ignores the much larger issue of Medicaid planning as Lee, Kim and Tanenbaum to their credit also observe,

Medicaid recipients will tend to underreport wealth transfers that occurred prior to applying for Medicaid. In addition, elder law attorneys have devised a wide variety of sophisticated asset-sheltering instruments, including irrevocable annuities, life estates, and ''spousal refusal'' testaments in the practice of Medicaid estate planning. These instruments, in fact, make up the bulk of Medicaid estate planning activity and are not captured by the AHEAD survey.[13]

Why Not Ask the People Who Know?

Besides passing over the formal legal literature on Medicaid planning, long-term care scholars have paid little attention to the voluminous testimony of Medicaid staff, financial advisors, Medicaid planners, consumers, and long-term care providers about the ease and impunity with which middle class and affluent people take advantage of Medicaid long-term care benefits.  In the 1990s, The Gerontologist published several articles quoting sources like these on that topic,[14] but very little such information has found its way into the peer-reviewed literature since.  Not so with the non-peer-reviewed literature and the popular media, which abounds with examples. 

Since May of 1998, for example, the Center for Long-Term Care Reform has published 143 articles about Medicaid planning covering what it is, who does it, media coverage, general public opinion and what various groups of professionals think about it, as well as state and federal legislative efforts to curtail it.[15]  . . .  Unfortunately, most academic scholars either do not read such material or they think they can ignore anything in it, however conclusive, that contradicts the conventional scholarly wisdom about long-term care financing.  Such arrogance has consequences.  Had no one thought outside the peer-reviewed box about astronomy, most people would still believe the sun revolves around the earth.


[1] Mariacristina De Nardi, Eric French, and John Bailey Jones, “Medicaid Insurance in Old Age,” National Bureau of Economic Research Working Paper 19151, May 17, 2016, p. 10;  To be published in the American Economic Review.
[2] Michael Gilfix, "Practice Tip:  Protect Non-Residential Real Property and Medi-Cal," Gilfix ElderLaw News Alert, Vol. VII, No. 1, February 1997, p. 3
[3] John J. Regan, Tax, Estate & Financial Planning for the Elderly, Matthew Bender, New York, 1991, 1993 update, p. 10-68
[4] Lawyers Weekly, September 27, 1993
[5] Rebecca L. Shandrick, "The Family Business:  An Exempt Resource for Medicaid Eligibility," The ElderLaw Report, Vol. 4, No. 3, October 1992, pps. 1-4, emphasis in the original.
[6] ElderLawAnswers, “Can an IRA Affect Medicaid Eligibility?,” article last modified 03/17/2015, cited August 9, 2016;
The relevant Social Security Administration, Program Operations Manual System (POMS) reference is “SI 01120.210 Retirement Funds,”
[7] Steven F. Venti, “Economic Measurement in the Health and Retirement Study,” Dartmouth College and NBER, January 21, 2011, p. 3;
[8] Ibid., p. 2.
[9] Ibid., p. 5.
[10] Ibid., p. 4.
[11] Joshua M. Wiener, et al., “Medicaid Spend Down:  New Estimates and Implications for Long-Term Services and Supports Financing Reform: Final Report,” prepared for the SCAN Foundation by RTI International, Research Triangle Park, North Carolina, March 2013, p. 50;
[12] Jinkook Lee, Hyungsoo Kim, and Sandra Tanenbaum, “Medicaid and Family Wealth Transfer,” Gerontologist, Vol. 46, No. 1, 2006, p. 9
[13] Ibid., p. 12
[14] Examples include Stephen A. Moses, “The Fallacy of Impoverishment,” Gerontologist, Vol. 30, No. 1, 1990;
Leslie Walker, Cynthia Gruman, and Julie Robison, “Medicaid Estate Planning:  Practices and Perceptions of Medicaid Workers, Elder Law Attorneys, and Certified Financial Planners, Gerontologist, Vol. 38, No. 4, 1998, pps. 405-411,;
Leslie Walker, Cynthia Gruman, and Julie Robison, “Medicaid Eligibility Workers Discuss Medicaid Estate Planning for Nursing Home Care,” Gerontologist, Vol. 39, No. 2, 1999, pps. 201-208; 
[15] Find 143 articles on Medicaid planning here: