 LTC Bullet: Annuity Blues Friday, November 15, 2013 Santa Fe, New Mexico— LTC Comment: Medicaid planners use annuities to disappear megabucks and they (the planners and the annuities) drive the good Medicaid lawyers crazy. After the ***news.***
*** NOVEMBER IS LONG-TERM CARE MONTH SEVEN TIMES OVER according to a press release today highlighting these seven programs: Long Term Care Awareness Month, National Home Care Month, National Family Caregivers Month, National Hospice and Palliative Care Month, National Alzheimer's Disease Awareness Month, Warrior Care Month and the 3 in 4 Need More campaign. LTC Awareness month (November) gets all too little attention in the national media. Thanks to LTCFP for pushing these important programs into the limelight. *** *** SEND STEVE TO HEALTH CARE ROUNDTABLE in Richmond, VA. The Thomas Jefferson Institute for Public Policy (TJI) is about to publish our major report titled “Medicaid and Long-Term Care Financing: A Case Study in Virginia.” This will introduce the public policy world to our new “Index of Long-Term Care Vulnerability” which will enable analysts to answer the question objectively: can LTC financing survive in its current and tending form? TJI is sponsoring an important “Health Care Roundtable” on December 12. They’d like Steve Moses to present our report’s findings and join the discussion with some of the top health care policy analysts in the country, including Grace-Marie Turner of the Galen Institute, Michael Tanner of the Cato Institute and Bob Helms of the American Enterprise Institute. The Center for Long-Term Care Reform seeks to raise funds to enable Steve to make this trip, give this presentation, and contribute to the important health policy conversation. Special deal: Pledge any amount $25 or above to support this important project and we’ll comp you for a year of the Center’s clipping service (usually $120 minimum; valid for new clipping service subscribers only) at no extra charge. Pledge $50 or more and we’ll upgrade your Center membership to the next higher individual level, e.g. Regular membership ($150 per year) goes to Premium Membership (usually $250 per year); Premium goes to Premium Elite or Regional Representative ($500 per year, for those who qualify). Check out our “Membership Levels and Benefits” for details on all membership levels. If you can help, let Damon know at damon@centerltc.com or 206-283-7036. He’ll subscribe you to the Clippings or upgrade your membership immediately, even while your check is in the mail. We’ll gladly make similarly attractive special offers to corporate donors willing to pony up somewhat larger amounts. Just email Steve at smoses@centerltc.com or call him at 425-891-3640 to discuss and negotiate a bonus benefit most attractive to you and your company. Our goal is to raise $1,500 to support this trip and opportunity. Thanks in advance for your consideration and support. ***
LTC BULLET: ANNUITY BLUES LTC Comment: I’m just back from the 46th Annual Training and Continuing Education Conference of the American Association of Public Welfare Attorneys. Dan Hart, Assistant Attorney General from Iowa, and I presented a program titled “Medicaid Eligibility for Long-Term Care: If You Build It, They Will Come.” We explored the collateral damage done to the long-term care safety net by aggressive Medicaid planning. Evidently we succeeded. Two members of the audience came up to me afterwards to say they'll keep their LTC insurance coverage after all, despite harboring recent doubts. In the course of the conference, I learned about extraordinary efforts some states have made to curtail the abuse of one especially egregious Medicaid planning technique. Special Medicaid-friendly annuities make hundreds of thousands of dollars disappear from spend down scrutiny. While conducting state-level studies of Medicaid and long-term care financing, I’ve frequently encountered examples of this loophole. Search for “annuities” in any of our many state reports here and you’ll see what I mean. Here’s one example from our November 2012 study titled “The Maine Thing About Long-Term Care Is That Federal Rules Preclude a High-Quality, Cost-Effective Safety Net.” The use of annuities to qualify affluent Mainers, even “millionaires” according to eligibility workers interviewed for this study, is pervasive. This technique is used in two ways. For married applicants, the couple’s otherwise disqualifying wealth is transferred into an annuity for the community spouse strictly in keeping with allowable federal guidelines, which require actuarial soundness and making the state the beneficiary of residual funds. Virtually any amount of money can be transferred into such an annuity rendering the institutionalized applicant immediately eligible. The annuity pays out to the community spouse within the life expectancy of the institutionalized spouse, often in less than one year. Workers cited one example of a $450,000 annuity which paid out at a rate of $17,000 per month until all the sheltered funds were back with the community spouse and hence uncounted, the eligibility determination having already been made.
The second way annuities are used to qualify otherwise ineligible applicants for MaineCare involves single people with excess assets. The “reverse half-a-loaf” strategy works as follows. The applicant gives away half his or her disqualifying assets thus creating an eligibility penalty equal to the amount of assets transferred for less than fair market value divided by the average cost of a nursing home in Maine. With the other half of the assets, the applicant creates an annuity in his or her own name and uses the proceeds of the annuity to pay for care during the duration of the penalty period. When the penalty period expires, the annuity runs out, and the applicant is eligible for MaineCare LTC benefits having protected half the original assets from MaineCare’s spend down requirement. (pps. 10-11, footnotes omitted) There is virtually no limit to the amount of assets that can be divested in this way. But wait, you demur. Didn’t the Deficit Reduction Act of 2005 (DRA ’05) fix the Medicaid annuity problem? Well, yes, partially. It put some new restrictions on the use of annuities to qualify for Medicaid long-term care benefits. Here’s how I summarized the new provisions in a contemporaneous “LTC Bullet: The Brave New World of LTC Financing.”
ANNUITIES AND OTHER LARGE TRANSACTIONS So, how is it that Medicaid planners can still use annuities to make huge amounts of assets go poof? The method discussed at the conference depends on the difference between Medicaid’s treatment of income and resources for married couples. Spousal impoverishment rules protect a certain amount of a couple’s joint assets for the healthy community spouse. But, as long as it is done before the Community Spouse Resource Allowance (CSRA) is determined at the time of Medicaid application, the rules also allow the transfer of an unlimited amount of assets from an ill, institutionalized spouse to the community spouse for the “sole benefit” of the community spouse. So, to get around the spousal impoverishment CSRA limits, Medicaid planners have their clients do a sole benefit transfer before applying for Medicaid. Then they have the community spouse purchase an annuity that meets all the federal requirements delineated above. They argue this is not a penalizable transfer of assets because fair market value, in the form of an income stream from the annuity, has been received. Now, however, instead of having resources which would be limited by the spousal impoverishment rules, the community spouse has an income stream, which federal Medicaid rules consider unavailable to the institutionalized spouse. At this point, the ill spouse can apply for Medicaid with impunity having transferred literally unlimited amounts of money into the sole ownership of the healthy, community spouse. Three states have challenged such annuities in three different court cases. They argued variously that such annuity machinations are really inappropriate asset transfers or that they violate the letter and intent of the Medicaid law in other ways. It seems to most stewards of the Medicaid LTC safety net that for the wealthy to be able to shift a million dollars or more out of the way of spend down requirements is a distortion and perversion of Medicaid’s avowed purpose, to be a safety net for people genuinely in need. But the courts did not agree. The law is the law, they said. Efforts to persuade the Centers for Medicare and Medicaid Services to fix the problem and appeals to Congress to fix it in statute have gone nowhere. So the practice continues, rendering big fees to Medicaid planners and diverting desperately needed public funds from the poor to the affluent. We at the Center for Long-Term Care Reform see the annuity problem and many other abuses of Medicaid’s loose eligibility rules day in and day out. Fighting for laws and public policy that preserve scarce public resources for the needy and encourage everyone else to plan responsibly for long-term care is our stock in trade. It’s sad to see the highly qualified and superbly competent attorneys who represent America’s public welfare programs struggle in frustration to make those programs work to the benefit of their rightful beneficiaries. I applaud their efforts and we’ll continue to do what we can at the Center to support them with thoughtful and persuasive public policy research and analysis. |
