LTC Bullet: On the Ethics of Medicaid Planning

Friday, August 18, 2017


LTC Comment: Is Medicaid planning ethical? Reasonable people can disagree. But is that the right question to ask? If not, we need to dig deeper.


LTC Comment: As I perused the New York Times yesterday morning, I noticed an article titled “The Ethics of Adjusting Your Assets to Qualify for Medicaid.” Thinking it might be a follow up to Ron Lieber’s thoughtful column on the subject from last month, I clicked through. But no, it was the same column he published on July 21, which garnered a swarm of replies, thoughtful and otherwise. I passed over the piece originally with nothing more than an LTC Clipping. But re-reading it now, I think it deserves a fuller reply. What follows are quotes from Mr. Lieber’s NYT column followed by our comments.

Lieber/NYT: “At any given moment, there is a large group of citizens who want nothing more than to make absolutely certain that they are impoverished enough to qualify for Medicaid sooner rather than later. Someday, you might be one of them.”

LTC Comment: Sad, but true.

Lieber/NYT: “Welcome to the (perfectly legal) world of Medicaid planning, the plain-vanilla term for the mini-industry of lawyers and others who help people arrange their financial lives so they don’t spend every last dime on a nursing home. Once properly impoverished under the law, then Medicaid, which gets funding both from your state and the federal government, picks up the tab.”

LTC Comment: Right, but there is an important nuance. Most people qualify quite easily for Medicaid long-term care benefits without spending down assets for care and without any special, lawyer-assisted planning. Only fairly prosperous people need to resort to Medicaid planning. That’s why Medicaid ends up paying for all or part of 80 percent of nursing home bills even though it pays for only a little more than 60 percent of nursing home costs. The key point here is that if an affluent person qualifies for Medicaid, his or her private income will pay most or sometimes all of the bill, but the nursing home receives only the Medicaid rate of reimbursement, on average less than the cost of providing the care. That reality drags down care quality for all, the genuinely needy and the artificially self-impoverished alike.

Lieber/NYT: “In my first Medicaid column on June 30, I asked for your questions about the program, aging and long-term care, and you sent me more notes about the ethics of Medicaid planning than on nearly any other topic. About half of you were outraged by the ethical implications, and the rest wanted to know where you could sign up for it.”

LTC Comment: Nationally syndicated financial columnist Jane Bryant Quinn wrote many columns excoriating Medicaid planners for artificially impoverishing their clients. She told me once that she hesitated to write any more such columns, because no matter how strongly she criticized the practice “my phone would ring off the hook with people wanting to find a Medicaid planner.”

Lieber/NYT: “The debate is not new, though it happens to be the rare topic on which the editorial boards of The New York Times (“Pretending to Be Poor”) [1996] and The Wall Street Journal (“Medicaid for Millionaires”) [2005, quoting Steve Moses] have agreed over the decades.”

LTC Comment: Noteworthy is the timing of both those editorials. The New York Times editorialized against Medicaid planning in 1996, the year Congress passed and President Clinton signed the Health Insurance Portability and Accountability Act (HIPAA ’96) which criminalized Medicaid planning, but became known as the “Throw Granny in Jail Law,” and was quickly repealed and replaced by the “Throw Granny’s Lawyer in Jail Law” (Balanced Budget Act, BBA ‘97), which targeted Medicaid planners, but was later deemed unenforceable. 

The Wall Street Journal column was published in 2005 as I was spending half time in Washington, DC educating anyone who would listen about the need to curtail Medicaid planning and give the welfare program back to the poor. We won that fight when the Deficit Reduction Act (DRA ’05) was signed into law capping Medicaid’s home equity exemption for the first time and making the transfer of assets rules longer and stronger.

Lieber/NYT: “Did I mention the need for a qualified lawyer? If you want to do some homework first, the book “How to Protect Your Family’s Assets From Devastating Nursing Home Costs” will give you a sense of what questions you need to ask. However, you may want nothing to do with this. It would not surprise K. Gabriel Heiser, the lawyer who wrote the book. He’s heard from colleagues over the years who wanted no part of this work. This confused him, he said in an interview this week, given that many of them handled estate planning for wealthier clients. There, they helped people avoid paying millions to the government, whereas Mr. Heiser’s work merely helps clients get the government to pay a few hundred thousand for care on their behalf.”

LTC Comment: Comparing tax planning with Medicaid planning is commonplace and wrong. There is no moral equivalency. Legitimate tax planning results in full payment of all taxes legally due, but no more. Medicaid planning results in someone who could have paid privately for top quality long-term care in the most appropriate venue ending up in a nursing home dependent upon a welfare program notorious for paying providers too little to ensure quality care.

Lieber/NYT: “The retorts are numerous. I heard several versions of the following in recent weeks: I’m a taxpayer and paid into this system. I was thrifty, and my neighbors were not. They went on vacation. In fact, I watched them go when I was home at Christmas, and they came back with suntans. And now my heirs should get nothing? To accuse me of gaming the system is absurd; I just don’t want to be taken by it.”

LTC Comment: I’ve heard that argument many times over the years, as often as not from hypocritical fiscal conservatives who want to have their ideological cake and eat it too. Their reasoning is specious and no justification for Medicaid planning. Think of it instead as an indictment of public policy that rewards failure to save, invest or insure for long-term care and punishes responsible planning.

Lieber/NYT: “Here, Medicare pays the surgery and drug bills for people with heart disease and cancer. But dementia patients . . . need expensive supervision, which Medicare generally doesn’t pay for. That’s not fair, one might argue, so doing everything legally possible to get a dementia patient eligible for Medicaid is like a form of political protest that corrects an inequity.”

LTC Comment: The problem with this argument is that Medicare is fraught with trillions of dollars in unfunded liabilities. We’ll likely lose Medicare for acute care before we gain more government funding for long-term care. Undermining Medicaid by overloading it with people who could have, would have and should have paid their own way helps no one, least of all the truly needy who genuinely need Medicaid.

Lieber/NYT: “Then there are the parents who take the estate they bestow on their children as a point of pride. One adult child, who did not want to be named because her father is so emotional on the topic, said that he insisted on a [Medicaid planning] trust even though she and her sibling did not ask for any money. . . . All he has done is sweat and scrimp and save so he could leave something behind. Any discussion about not doing so causes him to cry and have panic attacks. So should his daughter really have tried harder to talk him out of a trust?”

LTC Comment: Well, on the other hand, I personally struggled to afford the premiums for private long-term care insurance on both of my parents, myself and my late wife. Should I have to pay for this man also so his children can get an inheritance they evidently neither need nor want? Medicaid is supposed to be a safety net for people in need, not a guarantor of uninsured legacies.

Lieber/NYT: “Jennifer L. VanderVeen, a lawyer in South Bend, Ind., who delivered a presentation at a 2009 legal conference on the ethics of gifts as part of Medicaid planning, said that many of her clients come in with more practical concerns. For instance, they would prefer not to have to sell a small business or a farm that employs other family members in order to pay for long-term care.”

LTC Comment: Medicaid exempts one business or farm including its capital and cash flow with no dollar limit, so that argument is erroneous. But why should Medicaid, a means-tested public assistance program intended as a long-term care safety net for the poor, be used as free inheritance insurance for heirs of a business owner? Turn the argument around. If people really risked losing a business or farm to the cost of long-term care, maybe they would plan earlier and more responsibly to prepare for that risk and cost privately.

Lieber/NYT: “If you’re looking for another way to frame these issues, consider one other thing: . . . Would the care be worse if you or your relatives were on Medicaid, and because of that, limited to whatever nursing home or home-care agency was available? If so, is the most ethical choice to urge aging parents or relatives to keep as much money as possible to pay out of pocket for the care of their choice?”

LTC Comment: Medicaid pays long-term care providers on average less than the cost of providing the care. So obviously, access to and quality of care are lower for people dependent on Medicaid than for people who have prepared to pay their own way. The one exception to this rule applies to affluent people who qualify for Medicaid after paying privately for a while to secure their place in one of the nicer nursing facilities that take only a small number of Medicaid residents. (Nursing homes roll out the red carpet for private patients who pay half again as much as Medicaid.) After a few months, their Medicaid planners flip the switch and convert them to public assistance. Thereafter state and federal laws prevent their being removed simply because their source of payment changed. Poor people do not have “key money” to buy their way into the best nursing homes, so they’re stuck with the mostly-Medicaid facilities that have such a poor reputation for quality. If you really care about the ethics of Medicaid planning, this situation which benefits the affluent at the expense of the poor, should figure prominently.

Lieber/NYT: “I’ve been struggling to answer this question for weeks now, and if you have any experience with it yourself, I’d like to hear from you. Watch this space in the coming weeks and months for more on how money and Medicaid are so often a part of the mix when we shop for care for ourselves or our older loved ones.”

LTC Comment: OK, you’ve heard from us and we’ll be watching for your next column on the subject. In the meantime, thanks for taking a serious, thoughtful look at this critical, but controversial topic.

Closing LTC Comment: Do you see a common thread in the excuses people use to justify Medicaid planning morally? What were they?

  1. Medicaid planning is no different than tax planning.

  2. I worked hard and saved. Why should lazy bums get all the government gravy?

  3. Lucky heart attack victims have Medicare, so dementia patients should have the same.

  4. It’s not fair my kids won’t get my business or estate.

It’s human nature to want something for nothing. America’s founders understood that changing human nature with moral suasion is fruitless. So they employed checks and balances to prevent one branch of government from dominating the others.

Whether Medicaid planning is ethical or not is the wrong question to ask. Medicaid has lost its original checks and balances that prevented privileged rent seekers from taking advantage of the welfare program. In other words, the problem is poor public policy not human nature or immorality.

The good news in this conclusion is that the problem is easily fixable. Remove the perverse incentives in Medicaid that discourage responsible long-term care planning. In their absence, human nature, i.e. self-interest, will prevail for the good, incentivizing all to save, invest or insure against the risk and cost of long-term care.

How? Well, that’s why we published How to Fix Long-Term Care Financing (2017). Read it for a full analysis of the problem and the solutions.