LTC Bullet: Medicaid and Long-Term Care, the Serial, Part 4
Friday, March 13, 2020
LTC Comment: The full Medicaid and Long-Term Care monograph is 78 pages, so we’re bringing it to you in bite-sized pieces. Here’s the fourth one, after the ***news.***
DENVER 2020 ILTCI CONFERENCE CANCELLED: “The Executive Committee of
the ILTCI has monitored the COVID-19 virus closely. The situation in the
host city of Denver, Colorado has worsened, including the governor of
Colorado declaring a state of emergency. Unfortunately, we feel that it is
impossible to proceed with the 2020 conference given the facts surrounding
this pandemic. As likely goes without saying, we put the safety of our
members first. Like most conferences, professional sports teams and other
organizations whose members planned to meet in any material number this
March, we have decided that proceeding with the conference does not
justify the risk that our members could become ill. Steps taken by our
members to mitigate the risk of infection have already resulted in speaker
and attendee cancellations in significant numbers.
LTC Comment: This is a sad but sensible decision. The virus pandemic puts older and immune-deficient people at greatest risk, the very people private LTCI aims to protect financially. What a PR fiasco if someone had sickened at the meeting spreading the infection and carrying it home. The ILTCI Conference has a long, proud tradition. We’re confident it will return next year bigger and stronger than ever. In the meantime, check out our history of the long-term care insurance conferences including all 19 ILTCI’s up to now: History of LTC Insurance Conferences (2019). We should all express our appreciation to the ILTCI conference’s organizers, staff, and contributors for their dedication, hard work and consummate professionalism under extremely difficult circumstances.
LTC BULLET: MEDICAID AND LONG-TERM CARE, THE SERIAL, PART 4
LTC Comment: Episode 1 of our serialization of the Center’s newest report described the current defective method of providing and paying for long-term care. Episode 2 explained how Medicaid became the dominant payor for long-term care, the dire consequences that ensued, and central planners’ futile efforts to fix the broken system. Episode 3 showed how scholars made the same mistakes as policymakers, lamenting long-term care’s problems without analyzing their causes, and recommending more of the same interventions that caused the problems in the first place.
In Episode 4 of this series, which follows, Steve Moses explains how affluent people qualify for Medicaid long-term care benefits and why they ignore the risk and cost of long-term care until they need it. He then describes the vast popular and legal literature on “Medicaid planning”--artificial self-impoverishment to qualify for assistance--providing many quotes as examples. Finally, he recounts each of the statutory measures taken by numerous presidents and congresses to counteract Medicaid eligibility abuse while also explaining how the Medicaid planning bar circumvented each of those corrective action measures.
Due to email formatting challenges, we’ll leave out the content of the report’s extensive footnotes in this serialized version. But the footnotes are important, and you can find them by clicking through to the unabridged version here. Likewise, citations to sources are given in the form (author, year, page number). To find the full citations for those sources, see the “References” section at the end of the full report.
Here’s the fourth episode of “Medicaid and Long-Term Care,” by Stephen A. Moses, Center for Long-Term Care Reform, Seattle, Washington, published January 17, 2020. This paper was presented to The Libertarian Scholars Conference on September 28, 2019 in New York City and to The Cato Institute’s State Health Policy Summit on January 3, 2020 in Orlando, Florida.
Are Consumers Planning to Use Medicaid for Long-Term Care?
Do consumers deliberately plan to take advantage of Medicaid if they ever need long-term care? Do they know the rules on how to qualify for Medicaid long-term care benefits while minimizing the financial spend down consequences? Research suggests they do not. Most people believe mistakenly that Medicare or their health insurance will cover long-term care (AP-NORC, 2017, p. 266). They remain blissfully ignorant of long-term care risk despite being inundated with claims like those cited above insisting the government will not help with long-term care costs except after one’s personal resources are exhausted. What seems to happen is that consumers ignore the alarmist information about catastrophic spend down risk until they need expensive long-term care. At that point, they become quickly aware of information on how to avoid serious spend down liability and they use it, with or without the help of professional advisors.
Such consumer behavior is rational and complies precisely with the real, though unintentional incentives in Medicaid eligibility policy. Eventual easy access to Medicaid long-term care benefits enables consumers to ignore warnings of long-term care risk with impunity. Then, if and when they need high-cost long-term care, they focus on how to pay and quickly discover the many ways to qualify for Medicaid. By then, however, the damage is done. It is too late, after someone already needs care, for him or her to save, invest, insure or otherwise prepare to pay privately for care. At that stage, Medicaid is the path of least resistance.
How Do People Qualify for Medicaid Long-Term Care Benefits While Preserving Most Wealth?
Once people are stricken by chronic illness that requires expensive long-term care, they and their families quickly become sensitive to the question of who pays and who does not. At first it sounds like they are on their own and the consequences could be devastating. But then they begin to learn how the system really works. After receiving no help from their Social Security, Medicare, or health insurance, they hear about Medicaid. When they—or more likely their adult children, as the parents themselves are disabled and often demented—go to the local welfare office, they receive a long, complicated Medicaid application form with many items of financial verification to complete, such as bank balances, home ownership and equity, asset transfers and why they made them, and so on. But they will also learn from the local Medicaid eligibility worker that income is not usually an obstacle, that many assets are totally exempt, and that they can and should use countable assets such as cash and liquid investments to purchase non-countable resources, such as prepaid burial plans or home improvements, in order to hasten the process of spend down and quicken eligibility. Some eligibility workers are more forthcoming than others with information on how to facilitate eligibility for benefits, but most are caring people eager to help families negotiate an emotionally and financially difficult transition.
By this point, people discover information everywhere on how to navigate the crisis. Consumer information on painlessly qualifying for Medicaid is universally available. How-to and self-help books abound. An internet search for “Medicaid planning” reveals thousands of articles on how to qualify without spending down significantly. Anyone can search “Medicaid planning in [your state]” to find websites of law firms that specialize in the practice. Many such firms offer online articles explaining in general how Medicaid planning works, but also warning, to attract clients, why it is too complicated for laypersons to attempt without their professional guidance. Such firms routinely obtain, fully document, fill out, and submit the Medicaid application, often inches thick with verifying documents, to the state agency on behalf of their affluent clients’ families. MedicaidPlanning.org encourages advisors “of any kind (e.g., attorney, financial planner, CPA, care planner, etc.)” to provide the service and offers a book and training on how to impoverish people artificially to qualify them for Medicaid. The American Council on Aging, not to be confused with AARP’s National Council on the Aging (NCOA), offers these Asset Planning Strategies covering “Irrevocable Funeral Trusts, Spousal Asset Transfers, Annuities, Spend Down Excess Assets, Lady Bird Deeds, Medicaid Divorces, Medicaid Asset Protection Trusts, ‘Half a Loaf’ Strategies, Income Planning Strategies, Spousal Income Transfers, Qualified Income Trusts/Miller Trusts, and Income Spend Down.”
Access to a Medicaid planner anywhere in the country is facilitated by the National Academy of Elder Law Attorneys (NAELA), the professional association of lawyers who specialize in the practice of Medicaid planning. NAELA has a national membership of 4,500 and an annual budget of $2 million (NAELA, 2019). Although elder law attorneys perform a wide range of beneficial services for their mostly affluent clients, their primary source of billable hours is Medicaid planning. The fee to qualify someone for Medicaid ranges “from $2500 for individuals with relatively simple estates to $10,000 for individuals with significant assets” (Markovic, 2016, footnote 88).
Medicaid planners’ services are most often sought by the adult children of declining elders for the purpose of preserving their inheritances by avoiding private long-term care expenses for the parents. As Medicaid dependency often involves impaired access to and quality of long-term care (Ameriks, 2007, p. 22), Medicaid planners are vulnerable to and sensitive about accusations of financial abuse of the elderly. This self-description and justification is typical:
It is not uncommon for couples and individuals to engage in a practice often referred to as “Medicaid Planning,” which one commentary defines as “the legal fiction of ‘rearranging assets’ to make someone poor on paper so that he or she may qualify for Medicaid.” It is well established that such “Medicaid Planning” is legal and that it is professionally ethical, or acceptable, for attorneys and financial planners to assist clients in such planning. Nonetheless, the Medicaid planning and spend down processes are quite complex, potentially highly financially disruptive, and may lead to inequitable results. Moreover, although legal, Medicaid planning is often perceived as “gaming the system” (Hyer, Hannah, Burkhart, and Toevs, 2012, p. 359).
Clearly, information on how to qualify for Medicaid long-term care benefits while avoiding the seemingly restrictive financial eligibility rules is widely available. The financial incentive to use such information is great. There is every reason to believe families use this information (and no evidence they do not) to minimize personal asset spend down and to hasten access to care financed by Medicaid.
The Legal Literature on Medicaid Planning
Beyond the ubiquitous consumer information on Medicaid planning, there is a large and always expanding professional legal literature on the topic. The first such article appeared within months of President Jimmy Carter’s signing the Omnibus Budget Reconciliation Act of 1980 (OBRA ’80), which imposed the first ever restriction on asset transfers done to qualify for Medicaid. OBRA ’80 became law in December 1980; “Medicaid as an Estate Planning Tool,” by William G. Talis, appeared in the Massachusetts Law Review’s Spring 1981 issue. It stated “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” (Talis, 1980, p. 94).
The article also describes ways clients might reduce exposure to health costs through (1) creation of various trust devices, (2) conveyance of remainder interests in property, (3) conversion of property into assets exempted from eligibility tests for Medicaid, and (4) outright transfers of property. If a client can be rendered eligible for Medicaid, medical expenses will be paid in full and estate assets will be conserved. Moreover, while the Department of Public Welfare may seek recovery for payments made on behalf of elderly recipients from their estates, careful planning can lawfully defeat the Department’s ability to obtain indemnification (Ibid., p. 90).
Although some of the methods described in this early article have since been proscribed or delimited by federal law, most of them remain viable and widely used. Quotes on how to do Medicaid planning from this first article and a selection of 86 others spanning the next 35 years are compiled in “Appendix I: Supplemental Bibliography” of How to Fix Long-Term Care Financing (Moses, 2017). These include:
After President Ronald Reagan signed the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA ’82) authorizing states voluntarily to (1) restrict asset transfers done within two years of applying for Medicaid, (2) place liens on real property, and (3) recover benefits correctly paid from recipients’ estates, Medicaid planners concluded they could circumvent the new rules and explained how: “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 path” (Deford, 1984, p. 139).
After President Reagan signed the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA ’85) restricting the use of Medicaid Qualifying Trusts, lawyers reassured their colleagues and clients: “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 [state] who need nursing home care can benefit from Medicaid without devastating their families” (Greenfield and Isenhour, 1986, p. 29).
After President Reagan signed the Medicare Catastrophic Coverage Act of 1988 (MCCA ’88) making asset transfer penalties mandatory nationwide and expanding the look-back period to 30 months, one especially aggressive Medicaid planner wrote this in his best-selling book Avoiding the Medicaid Trap: How to Beat the Catastrophic Costs of Nursing-Home Care:
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.... (Budish, 1989, p. 34)
After President Bill Clinton signed the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) making estate recovery mandatory, expanding the asset transfer look back period to three years, eliminating the cap on asset transfer penalties, and prohibiting “pyramid divestment,” two experts reassured their colleagues: “Most of the basic planning options that seem to exist today will survive; but many of the more unique, aggressive tactics may or may not survive [p. 1] .... WE STILL BELIEVE THAT ALMOST ANYONE CAN BECOME MEDICAID ELIGIBLE FOR LONG-TERM CARE BENEFITS EVEN IN CRISIS.... [p. 11]” (Brown and Fleming, 1993, emphasis in original).
After President Clinton signed the Health Insurance Portability and Accountability Act of 1996 (HIPAA ’96) making it a crime to transfer assets for less than fair market value for the purpose of qualifying for Medicaid, planners sought ways around the new rules:
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 ... 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 ... a one lump sum payment of $540,000 is a transfer for value and outside of the Medicaid rule ... IT DOESN’T MATTER IF MOM HAS A MASSIVE STROKE AND IS A CANDIDATE FOR LONG TERM CARE SIX MONTHS LATER....” (NAELA Conference Proceedings, 1996, pps. 1-2, 4, 11, double emphasis in the original).
After President Clinton signed the Balanced Budget Act of 1997 (BBA ’97) repealing the criminalization of asset transfers 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, mortified planners encouraged community spouses of institutionalized Medicaid recipients simply to dodge their spousal support responsibility.
The law, therefore, allows an institutionalized spouse to qualify for Medicaid benefits even though he or she may have a spouse that chooses to keep assets over the CSRA [Community Spouse Resource Allowance]. The spouse retains the assets, in any amount, and then refuses to make them available for the institutionalized spouse’s costs of long-term care. In turn, the state seeks an assignment of the institutionalized spouse’s support rights (Solkoff, 2001, p. 26).
After President George W. Bush signed the Deficit Reduction Act of 2005 (DRA ’05) 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, Medicaid planners reassured their colleagues and clients that artificial self-impoverishment to qualify for Medicaid remained feasible and no less ethical than tax planning:
Due to the high cost of nursing home care, elderly people and their families have increasingly turned to Medicaid-planning strategies to qualify for Medicaid benefits and ease their financial burden. Medicaid planning involves taking measures to preserve one’s assets in order to gain Medicaid eligibility by meeting the program’s financial criteria (Wone, 2006, p. 487).
Many commentators, as well as taxpayers generally, have criticized the practice of ‘Medicaid estate planning, [when] individuals shelter or divest their assets to qualify for Medicaid without first depleting their life savings. … However, Medicaid estate planning is not only rational, but it is also consistent with notions of morality and fairness. Akin to tax planning, Medicaid estate planning is as justifiable as any other legal advice an attorney may give to a client to obtain favorable governmental treatment, despite recent measures taken by Congress that might suggest otherwise. The public perception seems to be that tax planning is perfectly acceptable, whereas Medicaid estate planning is morally questionable (Bothe, 2009-10, pp. 815-6).67
No further government action has occurred since 2006 to target Medicaid long-term care benefits to the needy or to discourage their overuse by the affluent. These recent law journal articles show that most methods to qualify for Medicaid without spending down for care have survived and thrived:
Thus, for example, if a person gives away one million dollars six years before applying for Medicaid, that gift will not be considered in determining eligibility. (Miller, 2015-2016, p. 8)
In our earlier work on this topic, my co-authors and I described many Medicaid planning strategies. These include gifts beyond the five-year look-back period, disinheritance of the institutionalized person; the use of special needs trusts for the institutional spouse; annuitization of retirement accounts and savings (often for the benefit of the community spouse); spend down on the home or other exempt assets (called asset repositioning); caregiver agreements with family members; certain transfers of the home to a spouse, child or sibling; use of exempt assets (i.e., the home) to pay for the nursing home during a penalty period arising from gratuitous transfers; and, finally, divorce or marriage avoidance. Some of these are only designed to obtain Medicaid eligibility while preserving wealth during the recipient’s lifetime. Others, most prominently gifts and annuities, are designed to avoid estate recovery as well. The liberal income rules and the restrictive resource rules make the purchase of an annuity for the community spouse with excess resources an important planning tool for middle class couples. Indeed, the annuity purchase option is the chief planning alternative to divorce in many cases (Ibid., p. 14).
Countable assets which are attributable to the institutionalized spouse can be reduced by spending or consuming them for the benefit of either spouse. The applicant or their spouse could pay off a mortgage or other debt, pay attorney's fees or other professional fees, pay for travel for themselves, or pay for home care services. … Countable assets can be transformed into exempt assets, for example, by purchasing an irrevocable burial plan for each spouse and by paying for exempt assets which enhance the quality of life of either spouse, such as clothing, electronics, and repairs or improvements to the residence. … Countable assets may also be transformed into a stream of income by the purchase of an approved annuity, with the community spouse as annuitant (immediate payee) (Gilsinan, 2018, p. 19).
If a married couple who owns no primary residence but has substantial liquid assets engages in Medicaid planning, they could create an irrevocable trust and transfer all of their assets to that trust. … As long as there are no circumstances in which the trustee could pay them any amount of trust principal, and as long as the married couple complies with the five-year look-back rule, the applicant would be eligible for Medicaid benefits because the assets would not be countable as his or her assets. … The inclusion of the primary residence among the assets transferred to the irrevocable trust allows the grantor to avoid the estate recovery claim against his or her primary residence that would occur had the grantor obtained Medicaid long-term care benefits and continued to own the home until it was transferred to his or her heirs as part of the probate estate (Tunney, 2018, p. 23).
There are two main alternatives to the CSRA for protecting assets for the community spouse: spousal refusal and divorce. a. Spousal Refusal. A community spouse can simply refuse to allow his or her assets to be made available for use by the institutionalized spouse and refuse to cooperate in the application for Medicaid. … b. Divorce ... Following the divorce, the institutionalized spouse could quickly qualify for Medicaid, and the couple's assets would be preserved for the community spouse (Beckett, 2016, p. 31).68
Clearly the practice of Medicaid planning remains vibrant and very well documented in the popular and professional literature on aging and estate planning.
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