LTC Bullet: MACPAC Captured
Friday, April 2, 2021
LTC Comment: Signs in MACPAC’s estate recovery report point to its capture by the Medicaid planning bar. Evidence after the ***news.***
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LTC BULLET: MACPAC CAPTURED
LTC Comment: Medicaid is a means tested public assistance program. It is the primary funder of expensive long-term care (LTC) in the United States. Unlike other welfare programs, however, Medicaid does not have stringent income and asset eligibility limits for its long-term care benefit. Instead, so that people are not wiped out financially when stricken by chronic illness that requires formal long-term care, Medicaid lets them apply excess income toward their care, keep a substantial amount of assets including home equity, and receive care at Medicaid’s substantially discounted rate. The only quid pro quo is that recipients must agree to repay the cost of their care to Medicaid after they pass away, from their estates, unless that would create a financial hardship for a surviving dependent. This is a generous benefit, in essence a government-sponsored loan that allows people and their families to avoid the worst financial consequences of an uninsured extended care need.
But the Medicaid and CHIP Payment and Access Commission (MACPAC) wants to curtail Medicaid estate recoveries. MACPAC recently asked Congress to (1) make estate recoveries voluntary, (2) reduce recoveries from Medicaid’s rapidly expanding Managed Long-Term Services and Supports (MLTSS) programs, and (3) mandate “hardship” waivers for heirs when no financial hardship exists. Without estate recoveries, Medicaid’s generous long-term care benefit is a giant giveaway to people with money who could have paid some or all of the cost of their own care, diverting them from taking timely personal responsibility for LTC risk and cost.
Why would MACPAC seek to make estate recoveries less effective, reduce vital nontax revenue to Medicaid from estates, and reward the heirs of people who failed to save, invest or insure for long-term care with taxpayer-financed loan forgiveness? The answer is that the Commission was unduly influenced by the Medicaid estate planning bar, the lawyers who make their livings counseling affluent clients on how to circumvent Medicaid’s financial eligibility rules and evade estate recoveries. This conclusion is unavoidable upon close review, which follows, of MACPAC’s latest report to Congress.
Chapter 3 of MACPAC’s March 2021 Report to Congress on Medicaid and CHIP is titled “Medicaid Estate Recovery: Improving Policy and Promoting Equity.” It contains MACPAC’s recommendations to Congress regarding Medicaid estate recoveries. What follows are quotations from that chapter followed by our analysis in corresponding “LTC Comments.”
MACPAC: “We conducted nine interviews with AARP, the Centers for Medicare & Medicaid Services (CMS), estate recovery contractor HMS, retired elder law attorney Jason Frank, Justice in Aging, the National Academy of Elder Law Attorneys, the National Association of Medicaid Directors, and state officials from Oregon and Tennessee.” (p. 96)
LTC Comment: This list of interviewees is overweight with senior advocates (AARP, Justice in Aging) and Medicaid planning lawyers (National Academy of Elder Law Attorneys and Jason Frank), underweight in representation from nonpolitical experts on Medicaid estate recovery, and totally missing the front line Medicaid eligibility workers who have the most direct knowledge of how lawyers dodge Medicaid financial eligibility rules and evade estate recovery for their affluent clients.
MACPAC: “[C]ritics have noted that many people with sizeable wealth are able to legally shield assets from Medicaid estate recovery so these can be used for their benefit or passed on to heirs. This leaves the burden of estate recovery to fall primarily on those of modest means; this may also disproportionately affect people of color given disparities in household wealth.” (p. 73)
LTC Comment: Is that the fault of estate recoveries or of the “people with sizeable wealth” and their enablers who dodge estate recovery? This is a theme the Commission returns to over and over again as indicated by the following series of quotes. They have their argument backwards. Their legitimate complaint is with Medicaid planning abuse, not estate recovery. Estate recovery, by definition, reduces “disparities in household wealth” by returning protected wealth to Medicaid for the benefit of the disadvantaged of any color.
MACPAC: “The program mainly recovers from estates of modest size, suggesting that individuals with greater means find ways to circumvent estate recovery and raising concerns about equity.” (p. 73)
“As we heard in our interviews with stakeholders, individuals with greater awareness of estate recovery and resources may protect their assets from estate recovery while preserving Medicaid eligibility, allowing resources to be passed on to their heirs.” (p. 84)
“Because wealthier beneficiaries have found ways to protect assets so they can be passed on to their heirs, current Medicaid estate recovery policy places an unfair burden on beneficiaries with limited means, whose heirs would likely receive substantial protection from poverty or housing insecurity if they were able to retain an estate of even modest size.” (p. 92)
“Given that estate recovery likely only occurs for those without the resources and awareness to avoid it through estate planning, making it optional will help address equity concerns we heard in our interviews.” (p. 94)
“The Commission recognizes the growing financial pressures on the LTSS system, and that one way of addressing that pressure could be to explore mechanisms for people with substantial means to fund their own LTSS (e.g., private insurance) instead of seeking Medicaid. As noted above, during the Commission’s various discussions on estate recovery policy, a concern was raised about potential abuses of Medicaid planning activities that allow individuals to shield assets to gain Medicaid eligibility. Given that this is a wholly separate issue from estate recovery, the Commission agreed to defer further discussion of that issue for now and explore later whether there is a need for policy improvements related to eligibility.” (p. 96)
LTC Comment: The Commission has the cart before the horse. Medicaid planning abuse is not a “wholly separate issue from estate recovery.” It is the essence of estate recovery. Medicaid programs cannot recover what is not in an estate because it was divested prior to or during Medicaid eligibility. Most of the complaints the Commission raises about estate recovery—including low recovery amounts, recovery from small estates, and the inequity of the wealthy dodging the system while the less savvy pay up—would be eliminated by ending Medicaid planning abuse. The logical progression is to address the abuses of Medicaid planning before considering estate recovery. Instead the Commission seeks to hamstring estate recovery which is the only thing preventing Medicaid planners and their prosperous clients from getting off scot-free from long-term care responsibility at the expense of taxpayers and to the detriment of the actually needy people Medicaid is supposed to serve.
MACPAC: “Individuals who engage in Medicaid planning may be able to legally protect some of their assets, thus keeping assets that would otherwise deem them ineligible for Medicaid LTSS. One technique allowed in some states to reduce the length of the penalty period is known as the reverse half-a-loaf mechanism (GAO 2014).” (p. 80)
LTC Comment: Medicaid planning includes a wide range of techniques from very simple and common (the purchase of exempt assets to reduce countable wealth) to relatively sophisticated, somewhat less common methods (Medicaid compliant annuities and Medicaid Asset Protection Trusts) to mind-numbingly complicated, relatively rare strategies like the “reverse half-a-loaf” gimmick. Yet when the Commission gives an example of Medicaid planning, they offer the relatively obscure reverse half-a-loaf. That’s a very lawyerly way to divert attention and criticism from the much more common practices used to dodge Medicaid eligibility rules. For example, Medicaid planners give their clients long lists of things they can buy such as a more expensive home or car, household goods and personal belongings that convert wealth from countable to non-countable. This practice is almost universal, so a much more honest example of Medicaid planning than “reverse half-a-loaf.”
MACPAC: “Finally, Medicaid estate recovery policies are unique among federal programs. For example, many people who use LTSS are dually eligible for Medicare and Medicaid, yet as one advocate noted, the federal government does not pursue Medicare costs, which can also be quite high … .” (p. 84)
LTC Comment: MACPAC is confused about the nature of Medicaid and Medicare. Medicaid is public charity for which people become eligible based on their inability to afford health and long-term care. Medicare is social insurance which entitles people to benefits by virtue of their having contributed substantial payroll taxes over many years. Medicaid is welfare, unearned; Medicare is like private insurance which requires “premiums” and is thus “earned.” Medicaid has “recipients;” Medicare has “beneficiaries,” but MACPAC uses the incorrect term “Medicaid beneficiary” a dozen times in this chapter. MACPAC displays its confusion about these programs by referring everywhere in the report to Medicaid recipients as if they were beneficiaries, giving the former a status they have not earned. Obviously, Medicare beneficiaries who paid for the benefits they received are not required to repay the cost of their care from their as Medicaid recipients must, who received benefits and retained wealth without having to contribute toward the cost of their care.
MACPAC: “If an individual’s home equity is above the state’s limit, they will be deemed ineligible to receive Medicaid LTSS; for 2021, the federal minimum home equity limit is $603,000 and the maximum limit is $906,000 (CMS 2021). In 2018, 40 states used the federal minimum limit, nine states used the maximum limit, one state, Wisconsin, set a limit in between, and one state, California, had no limit (KFF 2019).”
LTC Comment: Prior to the Deficit Reduction Act of 2005, Medicaid had no limit whatsoever on home equity. Unfortunately, the limits cited here, reflecting inflation since the DRA ’05 was passed, are meaningless. Recent research concluded “we estimate that nearly the entire elderly population would meet the home equity threshold of 552,000 [as of 2015].” (Robert Hest, Giovaan Alarcon & Lynn A. Blewett (2020): Modeling Financial Eligibility for Medicaid Long-term Services and Supports, Journal of Aging & Social Policy, DOI: 10.1080/08959420.2020.1740638, p. 7) Without estate recoveries, this enormous real property wealth is eliminated as a source of funding for long-term care, funding for which the country is desperately in need. MACPAC realized this fact as the next quote indicates but ignored it anyway.
MACPAC: “During the Commission’s deliberations, a concern was raised that allowing states to discontinue estate recovery would essentially exempt all home equity below the minimum home equity asset standard (currently set at $603,000) used for eligibility determination. Ultimately the Commission decided that issues and concerns related to eligibility determination should be taken up separately from estate recovery.” (p. 93)
LTC Comment: According to Kiplinger, “homeowners age 62 and older have a record $6.5 trillion of ‘tappable’ equity.” Imagine the potential for that wealth to relieve the stress on America’s long-term care financing system. Yet MACPAC neither proposes mandating reverse mortgages to capture that potential on the front end nor defends estate recovery to put it to use on the back end.
MACPAC: “For heirs of these modest estates, estate recovery may remove a source of income or a residence which, if retained, would protect the heirs from poverty or housing insecurity. As multiple interviewees commented, this contributes to generational poverty and wealth inequality. The policy may also place an unequal burden on people of color, compounding existing wealth inequalities among racial and ethnic groups.” (p. 84)
LTC Comment: This makes no sense. How could requiring people to repay the cost of their care—from wealth Medicaid enabled them to protect while receiving assistance—contribute to “existing wealth inequalities among racial and ethnic groups?” It does exactly the opposite. It reduces the discrepancy in wealth between those who have (including clients of Medicaid planners) and those who have not (underprivileged racial and ethnic groups). Furthermore, it is not in the interest of the state to impose such unreasonable burdens on heirs as to drive them onto public assistance. Hardship waivers are liberally granted in such cases although relatively few are requested.
MACPAC: “Estate recovery recoups relatively little—only about 0.55 percent of total fee-for-service LTSS spending.” (p. 72)
LTC Comment: Every dollar Medicaid does recover from estates goes back into the system to help others in their time of need. MACPAC should focus on preventing leakage of sheltered wealth from estates prior to recovery. Instead the Commission seeks to cripple estate recovery itself. Besides, Medicaid estate recovery barely scratches the surface of the potential nontax revenue that could redound to the program, as MACPAC acknowledges in the next quote.
MACPAC: “Research suggests that states do not recover all they could—one study estimated states could have collected 5.5 times more from 2002 to 2011 if all their efforts matched those states that were most effective at estate recovery (Warshawsky and Marchand 2017).”
LTC Comment: It should be noted, however, that even more important than the actual dollar totals that could be collected is the potential cost avoidance from estate recoveries. Properly publicized and enforced so that the public knows that long-term care is a risk they must pay for later if they don’t plan and prepare now, responsible people will be far more likely than they are today to think about ways to plan, save, invest or insure for the risk. The public policy goal should be to divert people from dependency on Medicaid not to seduce them onto the program as elastic eligibility policies manipulated by Medicaid planners do now.
MACPAC: “Due to restrictions on Medicaid eligibility for LTSS, older adults covered by Medicaid have few assets. Three-quarters of Medicaid decedents had net wealth of less than $48,500.” (p. 72)
LTC Comment: MACPAC can’t have it both ways. Either wealthy people dodge Medicaid financial eligibility rules as the Commission frequently acknowledges or “restrictions on Medicaid eligibility” cause estates to be small. Both aren’t true. Estates are small not because stringent eligibility requirements force a lot of people to spend down into impoverishment. Such requirements don’t exist. Rather, most people on Medicaid had little to “spend down” in the first place. They are the people Medicaid is intended to serve. But Medicaid planners reduce their clients’ net worth by means of Medicaid compliant annuities, Medicaid Asset Protection Trusts, exempt asset transfers, and many other techniques of artificial self-impoverishment. It is those artificially poor Medicaid recipients who are being asked to pay their fair share.
MACPAC: “Fear of estate recovery may deter some individuals from seeking Medicaid LTSS, however, awareness and understanding of these policies by potential Medicaid beneficiaries is low.” (p. 72)
LTC Comment: This is another self-contradictory statement. How can “fear of estate recovery” deter seeking Medicaid if “awareness and understanding of these policies” is low? The solution to this quandary is to publicize the Medicaid estate recovery requirement more widely and often so everyone knows that relying on public assistance while retaining wealth requires a payback from the estate. With that knowledge, more people would take long-term care risk and cost seriously; save, invest or insure to offset or spread that risk; and end up in a better position to pay privately for better care than Medicaid can afford to provide. Especially, knowing that home equity is at risk for estate recovery would encourage more people to tap their home equity through reverse mortgages unleashing a massive new LTC funding source that is so desperately needed to relieve the fiscal pressure on Medicaid.
MACPAC: “In general, this study found that, with some exceptions, the assets of older adults enrolled in Medicaid are quite modest, with a substantial proportion of individuals having little to no wealth (Table 3A-1). At age 65 and older, the average net wealth among Medicaid decedents was $44,393. … the highest quartile held an average of $173,436 in net wealth.” (p. 81)
LTC Comment: Some exceptions? Well I guess so! A quarter of the sample had almost $175,000 in net wealth or more. It’s not clear at all why public policy should discourage recovery from such large estates, but that would be the effect of MACPAC’s recommendations The Congressional Budget Office (CBO) confirmed that all three of MACPAC’s proposals would increase federal expenditures and reduce resources available to Medicaid.
MACPAC: “CBO estimates that this recommendation [to make estate recovery voluntary] would reduce estate recovery collections from state Medicaid programs, which would increase federal spending on Medicaid. Federal spending would increase by $50–250 million per year between 2022 and 2030, less than $1 billion between 2021 and 2025, and $1–5 billion between 2021 and 2030.” (pps. 93-94)
“CBO estimates that this recommendation [to restrict MLTSS recoveries] would reduce estate recovery collections from state Medicaid programs, which would increase federal spending on Medicaid. CBO was unable to provide a specific estimate for us … .” (p. 94)
“CBO estimates that this recommendation [to base hardship waivers on estate values instead of financial hardship] would reduce estate recovery collections from state Medicaid programs and increase administrative costs, which would increase federal spending on Medicaid CBO was unable to provide a specific estimate for us … .” (pps. 95-96)
LTC Comment: No one besides MACPAC is looking for ways to reduce revenue to Medicaid for long-term care. The program is desperately short of funding and notoriously scrimpy in its reimbursement levels for long-term care providers. Low Medicaid funding is often associated in the literature with too few caregiving staff and serious access and quality problems. Medicaid needs more revenue, not less. What exactly does MACPAC recommend?
LTC Comment: Mandatory estate recoveries are critical to the Medicaid long-term care program’s success as explained in the “LTC Comments” above. The policy should affect everyone equally throughout the country in order to discourage excessive reliance on Medicaid for long-term care and to encourage personal responsibility and early long-term care planning. It was a great victory in the Omnibus Reconciliation Act of 1993 (OBRA ’93) to make estate recoveries mandatory in every state based on analysis and recommendations in a 1988 report of the Department of Health and Human Services’ Inspector General: Medicaid Estate Recoveries: National Program Inspection -- Office of Inspector General (1988). See also the related Transfer of Assets in the Medicaid Program: A Case Study in Washington State -- Office of Inspector General (1989). It would be a tragedy to reverse that progress in the way MACPAC recommends.
MACPAC: “3.2 Congress should amend Section 1917 of Title XIX of the Social Security Act to allow states providing long-term services and supports under managed care arrangements to pursue estate recovery based on the cost of care when the cost of services used by a beneficiary was less than the capitation payment made to a managed care plan.” (p. 72)
LTC Comment: Addressing capitation payments as in this recommendation is simplistic. Managed care organizations apply complicated formulas to determine what they charge for their fees and what they pay for all the medical bills, and then they must negotiate with the state. These are very large contracts based on actuarially determined risks and benefits. Insurance is inherently inequitable, because some people pay premiums and get no benefits, while other people pay the same premiums, but become sick, injured, careless or unlucky, and receive large benefits. That is how insurance spreads risk. Managed care organizations already rate the monthly capitation fee by the level of service of individuals. That protects beneficiaries who use relatively few services, but it also covers some potential risks in the same way as private insurance would. Requiring managed care companies to tally up their charges for all services they have paid adds another level of service and causes complications such as attending court hearings and responding to complaints of family members after death about what was paid to providers. This added duty would increase fees to the states. Determining the claim amount is a pre-death matter. Whether fee-for-service or capitation payments are used, the recovery should be for what Medicaid paid on the deceased recipients' behalf. If there are inequities in the system, then those should be resolved before death, because collecting only fee for service in a capitation system would add extra administrative burdens for the managed care organizations to prove up the claims to the heirs and to the courts.
MACPAC: “3.3 Congress should amend Section 1917 of Title XIX of the Social Security Act to direct the Secretary of the U.S. Department of Health and Human Services to set minimum standards for hardship waivers under the Medicaid estate recovery program. States should not be allowed to pursue recovery for: (1) any asset that is the sole income-producing asset of survivors; (2) homes of modest value; or (3) any estate valued under a certain threshold. The Secretary should continue to allow states to use additional hardship waiver standards.” (p. 72)
LTC Comment: Hardship waivers should relate to the financial condition of the qualified heir or dependent. They should have nothing to do with the value of the house, the estate, or an income-producing asset. What matters is whether the person requesting the hardship is actually facing financial hardship. Hardship waivers are rarely requested (1%) and should be routinely granted to avoid generational poverty. Nearly two-thirds of potential Medicaid estate recovery is not collectible at all. There is no effect on race or generational poverty if there is no recovery. Hardship waiver policies across the states are inconsistent as are other estate recovery policies. Seeking uniformity is not a reason to create more loopholes in the process. Hardship waivers should be based on dependents’ income, assets, and whether collection of the debt would deprive the person seeking the waiver of necessities like food, shelter, clothing, or medical care.
Closing LTC Comment: Medicaid estate recoveries help to sustain the Medicaid long-term care program and to discourage excessive dependency on it. MACPAC’s recommendations would line the pockets of Medicaid estate planning lawyers and indemnify their affluent client heirs for the long-term care costs their parents’ avoided at public expense. Is it any wonder that advice from “elder law attorneys” is cited repeatedly throughout this report but we hear nothing from Medicaid eligibility workers or estate recovery staff who know firsthand how desperately inequitable the system MACPAC proposes would be? Medicaid planners have the most to gain from curtailing estate recoveries. By not acknowledging, much less disavowing, this obvious conflict of interest, MACPAC destroyed the objectivity and credibility of its recommendations.
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