of GAO's Massachusetts Report
United States Senate
Long-Term Care Specialists"
of GAO's Massachusetts Report (Section I)
I: GAO's Massachusetts Report
Following are comments on Mark V. Nadel's July 20, 1993 letter to
Senators Moynihan, Packwood, Riegle, Chafee, Rockefeller, Durenberger, Pryor
and Cohen which summarized GAO's recent study of Medicaid estate planning in
Massachusetts. These comments are
provided by LTC, Incorporated, a private firm specializing in long-term care
financing and insurance and by LTC, Inc.'s Director of Research, Stephen A.
Moses. Mr. Moses was formerly a
senior analyst for the Health Care Financing Administration and the Office of
Inspector General of the U.S. Department of Health and Human Services.
He has researched and published extensively on the subject of Medicaid
estate planning. These comments
follow the GAO letter's pagination (arabic numeral) and paragraphs (small
"...information is not available on how many elderly conduct
Medicaid estate planning..."
GAO overlooked a large and rapidly growing literature on Medicaid
estate planning much of which deals with frequency and magnitude as well as
methods of divestiture and sheltering. For
The Health Care Financing Administration, Region 10 published Medicaid
Transfer of Assets on October 24, 1985.
This study was based on a valid random sample of Medicaid nursing home
eligibility cases in Idaho. It
described a wide range of asset divestiture and sheltering techniques and it
projected large savings for such a small state ($3 million initially and $.9
million annually) from recommended eligibility controls and estate recoveries.
The Office of Inspector General of the Department of Health and Human
Services published Transfer of Assets in the Medicaid Program:
A Case Study in Washington State in May 1989.
This study was based on a valid random sample of Medicaid nursing home
eligibility cases initially denied but quickly resubmitted and approved.
It concluded that "[t]he elderly and their families transfer or
shelter large amounts of money and property to qualify for Medicaid in
Washington State..." and "[a]dvice on how to qualify for Medicaid
nursing home benefits is widely available; abuse is common."
The study included hard dollar projections of costs attributable to
(3) Additional studies documenting the magnitude and methodology of Medicaid planning are listed in the enclosed catalogue ("More Moses on Medicaid Planning"). They include further national reviews as well as state specific data from Kentucky, Maine, Minnesota, Wisconsin, and Massachusetts. A copy of the Massachusetts study is enclosed.
(4) Many more studies by other authors have documented the extent and techniques of Medicaid estate planning. For example:
(a) Brian O. Burwell, Middle-Class
Welfare: Medicaid Estate Planning
for Long-Term Care Coverage, Systemetrics/ McGraw-Hill, Lexington, MA,
(b) Joint Legislative Audit
and Review Commission, Medicaid Asset Transfers and Estate Recovery, The
Virginia General Assembly, Richmond, Virginia, Senate Document No. 10, November
(c) Burton D. Dunlop, Max B. Rothman, and John L. Stokesberry, The Context of Long Term Care in Florida: Interrelationships of Medically Needy, Assets Recovery and Long Term Care Insurance Policy Initiatives, Southeast Florida Center on Aging, North Miami Florida, December 1992.
(d) Iowa Department of
Management Medicaid Task Force Final Report, December 1992.
(e) Brian O. Burwell, State
Responses to Medicaid Estate Planning, Systemetrics, Cambridge,
Massachusetts, May 1993.
The legal literature on Medicaid estate planning is extensive and reaches
back more than ten years. Hundreds
of books, articles, training manuals, video and audio cassette programs, films,
conference proceedings, etc. document innumerable medicaid estate planning
techniques for professional and lay (self-help) audiences.
Some of these include:
(a) Budish, Armond D., Avoiding
the Medicaid Trap: How to Beat the
Catastrophic Costs of Nursing-Home Care, Henry Holt, New York, 1989.
(b) Gordon, Harley with Jane
Daniel, How to Protect Your Life Savings from Catastrophic Illness and
Nursing Homes, Financial Planning Institute, Inc., Boston, 1990.
(c) Gilfix, Michael and Mark
Woolpert, "Medi-Cal Asset Preservation and Your Clients or Estate Planning
is Not Enough!: A California Elder
Law Institute Continuing Legal Education Seminar," Gilfix Management Group,
Palo Alto, California, 1990.
(d) Budish, Armond D.,
"What, Me Pay for Nursing Home Costs?," Thomas & Partners Co.,
Inc., Westport, Connecticut, 1992; 50 minute video and workbook.
(e) For several years,
annual professional symposia of the National Academy of Elder Law Attorneys as
well as the Joint Conference on Law and Aging have focussed heavily on the
development and promulgation of Medicaid estate planning techniques. The proceedings of these conferences are available in manuals
and cassette tapes.
(f) The scholarly literature
in gerontology, medicine, accounting and financial planning is replete with
articles on Medicaid estate planning documenting hundreds of techniques from
simple asset conversions to esoteric trust maneuvers.
The most recent work cited above was not yet completed when GAO began its
research. All of it was underway,
however. If GAO had reviewed these
studies and analyses or contacted their authors before beginning its own work,
the agency could have avoided most of the methodological errors described below.
"Of the 403 applicants in our sample, 54 percent converted some of
their countable assets to noncountable assets and 13 percent transferred
These findings are much higher than anyone expected.
Nevertheless, they are too low. Anyone
who has done empirical studies of Medicaid estate planning knows that most
eligibility case records contain a lot of inconclusive evidence concerning
income and assets. Such clues must
be followed up and verified by additional research such as contacting personal
representatives of Medicaid recipients and consulting local public assessor's
and recorder's records. For
example, many Medicaid applicants fail to report property ownership, transfers
or conversions altogether. Yet, GAO
"We did not independently test the file data nor did we determine if
applicants accurately reported all their assets and asset transfers."
Because GAO relied only on case records and did not seek independent
verification from recipients and public records, it missed cases with unreported
or under-reported property, transfers, or shelters.
Although independent verification is difficult and requires considerable
detective work, it is not at all unwieldy on a small sample like GAO's.
"Asset conversions occur frequently but not for significant
GAO found that 217 applicants, or 54 percent of its sample, converted
assets totaling $1.2 million. If
GAO's one-third sample of cases for October 1992 is representative, we can
estimate that total asset conversions for one month in Massachusetts approached
650 cases and $3 or $4 million in sheltered funds.
GAO concludes, however, that this is not a "significant sum,"
because most of it is prepayment of burial costs averaging $4,700 per case. Consider what this means in terms of public policy.
When two-thirds of the elderly poor and half of all poor children in
America are not covered by Medicaid even for acute or emergency care, is it wise
to spend scarce welfare dollars to indemnify heirs for the burial costs of their
parents on welfare? Does it make any sense to pay for the relatively fancy
funerals that nearly $5,000 will buy? How
much additional home care and assisted living could Massachusetts offer the
frail elderly if the state stopped paying excessive burial costs for
non-indigents? If Medicaid
applicants in Massachusetts really are tucking away $35 to $45 million per year
in burial trusts just before they go on public assistance as the GAO data
implies, the state and federal governments have a very rich source of financing
for worthier causes without neglecting the decent, but cost-effective disposal
of all genuinely impoverished recipients' remains.
"About one in every eight applicants...transferred assets within 30
months of applying for Medicaid...Transfers ranged in value from $850 to
$351,300...The total amount transferred was $2.2 million, or $45,912 on average
for each transfer."
"Most of the $2.2 million in transferred assets did not result in
increased Medicaid spending."
GAO reports evidence of staggering amounts of asset transfers for the
purpose of qualifying for Medicaid. Then,
almost in the same breath, the agency emasculates its own findings.
Supposedly, the enormous asset transfers documented in the report do not
increase Medicaid spending because most of them occur in cases denied
eligibility by the state Medicaid program. This conclusion is a glaring display
of naivete' and gullibility on GAO's part.
State Medicaid agencies routinely deny cases with large asset transfers
or other egregious Medicaid planning gimmicks on the off-chance that the
applicants will not appeal or reapply. Usually,
however, they do appeal or reapply and they do so successfully.
If an attorney was consulted in the first place, the applicant will
probably win quickly on appeal. If
an attorney was not consulted in the first place, one will be consulted after
the case is denied. Then, a new
application will be submitted with the help of the attorney reflecting a
different, more effective transfer or sheltering technique.
As documented in the Inspector General's report on transfer of assets
cited above, "fifty-eight percent of the Washington Medicaid nursing home
cases that were initially denied assistance...became eligible within a few
months by transferring or sheltering their assets."
If GAO were to re-review their Massachusetts sample in one year, they
would find that cases initially denied Medicaid eligibility were subsequently
approved and are very expensive indeed. (By
the way, the exact same thing is happening in Medicare home care and it is
costing the federal government a fortune.)
"Our methodology has two additional limitations.
One, it does not include people who conducted Medicaid estate planning
but have not applied for Medicaid nursing home benefits...Two... [a]pplicants
who conducted Medicaid estate planning sufficiently in the past [i.e. 30 months]
would not have to report such data to the state and therefore may not have
appeared in our review to have transferred for converted assets."
One of the simplest and most common Medicaid estate planning techniques
is to transfer assets 30 months or more in advance.
Although not required to do so, 16 of GAO's sample cases reported having
transferred assets this far in advance. The
13 of these advance planning cases that also reported dollar amounts,
transferred a total of $1.4 million. Most
people, especially those advised by attorneys, would not report transfers they
are not required to report. Therefore,
this hidden loss (approximately $4 million for the review month or $48 million
for the year when projected to the sampling universe) is only the tip of the
iceberg. If GAO had checked all
cases in their sample against county assessors' and recorders' records going
back five years (as HCFA did in its study of Idaho in 1985), it could have
documented much more of this hidden loss.
GAO does not take into account the fact that the median elderly person in
terms of income and assets qualifies for Medicaid nursing home benefits in
Massachusetts if medically eligible without using fancy Medicaid estate planning
techniques. This is true because there is no limit on how much income one can
have as long as total medical costs exceed income and the vast majority of
seniors' assets are exempt. (Sixty-nine
percent of the median elderly household's net worth is in a home which is exempt
regardless of value.) As long as
these assets are held in joint tenancy with right of survivorship (JTWRS) as
most assets in America are, they pass outside the probate estate and are free
from Medicaid recovery. Al Bove,
elder law attorney and columnist, writes every other week in the Boston Globe
urging everyone who does not already hold their assets in JTWRS to convert them
immediately. In other words, even
when formal transfers and shelters are not employed, Medicaid eligibility
restrictions are a sieve, not a safety net.
Cases in GAO's sample that involved no conversions or transfers by its
definition, therefore, will nevertheless cost the state and federal governments
large sums in unrecoverable benefits.
GAO does not deal with the possibility that Medicaid nursing home
recipients simply spent their money rather than transferring or sheltering it
based on advice like this from prominent Medicaid planners:
common misconception among applicants is that excess resources must be
spent only on doctors, hospitals, nurses, medication, and nursing homes.
Nowhere in the law is this indicated.
Quite literally, an applicant could spend all of his or her assets on
something 'frivolous,' such as a 90th birthday celebration of Ziegfield Follies
proportion and this should not be cause for denial of Medicaid, because the
applicant received 'value' for his or her money." (Ira S. Schneider and
Ezra Huber, Financial Planning for Long-Term Care, Human Sciences Press,
Inc., New York, 1989, p. 142)
there are rules against giving away most assets, there are no prohibitions
against simply spending money... options might include travel to visit relatives
or see the world, or one last tour of Reno's finest establishments."
(Michael Gilfix and Mark Woolpert, "Medi-Cal Asset Preservation and
Your Clients or Estate Planning is Not Enough!:
A California Elder Law Institute Continuing Legal Education
Seminar," Gilfix Management Group, Palo Alto, California, 1990, p. 42)
GAO fails to capture the outrage of Medicaid eligibility workers who are
compelled to work as unpaid paralegals for private and legal services attorneys
who badger them for methods to qualify affluent clients for Medicaid.
For example, this is what Medicaid eligibility workers told me when I
interviewed them in Massachusetts: "long-term
care units are barraged by [Medicaid planning] attorneys...it goes on all
day...the system leaks all over the place...the laws and policy set us up for
failure...the workers feel intimidated...it gets outra-geous...it is morally
terrible." (Page 5 of enclosed
report.) Sterile case record
reviews fail to evoke the anger and frustration eligibility workers feel when
they are unable to qualify genuinely needy people for Medicaid, but must grant
the program's most expensive benefit to the well-to-do clients of clever
In conclusion, GAO provides ample evidence of widespread Medicaid estate planning in the Massachusetts nursing home caseload, but fails to capture anything approaching the full magnitude of financial impact on state and federal finances.
II: Comments on Senate/House
Conference Language on Transfer of Assets and Estate Recoveries
Senate and House conferees have come under pressure to dilute or
eliminate proposed statutory language designed to close Medicaid estate planning
loopholes and require recovery from estates.
I believe it is critical for conferees to keep the goal of this
legislation constantly in focus. These
bills were not designed simply, or even primarily, to save money.
Their objective is to make better use of scarce public resources.
Their main goal is to protect our government's ability to provide quality
long-term care to people who could not otherwise afford it.
Their effect will be to encourage those who can afford to pay their own
way or to buy insurance to do so and leave the welfare programs to those who
have no other option. We must
remember that two-thirds of the elderly poor and half of all poor children are
not covered by Medicaid even for acute or emergency care.
Public policy makers must concern themselves with these truly needy
citizens first before spending public dollars to indemnify middle class heirs of
affluent seniors for ignoring the risk of long-term care.
Although its main focus should be to eliminate perverse incentives in
existing Medicaid rules which discourage private pay and private insurance, this
legislation will also save billions more in tax payers' dollars than anyone has
so far estimated. This is true
because, in addition to hard dollar estate recoveries and direct cost avoidance
from loophole closures, people will change behavior if this legislation passes.
They will buy insurance, pay privately for top quality care, stay off Medicaid
in the first place, and raise the quality of care in nursing homes by increasing
the cash flow (i.e. higher private payments) to nursing homes available for cost
shifting to support the remaining Medicaid patients.
(See the enclosed draft article entitled "Of Floods, Insurance and
Long-Term Care. Scheduled for
publication in the September issue of LTC News and Comment.)
Medicaid estate planning attorneys have offered self-righteous and
self-serving recommendations to weaken this legislation and preserve existing
loopholes. Medicaid planners
prosper under existing law and want it to change as little as possible.
They prefer the most lenient treatment of divestiture and the weakest
estate recovery provisions possible. This
is because they represent seniors (whether rich or poor) to the exclusion of the
general public interest. Private
attorneys charge $100 to $200 per hour to qualify affluent seniors for Medicaid
nursing home benefits. The more
effective trusts, transfers and other tricks are in short-circuiting eligibility
rules, the more money these private attorneys make.
Legal services' attorneys absorb millions in federal tax revenues to
provide free legal services to poor seniors.
What is less well known is that they also refer middle income and wealthy
seniors or heirs who contact them (and many do) to private Medicaid estate
planning attorneys. Studies by the
Inspector General of the U.S. Department of Health and Human Services found that
private and public attorneys work hand-in-hand to insure that everyone,
regardless of income or assets, qualifies as quickly as possible for Medicaid
nursing home benefits. Is it any
wonder that Medicaid costs are skyrocketing?
If one keeps these principles in mind, it is not hard to distinguish
between provisions in the proposed legislation which would make good law and
alternatives which merely cater to the Medicaid planning attorneys and their
well-heeled clients. Therefore, I will not address every specific clause in the
bills, but limit my comments to the more important provisions.
Look back periods of 30, 36, or
even 48 months are insufficient.
The Medicaid estate planning attorneys are already gearing up to push
their clients to plan much further in advance to divest.
Sooner or later, we will have to go to a minimum of 60 months (5 years)
as recommended by the Inspector General of the U.S. Department of Health and
Human Services. Why?
The average time from onset to death in Alzheimer's Disease is eight
years. If heirs act at the first
sign of confusion or frailty to appropriate their parents' assets, they can do
so with impunity. This is precisely what the Medicaid planners advise their
clients to do. Transfer of assets
will increase rapidly if other loopholes are closed without extending the look
The objection that longer look back periods would create administrative
hassles for state Medicaid agencies is specious.
The vast majority of states do not verify asset transfers on a case by
case basis. Most Medicaid planning
attorneys will respect the law regardless of how strongly it is monitored or
enforced. Few people will plan five
years or more in advance without the advice of an attorney.
Therefore, a longer look back period will have a strong chilling effect
on asset transfers without requiring any extra work.
Furthermore, we must keep in mind the reason for having a look back
period in the first place. Nine
percent of seniors will spend five years or more in a nursing home at an average
cost exceeding $30,000 per year. Given
this high probability of catastrophic loss, any transfer of assets no matter how
far in advance by an older person is suspect as to whether it is done in
contemplation of avoiding a future possible creditor, i.e. Medicaid.
If done to avoid paying for long-term care costs, any transfer may be a
"fraudulent conveyance" and may leave the transferor, the transferee,
and the facilitating attorney liable to legal action for recovery brought by the
defrauded creditor. Many courts are
now so holding. This risk of
malpractice or even prosecution under the common law of fraudulent conveyances
is a major worry to Medicaid planning attorneys today.
Extending the Medicaid look back period enforces the message that
divesting assets to shift the highly probable financial burden of long-term care
to public programs is inappropriate no matter how far in advance it is done.
The penalty period should begin at
The reason the Medicaid estate planning attorneys want to retain current
provisions under which the penalty begins at the date of transfer is to protect
the "half a loaf" gambit. When
this legislation eliminates the pyramid or multiple divestment strategy, the
only trick left will be to give away half of the client's assets and spend down
the rest while the penalty period elapses.
This allows someone to get rid of $100,000 while only triggering a
penalty for $50,000. By starting
the penalty at the date of eligibility, this legislation would encourage people
to use their wealth for their own care instead of giving it away to qualify more
quickly for Medicaid. Policy makers
must decide whether the purpose of our welfare programs is to help poor people
or to protect the inheritances of heirs.
It is critical to apply the
transfer of assets penalty to home care as well as nursing home care.
Medicaid estate planning attorneys often advise clients to transfer their
assets and use Medicaid home care for 30 months whether they need it or not in
order to qualify for nursing home care without a penalty period whenever the
higher level of care becomes necessary. The
explosion in Medicare home health costs, aided and abetted by the same legal
techniques refined in Medicaid planning, is another reason to include home care
in the transfer of assets penalty. As
long as people can obtain free home care from Medicaid and Medicare, we cannot
expect them to pay privately or purchase insurance for this risk.
We must decide as a nation whether we can afford to provide everything to
everyone at any cost. In the
meantime, however, we should reform the current system so that it helps those in
genuine need and encourages others to take care of themselves.
It is very important to define the
hardship exclusion narrowly.
Early indications are that the Medicaid planning attorneys intend to pry
this loophole wide open as soon as possible.
We need to remember that Medicaid planning, especially the use of
divestiture and guardianships, is sometimes only a euphemism for financial abuse
of the elderly. Oregon enhances its
adult protective services program by retaining private attorneys on contingency
to invade abusive trusts, reverse illegal transfers, and partition undivided
property (when the property is improperly withheld from Medicaid recipients to
assure their eligibility). This
procedure not only protects seniors and generates non-tax revenue, but it also
has a chilling effect on the use of Medicaid planning techniques by heirs to
impoverish and disenfranchise their parents.
It is far better public policy to help financially abused seniors recover
assets taken from them than to interpret "hardship" provisions so
liberally that they protect the people who took the assets from legal actions
The estate recovery provisions
must be broad and strong.
Under current law, anyone can evade estate recovery by placing assets in
joint tenancy with right of survivorship. All
of the Medicaid estate planning treatises urge this gambit.
Many other similar techniques permit affluent seniors who have access to
professional financial and legal advice to avoid recovery.
Furthermore, Medicaid state agencies are adept at giving money away but
they have a dismal record for recovery programs including child support
enforcement, third party liability, and fraud recovery.
Properly managed, estate recovery alone can recoup five percent of a
state's Medicaid nursing home budget. Oregon
has proved this year after year. Therefore,
this legislation should contain a broad definition of "estate;" it
should require HCFA to provide extensive technical assistance; and it should
encourage states to use private estate recovery contractors working for
contingency fees that reward success and penalize failure.
House and Senate proposals to discourage divestiture and mandate estate
recovery occupy a seldom-articulated moral high ground:
We have very limited dollars
available for public assistance; we must take care of the truly poor and
disadvantaged first; the middle class and well-to-do should pay privately for
long-term care to the extent they are able without suffering financial
devastation; prosperous people who rely on Medicaid for long-term care should
reimburse the taxpayers before giving away their wealth to heirs; seniors and
their heirs who wish to avoid such recovery from the estate should plan ahead
and purchase private long-term care insurance.
If members of Congress keep these principles in mind, they will sweep aside the self-serving arguments of misguided advocates and reform the system to benefit taxpayers and vulnerable seniors alike.
Of Floods, Insurance and
This year's sodden catastrophe in America's heartland is a perfect
analogy for the crisis in long-term care financing.
The "flood of the century" swamped thousands of homes,
dislocated millions of people, and destroyed countless farms and businesses.
Costs may reach $10 billion or more. State
and federal governments acted immediately to provide emergency aid.
Politicians inundated the media with promises that tax-financed
indemnification would follow. Although
most of the damaged property was located on flood plains, few property owners
had private insurance to cover the risk of flooding. Why?
"My home-owners' policy will protect me," some claimed.
"The water could never reach me here in a hundred years," many
affirmed. "Flood insurance is
too expensive," most said. Local
officials and bankers frequently bent the rules to approve building permits and
bank loans without the technically required flood insurance.
No one said "I'm not going to buy insurance, because the government
will pay if the worst happens." But,
vaguely and evasively, everyone knew it was true.
If the floods came, the political compassion combine would replace any
natural harvest lost.
Now compare the crisis in long-term care financing.
Nine percent of seniors will spend 5 years or more in a nursing home at
an average cost exceeding $30,000 per year.
People over 85 who are the most vulnerable to long-term
institutionalization are the fastest growing population cohort in America.
Nursing home costs tripled between 1980 and 1991 (from $20 to $60
billion) and they are projected nearly to triple again between 1990 and 2000
(from $53 to $147 billion). Clearly,
long-term care risk dwarfs flood risk. Predictably, the government response has
been commensurately large. Two-thirds
of all patients in America's nursing homes receive Medicaid.
Although Medicaid pays only 48% of nursing home costs directly, Social
Security pays another 18% indirectly as the Medicaid patients' contribution to
cost of care. Medicare and the
Department of Veterans' Affairs picked up another 6% or so in 1991 bringing the
government's nursing home contribution to well over 70% of total costs.
Finally, Hillary's health care honchos are promising even further
expansion of public benefits for long-term care.
Although nursing home institutionalization is the single biggest
financial risk senior Americans face, only 4% of them have private long-term
care insurance and private insurance contributes less than 4% to national
nursing home costs. Why?
"My Medicare supplement policy will protect me if I have to go to a
nursing home," some claim. "It
won't happen to me; I'm too healthy,"
many affirm. "Long-term
care insurance costs too much," most say.
Elder law attorneys and many Medicaid eligibility workers bend the rules
to qualify prosperous people for the welfare program's nursing home benefit.
No one says "I'm not going to buy insurance, because the government
will pay if the worst happens." But,
subconsciously, everybody knows this is true.
The reality is that if nursing home care becomes necessary, someone else
usually pays. Who knows or cares
whether the payer in fact is Medicare or Medicaid, Uncle Sam or Santa Claus?
The main purpose of private insurance is to replace a small risk of
catastrophic loss with the certainty of an affordable premium.
In a free market, private insurance also performs another vital function;
it prices risk. Voluntary exchanges
between willing sellers (insurers) and willing buyers (insureds) determine
actuarially sound premium levels. Premiums
tell the public as accurately as humanly possible what the precise danger is of
living on a flood plain or "going bare" for long-term care. Given this
information, rational people who are free to choose can make intelligent
decisions in their own best interests.
Ironically, for all its good intentions and altruistic justifications,
government distorts this risk calculation and dangerously misleads the public by
providing tax-financed grants or subsidies to indemnify the uninsured.
By reducing or disguising actual risks, the government discourages
responsible people from buying private insurance and rewards the irresponsible
for failing to do so. This is the
real reason why so few people have flood, crop, earthquake or long-term care
insurance, self-serving evasions ("it won't happen to me" or
"insurance costs too much") to the contrary notwithstanding.
When insurance truly costs too much, it means the risk is too great to
take, by definition! If the
government rebuilt every home that burned down, no one would buy fire insurance
If this assessment of the marketplace is correct, the solution to the
long-term care financing crisis is simple:
stop giving away free care to people who can afford private insurance. If
we do this, everyone who can will buy long-term care insurance, stay off
Medicaid, and leave the welfare program to the poor people who need it.
The humane way to achieve this goal is to end Medicaid divestiture and
require estate recovery of sheltered wealth.
That way, we deny care to no one who needs it, but neither do we reward
people who fail to insure. Miraculously,
this is exactly what the government intends to do if legislation restricting
Medicaid planning and mandating estate recoveries, which is now pending in
Congress, passes. We are on the
verge of a revolutionary breakthrough in long-term care financing!
Curiously, however, the government has not yet figured this out.
President Clinton's economic plan estimates savings of $395 million over
4 years by closing Medicaid loopholes and recovering from estates.
The Senate Finance Committee puts the figure at $1.1 billion over 5
years. The Congressional Budget
Office bumps the estimate to $1.8 billion, increasing in the out years.
All three vastly underestimate the potential savings.
They take into account only the projected revenues from estate recoveries
and the direct cost avoidance from closing loopholes.
They completely miss the big impact of the pending legislation--the
change it will engender in consumer behavior.
When Medicaid is harder to get and has to be paid back out of the estate in the long run anyway, i.e. when there is no more free ride, people will plan ahead, buy insurance and avoid Medicaid. In Wisconsin, we found that a 10% drop in the Medicaid census of the state's nursing homes (from 65% to 55%) would save $106 million or 20% of the Medicaid nursing home budget. A comparable drop in Medicaid census nationally, all other things being equal, would save $4.1 billion per year! But a 10% drop in Medicaid census is an extremely conservative goal. When the choice is "pay me now" for long-term care insurance, or "pay me later" for estate recoveries, people will search for creative ways to afford private insurance and the access to quality care that it assures. Research shows that 57% of homeowners can afford long-term care insurance with nothing more than the proceeds of a reverse annuity mortgage, but Medicaid currently exempts the home regardless of value so there is no incentive to tap this resource. Heirs get a windfall from Medicaid now for ignoring long-term care risks, but with their inheritances at stake, they will help their parents to purchase private insurance. When unleashed by the new restrictions on Medicaid nursing home benefits, these two potential financing sources will make long-term care insurance affordable for the vast majority of seniors in America. Then, we will finally see the full impact of private insurance on the long-term care financing problem.
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