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| The Basics | Are the well-off ripping off Medicaid?
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Many middle- and upper-class families find ways to 'intentionally impoverish' seniors so they'll qualify for help. Is 'Medicaid planning' dishonest -- or a way to cope with a broken system?
By Liz Pulliam Weston
Christopher Lowe had resigned himself to the fact that his grandmother's nursing-home care would eventually cost him the family home. The Medicaid program in their state, Tennessee, often recoups its costs after the patient's death by putting a claim against the estate.
Then he started chatting with the daughter of another nursing-home resident. The daughter suggested there were ways to avoid the state's claim and preserve more assets for the family by selling the house immediately, rather than waiting. She even proposed that the home could be sold to an unrelated buyer who could eventually sell or transfer it back to the family.
"That sounds a little bit dishonest," said Lowe, who lives in Johnson City. But the home has been in the family for more than 100 years, he said, "and we would really hate to lose that piece of property."
Welcome to the world of Medicaid planning, which helps people with assets qualify for a program intended for those without any. As practiced by qualified attorneys and financial planners, Medicaid planning usually is perfectly legal. Whether it's ethical is an entirely different question.
Typical planning tactics
There are certainly people of integrity and compassion on both sides of this controversy. But the debate is bound to become louder as Medicaid budgets around the country are squeezed.
Before we go any further, you need to know some basics about government health-care programs and how they work:
Medicare, the health-insurance program that covers most people over 65, typically doesn't pay for nursing-home expenses.
Medicaid, the government program that does cover the custodial expenses of nursing-home care, was designed to cover poor people of all ages who have low incomes and few, if any, assets. The income and asset limits vary by state, type of care and marital status. Typically, a single person can't have more than $2,000 in savings and still qualify for Medicaid coverage of a nursing-home stay.
Medicaid planning involves finding ways for elderly people to reduce certain assets to allow them to qualify for Medicaid coverage. Some methods include:- Transferring investments, savings and other property to children or other heirs;
- Converting assets that would normally be counted against the applicant into "exempt" assets by, for example, using savings for home repairs or to buy an automobile; (Homes, and to some extent cars, aren't counted as assets in Medicaid formulas.)
- Using specially designed annuities to preserve assets for a spouse.
Transferring assets usually disqualifies applicants from receiving Medicaid for a period of time, usually no more than 3 years. Lowe's grandmother, for example, might be able to sell the family home, keep enough money to pay her nursing-home bills for three years and give the rest to her children. After three years, she could qualify again for coverage.
The case for Medicaid planning
Defenders of Medicaid planning often say it's no more unethical than tax planning, which involves arranging your affairs so that you can take maximum advantage of appropriate tax breaks.
Even if the planning involves exploiting loopholes, these proponents say, Congress knows about these opportunities and hasn't permanently closed them. Lawmakers' lack of action amounts to a tacit approval of their use, the argument goes. (Congress did briefly criminalize certain transfers as part of the Health Insurance Portability and Accountability Act of 1996, in what became known as the "Granny Goes to Jail" provision. But that sparked an uproar, which quickly led to the provision's nullification.)
Medicaid planners also point out the many flaws and inequities of the current system: - People who get certain diseases are covered, while others are not. Those who need heart surgery or cancer treatments are covered under Medicare, while those who get Alzheimer's -- which requires mostly custodial care -- are out of luck.
- Custodial-care costs are soaring. The average cost of nursing-home care is now $70,080 a year, according to MetLife's annual survey. The cost of a home-health aide averages $18 an hour. Few families can shoulder those costs for long without exhausting their savings.
- It's not just the sick person who suffers. Care costs can impoverish the spouse and any dependents, as well. Medicaid does allow married people to keep more assets and income than singles, but the limits are still fairly low.
- Long-term care insurance isn't an option for most. These policies may be prohibitively expensive or unavailable to those with pre-existing conditions. Some of those who have purchased policies found their annual premiums jacked up by 40% or more, as insurers discovered they underpriced the coverage.
People who engage in Medicaid planning are typically trying to shelter relatively small sums of money, said elder-law attorney Stuart Zimring, not vast estates.
"The crazy urban myth of the millionaire on Medicaid is right up there with Cadillac-driving welfare moms and family farms lost to the estate tax," said Zimring, president of the National Association of Elder Law Attorneys. "It doesn't happen. Millionaires don't want to go on Medicaid."
But even small amounts of money can add up if enough people take advantage. A study by the General Accounting Office estimated 13% to 22% of applicants for Medicaid nursing-home coverage had transferred assets in the preceding months.
And Medicaid is quickly turning into a zero-sum game, where benefits to one person are coming at the cost of others.
Cuts for the needy
People who transferred assets to qualify for Medicaid may have been able to sustain the illusion that they weren't really hurting anyone when the government plan's funding was steadily growing. That's no longer the case:- Medicaid funding to states will drop by $1 billion in the next year, and President Bush has said he wants to cut the federal share by as much as $40 billion over the next decade.
- Missouri's governor just signed a law to end the program entirely within three years. About 100,000 people are expected to lose their coverage this year alone.
- Other states, including Tennessee and Minnesota, are proposing significant cutbacks. Many have frozen fees to doctors and some are trying to cut them, which is expected to further reduce the number of physicians who accept Medicaid patients. That, in turn, makes it tougher for the poor to find and get care.
Now, we really are faced with a situation where needy people are being turned away, while those who had the means to pay for at least some of their care -- but who engaged in Medicaid planning -- will still have their nursing home bills paid by the government.
Considering Medicaid planning? Ask yourself 3 questions
I don't think there are any easy solutions. Having Medicare pick up the costs of nursing homes would bankrupt a system that's already off the rails, thanks to a swelling population of elderly and the addition of the prescription drug benefit.
Putting more restrictions on transfers would probably just breed loopholes and strategies to exploit them.
And making scapegoats of all the people who engage in Medicaid planning is simply unfair, since many of them are just trying to make the best of a bad situation.
So, right now, the decision is still an intensely personal one. I would suggest if you're considering Medicaid planning for yourself or a parent that you ask yourself the following questions:
Whose assets are they, anyway? One of the reasons we accumulate a nest egg is to pay for our retirement years -- and that includes medical care as well as cruises. If your primary purpose in Medicaid planning is to pass more money to the kids, you might ask yourself if public funds should be used to fund an inheritance-preservation program.
What about quality of care? Federal law requires that nursing homes give Medicaid patients the same treatment as their private-pay counterparts. But many of the best nursing homes don't accept Medicaid patients, and those that do are allowed to assign them to less-desirable rooms. The difference between the quality of life in a private or semi-private room compared to an Alzheimer's ward can be considerable, so think about that if you're contemplating Medicaid planning for yourself or a parent.
Are you walking your talk? If you rail about high taxes and welfare cheats, it's a tad inconsistent to change the rules when you're the one who's asking for the government's help.
One final note: If you or a loved one is being pitched a "Medicaid annuity" to protect your assets, please get a second opinion from a qualified elder-law attorney. (NAELA can provide referrals.) The annuities have to be properly structured to work, and they might be an expensive or unnecessarily restrictive way to go. There's also been some fraud in this area, so buyer beware.
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