LTC Bullet: Medicaid and Long-Term Care, the Serial, Part 6

Friday, April 10, 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 sixth one, after the ***news.***

*** HAPPY BIRTHDAY, CENTER: Steve Moses and David Rosenfeld co-founded the Center for Long-Term Care Financing [now Reform] on April 1, 1998. Damon Moses joined in 2001. Thank you for 22 years of your attention, support and good wishes. ***

*** THE ECONOMICS OF LOCKDOWNS: What will hurt or kill more people: the virus or a ruined economy? Click through to check out this excellent program broadcast yesterday by the Cato Institute. ***

*** HAS THE TIME COME FOR BETTER MEDICAID LTC POLICY? New York’s Medicaid program is the most generous purveyor of subsidized long-term care benefits in country. Its practically unlimited home health benefit, unencumbered by transfer of assets restrictions, was bankrupting the state. But finally, according to an Empire State Medicaid planning attorney: “Commencing on October 1, 2020, and as part of the New York State Budget enacted on April 3, 2020, there will now be imposed a thirty (30) month look back period for all home care services which is calculated the same way the penalty is calculated for skilled nursing home level Medicaid. Thus, for all home care applications filed on or after October 1, 2020, any transfer of assets (gifts/non-exempt transfers) will disqualify the applicant for Medicaid home care for thirty (30) months.” Good for New York Medicaid. Now if they’d just implement the rest of our recommendations from 2011, recipients and taxpayers would benefit far more. As economic reality reasserts itself all across the United States, every state will need to reassess long-term care financing policy. You’ll find dozens of national and state-level studies focused on how to do that here. ***



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. Episode 4 focused on how affluent people qualify for Medicaid long-term care benefits, why they ignore the risk and cost of long-term care until they need it, and how the government has tried, mostly unsuccessfully, to curtail artificial self-impoverishment to qualify for benefits. Episode 5 explained how and why most long-term care analysts ignore or misrepresent the vast literature on qualifying for Medicaid long-term care benefits while avoiding spend down of wealth. In today’s Episode 6, Steve Moses explains and provides many examples of the evidence that Medicaid’s spend down rules do not prevent middle class and affluent people from taking advantage of the welfare program’s long-term care benefits.

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 sixth 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.

What is the Evidence that People Dodge Medicaid Asset Spend Down Requirements?

Anecdotal Evidence Abounds

   Ask any Medicaid eligibility worker if he or she sees wealthy people taking advantage of Medicaid long-term care benefits and you are likely to hear a rant in reply. Workers are often frustrated by the difficulty they have qualifying really needy people for the program, while the well-to-do provide sanitized applications completed by their lawyers that are indisputable.

New York Medicaid eligibility supervisor Janice Eulau testified before Congress in 2011 that during her 36-year career in the field, she witnessed many individuals diverting significant resources in order to obtain Medicaid. She stated that about 60 percent of applicants do some form of Medicaid planning and added

It is not at all unusual to encounter individuals and couples with resources exceeding a half million dollars, some with over one million. There is no attempt to hide that this money exists; there is no need. There are various legal means to prevent those funds from being used to pay for the applicant’s nursing home care. Wealthy applicants for Medicaid’s nursing home coverage consider that benefit to be their right, regardless of their ability to pay themselves (Eulau, 2011).

In response to a Congressional inquiry,77 states provided numerous examples of Medicaid planning practices. For example:

   North Dakota

   A couple with $700,000 in liquid assets qualified for Medicaid long-term care benefits by purchasing a more expensive house, car, and an additional annuity while receiving $8,000 per month of income from pensions, Social Security, annuity payments and oil lease money. Another couple had more than $528,000 in assets, but qualified when the community spouse bought a new home, a new car, and two annuities worth $240,000, and then applied for Medicaid to pay the institutionalized spouse’s nursing home costs.


   An ill spouse transferred $600,000 to the community spouse who refused to sign the Medicaid application, making the ill spouse eligible for Medicaid because “interspousal transfers are not considered divestment.”

   New York

   Using promissory notes, immediate annuities and spousal refusal, affluent long-term care Medicaid applicants qualify while retaining unlimited assets. This occurs even when the state has legal recourse, because “Medicaid does not have sufficient resources to pursue all these cases in court.”

   Rhode Island

   A couple with $400,000 in a bond account became eligible in one month by purchasing “a large single premium immediate annuity.” A single man transferred $100,000 to his son but dodged half of the penalty for transferring assets by using a promissory note to carry out a reverse half-a-loaf strategy.


   A man bought a $900,000 annuity in his wife’s name, which paid her $89,000 per month, but “the Virginia Medicaid program could not count this income for purposes of determining the husband’s Medicaid LTC eligibility.”

   “Spending down” assets to qualify for Medicaid without expending those funds for long-term care or any other health-related expense is far easier and more commonplace than most economists and long-term care policy analysts willingly acknowledge.

But Hard Evidence is Scarce

   Unfortunately, hard empirical evidence of Medicaid long-term care asset spend down avoidance is sparse. Most researchers have preferred to scan big data bases looking for evidence to the contrary instead of examining actual Medicaid long-term care cases. In May 2014, however, the Government Accountability Office published results of the only study to date of a sample of such cases for this purpose. They found dramatic results, but for some reason downplayed their own findings.

   GAO identified four main methods used by applicants to reduce their countable assets—income or resources—and qualify for Medicaid coverage: 1. spending countable resources on goods and services that are not countable towards financial eligibility, such as prepaid funeral arrangements; 2. converting countable resources into noncountable resources that generate an income stream for the applicant, such as an annuity or promissory note; 3. giving away countable assets as a gift to another individual—such gifts could lead to a penalty period that delays Medicaid nursing home coverage [N.B.: but only if discovered]; and 4. for married applicants, increasing the amount of assets a spouse remaining in the community can retain, such as through the purchase of an annuity (GAO, 2014, unnumbered “GAO Highlights” page).

   Those methods of qualifying for Medicaid without spending down resources for care are exactly in line with the techniques and procedures recommended by the popular and professional literature on the topic discussed above.

   GAO analyzed a random, but non-generalizable, sample of 294 Medicaid nursing home applications in two counties in each of three states: Florida, New York, and South Carolina. They found “Nearly 75 percent of applicants owned some non-countable resources, such as burial contracts; the median amount of non-countable resources was $12,530” (Ibid.). That seems significant, but GAO does not draw out the implications in its report. A back-of-the-envelope estimate finds that if those results could be projected to the total of all Medicaid nursing home residents nationally—which they cannot, suggesting a study that could provide generalizable results is needed—665,700 Medicaid nursing home residents sheltered over $8.3 billion in non-countable resources or 42.4 percent of the $19.7 billion Medicaid paid for their nursing home care in 2009, the most recent data available at the time of the GAO study’s publication (Houser, Fox-Grage and Ujvari, 201279). That is a lot of money to divert from private long-term care financing liability.

   GAO found “Eligibility workers in 10 of the 12 counties interviewed stated that purchasing burial contracts and prepaid funeral arrangements, which are generally noncountable resources, was a common way applicants reduced their countable assets; and eligibility workers from one state said they recommend making such purchases to applicants” (GAO, 2014, 25). In fact, 39 percent of GAO’s sample owned “Burial contracts and prepaid funeral arrangements” with a median value of $9,311. If that proportion holds for the country as a whole, $3.2 billion or 6.3 percent of total Medicaid nursing home expenditures are diverted from funding long-term care to relieving families of the final expenses for their loved ones. This matters because funeral and burial pre-planning to expedite Medicaid eligibility is big business in the United States. Heavy use by Medicaid families of prepaid burial plans to shelter otherwise countable assets has the effect of shifting scarce program resources from purchasing long-term care services for the poor to subsidizing the funeral industry and indemnifying often affluent adult children from the cost of burying their parents.

   GAO found “. . . 44 percent of approved applicants—129 applicants—had between $2,501 and $100,000 in total resources, and 14 percent of approved applicants—42 applicants—had over $100,000 in total resources” (Ibid., p. 14). Pretending again that GAO’s findings are representative of all Medicaid nursing facility recipients, how much wealth would that mean Medicaid is sheltering from private long-term care financial liability nationwide? 887,598 nursing home residents receive Medicaid. If 14 percent of them, or 124,264 recipients, possessed $100,000 or more in non-countable resources, that is at least $12.4 billion or 3.4 times the $3.7 billion Medicaid spent for their nursing facility care. Yet, again, GAO does not draw out the implications.

   GAO found: “For the 51 applicants for whom we were able to determine the equity interest in the home, the median home equity was $50,000, and ranged from $0 to $700,000” (Ibid., p. 20). Most home equity (equity, not value) is non-countable, up to as much as $893,000 in some states as of 2020. GAO found median home equity to be $50,000 among the 51 applicants (out of 91 total homeowners or 31 percent of the sample) for whom they were able to determine it. Thus 100 percent of their sample’s home equity was non-countable. Keep in mind that $50,000 is a median home equity value, meaning as many exempt homes were higher in home equity value as were lower, and meaning that the average or mean home equity value could be significantly higher. If 31 percent of 887,598 Medicaid nursing home recipients nationwide or 275,155 recipients own homes with a median equity value of $50,000, then at least $13.8 billion worth of their home equity is non-countable, a figure that is 1.7 times the annual $8.1 billion cost of their care. Did it not behoove GAO to dig a little deeper? How much money could Medicaid save by making nursing facility care available only after home equity is spent down by means of private or commercial home equity conversion methods?

     GAO found: “Among the Medicaid application files that we reviewed in selected states, 16 of the 294 approved applicants (5 percent) had a personal service contract—all of which were determined to be for FMV [fair market value]. The median value of the personal service contracts was $37,000; the value of the contracts ranged from $4,460 to $250,004” (Ibid., p. 26). What if GAO’s findings were valid nationwide? If 5 percent of Medicaid nursing home recipients (44,380 recipients) sheltered a median value of $37,000 each in personal service contracts, the total diverted away from private long-term care financial liability would be $1.6 billion or 3.4 percent of total Medicaid nursing home expenditures nationally in the same year. That’s a very large subsidy to family members for taking care of their loved ones. Personal service contracts are a technique that is available mostly to savvier, more affluent families who seek legal advice on how to shelter assets. Commonly, the poor lose what little wealth they have to long-term care expenses without learning the often technical and complicated legal methods of artificial self-impoverishment.

   GAO found: “Of the 70 married approved applicants whose files we reviewed, 13 had applications that contained a claim of spousal refusal.  . . .  These 13 applicants resided in two states and the community spouse retained a median value of $291,888 in non-housing resources; two of the community spouses were able to retain over $1 million in non-housing resources” (Ibid., p. 31).  Spousal refusal is based on a bizarre interpretation of federal law commonplace in only two states (New York and Florida, both of which were included in GAO’s three-state sample for this study) by which spouses of institutionalized Medicaid recipients are allowed to refuse to contribute financially toward the cost of their spouse’s Medicaid-financed care—with impunity and in direct contradiction of the federal statute. The GAO report does not challenge this practice, nor has CMS taken action to curtail or end it. The spousal refusal cases GAO identified had a median value of nearly $292,000 in non-housing resources, but as they also found, some spousal refusal cases involve a million dollars or more.  Why exactly is this allowed?  Why doesn’t GAO question the practice?  Where is CMS?  The report makes no comment.

   GAO found: “State Medicaid officials, county eligibility workers, and attorneys who provided information on the value of annuities for the community spouse reported average values ranging from $50,000 to $300,000.  Officials from one state reported seeing annuities for the community spouse worth more than $1 million. Medicaid officials from one state indicated that they have seen annuities that disbursed all of the payments to the community spouse shortly after the annuity was purchased, while officials from another state said that annuities can have large monthly payments for the community spouse, such as $10,000 per month” (Ibid., p. 32). Spousal annuities are a huge loophole that allows many millions of dollars to be diverted from private long-term care financing into the pockets of affluent Medicaid nursing home recipients’ spouses. Yet GAO does not call for closing the annuity loophole nor has CMS done anything about it.

   GAO found:  “Among the 294 approved applicants whose files we reviewed, we identified 5 applicants (2 percent) who appeared to have used one of the ‘reverse half-a-loaf’ mechanisms; 4 of the applicants appeared to use the mechanism that involved creating an income stream through a promissory note to pay for nursing home care during the penalty period. These 4 applicants gifted between $20,150 and $227,250 worth of resources, and had penalty periods of between 2 months and 22 months” (Ibid., p. 29). Again, GAO gives only glancing attention to the reverse half-a-loaf technique often employed by Medicaid planners to reduce their affluent clients’ Medicaid spend down liability by half. The incidence of this technique’s use as identified by GAO—only 2 percent—seems small, but keep in mind that it is only used for people with substantial assets. Otherwise, it would hardly be worth the cost in attorneys’ fees to set up the complicated procedure. Public officials should ask about this and all the other techniques downplayed in the GAO report “how much public spending is being wasted?” and “why are such abuses allowed to continue?”

   One final point about this study: GAO says “Our analysis was limited to information included in the application files, which states used to make their eligibility determinations.  We did not independently verify the accuracy of this information (Ibid., pp. 4-5).” That single admission obviates any value or credibility this report might otherwise have. Federal quality control audits have found that state welfare eligibility determinations are wrong in a third to a half of all cases even after state quality control reviews have confirmed the original determinations by state or county workers.  We will never know the true extent of Medicaid asset shelters, transfers and other artificial self-impoverishment techniques until someone reviews a valid random sample of long-term care cases that is generalizable statewide and nationwide and goes beyond the extremely limited information available in case records for purposes of verification.

   The Government Accountability Office or the DHHS Inspector General or any serious researcher or organization should review a generalizable sample of Medicaid long-term care cases to establish once and for all how much money is being lost to Medicaid financial eligibility rules that divert the programs scarce resources from the needy to the affluent.

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