What you need to know about Medicaid and Long- Term Care ( From National Conference of State Legislators)

"Medicaid is bankrupting state and federal governments. . . .The one thing everyone agrees on is that the program cannot be sustained as it is currently structured." John Hurson (D) President, Nat'l Conference of State legislators, 8/18/2005

It is said by many retirement policy experts that the greatest obstacle to the public recognizing long-term care insurance as a critical component of retirement planning is the mistaken belief that the government will pay for their long-term care services. While there is a kernel of truth to this possibility for some, those who truly wish to establish a cost-effective and secure strategy for preserving their assets and protecting their loved ones would be advised to contemplate today's realities given the recent passage of the Deficit Reduction Act of 2005 (DRA). Once again, government is sending a strong message about its limited role with long-term care, a message that should give everyone pause.

Of the two major government programs, Medicare is the simpler to rule out as a long-term care provider. By definition, design and practice, Medicare is a traditional medical health plan that pays for acute, skilled medical services provided by physicians, nurses and hospitals. It is not a long-term care program. At best, Medicare will pay for up to 100 days of skilled rehabilitative services in a nursing home, but such limited services average about 3 weeks for those who are able to qualify for assistance. Limited, skilled home care services can be provided under Medicare for home-bound patients on a temporary and intermittent basis. Once again, however, these are not long-term care custodial services.

On the other hand, Medicaid, a state-run welfare program, has been exploited by some in order to have its benefit features used to provide taxpayer-funded nursing home services for people who could pay for their own nursing home care. The result has been an escalation of Medicaid's fiscal instability, with out-of-control spending, huge deficits reported in all states, and those truly in need seeing their benefits reduced or cut altogether. So severe has been this drain on limited Medicaid resources that state and federal officials continue to take drastic legislative and regulatory steps to close the loopholes in the Medicaid law. The most recent restrictions went into effect in February of 2006 with the passage of the Deficit Reduction Act of 2005 (DRA), legislation called "Draconian" by lawyers who sell so-called "Medicaid planning" services.

It is interesting to hear elder care lawyers marketing their Medicaid planning services as if the end product, a government welfare program, was something most of us desire. "I can help you qualify for Medicaid," they proudly tout. It goes without saying that few of these same lawyers have plans to subject themselves or their parents to Medicaid level care when they become most vulnerable. As Stephen Moses of the Center For Long-term Care Financing pointedly states, "Medicaid is a means tested public assistance program. It is welfare . . . and has a dismal reputation for access, quality, discrimination and institutional bias. Medicaid recipients face long waiting lists even for inferior facilities. . . . No clear thinking person in possession of all the facts would coordinate benefits with a welfare program going bankrupt." Marilee Driscoll, author of The Complete Idiots Guide to Long-term Care Planning underscores Medicaid's reputation, "It's quite breathtaking the difference between the private pay rooms and Medicaid rooms [in nursing homes]."

With the recent passage of the DRA of 2005, navigating the Medicaid planning abyss has become even more treacherous. Here are just a few of the more significant changes.

 

  1. The "look-back" period for all asset transfers has been extended from three to five years from the date of application for Medicaid. It is extremely difficult for family members to research and organize their parents' financial records going back one year. Imagine the task associated with five years of retrospective recordkeeping. Furthermore, few of us know five minutes before we will experience a major medical crisis, let alone five years. How will we anticipate the right time to transfer assets "our house or 410(k) savings" to loved ones?

  2. Multiple smaller transfer amounts now will be considered as a larger single transfer when calculating the penalty period. These amounts may include gifts to charities, churches, and even IRS approved tax-free distributions to children.

  3. The penalty period (waiting period before Medicaid pays for care) will now commence with the date of eligibility for Medicaid rather than the date of the transfer, and after personal assets have been spent down.

  4. There is now a $500,000 cap on the amount of home equity (house and contiguous property) that can be excluded from Medicaid asset calculation.

  5. Annuities, which might be used to "shelter" assets, must list the state as the remainder beneficiary.

  6. States must now use the more restrictive "income first" rule when calculating acceptable monthly income allocation for the community spouse.

  7. Life estates will be considered as an asset unless the purchaser remains in the home for at least a year after the date of purchase.

  8. Any deposit fees that are still available from a Continuing Care Retirement Community entrance fee would have to be spent before applying for Medicaid.

The intent of these changes is to prevent the misuse of the Medicaid program by wealthier individuals who feel taxpayers (you and me) should provide for their free nursing home care so that they can leave an inheritance to their children. These abuses of the original intent of the Medicaid program, while benefiting the wealthiest, have created a fiscal black hole that jeopardizes the integrity of a program originally intended for those most in need. According to the Center For Long-term Care Financing, a 2004 report released by the National Association of State Budget Officers shows that “Medicaid is crowding out other parts of state budgets,” for the first time expending more state dollars on Medicaid than on elementary and secondary education. Few experts believe the DRA of 2005 will be the final action by state and federal policy makers to stop Medicaid from hemorrhaging. In the years ahead, we can expect continued restrictive action as well as additional tax-based incentives that will encourage individuals to secure long-term-care insurance.

Elder Care lawyers will no doubt concoct new ways to exploit the Medicaid law, but clients will only face greater uncertainly and risk as to whether these schemes will stand up to scrutiny by Medicaid bureaucrats when it counts. It is likely that the DRA will give potential clients reason to question the end game. Medicaid laws and regulations are extremely complex and change constantly. With Medicaid, choices are limited and care quality often substandard. Nor is it unusual to hear of lawyers making grievous Medicaid planning mistakes that result in clients failing to qualify for coverage. More enlightened elder care lawyers, however, are now likely to join with their nationally known colleague, Harry Margolis, who recommended in the February 2004 issue of Kiplinger's Magazine that long-term care insurance should be a strong consideration for those who are healthy and could afford the premiums.

Joseph P. Blanchette, CLTC