If a spouse goes into a nursing home, the at home/healthy spouse does not become penniless as in prior years. They are able to keep certain minimum and maximum amounts- called resource limits which is half of the assets owned by the spouses when the first is admitted to a nursing home (subject to the minimum and maximum limits)- plus the house and other exempt assets. The limits are adjusted for inflation and vary in different states. But even here you have to know how to play the game. Assume that the minimum and maximum in a state are $16,000 and $75,000. If one has $200,000, then the maximum that can be retained by the healthy spouse is not one half but the $75,000 maximum. That would mean that Medicaid would take $125,000. But what one could do would be to spend $50,000 on needed repairs on a house and/or buy another car (an exempt asset). Then there would be only $150,000 left and one half could be left to the healthy spouse. So it would be worthwhile to SPEND money legitimately before one goes into a home.

If the assets totaled $25,000, then the healthy spouse could retain the $15,000. But assume there was 40,000 and $5,000 was needed to repair the roof. When do you spend the money? If you spent the money beforehand, you are left with the $35,000 and $17,500 is retained by the healthy spouse. If you didn't spend the money, $20,000 would be left to the healthy spouse who would then have to spend the $5,000 out of that money to repair the roof and only be left with $15,000. Again it looks like it would be better to spend the money beforehand. If the assets totaled $27,000, then half would be $13,500. But the minimum would be $15,000. So why not spend the $5,000, be left with $22,000 but still retain the $15,000 minimum.

It therefore appears that the spending of money on legitimate assets prior to entering a home would allow the healthy spouse to retain more.

MORE MEDICAID: (1998) If you are married and your spouse must go into a Medicaid facility, the at home spouse is allowed only to retain a certain amount of assets-generally that is around $76,000 in resources and around $2,000 in monthly income. But what is generally not known is that the community spouse may retain assets greater than the $76,000 if necessary to generate the income of $2,000 per month. For example, if the community spouse received only social security benefits of $800 per month, if they had $200,000 dollars earning a 5 % yield, that equates to 10,000 dollars per year or approximately $850 a month, so that the community spouse would still fall within the spousal impoverishment provisions of the Medicaid law.

There are other unique situations. For example, the community spouse may actually have resources under the $76,000 dollars but have an income greater than $2,000 per month. In certain states, the community spouse may have a duty to provide some of this access money to the nursing home/Medicaid for care of the institutionalized spouse.

Here is the planning therefore that might be available if, for example, a couple has four hundred thousand dollars but the community spouse's income is only eight hundred dollars a month. Assuming a five % interest, then the community see spouse could retain approximately 20050,000 dollars in assets without necessarily being filed against by Medicaid.

It is possible to also convert excess assets to annuities since these are generally not considered assets of the community spouse. However it is my understanding, that these must be life only payouts-not allowing additional beneficiaries. But due to the fact that the annuity may only make three % less on the funds, I think that some research would need to be done before one would you laterally used this concept.

MEDICAID:  (1998) Medicaid is stepping up its "retrieval" of costs when a patient dies. They can put liens on homes, etc. A Kiplinger article noted that "Compared with the total of nursing-home bills paid by medicaid--$32.5 billion last year--the amount recovered by state programs is a tiny drop in the bucket. But it's growing: from $62 million in the 1992 fiscal year to $176 million last year. Arizona recovers the highest percentage of medicaid nursing-home expenses (7.9%), followed by Oregon (5%)."

Thinking about transferring assets to get them away from Medicaid? There is some possible planning after a patient has entered Medicaid, but it is severely limited.  It IS possible to transfer assets to others BEFORE Medicaid long term care, but that is also limited. Further, I suggest that anyone that has money should opt for a long term care policy. Trying to shift money to die in a Medicaid ward is just plain stupid and may also be unethical (though a word not usually considered viable in this day and age.) YOU NEVER WANT TO DIE IN A MEDICAID WARD WITH A BUNCH OF OTHER SCREAMING ALZHEIMERS PATIENTS. Please consider proper planning if you have sufficient assets.

MEDICAID CARE: (1998) "...the proportion of Medicaid recipients is indeed associated with lower levels of RN

staffing and a higher proportion of residents not toileted...higher proportions of Medicaid were found to be associated with lower nursing home quality, suggesting that the Medicaid program in fact exercises its power to bargain for price rather than quality.... A higher proportion of residents whose care is reimbursed by Medicaid is associated with lower quality as measured by these indicators.... Residents in homes with few private-pay patients (implying more public-pay patients) were found to be 30 % more likely to experience functional decline...."

"Dissatisfaction with the current medicaid program is high...low reimbursement rates mean that nursing homes frequently resist taking medicaid patients or provide poor care." According to elder law expert Patricia Nemore: "Some facilities have Medicaid wings and require residents to move to them when they convert from private-pay to Medicaid status.... If the Medicaid wing is full, the facility may try to evict the resident.... Services for Medicaid recipients may not be as good as those for private-pay residents."

MEDICAID: (1998) Medicaid pays for 70% of all nursing home patient days, but reimbursement rates are typically 80% of private-pay rates and often less than the cost of providing the care. One North Carolina rest home receives $893 a month per Medicaid resident compared to $2,200 for a private payer in a private room. States are spending more money on Medicaid (which pays for over two-thirds of all nursing home days) than on education. Regardless, when you see that much disparity in price, tell which patient gets the better care- private or Medicaid. Never die in a Medicaid ward if you can afford a private long term care insurance policy.

MEDICAID PLANNING: (1998)Repeated ad nauseam throughout, you don't want to try to qualify for Medicaid for Nursing Home Care. And many states have enacted rules to prevent ElderCare attorneys from playing games to do so. New York's court recently upheld New York's "income-first rule"  that means that income must be considered first [before resources] when seeking to bring a Medicaid applicant spouse's Minimum Monthly Maintenance Needs Allowance [MMMNA] up to the minimum amount. The ruling prevents excessive and unnecessary asset transfers where protecting the community spouse can be accomplished with transfers of income. The court's use of very strong language to the effect that Medicaid is not a middle-class inheritance protection program reflects a potential trend at the state court level to honor the spirit and intent of the Medicaid program.

And New Jersey Supreme Court's  recently indicated that assets held in an IRA or other qualified plan owned by a community spouse must be included in determining the couple's assets for Medicaid eligibility for the institutionalized spouse.


Figure 1

Table 3

Table 4

MEDICAID "PLANNING": (Center for Long Term Care 1999)- The Braceland Center for Mental Health and Aging researched Medicaid eligibility workers, elder law attorneys, and certified financial planners regarding Medicaid estate planning. It was being heavily promoted in Connecticut due to the wealthy citizens and high quality Medicaid facilities. It showed that Medicaid estate planning was actively endorsed by lawyers, financial planners and even Medicaid eligibility workers to help them pass on assets to beneficiaries: 80% of Medicaid workers, 60% of elder law attorneys and 57.7% of financial planners reported that asset transfers have increased over the past 6 years (and this while greater restrictions were supposedly being enacted). The average transfer was: Among financial planners, 51.9% reported average transfers over $200,000 and 55% of elder law attorneys reported average transfers over $100,000. Overall, 7.4 % of those polled reported average transfers over $200,000.

The profile of the clients included- Income: Among financial planners, 51.7% reported clients with total monthly incomes between $2,500-$4,999 with 17.2 % reporting clients with monthly incomes above $5,000. 62.5% of elder law attorneys and 48.6% of Medicaid eligibility workers reported clients with monthly incomes between $1,000-$2499. Overall, 19.4% of respondents reported clients with monthly incomes above $2,500 and 5.0% reported clients with incomes over $5000.

Assets: 100% of financial planners reported clients with more than $100,000 in total assets; 13.8% reported clients with assets of $200,000-$349,999; and 72.4% reported clients with assets over $350,000. Among elder law attorneys, 87.8% reported clients with more than $100,000 in total assets; 41.5% reported clients with assets of $200,000-$349,999; and 19.5% reported clients with assets over $350,000.

Ethical?: Financial planners indicated they advised 40.8% of clients on average about asset transfers. Elder law attorneys reported advising 51.4% of clients about asset transfers. Overall, 81.9% of respondents recommended cash gifts; 43.5 % recommended paying off debt; 58.7% recommended converting countable assets into exempt assets; 52.9% recommended various financial instruments; and 55.8% recommended increasing the Community Spouse Resource Allowance

A rationalization by many elder law attorneys was that they had a fiduciary duty to "provide legal guidance that is in their clients best interests." Really? To suggest you gift away your assets so you can die in a Medicaid ward with a bunch of screaming Alzheimers patients is NOT a fiduciary duty. Their ethical obligation- and that of planners as well- was to insure that the proposed patient actually go down to a Medicaid and a private home to see the difference in care. Once they had viewed such difference, they would then be required to sign a statement that they were willing to die almost assuredly with substandard care. Never happen.

What I noticed previously however was a study in 1996 by the Minnesota Department of Human Services Quality Initiatives Division Long-term Care Client Asset Review conducted to assess the extent and impact of Medicaid estate planning. Quality Control staff reviewed 445 cases of clients residing in long-term care facilities as of December 1, 1994 for evidence of improper transfers. The results were troubling: 9 out of every 10 transfers were improper (276 of 297). The total amount of assets improperly transferred was $1,747,852 vs. $353,398 in permissible asset transfers.

I do understand the aspect of trying to save assets for beneficiaries. But it almost totally dismisses proper planning since, if you have enough money, the purchase of a long term care policy can do much to offer more comprehensive care as well as emotional comfort for both the patient and the caregiver.  Don't try to die in a Medicaid ward.

MEDICAID PLANNING: (1999) . YOU DO NOT WANT TO DIE IN A MEDICAID WARD IF YOU HAVE ENOUGH MONEY TO AVOID THE PROBLEM.  ("Private-pay patients can usually find a nursing home bed quickly. Waiting lists for Medicaid patients (especially heavy-care patients), can stretch for several months, even a year or more. The only opening for a Medicaid patient may be in a facility that is not convenient to visitors, or that does not provide quality care." (Dana Shilling, Financial Planning for the Older Client, National Underwriter, Cincinnati, Ohio, 1992, p. 73)

"...the proportion of Medicaid recipients is indeed associated with lower levels of RN staffing and a higher proportion of residents not toileted...higher proportions of Medicaid were found to be associated with lower nursing home quality, suggesting that the Medicaid program in fact exercises its power to bargain for price rather than quality.... A higher proportion of residents whose care is reimbursed by Medicaid is associated with lower quality as measured by these indicators.... Residents in homes with few private-pay patients (implying more public-pay patients) were found to be 30 % more likely to experience functional decline.... Simply raising Medicaid rates or mandating parity across payers may not provide sufficient incentives for increasing quality. Under conditions of excess Medicaid demand, there may be little incentive to provide quality at any price...." (Jacqueline S. Zinn, "Market Competition and the Quality of Nursing Home Care," Journal of Health Politics, Policy and Law, 1994)

MEDICAID LOOKBACK: (1999)Under the federal guidelines, there is a 36 months lookback immediately preceding the Medicaid application for nursing home benefits. Any uncompensated transfers within this period will create a period of ineligibility. For example, if you were to transfer ninety thousand dollars, and nursing home costs and add immediate area where three thousand dollars per month, there is a period of the ineligibility for Medicaid for 10 months. So let's say you actually did transfer 12 thousand dollars. Under a case in the federal District Court in Oregon, it appears that, although there is a 36 month lookback period, if the individual waits until the expiration of the penalty period-in this case three months-to apply to Medicaid benefits, no period of ineligibility for such benefits will be imposed.

MEDICAID AND LONG TERM CARE: (1999) Medicaid is the primary payer for 68 percent of nursing home residents

MEDICAID PLANNING?: (2000) "One of the most powerful planning strategies to qualify for MediCal involves a Court Order. This planning strategy is very effective for married couples when one is in a nursing home. A document known as a Petition is filed with the Court. The Petition asks the Court for an Order directing the spouse in the nursing home to support the spouse at home. The Court may order the spouse in the nursing home to transfer assets and/or income to the spouse at home. This procedure may enable the spouse at home to retain all of his or her assets and/or income and qualify the spouse in the nursing home for MediCal."

Possibly true in many jurisdictions of California and other states. But here is the crux of the issue. The state WILL provide care but at what cost to your loved one???? The legal validity of the above petition is if the institutionalized spouse was going in on Medicaid anyway due to the limited assets. I suppose that shifting assets so that the at home spouse had a better life might be viable. But most of the time it is an attempt to pass on more assets to beneficiaries instead of paying for the higher level of care. And the attorneys love to promote the game since they get THOU$AND$ in fees.

MEDICAID: (CBS 2000) 17,000 nursing homes around the U.S. treat 1.6 million under the Medicaid banner. The average U.S. cost of care is $41,000 per year. 63% going into a nursing home exhaust their assets within 13 weeks; 90% exhaust their savings in 16 weeks. But nursing homes don't usually like Medicaid patents and have tried to evict such patients since it does not provide the same daily rate as the private patients. In California, Medicaid pays $84 per day while the average private pay is $104; Massachusetts Medicaid pays $109 while private pay rates are at $130. Georgia Medicaid rates are closer to private pay- $75/$78.

It IS possible to reduce your assets to get the State to pay.  But do you want a loved one (or yourself) to go through the turbulence as defined above? If you have no money, your stuck anyway. But if you have adequate assets, I think you should consider a long term care policy. Just find somebody that really knows how they work. They are NOT easy to decipher regardless of what an agent has to say.

HCFA Amends Policies on Medicaid Estate Recovery 2001

The U. S. Health Care Financing Administration has amended the State Medicaid Manual, section 3810, on Medicaid estate recovery. The amendments specify recovery procedures for states that impose the Tax Equity Fiscal Responsibility Act (TEFRA) liens. They also mandate recovery from the estates of dual eligibles (QMBs, etc.), decedents with long-term care insurance, and beneficiaries of Medicaid managed care organizations. The amendments describe the circumstances under which recovery may be had from annuities and defines "homestead of modest value."

Medicaid: (2001)As budget talks get going in state capitols across the country, cash-strapped officials are pinpointing Medicaid spending as one of the biggest causes of budget problems cropping up in state after state. Skyrocketing prescription drug prices, increased costs for home and community-based healthcare and coverage of more disabled people are the main factors in the explosion of Medicaid spending, As budget talks get going in state capitols across the country, cash-strapped officials are pinpointing Medicaid spending as one of the biggest causes of budget problems cropping up in state after state. Skyrocketing prescription drug prices, increased costs for home and community-based healthcare and coverage of more disabled people are the main factors in the explosion of Medicaid spending. Although only one-quarter of Medicaid's enrollees are elderly or disabled, the same group accounts for almost two-thirds of the program's spending, largely because of prescription drug and nursing home costs. Medicare does not cover prescription drugs in its benefit package, so Medicaid in many cases picks up the tab for many elderly people.  

Medicaid spending for fiscal year 1998 (which is the most recent data released by the government) totaled $176.3 billion, a figure that was $8.7 billion or 5.2 percent more than the states and federal government spent in 1997.

Spending also grew rapidly in the early 1990s. A 27.1 percent increase from 1990 to 1992 was due to health care inflation, the addition of seven million new enrollees and a jump in states' use of disproportionate share hospital payments, or money facilities get to cover treatment for patients who cannot pay

the major cost drivers now are prescription drugs and home and community-based care. Medicaid spent $11.7 billion on pharmaceuticals in 1998, $1.5 billion more than what was spent in 1997. Similarly, home care expenditures increased by $1.6 billion to $15.7 billion.


Our expenditures on drugs have more than doubled since 1995 alone, and they've quadrupled since 1990.

Georgia Department of Community Health director Russ Toal


Medigap Policies  (NY Times 2001) The rising costs of prescription drugs are driving up the premiums of insurance plans that supplement traditional Medicare and include drug coverage. The high costs of these so-called Medigap policies are forcing many elderly and disabled people out of the programs even as Medicare managed care plans and employers are retreating from providing drug coverage.

More Medicaid: (2001) Medicaid enrollment fell by 200,000 people, or 0.5 percent, from 1997 to 1998, while overall spending increased by $8.7 billion, or 5.2 percent. Spending per enrollee increased by 6.8 percent indicating that states had a tougher time  holding down costs than in previous years. Some factors that are likely to contribute to future growth include prescription drug utilization and cost, composition of the Medicaid population, use of "upper payment limit" financing mechanisms, general health care inflation, and expanded home and community-based health services.

Here's what it means to be a Medicaid patient in most states: (2001)

* You can't get into strictly private-pay facilities that dont accept Medicaid patients.

* Medicaid pays very little for home health care, so being on Medicaid in most states means being in a nursing home. . . .

* Medicaid pays less than private-pay rates in most states, so the waiting lists are long-for Medicaid patients.

* You have to go wherever there is a bed, which could be hours away from your family.

* If a facility doesnt accept Medicaid and you run out of your own money, you can be required to move to a facility that accepts Medicaid, and that's a hard situation for families to deal with.

* Nursing homes that operate with predominantly Medicaid patients dont have as much funding as private-pay facilities to upgrade services, furnishings, etc.

* You simply dont have as many choices as a private pay patient--a private room, for example, is not allowed-- because as a Medicaid patient, you aren't paying the bill. (pps. 146-147)

Medicaid: (2001) The Congressional Budget Office reported Medicaid spending continues to grow very rapidly--up by over 13 percent so far this year from 2000, reflecting higher enrollment, increased spending on prescription drugs, and increased use by states of certain financing mechanisms (related to the Medicare upper payment limit) that generate additional federal payments. Medicare spending has also risen, by 8.4 percent. That growth rate has been accelerating since increased payment rates to health care providers took effect in April. For the entire year, CBO anticipates that spending for Medicare will grow by about 10 percent.

Medicaid and End-of-Life Care  (PDF 2001) This report written by the Urban Institute’s Jane Tilly and Joshua Wiener, examines Medicaid’s role in caring for dying patients. The researchers found several deficiencies in eligibility, benefits, quality, and financing of care for the terminally ill.

Medicaid care in a nursing home. (2001) "Maybe the care in nursing homes appears the same regardless of payment status, but the overall experience may be quite different. We actually do have a nursing home here in Spokane that has a Medicaid Wing. I told them that Washington State has a statute prohibiting Medicaid discrimination. I don't think it stopped them. This same facility has some rooms that are much less desirable than others. One of our Medicaid clients was in a room where the air conditioner blew cold air on him constantly. (He developed pneumonia and died at that facility. No, the family did not sue, but they really would have liked to have him around longer.) The nursing home told me, We give Medicaid patients the least desirable rooms.The best rooms go to those who can pay for them."

"Even if you get the same care, it can be the little things that make a real difference in the quality of care. For example, having a telephone in one's room matters a great deal to most residents. Have your ever seen the line at the public phone in a SNF [skilled nursing facility]?  Besides that, there's no privacy. The ability to have some spending money for the beverage cart that comes around in the afternoons is a big plus. There are lots of examples of the little extras that make life so enjoyable, I need not say more. "

California Medi-Cal (Medicaid) Long-Term Care  (2001) Medi-Cal pays for 64 percent of all nursing home days in California and accounts for 45 percent of total nursing home expenditures. In contrast, the Medicare program, which pays for no more than the first 100 days of a nursing home stay, covers only 9 percent of total nursing home days and 25 percent of total expenditures.

State Revised Medicaid rules: Under planned revisions to the formula that sets levels for federal and state contributions to Medicaid and other health programs for the poor, in fiscal year 2003 California will receive $400 million less from the federal government for Medi-Cal, its Medicaid program. The federal government is revising the formula -- based on a state's average income rather than the number of low-income residents -- to include income changes over the last three years.

In 2000, Medicaid costs increased 9%; in fiscal 2001, costs increased by another 11%. And if you do not nip it in the bud, you can end up with increases as high as 30% in 1992.  Combined, states have a $20 billion Medicaid budget deficit for the current fiscal year.

According to a recent Urban Institute report, if the unemployment rate rises from 4.5% to 6.5% next year, Medicaid enrollment will increase by 3.2 million to more than 43 million. 28 states are considering cutting their Medicaid budgets.

75,000 Low-Income New York City Residents Enrolled in Temporary Medicaid Program after Sept. 11 Attacks

Medicaid; (2002) I keep telling people that if you have money, do what you can to avoid dying in a Medicaid ward. Among other things, Medicaid pays only about 80% of private pay. And once again, it is in fiscal crisis- just as it has always been. Medicaid spending grew by 11% last year and many states are finding that the cost for prescription drugs is rising by 20%+.

Medicaid pays for 2/3 of all nursing home costs and 1/3 of all births.

Medicaid coverage: (California HealthCare Foundation's Medi-Cal Policy Institute (MCPI 2002) Nearly half of California's primary care physicians (45 percent) and specialists (43 percent) say they do not have any Medi-Cal patients in their practices.

*In 1998, 55% of primary care physicians and 57% of specialist surveyed said they treated Medi-Cal beneficiaries. According to the surveys, the percentages of doctor participation in Medi-Cal did not change significantly from 1996 to 1998.

*On average, Medi-Cal beneficiaries accounted for 11% of primary care physicians' patients and 7% of specialists' patients. Among physicians surveyed in 1998, half said that less than 5% of their patients were enrolled in Medi-Cal.

*Medi-Cal participation among specialists ranged from 41% for orthopedic surgeons to 67% for obstetricians-gynecologists.

*The ratio of primary care physicians to Medi-Cal beneficiaries in 1998 was 38 per 100,000, "well below" the Health Resources Services Administration's recommended workforce standards.

*Spanish-speaking physicians and those from "underrepresented minority groups" were more likely to accept Medi-Cal beneficiaries. Also, international medical graduates or physicians not board certified were more likely to treat Medi-Cal patients (Bindman et al., "Physician Participation in Medi-Cal, 1996-1998," CHCF Medi-Cal Policy Institute, February 2002). Dr. Andrew Bindman, lead author of the study, said of the last finding, "These attributes may enhance the cultural competence of physicians available to Medi-Cal patients. On the other hand, international medical graduates and physicians who are not board certified are also more likely to participate in the Medi-Cal program, which raises questions about whether Medi-Cal patients have access to the same quality of physicians as privately insured patients" (CHCF release, 2/11). The report also analyzed physician perception of the Medi-Cal program and found that most had "negative opinions" about the program. Among those who accept Medi-Cal patients, 94% said reimbursement rates were inadequate, and 87% said the paperwork required of the program makes it "burdensome" to participate. Also, the study found that 76% of all primary care physicians and 82% of specialists surveyed said Medi-Cal beneficiaries have more complex health problems than other patients and a majority require additional time for "explanations and education."

Medicaid coverage for nursing home care: (2002) The prospect [of lower Medicaid reimbursement] does not so much enrage nursing home owner Steven Wolf as it leaves him speechless. Already, he says, he is losing more than $20 a day on each of the 115 or so Medicaid patients at his Calvin Johnson Care Center--a worn but cheery nursing home in Belleville, a blue-collar suburb of St. Louis.

The medical staff and the housekeepers, the liver lunches and the scrambled eggs on request, the balloon volleyball games, the pet therapy, the concerts of patriotic music--it all costs him close to $107 per patient per day. Medicaid pays him $86. And the governor has proposed slashing that by nearly 9%."

Medicaid planning (Center for LTC 2002) The Medicare Catastrophic Coverage Act of 1988 (MCCA) established the current statutory framework used to determine Medicaid nursing home eligibility. In addition to dealing with the institutionalized spouse who is seeking Medicaid- funded care, this framework addresses permissible asset and income levels for the "community spouse" living at home. With respect to assets, a community spouse is entitled to keep half of the couple's assets (notwithstanding several assets which are exempt from consideration such as the family home) not to exceed a Community Spouse Resource Allowance (CSRA) which is set by each state within a range prescribed by the federal government. On the income side, the community spouse is permitted to keep all of his/her own income and, at a minimum, is entitled to a Minimum Monthly Maintenance Needs Allowance or MMMNA (set by states, but at least 150% of the federal poverty level) to meet basic needs. When a community spouse's monthly income is determined to be below the MMMNA, the law permits the institutionalized spouse to supplement the community spouse's income with a Community Spouse Monthly Income Allowance (CSMIA) in order to raise the community spouse's income to the minimum level. The central question resolved by the Supreme Court in this case is how this transfer of income may occur.

States have been using either of two methods. The income-first approach used by Wisconsin and a majority of states requires the institutionalized spouse to transfer a portion of his or her income first before being allowed to transfer income-producing assets (resources) to raise the community spouse's income level. The other resource-first approach allows just the opposite.

The institutionalized spouse first transfers income-producing assets capable of filling the income gap.

Only if the institutionalized spouse has insufficient income-producing assets to fill the gap would a straight-forward transfer of income be required. In this case, the Wisconsin Court of Appeals had ruled earlier that the income-first approach as codified in a Wisconsin state statute impermissibly conflicts with federal law (which the court understood as mandating the resource-first approach). However, courts in other states as well as several federal courts have ruled the income-first approach is not inconsistent with federal law. The Supreme Court granted certiorari to resolve the conflict.

Why do Medicaid planners care about which method states utilize? This is the easy part of the analysis.

The resource-first approach allows Medicaid planning clients to shelter more assets and qualify for Medicaid more quickly than under the income-first approach.

Here's a simple example: Let's say a community spouse's monthly income is $500 below the MMMNA. Under the income-first approach, the institutionalized spouse would have to transfer as much of the $500 as possible to the community spouse before being allowed to transfer any income-producing assets. If the institutionalized spouse has $500 per month or a sizeable part of it to transfer, there may be little or no opportunity to transfer assets over and above the prescribed CSRA.

Under the resource-first approach, however, the institutionalized spouse may begin by transferring assets sufficient to generate the entire $500 monthly income if possible. How much in assets can be transferred? As much as a hearing examiner can be convinced is necessary to fill the income gap. Of course, a Medicaid planner will do his or her best to argue for the highest asset transfer possible. Every dollar that goes to increase the community spouse's CSRA is a dollar that doesn't have to be spent-down to achieve Medicaid eligibility for the institutionalized spouse. A significant amount of assets can be sheltered in this way and through other tactics to increase the CSRA.

We note that the transfer-resources-first approach leads to some otherwise upside-down financial planning choices. For example, to maximize the amount of assets that the institutionalized spouse may transfer to the community spouse, Medicaid planners recommend investment vehicles that pay the lowest possible interest. Why? Because the less income the assets generate, the more assets can be transferred away from the Medicaid recipient and to the healthy spouse. In the example above, to generate the extra $500 per month allowed, the Medicaid recipient could transfer $120,000 to the healthy spouse if the assets generated a five percent return, but could transfer only $60,000 if the assets generated a ten percent return.

Here are two examples from legal periodicals that recommend the transfer-resources-first gambit.

"A potential planning technique would be for the community spouse to reallocate his or her assets into forms that pay less income. For example, money market funds could be used to buy zero coupon bonds, gold, or growth stocks, all of which pay no income at all. The community spouse could then legitimately argue that he or she requires a larger allocation of income up to the Monthly Maintenance Needs Allowance." (Gregory Wilcox, "Another Strategy to Increase the CSRA," The ElderLaw Report, Vol. II, No. 8, March 1991, p. 12.)

"The Other Spouse Can Petition for an Increased Asset Allowance. The other spouse can argue that additional assets are needed to generate income...[thereby sheltering in one example an additional] $200,000." (Lawyers Weekly, 9/27/93)

Medicaid: (2002) Medicaid was enacted in 1965 to help the poor and needy; it is now the cause of much grief to lawmakers across the country. Roughly 40 states, at last count, report budget shortfalls, and Medicaid is the program most often cited as being over-budget. States have launched a variety of responses. Idaho cut adult dental care (see the April 23 eBulletin, at, while the Oklahoma House recently backed cutting 22,000 children from Medicaid rolls. South Carolina Gov. Jim Hodges proposed a temporary 2.5 percent cut in overall state spending to counter the state's Medicaid budget shortfall. Elsewhere, Texas officials are considering a yearly $10 fee for people who sign up for Medicaid, and Massachusetts lawmakers have discussed increasing co-payments and limiting access to certain prescription drugs.

Medicaid Community Spouse Allowances Increase July 1, 2002

The Community Spouse Minimum Monthly Maintenance Needs Allowance (MMMNA) and Excess Shelter Amount (ESA) are increasing no later than July 1, 2002. The new values are:

Community Spouse MMMNA = $1,493.00

Community Spouse ESA = $447.90

Medicaid: Many people under Medicaid want to leave assets to beneficiaries regardless of how much care the state pays for. The law says the state has the right to go after the equity in a house for repayment. There has been a hue and cry that that is unfair. Some states balked. OBRA '93 made estate recovery mandatory. With spend-down requirements, usually the house is the only major asset of the estate against which the recovery may be sought. Although estate recovery applies to recipients in nursing homes or other facilities and is not effective while there is a surviving spouse or dependent child of the recipient, West Virginia argued that the mandatory estate recovery provision hit its residents particularly hard. Here is a recent ruling: West Virginia Loses Bid to Defeat Medicaid Estate Recovery- West Virginia failed to convince the United States Court of Appeals for the Fourth Circuit that Medicaid estate recovery was unconstitutional under the Tenth Amendment to the United States Constitution.

The estate recovery proceeds in West Virginia are about two-tenths of one per cent of the Medicaid dollars it annually receives. West Virginia argued that estate recovery is poor public policy because the yield from estate recovery is so proportionately small compared to the amount of Medicaid dollars the state receives, and because estate recovery hits the poorest of the elderly the hardest.

Medicaid, the federal-state health care program for the poor, has grown from $1 billion in 1967 to $226 billion in 2001. Critics say Medicaid beneficiaries receive a "second tier" level of care; however, the program could be reformed to put patients first and provide better care. The problem with Medicaid, say analysts, is that it is designed as a "defined benefits" welfare entitlement instead of a "defined contribution" program that emphasizes choice, competition and consumer information.

Medicaid Case: Medicaid recipient executed a life estate deed, retaining the power to revoke the remainder beneficiaries' interest, then died four months later. State Medicaid agency filed a complaint against the remainder beneficiaries seeking estate recovery. Trial court granted summary judgment in favor of beneficiaries and Medicaid agency appeals. State Court of Appeals reverses, finding that the Medicaid definition of "estate" is not limited by either the real property, probate or tax meanings of the term. The appellate court relied on (1) the expansive definition of "estate" in federal Medicaid law, (2) a policy favoring the State's attempts to recover as much as possible for the costs of medical care, and (3) a state statute which directs recovery against any property received by "survival" (rather than "survivorship," which the Court determines is a significant difference). Because the Medicaid recipient retained a significant interest in the property until her death, estate recovery is permitted. "She received the services she needed during her lifetime and the State is entitled to reimbursement after her death." Full case: Bonta v. Burke, Cal. App., May 23, 2002

Commentary on Medicaid and LTC: (2002) Here is how Medicaid is supposed to work for LTC:

* If you are indigent, Medicaid pays. That is, tax-payers pay (a lot!), so that indigent people can get care. This is great! It would be even better if the providers could provide better care, but they can't because of the abuses in the system.

* If you have assets (e.g., your house), but they are not liquid, the tax-payers give you a loan because we want to make sure that you can return to your house if you ever recover. It would not make sense to recover and not have your house. When we give a loan, we give a long-term loan. It lasts until the later of:

1) the death of the last of: a) the Medicaid recipient, b) their spouse, c) any minor or disabled children, d) any child living in the house who provided care for the Medicaid recipient for at least two years in that house

2) or until the house is sold.

Not only do we provide such a long-term loan, but we give it interest-free! Then, as required by the law which permitted these loans, the principal is supposed to be collected via the lien placed on the house.

However, rather than looking at the broad view, the Medicaid planning attorneys publish article after article about "poor Sarah." All she wanted to do was to leave her house to her kids but it was encumbered by nasty Medicaid so it was sold and lost to the family. They never point out that Sarah had a 20-year (for example) interest-free loan and that all we are doing here is trying to recover the principal; the interest is totally  forgiven and all we are trying to do is to get that principal back so that we can loan it to someone else.

The upshot is: This failure to collect the debt opens the door for tremendous abuse. Every time the government closes a loophole, the attorneys find another. For example, one automobile is exempt. So the attorneys would give Granny's automobile away, then buy a Cadillac, then give it to another relative and continue doing so until all of Granny's relatives had Cadillacs. Sorry, but I don't want to pay taxes so all of Granny's relatives can get Cadillacs. When the government discovered that Granny did not even know that she had had those cars, they tried to stop the practice. So the Medicaid planners advised each other that they needed to take Granny for a ride in each car before they gave it away. Because of the failure to collect on the debt, affluent people and middle class people are flocking to such attorneys to "protect their assets" from Medicaid, that horrible government program that expects them to pay for their care as best they can, then is willing to supplement as needed. Medicaid is broke, partly because of the failure to collect on debts owed to it. Squeezed as it is, Medicaid pays inadequate reimbursements.

As a result, when nursing homes train their staff, those staff leave the nursing homes. Human resource (HR) execs in hospitals have told me that they hire such people from nursing homes all the time because once they are trained, they are valuable to the hospital and Medicaid facilities cannot afford to match the hospital salaries. (Maybe Medicaid could afford a higher reimbursement if it was not paying for so many people who artificially impoverish themselves.) So the nursing home becomes short-staffed until the person can be replaced. Hence quality of care drops.

Then the nursing home incurs cost hiring the new person, who is less experienced than their predecessor. So costs increase and service does not completely rebound. Then the nursing home incurs more cost training this person

State Budgets Under Stress: How are States Planning to Reduce the Growth in Medicaid Costs?," (2002) reports that 41 states have plans in place to reduce their Medicaid funding growth in fiscal year (FY) 2003. Additional findings include:

-- 36 states added funds to their Medicaid programs in 2002;

-- More than half of the states will change their prescription drug policies;

-- 28 states plan to cut or freeze payment rates for some providers in FY2003;

-- 18 states plan to reduce or restrict eligibility, up from 7 states implementing eligibility restrictions in 2002; and

-- 27 states are considering some type of waiver for their Medicaid programs (including 18 that are considering a Medicaid pharmacy waiver).

Medigap Premium Rate Increases Slowed to 2.4% This Year

Medicaid Home Care* Expenditures for FY 1993, 1995 and 1997

(in millions)
FY '95
FY '97
FY '93
FY '95
$3.1 $9.0 $29.3
$31.0 $41.8 $52.7
$61.4 $81.6 $123.1
$156.4 $224.9 $438.1
$70.7 $95.4 $113.2
$25.2 $29.9 $34.1
$0.6 $1.3 $1.1
$37.0 $56.8 $86.1
$60.6 $282.3 $630.2
$66.1 $91.0 $114.5
$91.9 $152.6 $223.6
$302.4 $398.8 $488.1
$219.9 $352.6 $367.2
$25.1 $72.1 $112.0
$16.4 $18.6 $14.2
$11.9 $13.6 $18.4
$23.0 $35.2 $30.6
$2,239.2 $2,920.4 $3,502.9
$157.1 $294.1 $331.8
$113.2 $226.7 $563.3
$82.9 $128.2 $163.6
$73.8 $100.3 $117.7
$15.0 $35.3 $21.9
$174.1 $234.6 $247.1
$20.3 $49.6 $101.5
$215.6 $332.5 $483.7
$19.1 $26.2 $35.2
$86.4 $87.2 $125.4
$139.0 $152.9 $241.6
$50.8 $75.3 $121.3
$42.0 $47.0 $82.8
$24.1 $33.1 $42.9
$46.8 $98.4 $150.2
$33.9 $22.4 $89.7
$100.2 $130.7 $168.9
$213.4 $316.7 $626.7
$36.4 $76.2 $83.9
$32.9 $38.6 $59.1
$253.7 $521.9 $522.9
$79.8 $121.9 $187.3
$130.3 $195.4 $231.9
$34.8 $55.3 $62.5
$43.3 $66.2 $97.0
$153.3 $225.0 $364.3
$254.2 $315.5 $485.7
$170.8 $224.0 $380.1
$114.1 $203.0 $279.2
$91.8 $119.1 $131.9
$240.7 n/a $462.4
$14.5 $32.3 $40.9
$9.2 $13.3 $20.3
US Total
$6,709.6 $9,476.9 $13,504.2

Medicaid Expenditures for LTC Services, 1997 (Total Expenditures=$56.1 Billion)

Medicaid | Forty-One States Cutting Medicaid Programs This Year, Three States To Make 'Significant' Enrollment Reductions:  "Medicaid Spending Growth: Results From a 2002 Survey," found that, faced with increasing prescription drug costs and rising beneficiary enrollment in part because of the declining economy, an "overwhelming majority of states are implementing Medicaid cost control strategies." Forty-five states took actions to limit Medicaid spending during fiscal year 2002, and 41 states said they plan to take similar actions in fiscal year 2003, the study, which was conducted by Health Management Associates, found. More specific findings from the 50-state survey include:

Forty states plan to limit prescription drug spending through cost controls in FY 2003, compared with 32 states in FY 2002.

Twenty-nine states reported they would reduce or freeze Medicaid provider rates in FY 2003, compared with 22 states in FY 2002.

Fifteen states plan to reduce Medicaid benefits in FY 2003, compared with eight states in FY 2002.

Eighteen states said they would restrict Medicaid eligibility in FY 2003, compared with eight states in FY 2002 (Smith et al., "Medicaid Spending Growth: Results From a 2002 Survey," September 2002). According to the report, three states made "deep cuts" in Medicaid eligibility standards for FY 2003, including Massachusetts, which removed 50,000 long-term unemployed adults from its program; Missouri, which cut 17,000 adults from Medicaid; and Nebraska, which cut 12,750 adults and 12,600 children from its program (Olson, Omaha World-Herald, 9/20).

Fifteen states plan to increase copayments charged to beneficiaries for services other than prescription drugs in FY 2003, compared with four states in FY 2002 ("Medicaid Spending Growth: Results From a 2002 Survey," September 2002).

Medicaid Enrollment Rate Doubled During 2001 The rate of Medicaid enrollment growth doubled during 2001. A new report from the Kaiser Commission on Medicaid and the Uninsured shows that Medicaid enrollment rose by 3.3 million people

Medicaid care (2002)

o People must meet stringent income and asset criteria to qualify for Medicaid benefits. (The Medicaid eligibility requirements are mentioned only in passing and not until nine paragraphs later.);

o The vast majority of the care Medicaid pays for is nursing home only;

o There are serious quality of care concerns in predominantly Medicaid nursing homes; and,

o Many people do not want to give up control of their assets, income and ability to choose where they can receive care in order to qualify for Medicaid public assistance.

LTC and Medicaid: (LTC Bullet 2002) Through Medicaid, we do two wonderful things for people who need long-term care (LTC). First, we all pay taxes so that indigent people can get commercial LTC that they otherwise would not be able to afford. We should all feel proud to contribute to that cause.

Secondly, we provide support to people who are NOT indigent. If people were to sell their homes in order to pay for LTC, and then were to recover, they would no longer have a home to return to. To avoid such an undesirable result, we give loans to these people, advancing their LTC costs, with the intention of recovering when their estate is settled.

Not only do we pool our money to provide a loan to such people, we provide that loan on an interest-free basis! It is a long-term loan as it does not require repayment until the care recipient dies. And, if the recipient's spouse is living in the house, the loan does not have to be repaid until (s)he dies. If disabled or minor children live in the house or if adult children who were care-givers for a couple of years live in the house, the loan continues until they die or sell the house.

It is wonderful that we provide such loans, but such loans should be provided OUTSIDE the Medicaid program. When we do it through Medicaid:

o Loan recipients feel the sting of being "on welfare." These people have been independent since their youth and have saved in order to maintain their independence. Why should they be placed on Medicaid when they are not indigent?

o Being on Medicaid, they are restricted to Medicaid-certified LTC providers. They cannot select the facility of their choice; nor can they have a private room; nor can they select an assisted living facility, commercial home care or reward relatives or friends for providing care.

o LTC providers, such as nursing homes, are paid the government Medicaid reimbursement, which is inadequate.

Medicaid reimbursements under-pay LTC providers for the cost of LTC. When state budgets are tight, as they are now, legislators and governors propose slashing such payments even further. Meanwhile government pushes provider costs upward with a variety of mandates, such as quality controls, mandatory staff training, etc.

Because of low reimbursements, LTC providers cannot afford a competitive salary. So when they train staff, the newly-trained staff quit, securing higher-paying jobs in hospitals or elsewhere. Such vacancies not only reduce the quality of care in the facility, but the facility incurs cost seeking and hiring a new employees, who typically are less experienced than those who left.

The best staff leave, as they are most in demand. But, providers get stuck with their hiring mistakes. Surely, they should fire these weak performers, right? Unfortunately, it is not easy to fire anyone when you are understaffed! Of course, as time goes on and they suffer 100 percent annual turn-over, the labor pool quality of care-givers, deteriorates. Even outstanding nursing home management has an extremely difficult time providing excellent care in such an environment.

Private-pay LTC recipients in Medicaid-certified facilities get "taxed" in three ways to support this system: 1) they pay income taxes to support Medicaid; 2) they pay higher fees to LTC providers because of cost-shifting; and 3) they suffer from inferior care in facilities which have many clients "on Medicaid".

Therefore, some savvy private payors now refuse to enter Medicaid-certified facilities. Instead of being seen as a badge of honor, "Medicaid certification" may be viewed as a public announcement that cost transfer will occur and that care might be inferior.

Another problem occurs when we, the tax-payers, try to recoup our loan. Various parties bewail the plight of "poor Sarah" who wanted to leave her house to her children, but whose estate had to sell the house because it was partially encumbered by a government lien. Of course, recouping payments from the "indigent" sounds questionable. However, those people were not "indigent." The critics never mention that we all gave Sarah a long, interest-free loan and all we are trying to do is to recover the principal (no interest) so that we can lend the money to someone else.

So, how can we get ourselves out of this mess? One key tactic would be to stop putting people on Medicaid if they have assets which could fund their LTC. Instead, such loans could be government-backed, but financed privately. This simple change would have dramatic impact:

a) Such care recipients would no longer feel the indignity of being "on welfare".

b) As they are using their own funds to pay for care (via the indebtedness), they would have flexibility to purchase the kind of care they want.

c) Many more care recipients would remain "private payors" rather than being on Medicaid. Providers would benefit from the resultant higher fees.

d) The additional provider revenue would lead to reduced cost transfer from Medicaid LTC recipients to private-pay clients and/or improved care.

e) Because fewer people will go on Medicaid, tax-payer money will be saved. We could afford higher reimbursements for Medicaid patient care.

f) We avoid the whole concept of "repaying Medicaid" and "government liens."

We need to continue to provide LTC to the indigent, but we should attempt to improve the quality of care. This can be accomplished indirectly if we continue to provide loans to people who need LTC but lack liquid assets, but do so through a private lending, government-backed program rather than through Medicaid.

Medicaid: (associated Press) An Indianapolis company is helping elderly people avoid spending their life savings on nursing home care by turning them into absentee landlords - and leaving the bill to Medicaid.

Scores of elderly Indiana residents have invested in rental homes managed by CFS LLC, which leases and insures about 30 Hamilton County rentals, pays tax bills and handles repairs.

The move enables investors to shield their assets and inheritances from nursing homes while legally meeting Medicaid's definition of poverty.

Critics, though, say the business forces taxpayers to unfairly finance nursing care for residents who can afford it. (true) "The easier it becomes for people to shelter their assets in order to receive nursing home care, the greater the funding obligation on the state," Indiana's Medicaid director Melanie Bella told The Indianapolis Star for a story Monday.

To qualify for Medicaid, applicants must show their income does not cover the costs of care and that they are destitute, apart from limited assets.

When Congress exempted income-producing real estate from the list of assets that have to be spent, lawmakers likely did not envision middle-class residents buying rental homes to give away their wealth. Instead, the exemption was intended to protect lifelong farmers and small-business owners forced into nursing homes by poor health .Most families who do this are trying to protect $50,000 to $500,000. State officials can't abolish the exemption for income-generating property because it is in federal law, but they have tried to take the investments less attractive.

As of June 1, when a new state regulation took effect, people could no longer rent their homes to relatives at extremely low rates to exclude it from Medicaid.

And people who buy properties from CFS must remain invested during their lifetimes in order to avoid losing their Medicaid coverage. The state expects this to save taxpayers $12 million a year.

Washington Post Reviews State Efforts to Reduce Medicaid Budgets (2002) For the past several months the eBulletin has featured items on the negative effects of a weakening economy on State Medicaid budgets. All but nine states plan to rein in their Medicaid expenditures this year by reducing services and limiting eligibility, according to this article in the Washington Post. Higher unemployment rates have prompted more people to enroll in Medicaid programs at the same time that state revenues are declining and medical costs, particularly for prescription drugs, are rising rapidly. As a result, states are reversing a trend of expansions of public health programs that lasted for almost 10 years. In addition to eliminating Medicaid eligibility for certain groups of people and cutting some programs, some states are limiting provider reimbursements or charging beneficiaries copayments for services that they used to receive for free. Eighteen states are tightening Medicaid eligibility rules during fiscal year 2003, compared to eight states in FY 2002, according to a recent study by the Kaiser Commission on Medicaid and the Uninsured. In addition, 15 states are cutting services this fiscal year, compared to nine last year, and 40 states are reducing the amount they will pay for prescription drugs or implementing preferred drug plans. Some states are also cutting back on programs designed to enroll more people who are eligible for Medicaid and make it easier for them to retain coverage once enrolled.

Are you really sure you want to be in a Medicaid ward.

2003 Medicaid Spousal Impoverishment Figures - Effective January 1, 2003, the minimum/maximum resource allocation limits for community spouses of institutionalized individuals will increase as follows:

Minimum: $18,132

Maximum: $90,660

Effective January 1, 2003, the maximum income maintenance allowance will increase to $2,267. The standard maintenance amount (MMMNA) remains $1,493 and the excess shelter allowance (ESA) remains at $447.90.

Medicaid: (AARP) Medicaid is the single largest public source of funding for long-term care (LTC) in the United States, accounting for more than 38 percent of total long-term care expenditures in fiscal 1996. Medicaid spending for LTC more than doubled from fiscal 1987 through fiscal 1997, rising from $21.1 billion in fiscal 1987 to $56.1 billion in fiscal 1997. The bulk of Medicaid spending has gone to nursing home care over the years, but recent expenditure reports show states allocating an increasing share of that spending to home care services.

Medicaid: (2003) "Medicaid is the primary source of health and long-term care assistance for one in seven Americans, accounting for 16 percent of our nation's spending on health care. The 44 million Americans served by Medicaid include many children and families, individuals with disabilities, and the elderly. The program is the primary source of federal financial assistance to the states, and represents a major shared state and federal commitment to improving the lives and the health of America's low-income populations.

The following quote from the Kaiser book makes the same point we often emphasize, i.e. that eligibility for Medicaid nursing home benefits does not require poverty-level income, but rather only a "cash flow" problem: "Under the 'medically needy' pathway, there is no upper limit on the amount of monthly income an individual can receive and still qualify for Medicaid coverage. So long as the individual's incurred medical expenses are sufficiently high to reduce the individual's income to the state 'medically needy' income standard during the budget period, the individual will qualify for Medicaid. In states with 'medically needy' coverage, many individuals in nursing homes qualify this way." (Chapter 1: Medicaid Eligibility, page 28, ) In states with "income cap" eligibility systems, "Miller income trusts" permit people with income far above the "cap" to qualify for Medicaid nursing home benefits. Therefore, income is rarely an obstacle to qualifying for Medicaid nursing home benefits. Assets of course are unlimited as long as they are held in exempt form, such as a home, business, car, etc.

About time (WSJ 2003) For years, thousands of middle-class and even affluent retirees -- terrified that long-term health-care costs could wipe out their savings -- have transferred their assets to relatives in order to qualify for Medicaid, the government health plan for the poor. Their goal is to make themselves poor by Medicaid's definition, generally meaning they have no more than $2,000 in assets, excluding their house and their car.

The upshot is that families, in some cases with net worths of millions of dollars, are going through contortions to spend or give away all their money. Some simply write giant checks to their children, while others splurge on their house. Technically, a person can have a multimillion-dollar mansion and still be considered for Medicaid -- though many states will try to recoup some of the money after he or she dies. New York has an even more bizarre option: A sick husband or wife can transfer all their assets to a spouse, who then refuses to pay for their care. Medicaid then steps in.

Such practices, while legal, are getting greater scrutiny as states -- which pick up roughly half the costs of Medicaid -- face their worst fiscal crisis in decades.

Medicaid paid $47 billion for nursing-home care in 2001, the most recent year available. Much of that goes to people truly in need. But much -- according to one earlier study, as much as 22% -- goes to families that could afford to pay for months or even years of their own nursing-home care. Exactly how many people shelter their assets in order to qualify for Medicaid isn't clear. The latest research was conducted in 1997 by the General Accounting Office which reviewed case files from two states and found that 13% to 22% of people who applied for nursing-home and other long-term care benefits through Medicaid transferred assets.

How to Impoverish Yourself

People with assets of more than about $2,000, not counting a house and car, generally don't qualify for Medicaid payments for nursing home care. Here are some of the ploys that people use to get around that.

• Give away all your money. Medicaid only looks at asset transfers during the previous three years. That means people can give away hundreds of thousands of dollars to their heirs and qualify for Medicaid just 36 months later. The drawback is that they can't get their money back if they end up not needing a nursing home. In addition, big transfers could be subject to stiff gift taxes.

• Give away half of your money. This common technique, dubbed "half a loaf," is used by people who need nursing-home care immediately. They give half their assets to their heirs. The other half of their nest egg pays for their care during the "penalty period" until they are eligible for Medicaid.

• Put it in an annuity. "Medicaid annuities," which make people appear poor, became popular several years ago. They work best for married couples, who use all their assets to buy an annuity.The sick spouse is considered impoverished and qualifies for Medicaid-paid care. The healthy spouse, meanwhile, receives a monthly check from the annuity company.

• Refuse to pay for your spouse. Under federal law, wives and husbands aren't required to pay nursing-home costs of their spouses. So people going into a nursing home sometimes transfer all their assets to their spouse so that they can still qualify for Medicaid. Many states don't permit "spousal refusal" when it comes to Medicaid, but New York does, and it's commonly used there.

• Splurge on your house or your car. Here the strategy is to spend on assets that generally aren't counted by Medicaid in determining eligibility. So people buy a new car. They pay down their home mortgage or they remodel their home.

Medicaid (National Conference of State Legislatures 2003) Medicaid now makes up 20% of spending by state governments, second only to education. It is also by far the fasting growing expense for most states as they struggle to cut programs, increase taxes and borrow money to eliminate gaps between what they want to spend and the tax revenue they take in.

States, which unlike the federal government cannot carry deficits, must cover $26 billion in shortfalls by June 30. The cuts and potential reductions represent about 2% of the 47 million Americans who receive Medicaid, the federal-state health care program for the poor and disabled. Medicaid last year cost $250 billion, up 13.4% from 2001.  

Medicaid: (SF Chronicle 2003) We are experiencing a huge federal and state budget deficit at a time when the need for Medicaid is growing. In California, the Medicaid budget has grown by 27% in the last five years.

This is what the CPI did:

1998 1.6

1999 2.2

2000 3.4

2001 2.8

2002 1.6

The governor wants to save some money by reducing what doctors get paid by 15%. Also to disallow dental benefits to Medicaid recipients and that they have to buy their own wheelchairs.

Yet we have Elder Care attorneys and more that still attempt to hid assets so that a well to do patients can get covered for Long Term Care by the state.

Medicaid: (2003) Medicaid, the nation's largest health insurance program, pays for one-third of all births, covers one-fourth of all children and finances care for two-thirds of nursing home residents. It is also the fastest-growing item in most state budgets, rising 13 percent last year, even though state revenues were virtually flat.

Medicaid is expected to cost $277 billion this year, of which $158 billion is the federal share and $119 billion comes from the states. The federal share of Medicaid spending varies with a state's per capita income, ranging from a high of 77 percent in Mississippi to a low of 50 percent in 12 states, including New York, New Jersey and Connecticut.

Medicaid- (2003) 22 states are limiting which drugs doctors can prescribe for Medicaid patients. Per the Kaiser Commission on Medicaid and the Uninsured, "Containing prescription drug costs is at the top of nearly every state's agenda, and this could be an effective strategy for doing that. "But at the rates costs are rising, even if this effort is very successful, it will do no more than slow the rate of growth."

Medicaid long term coverage and your IRA: (2003) Generally, state Medicaid agencies treat individual retirement accounts as an available resource to pay for your care. But that changes in most states when you start making regular, systematic withdrawals. At that point your IRA generally is treated like a fixed annuity, which federal Medicaid law considers an income source that you get to keep. In other words, if you haven't started taking withdrawals from your IRA, you could stand to lose it all.

Even when you're taking withdrawals, most states still apply them to the nursing-home bill, minus the amount that your spouse is allowed to keep under state law for living expenses. But when you die, most states allow anything left in the account to go to the heirs you've named on your IRA beneficiary form. If you haven't filled out an IRA beneficiary form, or if you simply name your estate as your beneficiary, the state Medicaid department could wind up with those assets instead.

Medicaid Recovery: (2003) “The Recovery Unit—Estate Division”, is dated, addressed, and reads:

“In the matter of the estate of: Recipient; _______, Our File #: _____ ‘NOTICE OF INTENT TO FILE A CLAIM AGAINST THE RECIPIENT’S ESTATE” The ________ Department of Public Health and Human Services would like to extend its condolences for your recent loss. This letter is to inform you of the laws concerning Estate Recovery. Pursuant to _(state)__ , statute _(number)__, the Recovery Unit, on behalf of _DPHHS intends to file a claim against the estate of the above named individual. According to the Department’s records, the above named was a recipient of Medicaid benefits. The Department is seeking reimbursement from the estate for Medicaid payments made on the recipient’s behalf…”

Medicaid: some states are asking the federal government for permission to toughen the Medicaid rules that govern eligibility for nursing home and other health care.

Medicaid pays for 70 percent of elderly nursing home residents at a cost of more than $50 billion per year—a figure that's expected to rise substantially in the future.

Medicaid officials have long wanted to clamp down on persons believed to have given away money or assets expressly to qualify for Medicaid.

Now three states—Connecticut, Massachusetts and Minnesota—have asked the federal government for permission to toughen their Medicaid rules.

These states want to change a key rule that dictates Medicaid eligibility. As federal law now stands, any gift of cash or property, for example to children, charity, religious organization or political party, made during the three years before applying for Medicaid is considered an improper "transfer of assets" and is subject to a penalty.

The three states want to lengthen the amount of time they can "look back" into an applicant's financial and other records to find these transfers.

Under their proposal, any gifts or donations made as many as six years prior to applying for Medicaid could result in the denial of coverage, even for those who may have no alternative way of paying for nursing home or home health care. The absence of records explaining every expenditure could also result in the denial of coverage.

And you think Medicaid will cover for long term care costs??: (2003) In Massachusetts where already one resident in eight is 55 or older, Medicaid consumes roughly $7 billion out of a state budget of $22 billion. While the elderly constitute 9 percent of Medicaid enrollees, they account for 27 percent of the program's spending.

Medicaid spenddown. (2004) An actual letter to a client by an attorney in order to get the parent off private care

RE: Medicaid Planning For Your [Parent]

Dear __________:

Allow me to say it was our pleasure to meet with you recently to discuss Medicaid strategy for protecting your [parent's] assets. We appreciate the trust that you have placed in us by allowing us to assist you in this important matter.

The purpose of this letter is to review our conversations and the plan we have assembled for Medicaid eligibility. This letter reflects your [parent]'s situation as we understand it. If [his/her] situation should change, or if our information is incomplete, then the plan we have discussed may need to be amended. You should not hesitate to contact us if you have questions, or if [his/her] situation changes. . . .

Your [parent] currently resides at the "____________" Assisted Living Center. While [he/she] is doing fairly well, you do anticipate that [he/she] will require more care over time and will likely need to move to a traditional nursing center. Your [parent] shows some physical and cognitive impairment, as would be expected in [his/her] advancing years, but is aware of [his/her] surroundings. [He/she] is capable of participating in decision making about [his/her] estate only to the extent that [he/she] has trusted you for many years and relies on you to care for [his/her].

[He/she] is a [widow/er] with 3 children. Because of your close relationship, [he/she] has relied upon you for assistance in managing [his/her] affairs.

You have decided to engage in Medicaid planning in hopes of preserving some of [his/her] assets in order to assure that [he/she] will always receive the best care possible, regardless of [his/her] financial situation. WE HAVE DISCUSSED, AND YOU HAVE APPROVED, A PLAN OF GIFTING TO HASTEN THE ELIGIBILITY DATE FOR MEDICAID BENEFITS FOR [HIM/HER] WHILE PROTECTING A PORTION OF [HIS/HER] ASSETS FOR POSSIBLE LATER USE. [Emphasis added.]

1.2 Income and Resources

You indicated that [he/she] receives an income of approximately [under $1500] a month. Of this, [most] comes from Social Security and [over $200] from a pension. This income is not currently sufficient to cover [his/her] care needs which are approximately [over $3,000] a month.

We understand [he/she] has the following assets:

Proceeds from sale of house $

Money Market $

Certificate of Deposit $

Checking Account $

[Total was approximately $100,000]

1.3 Prior Transfers

We understand that your [parent] has not made any gifts in excess of $3,000 to any person or persons during the last 36 months or to or from any trust during the last 60 months. If there have been any other gifts, it is important that you contact me. Depending on the value and time of the gift, [he/she] may already be in a penalty period.

1.4 Eligibility

It is understood that [he/she] is a U.S. citizen and a [state] resident and that the care [he/she] receives is considered medically necessary.


2.1 Medicaid

Resource and Income Rules

Medicaid is a state and federal program which provides medical assistance to those persons who meet income and resource eligibility guidelines. A recipient, in your case your [parent], may not have countable resources in excess of $2,000. 42 USC d 1382 (a)(3)(B). Under Medicaid regulations, certain resources are not countable. For example, a home is not counted toward Medicaid eligibility. Additionally, one automobile, household and personal effects, irrevocable burial arrangements, and resources which are legally unavailable are not counted toward eligibility. 42 USC d 1382; 20 CFR d 416.1216 et seq.

Prior to Medicaid eligibility you are free to use your [parent]'s monthly income for [his/her] expenses as you see fit. Once [he/she] has established resource eligibility, then Medicaid will permit [him/her] to keep $30 a month from [his/her] income for [his/her] personal needs, and up to $2,000 in non-exempt assets plus any other exempt assets.

Transfer Rules

The other major Medicaid rules you need to be concerned about involve transfers or gifts. Medicaid looks in the thirty-six (36) months prior to an application for any transfers to individuals. A look back of sixty (60) months applies to transfers to or from trusts. This means that when an application is made for Medicaid, one question asked is whether there have been any transfers to individuals within the previous 36 months or to or from trusts within the previous 60 months. Any such transfers must be disclosed. Failure to do so would constitute Medicaid fraud. HCFA Transmittal 64 d 3258.4 E.

When resources have been transferred, Medicaid imposes a penalty period of ineligibility for Medicaid. The penalty is calculated by dividing the value of the uncompensated transfer by the statewide monthly average for long-term care. HCFA Transmittal 64 d 3258.4 E. [State] uses the figure of $3,000 per month. . . .


This section addresses the strategy for obtaining Medicaid eligibility for your [parent].

3.1 Medicaid

Spend Down

At this time, your [parent]'s assets make [him/her] ineligible for Medicaid. You may want to consider spending down [his/her] assets by paying any outstanding bill for which [he/she] is legally obligated. You do not incur any penalty for paying bills or purchasing items. Checks must be written for these payments. This will provide us with a paper trail as to what has happened to [his/her] resources. Along with paying [his/her] outstanding bills, payments for services count toward [his/her] spend down period. THE $2,000 LEGAL FEES PAID TO THIS LAW OFFICE SHOULD BE PAID AS PART OF THE SPEND DOWN. [Emphasis added.]

You can also consider purchasing additional exempt resources for your [parent]. This would include items like clothing or a new television, subscriptions to magazines, telephone, or any other item which would make [his/her] stay in the care facility more comfortable. [HE/SHE] IS ALSO PERMITTED ONE CAR WITHOUT LIMITATION TO VALUE. IF [HE/SHE] DOES NOT HAVE AN AUTOMOBILE, YOU MAY WANT TO CONSIDER PURCHASING ONE FOR [HIM/HER]. MEDICAID HAS NO REQUIREMENT THAT [HE/SHE] ACTUALLY BE ABLE TO DRIVE THE CAR OR EVER EVEN RIDE IN THE CAR. [Emphasis added.] Also, money spent on a prepaid funeral plan and placed in an irrevocable funeral trust is not countable as a resource. If your [parent] does not have a complete funeral plan, we would encourage you to purchase that as part of [his/her] spend down. You will want to be careful to inform the funeral home that the plan will need to be irrevocable.

Transfer Strategies

Lump Sum Transfers

One technique would be for your [parent] to transfer a lump sum to you. As discussed above, Medicaid looks in the 36 months prior to the Medicaid application for any transfers of money. Medicaid would take the amount of the lump sum transfer, divide it by $3,000, and that would determine the number of months of ineligibility for Medicaid running from the date of the gift.

For example, if your [parent] were to transfer $30,000 to you, $30,000 divided by $3,000 equals 10. [He/she] would be ineligible for Medicaid for the 10 months following the transfer. During this time you would need to be prepared to privately pay for [his/her] care needs.

Monthly gifts


With either strategy, you must be very careful to not make any additional transfers to anyone else within one calendar month. If the total assets transferred in a calendar month equal or exceed $3,000, then you will have incurred a penalty period.

3.2 Miscellaneous

Will and Trust Beneficiary

[He/she] has a will which [he/she] executed in [approximately 10 years ago]. However, you believe that your [parent] has established pay on death beneficiary designation for all of [his/her] accounts. Please review [his/her] accounts to make sure this is the case. With these beneficiary designations in place, a will is not necessary.

Powers of Attorney

We reviewed your [parent]'s powers of attorney also executed [approximately 10 years ago]. We suggested and [he/she] has now executed a new financial power of attorney. THIS DOCUMENT GIVES YOU ALL THE AUTHORITY NECESSARY TO CARRY OUT THIS MEDICAID PLAN AND TO APPLY FOR MEDICAID FOR YOUR [PARENT]. [Emphasis added.]


We have estimated the cost for [his/her] current level of care to be approximately $3,000 per month. The cost of [his/her] care is a variable which we cannot control. We do not know for certain that the cost for care will remain fixed. THE MORE MONEY SPENT ON [HIS/HER] CARE THE LESS WILL BE AVAILABLE FOR TRANSFERS TO YOU. [Emphasis added.]



This plan is based upon current federal and state law. Public benefit laws, particularly Medicaid, are subject to change. Any changes may affect your plan. In such case, we will change your plan to comply with any changes in the law. YOU MAY HAVE AN OPPORTUNITY NOW TO TAKE ADVANTAGE OF ANY EXISTING PLANNING OPPORTUNITIES AND BE GRANDFATHERED IN. [Emphasis added.]

We will need to carefully document the transfers. Please provide this office with verification of the December transfer. If you do make additional transfers, we will want to carefully document the dates of the transfers and the amounts transferred to you. When the transfers are made, please provide us with information on the amount transferred and the date of transfer. . . .

5.2 Estate Recovery

Medicaid is required to recover from the estate of a deceased Medicaid recipient all monies expended on behalf of the recipient during the recipient's lifetime. The mechanism is called Estate Recovery. Therefore, every effort should be made to be sure that your [parent] does not have any esources in [his/her] name other than a personal needs account. AT THE



6.1 Monthly Gifts

IN OUR RECENT DISCUSSION, YOU DECIDED TO PURSUE MONTHLY GIFTING. YOU UNDERSTAND THAT THE TRANSFER MUST LEAVE YOUR [PARENT]'S ACCOUNT AND BE DEPOSITED INTO YOUR ACCOUNT ALL WITHIN THE SAME MONTH. [Emphasis added.] You might consider establishing an automatic monthly transfer of $2,999 from your [parent]'s account to an account opened only in your name. This way, you will not forget to make the transfer or deposit. This will also provide us with a record of each monthly transfer. You may want to add your sister's names as a pay on death beneficiary to this account in the event of your death. You understand that you should not combine the monthly gifting with any other gifting strategy. Any month with $3,000 or more in gifts or transfers for less than fair consideration (gifts) will result in a period of ineligibility.


6.2 Where to get the money

The proceeds from the sale of the house will provide immediate cash for the foreseeable future. THEREAFTER, YOU WILL WANT TO LIQUIDATE THE MONEY MARKET ACCOUNT AND LASTLY, THE CERTIFICATE OF DEPOSIT SO THAT YOU CAN AVOID ANY PENALTY. [Emphasis added.] As you liquidate assets, we advise that you deposit those assets into the checking account and write checks for all expenses. In this way we will be able to provide evidence to Medicaid for the use of all of assets.

6.3 Asset spend down

Prior to reaching Medicaid eligibility you should consider purchasing things for your [parent] that might make [his/her] stay in the facility more comfortable. It would be advisable to purchase these items while you have existing assets to pay for them. AGAIN, ALLOW ME TO EMPHASIZE YOU DO NOT INCUR ANY PENALTY FOR ITEMS PURCHASED FOR YOUR [PARENT]. [Emphasis added.] . . .

6.5 Family Agreement

We have enclosed a sample Family Agreement for your review. The Family Agreement sets out how you intend to handle the money transferred to you. Please feel welcome to make whatever additions or corrections you feel are necessary.

6.6 Medicaid Application

We hope that you will not hesitate to contact us about any of these matters prior to Medicaid eligibility. In any event, please contact us approximately two months before you expect your [parent]'s assets to be down to $2,000. We can update your plan at that time and be sure that we are avoiding any penalty period. Also, enclosed is a Medicaid document checklist. These are the documents that we need for your [parent]'s Medicaid application. You may want to begin to gather these items now.

We hope this letter has been helpful to you. We hope that you will feel more comfortable with the decisions that you have made in the past and the decisions that you will need to make about future gifting. If you have questions about anything contained in the letter, then do not hesitate to contact us.

Very truly yours,

[Attorney at Law]

Medicaid LTC: (WSJ 2004) From 1998 to 2002, the total number of nursing homes certified to take Medicaid and Medicare patients dropped 5% to 16,491.

Some lawyers suggest that clients doing Medicaid planning keep enough to pay for one year of nursing-home care themselves (currently $60,000, on average). That way, you could enter long-term care as a patient paying your own way, helping you avoid waiting lists for the facility of your choice. Then, after your money runs out, you could switch to Medicaid and stay in the same place.

That sounds good -- unless you have to enter a hospital. After the hospital stay, there's no guarantee you'll get your bed back or even get to return to the same facility. Nursing homes, struggling to make money amid decreasing government reimbursements, need to keep their beds filled.

"If the nursing home can legitimately replace that person with a private payer, it's going to do it,

Starting last August, Washington state slashed the amount of assets that your spouse can keep if you qualify under Medicaid for nursing-home care. Now, spouses still living at home can keep only $40,000 -- down from $90,660.

In Kentucky, as of last September, single nursing-home residents on Medicaid can be forced to sell their homes -- while they're still alive -- to help pay for their care if they are institutionalized for more than six months and don't expect to move back. Kentucky also did away with an exemption of $50,500 it used to let heirs keep when recovering costs from the estates of nursing-home residents after their deaths.

LTC and Medicaid: (2004) Medicaid is already struggling financially at the federal, state, and local levels. Access to and quality of care are suffering--for the poor especially, but also for the well-to-do duped into giving up their wealth, freedom and control. When people can ignore the risk and cost of long-term care and pass the liability to tax payers and nursing home owners at the last minute, they feel no incentive to save, invest or insure for long-term care. Over time, more and more people end up on a bankrupt welfare program which is less and less able to meet anyone's needs. In the long run, no one benefits from the strategies advocated by Medicaid planners except the welfare profiteers themselves.

And an actual letter from an Elder Care attorney:

Dear Nursing Home Administrator/Social Worker,

As we begin this new year, we would like to thank you for the many opportunities we have had to work with Missouri nursing home residents and their families during this past year, and take this opportunity to share with you some exciting new information regarding Medicaid eligibility for nursing care. As we have worked with you, you have helped us to fine tune our methods of working with families, and to make significant improvements  in the way we communicate with and provide services to our clients. It has been and continues to be our highest priority to provide a blend of social and legal services to your families in a compassionate and caring way.

As you know, the Medicaid eligibility guidelines have been modified substantially over the last few years to allow "middle class families" to receive assistance in paying for long term care. Congress has expressed a resolve that all members of society shall be treated fairly. No longer is Medicaid a "Pauper's Program!" ALL citizens of the United States can now preserve their assets under Medicaid program guidelines. In fact, effective January 1, 2004, the Missouri Medicaid policy has increased the gifting amount to approximately $8,000 per month, per couple. That means a couple may give away nearly $100,000 a year with no impact to their future Medicaid eligibility for nursing care. We are VERY excited about this expansion, as well as additional new Medicaid Planning strategies.

We are finding as we work with your families, that we have yet to find one,  that has not been able to preserve assets. Many have come into our office, with no hope and a dismal outlook for their financial future. Many have  been misled by even our own state Medicaid staff, to believe that their only alternative is to simply spend everything they have on nursing care, and then . . . and only then . . . get any assistance paying the bill. Others have been told that the Division of Assets will only let them keep half of the assets, up to a maximum of $90,000. While still others have been told that if you are not married, you cannot preserve any assets. THESE STATEMENTS ARE NOT TRUE! It has truly been our privilege and great pleasure to share hope with these families, many of whom, shed tears in unbelief that there are any options available to them. What a great job we have, to offer hope and a financially secure future to those who have been so hopeless!

Our goal is two-fold in writing this letter. First, we are truly thankful  for the referrals you have made and the opportunity we have had to become acquainted with you and your facility, and we want you to know that. Secondly, we want you to be aware, that you can consider us a friend in the business and a resource to field your Medicaid questions and issues. We will do everything we can to help you resolve issues and get answers to questions pertaining to Estate Planning and Medicaid eligibility and services.

Administrator [of elder law firm]

Law Does Not Prohibit Medicaid Liens Against Surviving Spouses, State of Nevada Department of Human Resources v. Estate of Ullmer, April 1, 2004, Tim Takacs, Certified Elder Law Attorney

In 1993, as a part of the Omnibus Budget Reconciliation Act, the United States Congress passed a law that requires the states to establish an estate recovery program in order to receive federal Medicaid funding. Not only does the law condition receipt of federal funds on estate recovery programs, the OBRA 1993 law allows the states to "expand" the definition of "probate estate" to include property held in joint tenancy and various other ownership interests at the time of the death of the Medicaid recipient.

States' reaction to the Medicaid estate recovery mandate in the OBRA law has been mixed. Most of the states seem to have resigned themselves to complying with the law. Some of them have done so with gusto, apparently, collecting millions from the estates of deceased Medicaid recipients.

Other states have implemented their estate recovery programs with indifference. In Tennessee, for instance, estate recovery was low profile until two years ago, when the General Assembly declared that it really means business now (even though the State's recovery statute predates the 1993 federal law).

One state, West Virginia, disagrees with the estate recovery program as a matter of state public policy. It lost a lawsuit against the federal government over the matter, contending that the feds were forcing the states to do dirty work for them (see Elder Law FAX, April 8, 2002). Now, the West Virginia Attorney General posts on his Web site tips on how state residents can avoid estate recovery.

Until recently, three states -- Texas, Georgia, and Michigan -- simply have refused to implement recovery programs. Last year Texas enacted legislation to put a program in place, and Georgia is in the process of doing so. Michigan will be the last state to comply with the "fiscally sound, politically yucky" law, which is "so politically sensitive" that Gov. Jennifer Granholm (D) cannot find a lawmaker to sponsor legislation to address it, according to the Kaiser Daily Health Policy Report.

Last week the Nevada Supreme Court overturned a state trial court order that enjoined that state from imposing, on a statewide basis, liens against the homes of surviving spouses of deceased Medicaid recipients.

Agnes Ullmer's late husband Harold died in a Nevada nursing home. The State of Nevada's Medicaid program had paid for his nursing home care for several years. After his death, the State filed a lien against his home, that was now owned by his widow Agnes as surviving spouse.

Mrs. Ullmer contested the State's action, contending that the federal government's prohibition against "recovery" as long as the deceased Medicaid recipient left behind a surviving spouse also prohibited the State from filing a lien against the home that she and her husband owned.

Although federal law says unequivocally that the State may not recover Medicaid benefits paid from the estate of a deceased Medicaid recipient as long as there is a surviving spouse, the Nevada Supreme Court held that "recovery" does not mean the same thing as "imposing" a lien, which the State does have a right to do.

However, the State's right to impose a lien does not mean that the State will always get its money. The 1988 Medicaid law on "spousal impoverishment" takes precedent over the State's right to recoupment of Medicaid benefits.

In order to prevent or avoid spousal impoverishment, the State must release its lien against the property upon demand by Mrs. Ullmer and other surviving spouses who want to make a bona fide sale or other financial transaction involving the home.

Not all states file liens. The Tennessee estate recovery law specifically prohibits the filing of liens to secure repayment of Medicaid benefits correctly paid.

More on Medicaid "planning" Evan Halper, "Public Pays for Wealthy Seniors' Care," Los Angeles, Times, May 2, 2004,

"For older Californians distressed by the thought of nursing home bills devouring their savings, the words of a Los Angeles attorney may seem astonishing: 'We can qualify even a millionaire for Medi-Cal benefits.'

"But as troubled as they may be by such an offer, officials at California's healthcare program for the poor admit it's possible.

"At a tremendous cost to taxpayers, aging Americans in California and across the nation are transforming themselves, at least on paper, from affluent seniors to needy individuals eligible for state health benefits.

"'It's a huge public health problem,' said Thomas Scully, who ran the country's $269-billion Medicaid system for the Bush administration until December. Medi-Cal is California's version of that program.

"'There is an entire industry around the country set up to coach people to transfer their assets to their children, so the state can pay for their care,' Scully said. 'Every time you pay for one of these people to go to a nursing home, you are taking money away from the people who are truly poor.' . . .

"Jack Christy, director of public policy for the California Assn. of Homes and Services for the Aging, said the policymakers need to do something.

"'A lot of the things California is allowing just defy common sense,' he said. 'You end up with people paying taxes into the system -- like a gardener making $20,000 or $30,000 a year -- so some millionaire can get on Medi-Cal. It's not right.'

"Nursing home administrators see the asset transformation firsthand. At the Pilgrim Haven Retirement Community's nursing home in the affluent San Francisco suburb of Los Altos, the staff was baffled when a patient with a $2-million house, pricey commercial property in San Jose and considerable savings recently became eligible for the program. . . .

"A cottage industry of attorneys and estate planners is marketing Medi-Cal as a kind of inheritance insurance through which parents can give their money to relatives, declare poverty and get state assistance. Some of those attorneys say they can get just about anybody on the system. . . .

"Los Angeles attorney Judd Matsunaga says in a videotaped presentation: 'We can qualify even a millionaire for Medi-Cal benefits.' . . .

"Clients can pour all of their money into an expensive new house and still qualify. If they tell the state that their intention is to return to that home, the state can't take it. The house can then be transferred to relatives while the patient is in a nursing home, and the state can't go after it once the patient dies.

"Other exemptions are certain kinds of investments. Some insurance companies, for instance, market 'Medi-Cal friendly' annuities, into which seniors can move their savings to keep them from the state. . . .

"'We have tried to tighten all the loopholes we are aware of that can be tightened under federal law,' said Stan Rosenstein, who oversees the Medi-Cal program. 'There are some loopholes in the federal law that we can't touch.' . . .

"Advocates also say they are offended by financial makeovers used to exploit a beleaguered Medi-Cal system, in which nursing home beds are in short supply and waiting lists are common. "We've got a huge mess here," said Stephen Moses, president of the Center for Long Term Care, an insurance industry-backed think tank in Seattle. "The well-to-do use 'Medicaid planning' to get into nice homes and the poor people lose everything and end up in Medicaid hellholes." . . .

"Rosenstein calls such shielding assets to get on Medi-Cal 'inappropriate.' He and other state officials say Medicaid was always meant to be strictly a safety net for the poor. But he acknowledges that the law is porous and that there are ways to move money around to keep the state from getting at it. . . .

"'That offends me,' said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento), when told of the seminar. 'The fact of the matter is: We are living in a time of scarce resources. It is just not fair that people of real means can find ways to shelter their assets and have the public pick up the cost of care. We have to change the law.'

"He wants the state to conduct a thorough study to figure out exactly how much it is costing. . . .

"Rosenstein acknowledges that California has been 'one of the least aggressive' states in closing the loopholes. THE STATE TRIES TO MAKE UP FOR THAT, HE SAYS, WITH ONE OF THE COUNTRY'S MOST AMBITIOUS PROGRAMS OF COLLECTING MONEY FROM PATIENTS AFTER THEY DIE -- USUALLY BY PLACING A LIEN ON THEIR HOMES. [Emphasis added.] . . .

"Most elder-law experts, however, say that if recipients fill out the paperwork properly before entering the system, they can keep the state from ever having a claim on their property. . . ."

Cheating Medicaid: (Daily Review 2004) For older Californians distressed by the thought of nursing home bills devouring their savings, the words of a Los Angeles attorney may seem astonishing: "We can qualify even a millionaire for Medi-Cal benefits."

At a tremendous cost to taxpayers, aging Americans across the United States are transforming themselves, at least on paper, from affluent seniors to needy individuals eligible for state health benefits. "There is an entire industry around the county set up to coach people to transfer their assets to their children, so the state can pay for their care. "Every time you pay for one of these people to go to a nursing home, you are taking money away from the people who are truly poor."

It's costing the state as much as $150 million a year, as estimated by the California Association of Homes and Services for the Aging. And an investigation by state Attorney General Bill Lockyer's office backs up the math: It has found one Northern California attorney alone who has been able to get a thousand clients into the system, costing the state an estimated $50 million.

The state has tried to limit losses by putting liens on the homes of patients after they die, but Medi-Cal officials and elder law experts say the process can be easily evaded. Lockyer said there is only so much he can do: Most of the time it is legal.

"If there are legal ways to legitimately pass assets to heirs, I can't fault people for having that desire," he said. "If somebody wants the system changed, that's up to policy-makers."

A cottage industry of attorneys and estate planners are marketing Medi-Cal as a kind of inheritance insurance through which parents can give away their money to relatives, declare poverty and get state assistance. Some of those attorneys say they can get just about anybody on the system.

Los Angeles attorney Judd Matsunaga says in a videotaped presentation: "We can qualify even a millionaire for Medi-Cal benefits." "It's a matter of knowing the law and working within the rules of the law to do what is legal,"

Medi-Cal officials say that they plan to ratchet up some restrictions on who can qualify -- enough to save about $4 million annually -- but that their hands are tied to do much more.

Healthcare advocates are not impressed. They note that four other states -- Connecticut, Massachusetts, Minnesota and New York -- are working with the federal government on proposals to waive some of those rules so they can crack down on families of nursing home patients who shelter assets to obtain state assistance.

Advocates also say they are offended by financial makeovers used to exploit a beleaguered Medi-Cal system, where nursing home beds are in short supply and waiting lists are common.

Many elder-law attorneys make no apologies. They say their clients paid tens of thousands of dollars into the system through federal and state taxes, and they are entitled to get their share out of it.

Medicaid: (2004) "Countable" assets generally include all assets - real, personal, savings, investments, retirement plans - a person owns. Specifically these could include:

Pass book savings;

Check Account;

Certificate of Deposit (CD);

Stocks and Bonds;

Mutual Funds;

Government Savings Bonds;

IRA, 401(k), 403(b) & Keogh Plans;

Spousal IRA & Qualified Plans;

Deferred Annuities;

Investment Real Estate;

Vacation Home; Cash above $2,000;

Life Insurance Cash Value Above $1,500.

Exception to Countable Assets

There are exceptions to what Medicaid can count as a “countable asset”. An exception means that the asset would not have to be spent down to qualify for Medicaid eligibility. These would become “Non countable Assets”. Exceptions to countable assets include:

Cash up to $2,000;

Life Insurance Cash Value up to $1,500;

Personal Residence;

One motor vehicle without regard to value;

Household goods and personal possessions, such as clothing, furniture, and jewelry;

Certain prepaid burial arrangements, including burial plots and burial insurance;

Term life insurance policies;

Life estate in real property.

The Realist's Guide to Medicaid and Long-Term Care  Income eligibility is determined in two ways. Thirty-four states and the District of Columbia have "medically needy" income eligibility systems.27 In those states, eligibility workers deduct Medicaid applicants' medical expenses—including private nursing home costs, insurance premiums, medical expenses not covered by Medicare, etc.—from their income. If they have too little income to pay for all of this, they are eligible for Medicaid—not just for their long-term care but for the full array of Medicaid services which stretch far beyond what Medicare covers.The remaining states have "income cap" Medicaid eligibility systems.28 In those states, anyone with income over $1,692 per month (300% of the SSI monthly benefit of $564) is ineligible for long-term care benefits.29 But $1,692 is not enough to pay privately for nursing home care and one dollar more is too much to qualify for Medicaid, a Catch 22.

So Congress approved "Miller Income Trusts" in OBRA '93 that allow people to siphon excess income into the trust and become eligible for Medicaid.30 The trust proceeds must then be used to offset their cost of care and any balance in the trust at death reverts to

Medicaid. Nevertheless, Miller income trusts allow people with incomes substantially over the limit to qualify for Medicaid, enjoy the program's low reimbursement rates, and receive its extensive range of additional medical services.

All you really need to remember about Medicaid income eligibility for long-term care is this: whether you're in a "medically needy" or an "income cap" state, you don't have to be poor to qualify. You only need a cash flow problem. There is no set limit on how much income you can have and still qualify as long as your private medical expenses are high enough and, if you are in an "income cap" state, you have a Miller income diversion trust.

Most states allow individual Medicaid applicants to retain at least $2,000 worth of otherwise nonexempt liquid assets. What you don't hear so often is that Medicaid also exempts the home and all contiguous property regardless of value. Simply express a subjective "intent to return" to the home and it remains exempt, whether or not there is any medical possibility you'll ever be able to return.

Medicaid also exempts one business, including the capital and cash flow, of unlimited value.

A prepaid burial space for "the individual, his or her spouse, or any other member of his or her immediate family is an excluded resource, regardless of value."

You can hold unlimited term life insurance with no effect on eligibility.

Home furnishings are officially excluded only up to $2,000 but are rarely counted in practice.

One car of unlimited value is exempt assuming it's used for the benefit of the Medicaid recipient. And because it is exempt, giving it away is not a transfer of assets to qualify for Medicaid, so you can give one car away, buy another, give it away, and so on until you reach the $2,000 eligibility threshold. That's called the "two Mercedes" rule.

Bottom line, there is no limit to how much wealth people can stash in exempt assets without impeding their Medicaid long-term care eligibility.

Medicaid reimburses nursing homes on average only 70% of the private-pay rate. According to the accounting firm BDO Seidman, Medicaid under-funded nursing homes $4.1 billion dollars in 2001, with the shortfall averaging $11.55 per Medicaid patient day.

With two-thirds of their residents on Medicaid, nursing homes struggle to provide quality care with reimbursements so low. Arguably, low Medicaid reimbursements translate into poor nursing home outcomes.

The consequences for nursing homes, as we described earlier, have been devastating.

Inadequate revenue has spawned bankruptcies, staff shortages, and quality problems which have in turn led to tort liability suits, giant punitive settlements, and skyrocketing liability insurance premiums. Aon Risk Consultants recently reported that nursing home litigation has skyrocketed in the past few years resulting in a 51% increase in malpractice liability insurance premiums. The average cost of liability insurance per bed in 2003 was $2290, but in Florida, with its high elderly population, per-bed liability costs have reached $8170. Aon concludes: "The cost crisis has caused many nursing homes to either cut back on insurance coverage or to drop it altogether, in a practice known as 'going bare.' Others have closed their doors in states with high premiums. Because Medicaid and Medicare fees are set at an average of $118 a day, most litigation coverage costs cannot be passed on."

Although state Medicaid programs have been required since OBRA '93 to recover benefits correctly paid from the estates of deceased recipients—and arguably from the estates of the spouses they predecease—few states do so efficiently and effectively.

Three states—Georgia, Michigan and Texas—have not implemented estate recoveries to this day. Most states make only a half-hearted effort. CMS reports that state Medicaid programs recovered only $350 million from estates in 2002 while spending $46.5 billion on nursing home care, an almost negligible return of only .75%.

Even states that pursue estate recoveries aggressively, like Oregon, are hamstrung by restrictions in federal law that protect large amounts of money from recovery.

Nevertheless, Oregon recovered $13.7 million from estates in 2002, which is 6.9% of what the state spent on Medicaid nursing home benefits in the same year.

If every state in the country recovered from estates at the same rate as Oregon, total recoveries would be $3.2 billion.

A General Accounting Office study in 1989 found that, although more than 80% of seniors own homes, only 14% still own them once they're on Medicaid.

New York, for example, imposes no transfer of assets penalty for Medicaid home care so people routinely transfer their assets, receive three years of generous home care from Medicaid, and then qualify immediately for nursing home care without any spenddown liability.

In Nebraska, families routinely pass their property—especially farms, businesses, and homes—from the older to the younger generation in their late 60s or early 70s.50 Even if such transfers are not done to qualify for Medicaid, the net effect is that people are eligible for Medicaid when they need long-term care.

Medicaid: Medicaid was mainly intended to be an acute-care safety net for poor women and children. To this day, approximately 75% of Medicaid recipients are poor adults, mostly women, and children. But this group accounts for only about one-third of Medicaid's costs. The remaining 25% of Medicaid recipients are aged, blind or disabled, and they account for two-thirds of the program's costs. The main cost driver for this latter group is long-term care, principally nursing home care. Medicaid spent $50.9 billion on nursing home care in 2002 and paid for two-thirds of all nursing home residents. Long-term care accounts for one-third to one-half of total Medicaid expenditures in most states.

It had to pass: (2005) The nation's governors, weighing what to tell Congress they want from Medicaid reform, may take aim at the common practice of seniors giving away their assets so the government pays for nursing home care. They could also demand that the poor pay a share — or a greater share — of their health care bills.

Medicaid has grown faster than inflation and is estimated to cost over $300 billion in total this year. The program will serve roughly 53 million people.

Medicaid now pays for two of every three nursing home patients in the country. It pays for one out of three births. It has become the leading payer of mental health services, and the leading payer of services for people with HIV and AIDS. One out of nine people in the country are on Medicaid.

A draft included:

_Adding deductibles or co-pays for medical care for Medicaid recipients, forcing patients to share costs and discouraging misuse of the system.

_Making it more difficult for senior citizens to transfer their assets to relatives or others so that they fall within Medicaid eligibility requirements and the program would then pay for a nursing home. One proposal would allow states to examine a person's finances at greater depth in the interest of seeking repayment for government-provided care. The president, too, proposed making it more difficult for seniors to transfer their assets. (This is mandatory)

_Trying to find ways to discourage businesses from dropping health insurance or otherwise shifting employees to Medicaid, possibly through tax credits that would encourage low-income people to hold onto private health insurance.

LOSING HOMES TO MEDICAID (2005) - The largest financial risk that seniors face today is the potential of assisted living and nursing home costs devouring the nest egg that has taken a lifetime to build. Many will end up relying on Medicaid to pay these costs. If that's the case for you, chances are that Medicaid will come after your home when you die. Qualifying for Medicaid requires the patient's liquid assets to be no more than $2,000, not including their home. Traditionally, Medicaid has allowed a patient to keep their home while they're in the nursing home. Since Medicaid doesn't force the sale of the home at that time, many seniors assume they will be able pass it to their heirs at their death. However, back in 1993, Congress passed a law that required the state agencies that run Medicaid to make every effort to get reimbursement for the money spent on each patient. This means the states are required by law to take any assets remaining at death, up to the amount spent by Medicaid. For years, many states completely ignored this law or only casually attempted to recover Medicaid costs. But those days are over. Facing budget crunches and exploding health care costs, many states are now aggressively pursuing recovery of their expenses.

An enormous exposure to more and more debt: (USA Today 2005) The nation has so vastly extended taxpayer-funded Medicaid to the working poor this decade that it has produced the biggest expansion of a government entitlement since the Great Society was launched in the 1960s. the medical care program paid by federal and state taxpayers has grown from covering 34 million people in 1999 to 47 million in 2004.

About 100 million people — 1 in 3 — now have government coverage through Medicaid, Medicare, the military and federal employee health plans. More than 10 million others are eligible for Medicaid but have not signed up.

Today, a family of four can earn as much as $40,000 a year in most states and get government health insurance for children. The nation's median household income was $43,318 in 2003.

The expansion has had far-reaching consequences:

More children insured. The portion of children without insurance fell from 14.8% in 1997 to 11.7% in 2004. The rate of young children being vaccinated has increased from 72% in 2000 to a record 81% in 2004.

Higher costs. Medicaid spending grew from $159 billion in 1997 to $295 billion in 2004. That 85% increase is nearly twice the rise in Medicare, which insures seniors. Washington pays 59% of Medicaid's cost; states pay the rest.

Reduced private insurance. Many low-income workers are choosing Medicaid over employer insurance because it is less expensive and often covers more. Medicaid is free or nearly free for recipients. Out-of-pocket costs and the range of services covered vary by state. The percentage of children covered by private insurance fell from 65% in 1999 to 59% in 2004, while those on Medicaid rose from 22% to 29%.

Critics of Medicaid's expansion say it is adding to the federal budget deficit — $412 billion in 2004 — and luring people from employer-offered insurance.

We absolutely cannot afford this escalation.

LTC: (WSJ 2005) "In the future, Medicaid will no longer be a resource for middle- and upper-class people."

Part of the proposed Government cuts to Medicaid could come from tightening loopholes that let some older people qualify for aid by sheltering their assets. Patients generally are eligible for Medicaid to help pay for long-term care after using up all but $2,000 of their cash and investments. They also get to keep their house and car. So, instead of spending the next generation's inheritance on long-term care, some parents transfer assets -- including, in some cases, their house -- to their kids before entering a nursing home There are restrictions on the amount of time that must elapse between the asset transfer and Medicaid eligibility, but these are rather weak.

Under the proposals, however, state regulators would tighten these restrictions, counting as belonging to the patient any assets given away within five years of his applying for Medicaid. Such a change could save the government $1.5 billion over five years, according to the HHS commission report.

The proposed change could make it even tougher for older parents to leave their assets intact for their boomer children, while at the same time getting government help with long-term-care costs. Last year, the cost per patient for long-term care averaged $72,240, including nursing homes, assisted-living facilities and home care

Under the partnership program, a person buys a private long-term-care policy that has been approved by state officials. If the person later enters long-term care and exhausts the private policy's coverage, he can still apply for Medicaid to help cover any additional costs. The benefit from the partnership program is that it sets a higher floor for how much the patient can keep as personal assets and still be eligible for Medicaid. That floor is equal to the amount of coverage the patient purchased in their private policy. For example, a policy worth $50,000, when used up, would allow that patient to retain $50,000 in personal assets, plus his house and car, and still qualify for Medicaid coverage.

The partnership program won't solve the larger problem of how long-term care is financed, with many older people already too poor to buy coverage, or too sick to get it. But for someone who is middle-age or part of the middle class, a long-term-care policy with a government guarantee not to wind up penniless might be worth a look. In the states with these programs, the long-term-care insurance market grew 23% faster from 1993 (when the programs were started) to 2001 than in states without them, says Mark Meiners, a health policy professor at George Mason University in Fairfax, Va., who helped develop the partnership program. So far, of the 180,000 policies purchased since 1992, only 89 have been exhausted, a recent study found.

Unfortunately, the sticker shock can be just as bad with partnership-approved policies as with traditional long-term-care insurance, for which premiums average about $1,000 a year for three to six years of care for a 55-year-old married person. The price goes up as a person ages, and adding extras -- such as inflation protection -- can push the price higher still.

Under the new laws, (2006) Medicaid will treat the spending down of assets through gifts exactly as it did in the past, only now with a larger scope. As was previously the case, when someone applies for government coverage of long-term care, Medicaid takes into account any substantial gifts of assets the applicant has made within five years. If the applicant is eligible for Medicaid in part because of those gifts, before Medicaid will pay any benefits, that person must contribute an amount equal to those gifts, up front, toward their nursing home care. For instance, an elderly client gifted $100,000 to his children in 2002 and then later applies for nursing care coverage under Medicaid in 2006. If the $100,000 reduced his assets enough to qualify him for Medicaid, the new law would require that he pay the first $100,000 of his care, out of pocket, before Medicaid benefits would kick in. For clients already on the Medicaid rolls, or who applied for coverage before Feb. 8, the new laws will have no bearing on their status. However, elderly clients currently using the gifting strategy to attempt to qualify for Medicaid will have to take a hard look at revising their plan.

Another twist included in the new Medicaid legislation concerns the inheritance of annuities. Under the old laws, some annuities were exempt from an estate’s assets and were therefore not subject to recovery by the government when a person applied for Medicaid. Under the new laws, annuities held by the applicant must be modified to name the government as the sole beneficiary when the applicant dies.

Asset Transfer and Nursing Home Use: Empirical Evidence and Policy Significance (Urban Institute 2007)




As shown in Table 3, only a small fraction of persons account for nearly all assets by Medicaid nursing home residents. Approximately 16% of Medicaid nursing home who transferred more than $5,000 accounted for 90% of cash transfers, and 2.4% of beneficiaries who transferred more than $50,000 accounted for 43% of assets transferred. When the value of deed transfers is included, 22% of beneficiaries accounted for more than 95% transferred assets, and 7% accounted for two thirds of transfers.


only a small proportion of Medicaid nursing home residents transfer substantial assets over a five-year period leading up to Medicaid eligibility.4 In fact, it is the subgroup of nursing home residents who never become Medicaid eligible that practices asset transfers extensively and transfers large amounts of monies. The a priori reasoning behind their asset transfers to their offspring was conceivably not to gain Medicaid eligibility for nursing home care.

People expecting to enter nursing homes probably have multiple goals, such as (a) ensuring independence of spouse, (b) avoiding a lien on their home, (c) ensuring placement in a desirable nursing home, and finally (d) providing an inheritance or “repaying” children for the costs of providing assistance and care at home.

Simply learning the steps necessary to protect a non-disabled spouse from impoverishment, while allowing him/her to remain at home may well require the assistance of an attorney.Furthermore, being able to choose among desirable nursing homes often requires sufficient funds to pay privately for many months (or years) of care. Given the high cost of nursing home care, approximately $5,000 per month, a sizeable portion of assets might be used to meet this goal alone.Available remaining assets to transfer to children or grandchildren may, therefore, be very limited by the time private nursing home costs and other goals are addressed. The associated expenses would result in the relatively small amounts of assets transferred, as recorded by the HRS, even if elderly law attorneys were retained to help with estate planning for Medicaid coverage. Hence, while the “half-a-loaf” strategy sounds logical, expenses to meet other goals may leave only a “slice” of assets left to transfer to children and grandchildren.

Even if the total amount of transferred assets that we estimated is hypothetically translated into Medicaid savings, this amount is dwarfed by total state and federal spending on long-term care by Medicaid programs, which amounted to $101 billion in FY2004 ( Thus, even the most aggressive pursuit of transferred assets would recover only about 1% of total Medicaid spending for long-term care. It seems safe to infer that eliminating asset transfers for Medicaid nursing home coverage will not substantially alter the private market for long-term care and is not the panacea for controlling growth in Medicaid spending.

Medicaid Policy Changes 2005 link Many resources on what has changed. And change it has! The attempt to divest yourself of assets in order to get LTC under Medicaid is far more restrictive.

Long-term care accounts for 36 percent of Medicaid spending (over $100 billion annually) and is utilized by many of Medicaid's most costly beneficiaries, the low-income elderly and individuals with disabilities.

for people becoming Medicaid eligible at the time of nursing home admission, 50 percent had asset (cash and deed) transfers of less than $5,000. Conversely, only 13 percent of people who became Medicaid eligible at admission transferred more than $50,000. Asset transfer patterns were most common among nursing home residents who did not receive Medicaid assistance, with over 50 percent of the group making a transfer. Over the six-year period examined, the authors estimate that, when applying the DRA asset transfer rules, federal savings to Medicaid could amount to $1.87 billion.