The Future of Medicaid Planning in Missouri
by Matthew Wilson1
I. Introduction
The ranks of the country's elderly are predicted to swell by 2011, when the bulk of America's baby boomers will begin to reach age 65.2 Additionally, as advances in medicine lead to longer life expectancy and lower mortality rates, the percentage of the populace age 85 and older is expected to triple by 2040.3 The Centers for Medicare and Medicaid Services (CMS) report that national healthcare spending has already risen past $1 trillion annually, and will more than double to $2.2 trillion by 2008.4 In 30 years, from 1968 to 1998, spending on Medicaid has risen alarmingly, from $3.9 billion to more than $178 billion annually.5
Last year, Missouri's General Assembly passed Senate Bill 539 in an effort to curtail rampant Medicaid spending at the state level.6 The bill sent shock waves through Missouri's elderly population because it affects how income eligibility is calculated, which means as many as 30,000 of Missouri's seniors who were previously eligible for Medicaid may not be eligible under the new rule.7 In order to reduce fraud, the bill toughens the annual verification process, requiring the Family Support Division to check each recipient's income and eligibility every 12 months.8 The new statute also makes changes to rules for estate recovery.9 Perhaps most important for the future of Medicaid as Missourians know it is the creation of a 10-member commission charged with the overhaul of the state's Medicaid delivery system.10
The strict new regulations on eligibility and the potential for drastic changes in the law make Medicaid planning more important and controversial than ever before. The term "Medicaid planning" describes (i) the practice of divesting assets in order to meet the requirements for Medicaid eligibility before one requires long term care and (ii) the protection of those assets from recovery actions by the state.11 The new eligibility requirements will force some applicants to engage in more aggressive Medicaid planning strategies to maintain or to achieve eligibility. In planning for the future, the commission – and, indeed, Missouri's lawyers — must be aware of Medicaid planning strategies used by applicants to qualify for coverage, and recognize that as long as Medicaid planning remains legal via loopholes in the law, lawyers and estate planners will continue to view the practice as a smart, ethical way to preserve assets.12
According to most elder law scholars and practitioners, Medicaid planning has the potential to become an alarming problem. The practice is growing as more and more lawyers and clients become aware of it. "The middle class elderly have more to lose than they did in earlier times, and the practice is a rational adaptation to a system that is likely to leave many people destitute in any event."13 What is already alarming is the increase in federal Medicaid spending, leaping from $14.3 billion to $43.3 billion between 1980 and 1990, to $119.4 billion by 2000, with projections as high as $265.4 billion by 2010.14 Of course, inflation and increased healthcare costs account for much of this number, but John Miller, a professor at the University of Idaho College of Law, sees it as convincing evidence that the practice of Medicaid planning is on the rise.15 The problem with the practice, according to opponents, is that Medicaid is intended for the poor. The program was not designed for middle class elderly who wish to pass some inheritance to their children rather than deplete their estates paying for an extended nursing home stay. While recognizing the strain that aging baby boomers could potentially place on federal and state budgets through widespread Medicaid planning, this article submits that there is no civic duty to pay for one's own long-term healthcare, and that is it financially irresponsible to ignore loopholes in the law so as to conserve Medicaid benefits for the "needy."16 Further, it is no more unethical to use Medicaid planning strategies — or to advise a client to do so — than it is to order one's financial affairs to decrease tax liability.
Part II of this article provides a description of Medicaid and the requirements applicants must meet to qualify for the program, including a brief treatment of the techniques estate planners use to help clients meet those standards. Part III is a treatment of the most significant ethical arguments surrounding Medicaid planning. We know that lawyers and financial planners can and will find the loopholes and ways to sidestep any new law. The question remains, should they?17
II. Medicaid Planning
Title XIX of the Social Security Act of 1965 created Medicaid, an entitlement program funded by both the federal and state governments to pay long-term care expenses for elderly and disabled individuals with limited income and resources.18 Many confuse this program with Medicare, a "government-run health insurance plan for senior citizens."19
Considering the astronomical costs of long-term nursing care, many of the nation's elderly fear that they may not be able to afford to pay for it. Others fear that, while they can afford to pay for their own long-term care, the cost of doing so will deplete all the assets acquired over their working lives, leaving nothing to pass on to their children.20 It is no surprise that, when faced with such a choice, many seek the advice of an attorney, usually an estate planner, who "voluntarily impoverish[es]" the client by transferring assets and diverting income, reducing net worth "to the maximum amount allowable under the eligibility laws" long before they apply for Medicaid benefits.21
A. Why Medicaid Planning?
The current state of Medicaid law22 and the rising price of healthcare23 make Medicaid planning a necessity for all but the super-rich. According to a 1997 estimate by the House Select Committee on Aging, "over 600,000 elderly Americans were forced into poverty by paying health care costs for themselves or for their loved ones."24
When faced with statistics such as these, it is no wonder more and more of the state's elderly choose to voluntarily impoverish themselves, transferring assets to loved ones so that they can take advantage of Medicaid as soon as the need for long-term care arises, rather than spending a lifetime of accumulated assets on nursing home bills and leaving nothing for their loved ones.
What are the elderly to do? According to Jason Frank, an elder law scholar who provides some of the most convincing arguments for the morality of Medicaid planning, the other options are simply not feasible. First, as discussed ad nauseum in this article, paying for the care themselves is simply not an option for the middle and lower classes.25 Second, contribution from the family is not a viable option, as it reduces the family's ability to later pay for their own long-term care.26
Last, but not least, there is long-term care (LTC) insurance, described as "privately funded insurance which provides coverage for costs that may result from care provided in a long term care facility such as a nursing home."27 Problems abound with this approach. Primarily, LTC insurance is very expensive, prohibitively so for most. Also, most of our nation's elderly, while they might qualify for a policy, would reap minimal benefits because LTC insurance policies don't cover pre-existing conditions.28 Finally, consumers generally do not adequately anticipate the need for LTC coverage. As people age past 65 years, the possibility of requiring a long nursing home stay increases each year. Thus, policies get more expensive. Therefore, "'the dilemma is that when people's interest in purchasing long-term care is greatest — when they are elderly — the policies are unaffordable.'"29
B. Missouri's Changing Eligibility Requirements
Federal statues set forth broad national guidelines and requirements for Medicaid eligibility.30 Simply put, applicants must be 65 years old, financially needy, and continuously confined to a medical institution for more than 30 days.31 States are given broad discretion to set their own more specific guidelines for eligibility32 within the following framework:33 (1) the applicant's retirement income34 may not be greater than 300% of the Supplemental Security Income (SSI) paid by Social Security, or the applicant's income must be less than their medical expenses;35 (2) assets may not exceed the applicable limit on resources for SSI applicants.36
Previously, Missouri law allowed eligible applicants to have an income equal to 100% of the federal poverty level, which is $9,570 annually, or $797.50 per month.37 The new law lowers this amount to the SSI standard, which is about 74% of the federal poverty level.38 In plain language, this means a single adult with an income of more than $569 a month would have been eligible under Missouri's old eligibility requirements, but is not now eligible after Senate Bill 539. For a married couple, monthly income may not exceed $869 under the new law. A couple exceeding that amount will no longer be eligible for Medicaid benefits.
Missouri's limit on resources, defined as "assets that can be converted into cash,"39 sets the maximum amount of "non-excluded or 'countable assets'" an individual may own.40 Excluded assets, not countable for eligibility determination, are limited to the applicant's car, house, and household goods and furnishings.41 Missouri's resource limit of $1,000 in assets for individuals and $2,000 for married couples is ungenerous when compared with the national averages, but remains mercifully unchanged by Senate Bill 539.42
The bitter irony of the new legislation is that an individual or couple who are living at or even below the poverty line by federal standards are, in the eyes of the new law, "'too well off' to qualify for Medicaid" benefits.43 This means the applicant experiences a "Catch-22"— their income exceeds the minimum requirements, but it is not enough to pay for nursing care.44 Fortunately, the applicant is not without options.
C. New Law—Old Strategies
1. Spend Down of Assets
Elderly applicants may spend down some of their money on goods and services for their own benefit, or that of their spouse. They may elect to spend more on entertainment or take their dream vacation. The problem with such expenditures is obvious — the client has nothing to show for it.45 Thus, the better strategy is to spend the money on more concrete items. For example, many estate planners advise clients to pre-pay for accounting or legal services or purchase funeral services and burial plots.46 Further, since the home is exempt from asset calculations, it may be a good idea to spend the money on necessary home repairs and improvements or household appliances. This is a particularly attractive option in the case where a client is in need of nursing home care but has a spouse that will be remaining in the house.47 It is important to note, however, that "[i]f the client is single and has no dependents, he or she may not want to invest a lot of money into a home that will eventually be sold to cover nursing home costs."48
Another popular tactic is the purchase of an irrevocable annuity for the benefit of a spouse or other family member.49 This is particularly practical when one spouse is in need of nursing home care and a healthy spouse intends to remain in the home. The money is spent to meet eligibility requirements and the annuity supplies the non-institutionalized spouse with a stream of income. The new Missouri law adds a requirement that investment in annuities for eligibility purposes must be actuarially sound, meaning any annuity invested in for the purposes of Medicaid eligibility must be projected to pay out before the death of the investor by the Social Security Administration's Life Expectancy Tables.50
2. Transfer Assets to Family/Friends
Rather than spend down their assets, many prospective applicants decide instead to gratuitously transfer them to their children or other family members. The effectiveness of the asset transfer strategy is complicated by the "look-back date."51 An applicant must provide full disclosure of any transfer of assets at less than fair market value occurring less than 36 months before an application is made for Medicaid.52 If the asset could have been used to pay for nursing care, its transfer will disqualify the applicant for a set time known as a "penalty period."53 The state calculates the penalty period by dividing the value of the asset by the monthly cost of the applicant's nursing home care.54
For a simple illustration, suppose the applicant's nursing home charges $3,500 a month for patient care. Further, suppose that the prospective recipient gratuitously transfers an asset to his son worth $42,000 shortly before he applies for Medicaid. If we apply the formula above, dividing $42,000 by $3,500 equals 12 months. The applicant is ineligible for Medicaid benefits for one year, or one month for each $3,500 transferred.55
There are exceptions to these rules for the transfer of assets. A transfer made "at fair market value or for other valuable consideration" is never scrutinized, nor are transfers made for the benefit of or to a non-institutionalized or community spouse.56 Also, transfers are not scrutinized if an applicant is able to show that denial of eligibility would impose an undue hardship.57 The undue hardship standard places a very heavy burden of proof on the applicant and is only rarely successful.58 Finally, a transfer of the applicant's home to a spouse or minor child who is blind or disabled is exempt under any circumstances.59
a. The 50/50 Strategy
The object of any such conveyance would be to place as many assets as possible in the hands of a family member while still retaining enough to pay for the applicant's health care during the penalty period that results. Some practitioners use what is called a "50/50 strategy."60 Half the client's available assets are transferred to family members, and the other half retained to pay for health care during the resulting penalty period.61 For example, a client with $200,000 in assets would transfer $100,000 to a family member. Assuming the state average for nursing home costs about $4,000 a month, this transfer renders the client ineligible for Medicaid for 25 months, during which time he uses the $100,000 he retained to pay for his healthcare.62 The obvious flaw in this strategy is that it fails to allow for inflation and the fact that nursing home costs could increase during the penalty period, as well as the fact that an individual paying privately will almost always have to pay more than the state average nursing home cost.63
b. A Smarter Alternative
Maryland attorney Cynthia M. Brubaker, in her article, "Medicaid Eligibility: Planning for the Elderly Clients," recommends a simple formula used by many estate planners that takes into account a client's retirement income:
"Amount of transfer = E x [A/(A+C)], where
E = Excess resources
A = Average cost of care
C = Cost of care in excess of retirement income."64
A simple example involves an individual whose nursing home care will cost $4,000 a month. Assume the client has $100,000 of excess resources, a $2,000 monthly retirement income, and lives in a state where the average monthly cost for a nursing home is $3,000.65 Using this strategy, the individual should transfer $60,000, which "will result in a period of ineligibility of 20 months (60,000 / 3,000)" during which the remaining $40,000 (and the monthly income) is used to pay for healthcare.66 This more precise formula better ensures that the client retains enough assets to pay for care for the duration of the look-back period.
3. The Miller's Trust
While there are highly complex federal laws dictating the types of trusts that are exempt from calculations of income and resources, the most well known is the "Miller's Trust," which makes Social Security and other income exempt if the state is reimbursed from the trust for Medicaid expenses upon the recipient's death.67 In this situation, the applicant assigns all of their non-exempt income to an irrevocable trust. The trust pays out the maximum allowable amount of income to the applicant, bringing their income to a level that will not preclude eligibility.68 This income is paid directly to the Medicaid recipient's nursing home and the excess income stays in the trust.69 Medicaid picks up the tab for the portion of the nursing home bill that exceeds the maximum acceptable income and any income left in the trust is used to pay back the state upon the death of the recipient.70
D. How Estate Recovery Frustrates Planning Strategies
Perhaps the Medicaid topic that generates the most unrest among seniors is estate recovery. Federal law requires that, upon the death of a Medicaid recipient, the state must make an effort to collect any remaining assets from the decedent's estate.71 Interestingly, states have had the authority to recover Medicaid funds in this manner since 1982,72 but only about 28 states chose to do so until 1993, when federal law began requiring estate recovery as a prerequisite for the receipt of Medicaid matching funds from the federal government.73
1. The Current Law
Even since 1993, states have continued to drag their feet on estate recovery because of the obvious public relations problem the practice creates.74 States are slowly moving toward a more systematic approach to estate recovery in spite of the negative public opinion as Medicaid spending continues to skyrocket and the effectiveness of estate recovery becomes manifest.
It has been noted that "in Missouri, a state with a comprehensive estate recovery program, $1,316,925 was recovered during fiscal year 1993, and $8,832,006 between 1981 and 1993. The former figure represents less than one percent of all Medicaid expenditures in that state during the same year."75 As the cost of skilled nursing climbs and more people enter nursing homes, we can expect more states to tighten estate recovery laws and close loopholes that permit the middle class to "abuse" Medicaid by shielding their assets.76
2. Use of TEFRA Liens Under the New Missouri Law
Missouri's new law further streamlines the process of estate recovery in Missouri by allowing the attachment of TEFRA77 liens to the property78 of Medicaid recipients before their death.
It is important to recognize the difference between liens and recovery under the statutory guidelines, because they are both governed by different restrictions and have different ramifications for the recipient. The lien is merely a security interest in a future recovery placed on the recipient's property while that person is still alive, whereas the estate recovery claim is "a bill presented to the heirs," requiring present payment. Although no recovery may be obtained while a Medicaid recipient is living, federal law allows the agency responsible for estate recovery to impose a lien upon the recipient's principal residence if certain conditions are met.79
The changes made by Senate Bill 539 allow TEFRA liens to attach to property under either of two conditions. In the first, there must be a hearing80 at which the state shows that the recipient is not reasonably likely to be discharged from a skilled nursing facility and return home.81 However, any lien attached after such a hearing dissolves if the Medicaid recipient does, in fact, return home.82 The second situation where the new bill authorizes the use of TEFRA liens is one in which a court determines that Medicaid benefits have been wrongfully paid to a recipient.83
Yet another condition that limits both estate recovery and liens "is that there must be no surviving relative whose existence prevents application of a lien."84 Thus, the state cannot place a lien under this section if the recipient's spouse, blind or disabled minor child, or a sibling still resides in the home.85
Once the lien attaches, the state may foreclose on the property in the event that the recipient attempts to sell or give away the property to a friend or loved one.86 Thus, in the realm of Medicaid planning to gain eligibility before entering a nursing home, this provision may encourage more seniors to engage in Medicaid planning to protect their property long before the situation arises where a lien might attach.
III. Ethical Issues in Medicaid Planning
Changes in Missouri law make it likely that more lawyers and estate planners will be approached by their clients with questions about estate planning for Medicaid eligibility. As Jason A. Frank notes, "counseling clients on the legal means to reduce expenses by maximizing societal benefits is a venerated legal tradition."87 Unfortunately, "the specific practice of lawyers advising elderly disabled clients of the benefits obtainable under the Medicaid Program is often attacked as a scurrilous perversion of the intent of the law to provide assistance only to the 'truly needy.'"88 Further, Medicaid planning is certainly not without its drawbacks, including "nursing home discrimination against Medicaid recipients . . . and loss of financial autonomy,"89 not to mention how repulsive the idea of "ending up on the public dole" is to most Americans.90
Of greater concern to most seniors, however, is the amount of assets they are able to leave their children. As one author points out, "[c]lients care more about how much they can leave to their family and friends and less about saving the government's Medicaid dollars."91 While, to date, there have been no conclusive studies as to just how many seniors have engaged or are engaging lawyers to help structure their assets in order to qualify for Medicaid, it is a safe bet that the practice is on the rise.92 As America's growing middle class ages and awareness of Medicaid law and long-term care costs increases, there can be little doubt that more citizens will seek out lawyers and estate planners for advice.
A. Congressional Opprobrium and Judicial Support
As discussed earlier, federal law makes it perfectly legal to transfer assets to individuals and trusts if done a sufficient period of time before application is made for Medicaid coverage.93 Any such transfer is scrutinized under the look-back provisions, and if such a conveyance occurs less than 36 months before applying, a period of ineligibility results, reflecting the period of time during which the applicant could have paid for their own care had they not transferred the assets.94 However, in the past decade, Congress has tried twice to curtail the practice of Medicaid planning in order to address what Newt Gingrich called the "very common problem" of "millionaires transferring assets to become eligible for benefits."95
1. The "Granny Goes to Jail Act"
In 1996, Congress attempted to make it a criminal offense to transfer assets for the purpose of obtaining Medicaid assistance.95 Under that law, one who "knowingly and willfully disposes of assets . . . in order for an individual to become eligible for medical assistance under a state plan under title XIX" will be guilty of a misdemeanor if convicted and subject to fines up to $10,000 or imprisonment up to one year or both.97
The act was quickly repealed, with courts understandably reluctant to imprison senior citizens. Congressmen are still reluctant to admit authoring the act, which "Congress enacted without any open debate."98 During the 216 days before the act was amended, not one violator was convicted of a violation.99 In Peebler v. Reno, a representative decision in a prosecution under § 217, the court held that an applicant who transfers assets, then waits out the resulting period of ineligibility before applying for Medicaid coverage, incurs no criminal liability and cannot, therefore, be prosecuted under § 217.100
2. The "Granny's Lawyer Goes to Jail" Act
After facing outrage from influential senior citizens' groups, and reluctance to enforce the act from the courts, Congress, in a retaliatory move, sought to criminalize the practice of advising clients to engage in Medicaid estate planning. Congress was apparently "undaunted" by the obvious difficulty involved in writing a law to criminalize advising a client to do something perfectly legal.101
The offending language of § 217 was replaced with wording which criminalized any lawyer who
for a fee and knowingly and willfully counsels or assists an individual to dispose of assets (including any transfer in trust) in order for the individual to become eligible for medical assistance under a State plan under title XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance.102
In sum, the act shifted liability to the attorney, who could now receive a fine up to $10,000, one year in prison, or both.
103 The message was a strange one: Medicaid planning is legal, but advising a client to do so is not.
104
However, Attorney General Janet Reno wrote Congress to inform them that the Department of Justice "will not defend that constitutionality of Section 1128B(a)(6) [nor would they bring charges in federal courts against its violators] because the counseling prohibition in that provision is plainly unconstitutional under the First Amendment and because the assistance prohibition is not severable from the counseling prohibition."
105
After the attorney general's refusal to support or enforce the statute came several court decisions with holdings which confirmed the right to Medicaid benefits and favored the practice of Medicaid estate planning.
106
3. In re John XX107
The legislative blame shifting was accompanied by high profile court cases that appeared to support not only the legality of Medicaid planning, but its reasonableness given the current state of the law. In one New York case, John, an elderly gentleman, suffered a stroke which left him permanently incapacitated in a nursing home.108 The court declared that John was likely to suffer harm due to his inability to manage his financial affairs and appointed his cousin as guardian over his estate.109 The cousin petitioned the court to allow her to transfer $640,000 of John's assets to his adult daughters in order to shield the assets from Medicaid liens.110 This left John with $150,000 in assets and annual income of $33,000, which the court determined was sufficient to provide for his needs during the 36-month look-back period prescribed by New York law at the time, "at the conclusion of which John would rely on Medicaid for the cost of medical care in excess of his income."111 The Broome County, New York Department of Social Services objected to the petition, arguing that the guardian should not be allowed to pursue a course of action with John's finances that would ultimately result in his dependence on welfare.112
The court found sufficient medical evidence of John's permanent mental incapacity, and found no evidence of any intentions before his stroke that were inconsistent with the guardian's proposed transfer.113 Ultimately, the court allowed the transfer of the assets to the daughters, declaring that "barring death, John will require continued nursing home care, the cost of which will exhaust his assets, [and] it cannot be reasonably contended that a competent, reasonable individual in his position would not engage in the estate and Medicaid planning proposed in the petition."114 Perhaps most importantly for the argument at hand is the court's holding that the transfer of the assets as a Medicaid planning device was not fraud, and since federal law imposed no penalty for transfer outside the 36-month look-back period, the state could impose no such penalty.115
4. In re Daniels116
In this case, another New York man, Kenneth Daniels, underwent surgery for neurological problems, and subsequently suffered severe seizures which left him, by the court's determination, "profoundly disabled."117 Daniels' guardian sought to transfer part of Daniels' assets to his dependent children, ages 20 and 23, as a Medicaid planning device.118
The opinion purports to answer the question of whether a court could authorize a guardian to engage in Medicaid planning for the benefit of an incapacitated person's dependent children, if the person, having full capacity, would have made such a transfer themselves.119 First, the court pointed out that the practice of Medicaid planning is not violative of public policy.120 Rather, the court declared that the intention of federal and state law appears to allow such transfers to incur eligibility. The court held:
To deny a guardian the authority . . . to make such transfer of the incapacitated person's assets would result in denying that person the opportunity which is available to all competent persons of this State who require long-term nursing home care and who have assets they desire to gift to their families, simply because he or she is incapacitated and is unable from a cognitive standpoint to make such transfer himself or herself. Such a result would be in direct contravention of the expressed intention of article 81.
Therefore, the court finds that Medicaid planning is a proper objective of a proposed disposition of an incapacitated person's property.121
The preservation and passing on of wealth has deep roots in American custom. Indeed, our valuation of inherited wealth is reflected in the judicial and legislative history of our system of government.
122 Frank notes that "[t]he customs involved in Medicaid planning are similarly embodied in federal regulations and have, thus far, been upheld by the courts."
123
B. In Defense of Medicaid Planning
People want to pass on the assets they have acquired through a lifetime of hard work, rather than pay them to a nursing home for care at the end of that lifetime. It is beyond dispute that long-term care prices are so astronomical that they can eat up an entire life savings in just a few years. That is why most individuals who engage in Medicaid estate planning probably do not view that choice as an immoral one, or even as "beating the system." Rather, it is a rational choice influenced by simple economics in the face of astronomical healthcare costs.124
Indeed, the most convincing argument in favor of the morality of Medicaid planning is its legality.125 Therefore, perhaps the most useful comparison in support of this argument is the comparison of Medicaid estate planning to tax planning. When large corporations employ scores of lawyers to minimize the amount of taxes due the United States, few private citizens, and indeed few in the government, will so much as bat an eye. But mention a 65-year-old couple receiving advice on Medicaid planning, and congressional brows begin to furrow. Why?
1. Comparison to Tax Law
The most convincing argument against Medicaid planning, from a legislative standpoint, is that Medicaid was intended for the poor, and those who can afford to pay for their long-term care have a civic duty to do so in order to preserve the benefits for the truly needy.126 Frank contends that "tax planning is a practice that sets out to deprive the federal government of revenue, while Medicaid planning allows individuals to receive much needed long term care at a time when they are most financially vulnerable."127 He points out that the techniques used are the same, as federal tax laws create a host of loopholes and ways to defer or altogether avoid tax payment.128 These methods are used routinely by corporations and private individuals to preserve resources for use elsewhere.129 Examples abound, including tax shelters, deductions of mortgage interest, estate and gift taxes, retitling of assets and funding of trusts.130 It is an interesting observation to note that each tax strategy has its Medicaid counterpart to the point that "it is often asserted that the federal government had the same goal in mind, that of conserving resources for families, when it developed the Medicaid and tax law."131
Even the most abbreviated survey of scholarly writings on Medicaid planning will undoubtedly turn up a famous quote from an opinion in a tax avoidance case by Judge Learned Hand: "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."132
As with tax planning, Medicaid planning is "an area where foresight, resources, and access to good legal advice are rewarded,"133 and due to the current state of the law it is a practice that is not going away any time soon. Due to the crippling cost of long-term care, attorneys who assist elderly clients have a duty to zealously pursue a course that will provide comfortable long-term care for the client while still fulfilling the client's financial goals, be they bequests to loved ones or charitable donations. In Medicaid planning, as in tax law, a client should be fully informed of and free to structure his affairs in such a manner as will incur no more financial obligation than the law requires. It would simply be unethical to ignore the fact that, under the current state of the law, Medicaid is available to anyone who can meet the criteria for eligibility.134
Although the policy of "maintaining the ability to provide for the poor and discouraging middle class reliance on Medicaid"135 is gaining popularity in Congress, Missouri Senate Bill 539 is not a direct attack on Medicaid planning. If Missouri's General Assembly intended to curtail or limit the practice, or determine the frequency of its use, the new law provides one very positive step — ightening the annual reverification process to reduce fraud.
However, if the Medicaid Planning Commission wishes to dampen the growth of Medicaid planning, steps need to be taken to stem the mounting cost of long-term care, which would remove at least some of the temptation to engage in such planning practices. Conversely, reducing income and resource limits will save some Medicaid dollars, but it is only a quick fix and could have the long-term effect of leaving more truly needy applicants — the very people for whom Congress claims Medicaid was intended — uninsured. This is arguably the worst possible course of action if combating rising healthcare costs is high on the list of priorities.
If the Medicaid Reform Commission is persuaded of the gravity of the problem of Medicaid planning, and aware of how and why people structure their assets to plan for Medicaid eligibility, the logical first step is to increase look-back periods. This would make the transfer of large amounts of assets less practical, as they would have to be made further in advance. However, this approach would still allow seniors to secure some inheritance for their children, which many view as a legal and moral right.
IV. Conclusion
It is a sad fact that, for many Missourians, the dream of leaving behind assets to ensure a better lifestyle for their progeny fades quickly when they or a loved one are institutionalized.136 Although it is arguably not the best thing for the health of the Medicaid system, Medicaid planning is an ethical means of wealth preservation that will continue to gain popularity so long as it remains legal. The future of the practice in this state rests largely on the impending recommendations from the Reform Commission about the overhaul of Missouri's Medicaid system.
Footnotes
1 Mr. Wilson is a J.D. candidate in May 2007 from the University of Missouri-Kansas City School of Law. He received his Bachelor of Business Administration in 2002 from the University of Mississippi. The author is grateful for the expert editorial advice provided by Professor Allen Rostron and Tiffany Barmann.
2 John A. Miller, Voluntary Impoverishment to Obtain Government Benefits, 13 Cornell J. L. & Pub. Pol'y 81, 109 n.55 (2003) (citing Memorandum from the Congressional Budget Office on Projections of Expenditures for Long-Term Care Services for the Elderly 2 (March 1999). Available at www.cbo.gov (last visited Feb. 27, 2006). The Congressional Budget Office projects that "the proportion of the population that is elderly" will rise from just under 13 percent (in 1995) to as much as 20% by 2040. Id.
3 Id. Those 85 and older are considered the cross-section of the population most likely to require some sort of long-term medical care.
4 Centers for Medicare and Medicaid Services, Medicaid Alliance for Program Safeguards, Medicaid Fraud and Abuse Information (last modified Sept. 16, 2004), available at www.cms.hhs.gov/states/fraud/default.asp.
5 Id.
6 S.S. S.B. 539, 93d Gen. Assem., 1st Reg. Sess. (Mo. 2005) (signed by Missouri's governor on April 26, 2005; to take effect August 28, 2005).
7 See Amy Blouin & Jennifer Hill, Medicaid: A Healthy Investment for Missouri (February 15, 2005), available at www.mobudget.org/healthyinvestment.pdf. The bill will also make other significant changes that are outside the scope of this note, such as changing eligibility criteria for Medicaid recipients other than the elderly (i.e. blind, disabled, mentally disabled, and uninsured children) and cutting out such services for the elderly as wheelchairs and eyeglasses.
8 The new procedures are not much different from the previous ones, but the new regulations are a bit more burdensome as they require more documentation to prove the recipient's eligibility. See also Jennifer Hill, Senate Bills 532, 539 and 556: Chipping Away at Missouri's Medical, Adoptions & Disability Service Protections (Mar. 3, 2005), available at www.mobudget.org/chipping.pdf (last visited Feb. 27, 2006).
9 See Part II(D)(2).
10 The 10-member commission drew five members from each of the Missouri legislature's houses. On January 1, 2006, the commission made recommendations to the General Assembly, introducing a new Medicaid delivery system by June 30, 2008 to replace the system the state currently uses.
11 Shawn Patrick Regan, Medicaid Estate Planning: Congress' Ersatz Solution for Long-Term Health Care, 44 Cath. U. L. Rev. 1217, 1221 (1995).
12 Miller, at 92.
13 Id. at 91.
14 Id. (citing Betty W. Su, The U.S. Economy to 2010, Monthly Lab. Rev., Table 6 (Nov. 2001).
15 Id.
16 Id. at 98.
17 Medicaid planning is a controversial topic, the ethics of which are discussed in detail in Part II. Compare Jason A. Frank, The Necessity of Medicaid Planning, 30 U. Balt. L.F. 29 (1999) (excellent discussion of the ethical implications of Medicaid planning, comparing it to estate or income tax planning), with Miller at 91-92 ("Planning, as that term is used by lawyers in the tax, trusts and estates, and business fields is the act of achieving the clients' goals in the face of rules designed to obstruct the path").
18 Social Security Amendments of 1965, Pub. L. No. 89-97, 79 Stat. 370 (codified as amended at 42 U.S.C. §§ 1396-1396s (2004) and 42 C.F.R. § 430-56 (2004). See Earl Dirk Hoffman, Jr. et al., Centers for Medicare and Medicaid Services, Brief Summaries of Medicare and Medicaid, Title XVIII and Title XIX of the Social Security Act as of November 1, 2005 15-24, available at http://new.cms.hhs.gov/MedicareProgramRatesStats/downloads/MedicareMedicaidSummaries2005.pdf.
19 Diane Lourdes Dick, The Impact of Medicaid Estate Recovery on Nontraditional Families, 15 U. Fla. J. L. & Pub. Pol'y 525, 531 (2004). Discussing the differences and relationships between Medicaid and Medicare, Dick says "[a]lthough public opinion surveys often reflect a widespread belief that Medicare will pay for long-term care, Medicare in fact does not provide coverage for extended nursing home placement. Instead, senior citizens must turn to some other payer source when long-term care becomes necessary. In theory, their options would include personal or familial assets, private long-term care insurance, or the Medicaid program's 'medically needy' provision." Id.
20 Miller at 84.
21 See Cynthia M. Brubaker, Medicaid Eligibility: Planning for the Elderly Client, 26 U. Balt. L.F. 15, 18 (1995).
22 See Miller at 86 n.38 (comparing Medicaid planning without a lawyer to "'walking through a minefield blindfolded'") (quoting Timothy L. Takacs & David L. McGuffey, Medicaid Planning: Can It Be Justified? Legal and Ethical Implications of Medicaid Planning, 29 Wm. Mitchell L. Rev. 111, 127 (2002)).
23 Frank at 30.
24 Id. at 31(citing Information Plus, Information Series on Current Topics: Growing Old in America, 90 (1994)). Frank also points to estimates that about half of our elderly who choose to privately finance their stay in nursing homes turn to Medicaid or other "public assistance within three to five years." Id. (citing Alice Ann Love, As Baby Boomers Age, Nursing Home Costs Becoming Bigger Issue, The Daily Record, May 19, 1998).
25 Id. at 30-31.
26 Id.
27 Id. at 32.
28 Id.
29 Frank at 33 (quoting Joshua M. Weiner & Laurel Hixon Illston, How to Share the Burden: Long-Term Care Reform in the 1990's, 12 Brookings Rev. 17, 19 (1994)). Frank points out that policies are expensive because the insurance company has no way to spread the risk. In other markets, such as auto insurance, for example, the insurer draws premiums from a vast pool of drivers, most of whom will likely never have a truly serious automobile accident. Conversely, LTC insurance providers draw premiums from a pool of elderly applicants, the majority of whom, barring death, will require an extended nursing home stay. Id.
30 See 42 U.S.C. § 1396.
31 Id.; see Brubaker, at 18.
32 States also decide the scope and duration of the services to be offered, as well as their cost to recipients, and how to effectively administer their individual programs. See Hoffman.
33 Miller at 85.
34 Federal law defines income as the amount the individual receives with which to pay for shelter, clothing, and food. John M. Broderick, To Transfer or Not to Transfer: Congress Failed to Stiffen Penalties for Medicaid Estate Planning, but Should the Practice Continue? 6 Elder L.J. 257, 262 (1998) (citing 42 U.S.C.A. § 1382a (West 1998) and 20 C.F.R. § 416.1102).
35 See 42 U.S.C. § 1396. In this situation, an applicant is eligible even if their income exceeds 300% of SSI.
36 See Miller at 86-87 (citing 42 C.F.R. § 416.1005 (2001)). According to the Social Security Administration, SSI is a federal program that provides money for citizens with limited income who are over 65, blind, or otherwise disabled. Currently, 300% of SSI for an individual would be about $1,737 a month and $2,607 a month for a married couple. The Social Security Administration currently limits assets for SSI applicants to $2,000 for individuals and $3,000 for married couples. These projections are also available from the Social Security Administration's website at www.socialsecurity.gov.
37 Annual Update of the HHS Poverty Guidelines, 70 Fed. Reg. 33 (Feb. 18, 2005).
38 Figures and analysis of the new bill's impact on income eligibility in this section come from the Missouri Department of Social Services and are available online at http://www.dss.mo.gov/dms/pages/reduct2006.htm. See also Jennifer Hill, Senate Bills 532, 539 and 556: Chipping Away at Missouri's Medical, Adoptions & Disability Service Protections (March 13, 2005) at www.mobudget.org/chipping.pdf (last visited Feb. 27, 2006).
39 Brubaker.
40 Miller at 85.
41 Id.
42 Section 208.010(2), RSMo Supp. 2005.
43 Dick at 534 n.49.
44 Michael Wytychak III, Payment of Nursing Home Bills Through the Medicaid Program, 36 Idaho L. Rev. 243, 247-49 (2000) (in-depth treatment of income eligibility issues for Medicaid applicants).
45 Brubaker at 18.
46 Id.
47 Id.
48 Id.; see infra Part II.
49 Section 208.212. 1(1), RSMo Supp. 2005.
50 Id.
51 42 U.S.C. § 1396p(c) (2000).
52 Transfers to a trust are subject to a look-back period of 60 months. Id.
53 See Frank at 36.
54 Id.
55 Id.
56 42 U.S.C. § 1396p(c)(2)(C).
57 42 U.S.C. § 1396p(c)(2)(D).
58 Id.
59 Id.
60 Brubaker at 19-20.
61 Id.
62 Id.
63 Id.
64 Id. at 20 (citing Ron M. Landsman, Paying for Long-term Care: Medicaid Eligibility 80 (MICPEL 1994)).
65 Id.
66 Id. Brubaker also notes that because the length of the look-back period is only 36 months, a client with extensive assets should, at the most, reserve enough assets to pay for 36 months of healthcare.
67 See Wytychak at 247-48; Miller at 93-94 n. 86. The trust takes its name from Miller v. Ibarra, 746 F. Supp. 19 (D. Colo. 1990) (codified at 42 U.S.C. § 1396(d)(4)(B).
68 Wytychak at 247-48.
69 Id.
70 Id.
71 Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312, 596-605 (1993) (codified at 42 U.S.C. § 1396p) (2004)); see Dick at 540. Dick notes that "OBRA 1993 not only made estate recovery mandatory; the amended law also strengthened existing estate recovery programs by significantly expanding the state's ability to seize assets. As a baseline, the statute defines the term 'estate' to include all assets within the individual's estate under state probate law." However, the federal statute also gives states the option to include those interests which are normally said to "pass outside of the [probate] estate" such as "joint property interests, life estate interests, property that passes by way of survivorship, payable-on-death provisions, life insurance, and beneficial interests in trusts." Id. at n.77.
72 Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 132(b), 96 Stat. 324, 370-73 (1982) (codified at 42 U.S.C. § 1396p(a) (2004)).
73 "[T]he Act provides, in pertinent part, 'In the case of an individual who was 55 years of age or older when the individual received such medical assistance, the State shall seek adjustment or recovery from the individual's estate.'" Dick at 538 n.68 (quoting 42 U.S.C. § 1396p(b)(1)(B)).
74 West Virginia, most notably, unsuccessfully challenged the constitutionality of estate recovery in federal court. See West Virginia v. U.S. Dep't of Health & Human Servs., 289 F.3d 281 (4th Cir. 2002).
75 Dick, note 20 at 538 n.72 (quoting Jon M. Zieger, The State Giveth and the State Taketh Away: In Pursuit of a Practical Approach to Medicaid Estate Recovery, 5 Elder L.J. 359, 374-75 (1997)).
76 Dick at 537.
77 Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324 (1983).
78 See § 208.215.13, RSMo Supp. 2005.
79 Zieger at 370-71.
80 See 42 U.S.C. § 1396p(a)(1)(B)(ii).
81 Section 208.215.13.3(a), RSMo Supp. 2005.
82 Section 208.215.13.5, RSMo Supp. 2005.
83 Section 208.215.13.3(b), RSMo Supp. 2005
84 Zieger at 371 (citing 42 U.S.C. § 1396p(b)(2)).
85 Section 208.215.13.4(a)-(c), RSMo Supp. 2005. In order for this exception to apply, the sibling must hold some equity interest in the property and reside there for at least one year before the recipient enters the nursing home.
86 Id.
87 Frank at 29.
88 Id. (quoting Mark S. Dorfman, Recommending a Medicaid Spend Down: Exploring Ethical Issues, 48 J. of Amer. Soc'y of CLU & ChFC3, 27-29 (1994)).
89 Lisa Schreiber Joire, After New York State Bar Association v. Reno: Ethical Problems in Limiting Medicaid Estate Planning, 12 Geo. J. Legal Ethics 789, 800 (1999) (citing Patricia Nemore, Drawbacks of Medicaid for Nursing Home Residents, 1 The Elder Law Report 1 (1990)).
90 Miller at 100.
91 Joire at 799-800 (citing Eleanor M. Crosby & Ira M. Leff, Ethical Considerations in Medicaid Estate Planning: An Analysis of the ABA Model Rules of Professional Conduct, 62 Fordham L. Rev. 1503, 1510-12 (1994)).
92 Id. at 800 n.116; see also Miller at 91 ("Although we do not know the precise numbers of those who voluntarily impoverish themselves, we can reasonably judge that the number is substantial and growing. . . . The middle class elderly have more to lose than they did in earlier times, and the practice is a rational adaptation to a system that is likely to leave many people destitute in any event.").
93 See 42 U.S.C. § 1396p(c).
94 Id.
95 Broderick at 272 n.171 (quoting Ira Stewart Wiesner, OBRA '93 and Medicaid: Asset Transfers, Trust Availability, and Estate Recovery Statutory Analysis in Context, 47 Soc. Sec. Rep. Serv. 757, 758 (1995)). Broderick further asserts that there is no empirical, and only anecdotal, evidence that this is a frequent occurrence. Broderick also points out that the two attempts by Congress to limit planning resulted from Congress bowing to pressure from large insurance companies, which wished to bolster the struggling market for LTC insurance. Id. at 273-77 (arguing that Medicaid planning is not so "rampant" as Congress and insurance companies would have Americans believe, and most elderly applicants do not really even have that many assets to transfer).
96 See 42 U.S.C. § 1320a-7b(a)(6) (1996).
97 Id.
98 Joire at 801.
99 Id.
100 965 F. Supp. 28 (D. Ore. 1997).
101 Broderick at 278.
102 Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 110 Stat. 2008, codified at 42 U.S.C. § 1320a-7b(a)(6) (emphasis added).
103 Id.
104 See Joire at 802-03. Joire contends Congress was "motivated by a desire to" toughen its stance "on Medicaid abuse, but also [to get tough] on lawyers," whom Congress portrayed as "teaching people to abuse the system." Id. at 802.
105 Franks at 40 (quoting letter from the Office of the Attorney General in Medicare and Medicaid Guide, ¶46, 178A, (CCH, 1998)); see also New York State Bar Ass'n v. Reno, 999 F. Supp. 710 (N.D. N.Y. 1998).
106 Id. at 39-41.
107 652 N.Y.S.2d 329 (N.Y. App. Div. 1996).
108 Id.
109 Id.
110 Id.
111 Id.
112 Id.
113 Id.
114 Id.
115 Id. The court, however, asserted its position that Medicaid was not intended to benefit those who voluntarily impoverish themselves but notes that the current state of the law "rewards prudent 'Medicaid planning.'" Id.
116 618 N.Y.S.2d 499 (N.Y. Sup. Ct. 1994).
117 Id. at 500.
118 Id.
119 Id. at 501.
120 Id.
121 Id.
122 Frank at 41 (noting that Americans pass about $150 billion at death every year).
123 Id.
124 Broderick at 39.
125 Frank at 32.
126 Miller at 98.
127 Frank at 39.
128 Id. at 38.
129 Id.
130 Id.
131 Id.
132 Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934) (cited in more than 100 law review articles, notes and comments dealing with tax and Medicaid planning).
133 Miller at 92.
134 Frank at 36.
135 Dick at 545
136 Frank at 42.
JOURNAL OF THE MISSOURI BAR
Volume 62 - No. 2 - March-April 2006