Medicaid is a welfare program originally created to provide health care to our nation’s poor. Due to the lack of any other program, Medicaid has by default become the long-term care insurance of the middle class. Those needing long term care, often consult with elder law attorneys in order to qualify under the program’s asset and income thresholds and preserve their savings either for their healthy spouse or their children.

Is Medicaid Planning Ethical?

Randy Cohen, the former ethics columnist for The New York Times Sunday Magazine, wrote in 2002 that Medicaid planning is ethical if you play within the rules. Speaking to a woman considering divorcing her second husband who has Alzheimer’s disease, he says:

“What you are contemplating is not the exploitation of a legal loophole but adherence to the regulations governing Medicaid. But you should seek legal and financial advice: besides divorce, there are other options to consider, including, for instance, transferring some assets to your children (if you have any) or protecting your assets through annuities or trusts. Done with respect for the law and compassion for your husband, such actions, divorce included, are prudent and ethical courses of action.”

Is Transferring Assets to Qualify for Medicaid Against the Law?

You may have heard that transferring assets, or helping someone to transfer assets, to achieve Medicaid eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it’s possible, although unlikely under current law, that it will be in the future.

As part of a 1996 health care bill, Congress made it a crime to transfer assets for purposes of achieving Medicaid eligibility. Congress repealed the law in 1997, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.

In 1998, then-Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced.

Medicaid as Long-Term Care Insurance

Unfortunately, neither Congress nor the state legislatures have resolved the public policy question of how we as a society should pay for the long-term care of our seniors. The result is a confusing, makeshift system of Medicare, private insurance, out-of-pocket payments, family caregivers, and Medicaid as a last resort.

Medicaid has become recognized as the long-term care insurance of the middle class. There seems to be a generally misconception that “millionaires are getting on Medicaid.”  However, this is far from the truth.  Our clients are family farmers, small business owners, or individuals looking to preserve what little they have accumulated to supplement their care in their final years and leave some legacy to their children.  Congress implicitly accepts this result through rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes.

A Zero Sum Game

Some argue that Medicaid planning is unfair because Medicaid is a zero-sum game. More money spent on long-term care for middle-class seniors means less for poor children who need medical care. There’s some truth to that argument at the state level, but not at the federal level. The federal and state governments share Medicaid expenses. At the federal level, anyone who qualifies for Medicaid gets covered. At the state level, the same is true, but the states have discretion on how far they expand Medicaid to serve underinsured populations. Lack of resources could mean narrower coverage on a state-by-state basis.

Treatment Bias

Government support services create a bias in the treatment of certain diseases.  While Medicare will cover tens of thousands of dollars in medical bills for the treatment of heart disease or cancer, it has nominal coverage for the treatment of Alzheimer’s disease and other forms of dementia.  Should one individual be forced into poverty while another is not simply because their end of life diseases are different?

Is Medicaid Planning Exploiting Legal Loopholes?

Medicaid planning is not exploiting legal loopholes, but adhering to laws and rules governing Medicaid.  Medicaid has become recognized as the long-term care insurance of the middle class. Congress implicitly accepts this result through rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes. It’s just different populations doing the planning.

Whereas a wealthy individual may hire legal counsel to reduce his or her tax burden by finding options and safe harbors under the tax code, an individual will hire an elder law attorney to explore options and safe harbors under Medicaid rules to protect assets.  Many attorneys have made a career out of advising wealthy individuals on how to avoid or reduce their estate tax burden by establishing special trusts, making lifetime gifts, and other strategies that reduce the amount of tax his or her client pays.  Actually, one may find it troubling that some of this work has become absolute, not because of more stringent tax rules, but because death taxes have been significantly reduced or eliminated (Indiana abolished its inheritance tax in 2013).  Meanwhile Medicaid rules designed to eliminate asset protection planning options have significantly increased in number over the same time period.

Is Medicaid for Everyone?

Should everyone seek assistance from Medicaid to pay for the costs of their long term care?  Probably not.  As attorneys, we have a duty to advise all clients that request our assistance of the mechanisms available to obtain assistance through the program.  However, we believe we also have a duty to review alternatives to Medicaid coverage with each client- including long term care insurance and self-funding.  Furthermore, we believe that every client should be walked through a comprehensive cost benefit analysis before proceeding with a plan.

We can review long term care options with you and assist you in making an informed choice of the best method to pay for long term care.  If you are interested in reviewing your long term care options with us, please contact us to schedule an appointment.

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