Doing Long Term Care RIght: Part Two

Here is the second installment of our new study on Medicaid.

Home Equity

Over 80 percent of seniors own their homes and over 70 percent of these own their homes free and clear. State staff told us 1,140 LTC recipients or only about 12.7 percent of the caseload still own homes. Thus, most of the elderly’s home equity disappears before they start receiving Medicaid LTC benefits.

How much equity is lost and what happens to it? Some possibilities include transfers outside the five-year transfer-of-assets penalty window, sale of the home with re-purchase of an interest in an adult child’s home, and life estates with reserved special powers.

It behooves the state to find out what’s happening to home equity that could otherwise relieve the financial pressure on Rhode Island Medicaid to fund long-term care.

Even after most of the equity has disappeared, Rhode Island Medicaid still exempts millions of dollars of home equity for LTC recipients. It’s hard to say exactly how much because average home values by state are difficult to pin down.

But if the 1140 homes currently exempted have only an average value of $75,000, the total value exempted would be $85,500,000.

But isn’t that money recaptured later by Medicaid estate recovery? Much of it could be but little of it is recovered as we will explain below in the section on estate recoveries.

Prepaid Burials

Prepaid burials are another huge exemption that diverts public funds from purchasing long-term care services to financing the funeral industry.

State eligibility workers estimated that 75 percent to 80 percent of all elderly Medicaid LTC recipients purchase prepaid burials averaging $8,000 to $12,000 in value. A quarter more have purchased prepaid spousal burials as well. The highest exempt prepaid burial the workers had seen was $18,000.

By comparison, the Cremation Society of Rhode Island reports that the average cost of a conventional funeral is only $5,000 and the “State’s assistance for cremation” of an indigent is $850.

Even applying the lower range of these estimates to the roughly 9,000 elderly Medicaid LTC recipients in Rhode Island, yields $67,500,000 being diverted at any given time from long-term care financing to burial costs at public expense.

When new Medicaid applicants have not already purchased prepaid burials, workers routinely encourage them to do so. This advice qualifies the applicant for public assistance faster, increases Medicaid’s costs, and reduces private-pay revenue to long-term care providers.

It is controversial, but still a valid public policy question to ask whether state and federal Medicaid funds are more appropriately expended to provide quality LTC services to needy seniors or to indemnify heirs for their parents’ final costs by subsidizing expensive funerals.

Personal Property

Household goods are officially excluded under federal regulations from Medicaid’s asset eligibility limits regardless of value. Rhode Island does not routinely inquire about personal property even though it is a “countable resource” if held for “its value or as an investment.”

Medicaid LTC eligibility workers said “There is no limit on home furnishings nor do we have personnel to see what applicants and recipients have. We have “no clue of what is in the homes.”

Medicaid Planning

Beyond the already very generous eligibility rules imposed by federal law and regulations on Rhode Island Medicaid, many attorneys in the state specialize in highly technical methods to impoverish more prosperous elders artificially for the purpose of qualifying them to receive Medicaid-financed long-term care.

The National Academy of Elder Law Attorneys (NAELA), the Medicaid planners’ professional association, lists 28 members in Rhode Island on its website at

A typical internet ad for Medicaid planning in Rhode Island reads: “We help clients understand their rights and avoid common mistakes as they plan a transition to a nursing home or an assisted living facility, enabling them becoming [sic] eligible for Medicaid while preserving their hard-earned assets.”

Only one of the Rhode Island Medicaid planning attorneys we contacted agreed to speak with us on the record. She said she has a legal responsibility to her clients to get them everything they’re entitled to under the law. So she makes use of all the many legal tools available to facilitate Medicaid eligibility. “I don’t think the general public understands the system and what is or isn’t available to them as they age.”

Medicaid planners use techniques such as Medicaid friendly annuities, promissory notes, “reverse half-a-loaf” strategies, irrevocable income-only trusts, purchase of exempt assets, life estates with “special powers,” and purchase of an interest in an adult child’s home to hasten eligibility for relatively affluent clients.

From tens to hundreds of thousands of dollars or more may be involved in each of these Medicaid planning gambits. A rule of thumb for the cost of Medicaid planning is that attorneys’ fees to qualify for Medicaid will be roughly equal to the cost of one month in a nursing home at the private pay rate, or around $7,777.

State Medicaid eligibility policy staff and workers informed us that such techniques are already common and are increasing in number and in the amounts of money sheltered or divested to gain access to Medicaid-funded LTC.

One LTC provider we interviewed complained that he’d admitted an ostensibly private-pay patient to his nursing home who initially reported $930,000 in net worth. A few months later, this individual qualified for Medicaid retroactively using a spousal annuity to shelter the excess assets.

Adding insult to injury, the nursing home owner had to refund $32,000 in private payments he’d received for this newly destitute resident when Medicaid eligibility was later granted. His appeals to officials for redress were rebuffed because the method used to impoverish this near-millionaire was “legal.”

Medicaid Estate Recovery

Medicaid’s generous exemptions and exclusions of large assets–including a home, business, automobile, household goods, etc., as explained above–are intended to ease the financial burden of long-term care, but only to delay, not to replace personal responsibility for the cost.

Congress made it clear 27 years ago that “all of the resources available to an institutionalized individual, including equity in a home, which are not needed for the support of a spouse or dependent children will be used to defray the cost of supporting the individual in the institution.”

That was the justification given for Medicaid estate recovery when the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA ’82) allowed states to pursue recoveries on a voluntary basis.

In the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) Congress passed and then-President Clinton signed legislation that mandated recovery from their estates of Medicaid benefits correctly paid to long-term care recipients.

To this day, however, few states pursue estate recoveries effectively. Less than one percent of Medicaid nursing home expenditures nationwide are recovered from estates.

Oregon is an exception. It recovered 5.8 percent of its Medicaid nursing home expenditures from estates. Rhode Island recovered only 1.0 percent in the same year.

Although Rhode Island’s Medicaid estate recovery program recovered over $8 million in one past year, it brought in only $2 million last year, leaving at least $13 million unrecovered.

In the absence of a strong estate recovery program, Medicaid operates essentially as free inheritance insurance for heirs. Beyond the loss of non-tax revenue, failure to recover fully from estates conveys a message to future generations that long-term care is not a personal financial responsibility for which one needs to plan and prepare.

Bottom Line on Medicaid LTC Eligibility

Medicaid eligibility for long-term care is easy to obtain. The average middle-class Rhode Islander qualifies financially without difficulty for Medicaid-funded long-term care. Couples receive additional protection against “spousal impoverishment.” And even the affluent, who consult legal advisors, may often qualify quickly without first spending down significantly for their care. Most Rhode Islanders who receive Medicaid LTC benefits do not have to pay such benefits back from their estates.

In addition to easy rules on income and assets, the eligibility determination process also facilitates qualification. At least 85 percent of applications are filed by someone other than the applicant and at least 60 percent of applications are processed without any face-to-face contact with the applicant. Elder law attorneys prepare about 10 percent of the Medicaid LTC applications.

Both deliberate and unintentional misrepresentation of the facts on applications concerning income and assets are commonplace. Eligibility workers told us they don’t have any means to go after people who lie. “Medicaid assistance is a freebie,” one said. The only consequence is maybe ineligibility, but only if they’re caught. This affects “maybe 5% of cases, but we don’t really know.”

The eligibility workers also told us “Some social workers don’t think it is their job to investigate. Whether you qualify for assistance depends on the ‘luck of the draw’ of who does your application.” In other words, some workers are stricter than others. Some do more investigation than others. The eligibility rules are so complicated and flexible, and assets are so difficult to prove, that a lot depends on the individual worker, the workload, and time available.

“Eligibility technicians” review the “social caseworkers'” original eligibility determinations and conduct annual re-determinations of eligibility. They complained the state has no mechanism to follow up on and enforce negative redeterminations. If they close a case, the nursing homes complain and the families call their state legislators. Sometimes relatives bring an elder to Rhode Island, qualify them for Medicaid LTC, and then, when the time comes for redetermination, the family can not be found to re-verify eligibility.

Eligibility policy staff and workers expressed frustration at Medicaid rules that make it hard for genuinely needy people to qualify but facilitate eligibility for affluent applicants who can afford legal advice to obtain Medicaid benefits without spending down their wealth. “You’re the first person ever to ask our opinion at this level and want to know the answer,” said one of seven eligibility workers to general assent.

Now we can return to the questions we asked earlier and answer them.


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