Rising cost of care fuels crackdown on efforts to exploit Medicaid loopholes

April 17, 2005|By Bill Walsh | Bill Walsh,NEWHOUSE NEWS SERVICE

WASHINGTON - Sandy Matteson was heartsick as she watched her parents' life savings being eaten up in $6,000-a-month bites to pay for their nursing home care. Then she spotted an ad promising what she thought was impossible: protecting her parents' savings by getting the taxpayers to foot the bill.

By legally finessing complex government regulations, Matteson got Medicaid, the health insurance program for the poor and disabled, to pay half of the nursing home bill, saving her family $37,500 a year. When her parents died, she and her brother got the leftover cash in the estate.

"My daddy would have had a stroke knowing I did this; he would have thought it was welfare," the Bossier City, La., woman said. "But by the time people end up in a nursing home, they are stripped of their dignity. Why take everything else?"

Shielding assets so Medicaid will pay for nursing home care has gained currency as nursing home costs have climbed. The practice shows no sign of abating as 77 million baby boomers approach retirement and few own long-term care insurance. The demand has spawned a bustling cottage industry of "Medicaid planners" and "elder care lawyers" expert at exploiting the program's eligibility loopholes.

For the most part, the federal government has turned a blind eye. Until now.

With Medicaid costs spiraling out of control, the Bush administration has called for a crackdown. Health and Human Services Secretary Michael O. Leavitt said the program can save $4.5 billion over the next 10 years by toughening eligibility rules to exclude all but the truly poor. He is closely guarding his plans, but according to those familiar with the discussions, among the ideas under consideration is delaying Medicaid benefits for up to five years for applicants who claim poverty by transferring assets to their heirs.

It isn't the first time the government has tried to get a handle on the problem. In 1996, Congress passed a bill tightening Medicaid eligibility rules, but it was repealed a year later after opponents dubbed it the "Send Granny to Jail" law. Then lawmakers outlawed giving advice on how to skirt Medicaid rules. This time, opponents labeled it the "Send Granny's Lawyer to Jail" law. A court ultimately ruled it unconstitutional.

"This program was not intended to act as a shield for members of the middle class who have good estate planning lawyers," said Dick Powell, spokesman for the Massachusetts Medicaid program.

The states pay a share of the program's costs. Massachusetts is one of three, along with Connecticut and Minnesota, that have asked the federal government for permission to clamp down on eligibility. They estimate they each could save between $10 million and $15 million a year. Their action appears to have provided the impetus for the Bush administration's get-tough statements.

Despite the potential savings, however, financial planners and government regulators say reform must first overcome an attitude among many Americans that they are entitled to pass some of their savings to their children - and that the government should pick up the bills if they end up in a nursing home.

"There is a feeling that if you worked hard your whole life and paid your taxes, you are entitled to this," said Marilee Driscoll, an author and national lecturer on long-term care. "What we have seen in a number of states is when you try to close the loopholes, you are made to look like you are hurting old people. Politicians won't go near this."

Medicaid was never intended for people with the means to pay their own medical bills. It was created in 1965 as part of President Lyndon Johnson's "Great Society" as a safety net for the poor and disabled who couldn't afford private health insurance.

To qualify, applicants must have combined assets of less than $2,000, excluding a house, a car, clothing, jewelry, furniture and prepaid funeral plans. The rules render anyone with even meager savings ineligible until their money has been spent to below that threshold. With private nursing home care averaging $5,760 per month in 2004, the incentive to shield assets is strong.

Matteson, the Bossier City, La., woman, turned to S.A.F.E. Planning Inc. to set up an annuity to shield much of her parents' $75,000 in savings. The annuity paid her mother $875 a month, which went to the nursing home. But the bulk was put off limits to anyone but family. When her mother died in 2003, the monthly payments went to Matteson and her brother. They are still drawing monthly checks.

In response to a spurt of similar annuities in Louisiana, the state's Department of Health and Hospitals issued an "emergency rule" making the state, rather than an heir, recipient of whatever is left over in such an annuity when a nursing home resident dies.

Steve Russo, deputy general counsel for Louisiana's Medicaid agency, sends his staff to financial planning workshops to try to identify the next scheme financial planners are considering.

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