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The ethics of adjusting your assets to qualify for Medicaid

Supporters of Planned Parenthood hold a rally as they protest the US Senate Republicans' healthcare bill outside the US Capitol in Washington, DC, June 27, 2017.
Saul Loeb | AFP | Getty Images
Supporters of Planned Parenthood hold a rally as they protest the US Senate Republicans' healthcare bill outside the US Capitol in Washington, DC, June 27, 2017.

At any given moment, there is a large group of citizens who want nothing more than to make absolutely certain that they are impoverished enough to qualify for Medicaid sooner rather than later. Someday, you might be one of them.

Welcome to the (perfectly legal) world of Medicaid planning, the plain-vanilla term for the mini-industry of lawyers and others who help people arrange their financial lives so they don't spend every last dime on a nursing home. Once properly impoverished under the law, then Medicaid, which gets funding both from your state and the federal government, picks up the tab.

Whatever twists and turns the health insurance debates in Washington take, Medicaid will be at the center, and the program will probably affect you and your family more than you know. After all, if you run out of money in retirement, it is Medicaid that pays for most of your nursing home or home-based care.

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The bill that contains the caps that Republican senators have proposed, which would remake Medicaid, seems for now to have a low chance of passing. But even if no bill survives, politicians on both sides of the aisle fear what demographics will do to the program's costs. Most Americans haven't saved enough to pay for decades of post-retirement living expenses and years of expensive end-of-life care, so it stands to reason that Medicaid will come under increasing strain.

In my first Medicaid column on June 30, I asked for your questions about the program, aging and long-term care, and you sent me more notes about the ethics of Medicaid planning than on nearly any other topic. About half of you were outraged by the ethical implications, and the rest wanted to know where you could sign up for it.

The debate is not new, though it happens to be the rare topic on which the editorial boards of The New York Times ("Pretending to Be Poor") and The Wall Street Journal ("Medicaid for Millionaires") have agreed over the decades.

What are we talking about when we talk about Medicaid planning? First, you have to qualify. So let's begin by putting a fat "generally" in front of every statement below, along with a warning that you should not try this at home alone. A lawyer experienced in the field is a necessity.

Medicaid eligibility can differ by state and also by marital status. Generally, you can't have income higher than $2,205 per month per person, including Social Security. Asset restrictions of just a few thousand dollars also apply, unless you're a spouse who is not receiving care, in which case you can have up to $120,900 while your husband or wife qualifies for Medicaid. Homes don't count in the asset calculation, though there is a cap on home equity if you're single that is either $560,000 or up to $840,000, depending on the state. The Medicaid officials in your state can also tap your estate for repayment under certain circumstances.

To get within those limits, lawyers may encourage gifts to family members (though if they are within five years of a Medicaid application, there can be penalties), annuity purchases, trusts of various sorts and a certain type of long-term care insurance that can shield some assets from the Medicaid calculation once you've made a claim.

There are dozens of other nuances, maybe hundreds. Did I mention the need for a qualified lawyer? If you want to do some homework first, the book "How to Protect Your Family's Assets From Devastating Nursing Home Costs" will give you a sense of what questions you need to ask.

However, you may want nothing to do with this. It would not surprise K. Gabriel Heiser, the lawyer who wrote the book. He's heard from colleagues over the years who wanted no part of this work. This confused him, he said in an interview this week, given that many of them handled estate planning for wealthier clients. There, they helped people avoid paying millions to the government, whereas Mr. Heiser's work merely helps clients get the government to pay a few hundred thousand for care on their behalf.

That bit of relativism, however, does not erase a basic fact: Anyone who engages in legal Medicaid planning is attempting to qualify for a government program for the indigent when they do have at least some assets that could pay for their care.

Janet Kinzer, who lives in Silver Spring, Md., and whose father died last year at 92 with assets to spare, offered the most stinging rebuke: People who engage in such planning are privileged enough to be aware of it and can afford the legal fees. Shouldn't tax dollars go only toward the care of people who lack such access?

The retorts are numerous. I heard several versions of the following in recent weeks: I'm a taxpayer and paid into this system. I was thrifty, and my neighbors were not. They went on vacation. In fact, I watched them go when I was home at Christmas, and they came back with suntans. And now my heirs should get nothing? To accuse me of gaming the system is absurd; I just don't want to be taken by it.

If this sounds a bit like a sense of entitlement, that may not be far-off. In fact, several readers echoed something that Marcia Perna told me when I interviewed her about her late mother a few weeks ago. In plenty of other countries, she said, the government would pay for long-term care for everyone.

Now, take that to its logical conclusion. Here, Medicare pays the surgery and drug bills for people with heart disease and cancer. But dementia patients, like Ms. Perna's mother, need expensive supervision, which Medicare generally doesn't pay for. That's not fair, one might argue, so doing everything legally possible to get a dementia patient eligible for Medicaid is like a form of political protest that corrects an inequity.

Then there are the parents who take the estate they bestow on their children as a point of pride. One adult child, who did not want to be named because her father is so emotional on the topic, said that he insisted on a trust even though she and her sibling did not ask for any money.

He is, she said, fighting for whatever is left of the meaning he can take from life in his 90s, while his wife slips away from dementia in front of his eyes. He grew up in the Depression, saw his friends evicted and their belongings tossed into the streets, and had to move in with family himself. His friends are now dead, and most of his relatives are gone. All he has done is sweat and scrimp and save so he could leave something behind. Any discussion about not doing so causes him to cry and have panic attacks. So should his daughter really have tried harder to talk him out of a trust?

Jennifer L. VanderVeen, a lawyer in South Bend, Ind., who delivered a presentation at a 2009 legal conference on the ethics of gifts as part of Medicaid planning, said that many of her clients come in with more practical concerns. For instance, they would prefer not to have to sell a small business or a farm that employs other family members in order to pay for long-term care.

Many of her clients aren't wealthy enough to give big gifts to family members at least five years in advance of when they might first need care that Medicaid could pay for. After all, there is a lot of uncertainty about when that need might come, and what other expenses might precede it in the half-decade or more beforehand.

If you're looking for another way to frame these issues, consider one other thing: If you or your relatives are already Medicaid-eligible by the time care is needed, there may be fewer choices available. Not every in-home caregiver or nursing home accepts Medicaid or has unlimited capacity for people on Medicaid even if they do accept it.

Would the care be worse if you or your relatives were on Medicaid, and because of that, limited to whatever nursing home or home-care agency was available? If so, is the most ethical choice to urge aging parents or relatives to keep as much money as possible to pay out of pocket for the care of their choice? I've been struggling to answer this question for weeks now, and if you have any experience with it yourself, I'd like to hear from you.

Watch this space in the coming weeks and months for more on how money and Medicaid are so often a part of the mix when we shop for care for ourselves or our older loved ones.

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