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Stephen Moses and Brian Blase: Letting Heirs Bilk Medicaid Is Bad Policy

So why stop recovering those funds for the truly needy? More than a dozen members of the House of Representatives have introduced legislation that would increase federal Medicaid spending by ending estate recoveries. The proposal, which was discussed at an Energy and Commerce Committee legislative hearing on April 30, would let individuals secure their inheritances by putting their parents on Medicaid and forcing taxpayers to fund their long-term care (LTC).

Federal law requires that states recover the cost of LTC benefits from Medicaid recipients' estates. This rule would ensure that large resources currently exempt from Medicaid-financial-eligibility limits, such as home equity, are also tapped to offset care costs and preserve resources for the benefit of many others who truly need Medicaid.

But recent Associated Press and New York Times stories rebuke Medicaid estate recoveries and claim that these target dead people's homes. These criticisms are unwise, counterproductive, and harmful to the poor.

Medicaid is the primary payer for LTC, the mostly custodial assistance critically needed by frail, infirm, or disabled people. LTC consumes a disproportionate share of Medicaid expenditures. Just 21 percent of Medicaid recipients are aged, blind, or disabled, but 55 percent of Medicaid expenditures go to services for them, mostly for LTC.

Most people think that Medicaid only covers LTC expenses for the poor, but middle-class and affluent individuals can easily qualify for the program. Income is rarely an obstacle to Medicaid LTC eligibility because all private medical expenses, including high nursing-home costs, are deducted from people's income before Medicaid's standard for determining low income is applied.

There is a resource test to account for assets worth more than $2,000, but it is easy to avoid. Most large assets, such as home equity, a business, an automobile, prepaid burial costs, term life insurance, and IRAs, are exempt. Many other assets are partly exempt. As long as applicants hold their wealth in certain forms, therefore, Medicaid eligibility is relatively easy to obtain. On top of that, thousands of attorneys and financial planners specialize in sophisticated techniques to artificially impoverish their affluent clients for the purposes of the application and qualify them for Medicaid LTC benefits.

In sum, there is no limit to how much income or assets people can have while receiving Medicaid LTC benefits so long as their medical expenses are high enough and their largest assets are exempt. Prospective heirs looking to preserve their inheritances often take advantage of these features to qualify their parents for Medicaid.

Aside from the low quality of care delivered in many Medicaid-financed nursing homes, however, there is one feature of Medicaid that causes some people to hesitate to creatively arrange their assets to qualify for it.

Ever since 1993, the federal government has required state Medicaid programs to recover the cost of their care from the estates of deceased recipients. Every dollar collected from the estates of deceased Medicaid recipients is one more dollar the program can use to provide care for people truly in need.

Until Congress eliminates Medicaid policies that allow the affluent to retain their wealth and consume the program's scarce LTC resources, recovering costs from some recipients' estates is the only way states can discourage abuse and encourage responsible, private LTC planning. The main problem is not too much cost recovery from recipients' estates but rather too little.

Here's the bottom line: Medicaid should help the needy, not subsidize soon-to-be heirs who are placing their elderly relatives on public assistance. As long as the criteria for Medicaid eligibility remain so loose, cost recovery is essential to deter the program's abuse by those who seek to maximize their inheritances.

Stephen Moses is the president of the Center for Long-Term Care Reform, a visiting fellow at the Paragon Health Institute, and the author of Paragon's Long-Term Care: The Problem and Long-Term Care: The Solution reports. Brian Blase, who served as a special assistant to President Donald Trump for economic policy, is the president of Paragon.

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Posted: May 7, 2024 Tuesday 06:30 AM