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3 Insurance-Based Medicaid Planning Strategies

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A longtime advocate of private long-term care insurance contends that many consumers use insurance-based strategies to game the Medicaid nursing home benefits eligibility system.

Stephen Moses, president of the Seattle-based Center for Long-Term Care Reform, includes descriptions of insurance-based strategies consumers can use to meet Medicaid asset limits in a new report on ideas for fixing the U.S. long-term care finance system. 

(Related: Medicaid Planning Critic Goes to Capitol Hill)

Moses contends that, in many cases, annuity-based LTC planning arrangements and efforts to use life settlements, or life insurance policy sales, in LTC planning arrangements help consumers make themselves artificially poor for Medicaid nursing home benefits eligibility purposes.

Use of life care contracts, or contracts that allow consumers to pre-pay for LTC services, may also help middle-income and high-income consumers cut their Medicaid application asset totals and qualify for Medicaid nursing home benefits, Moses says.

Medicaid and Nursing Home Care

Medicare, a premium-finance health care program for the elderly and the disabled, is supposed to pay for nursing home care only temporarily, for people who are recovering from operations or acute health problems, not for people who will be in permanent need of help with the activities of daily living.

Medicaid is a program financed by state governments along with help from the federal government. It pays for health care for the poor, and it also pays for nursing home care for poor people, and people with low asset totals, who need nursing home care. Government figures show Medicaid will account for more than $100 billion of the $162 billion in U.S. spending on nursing home care this year.

Dollar (Photo: Thinkstock)

(Photo: Thinkstock)

Moses and his group have argued for years that well-intentioned federal and state policymakers have made it too easy for middle-income people, and even high-income people, to qualify for Medicaid nursing home benefits, by excluding too many assets and planning strategies from the Medicaid eligibility screening process.

Encouraging middle-income and high-income people to depend on Medicaid nursing home benefits crowds out private long-term care insurance and reduces the resources Medicaid has to serve people who are really poor, Moses and his supporters say.

Defenders of the current rules say that few ordinary Americans have the ability to pay for much nursing home care, or for private long-term care insurance, and that the U.S. private long-term care insurance market works too poorly for policymakers to expect consumers to depend on it.

(Related: Consumer Group Pans LTCI Rescue Efforts)

Even executives of some of the remaining issuers of private LTCI coverage, such as Genworth Financial Inc., have talked about the possibility of using changes in Medicare to provide basic LTC protection for all, and repositioning stand-alone private LTCI as a product that would fill in gaps in the basic, universal LTC protection.

Medicaid Planning Strategies

Moses and his group would still like to see the government encourage consumers with the means to buy private LTCI to do so.

Medicaid hurts the overall quality of nursing home care, by paying “notoriously low reimbursement rates,” and making Medicaid a default option for most encourages the country to skimp on preparing for future LTC costs, Moses writes.

 Most of the Medicaid planning strategies Moses describes in the new report involve mechanisms other than use of insurance or insurance-like products.

They include techniques such as blowing money on parties or international travel, lying about untraceable assets, or divorcing a spouse simply to avoid taking responsibility for the spouse’s nursing home bills.

Moses also includes strategies that involve products related to insurance. He does not say that all uses of these mechanisms involve Medicaid planning, but he suggests that the mechanisms could be used, in some cases, to lead to artificial impoverishment for purposes of Medicaid eligibility determinations.

1. Annuities

Moses writes extensively about use of annuities in efforts to help people lower their asset totals for Medicaid eligibility purposes.

One strategy is to buy a Medicaid-eligible annuity for the spouse who will still be living in the community, to reduce the amount of assets attributed to the spouse entering a nursing home, Moses writes.

In Virginia, for example, a man bought a $900,000 annuity in his wife’s name, and the annuity paid her $89,000 in income per month, but the Virginia Medicaid program could not count the annuity when deciding whether the man was eligible for Medicaid nursing home benefits, according to the report.

2. Life settlements

Viatical settlements, or life settlements, give people the ability to get cash out of life insurance policies by selling their life insurance policies to others.

In a state that would include a life insurance policy in a Medicaid applicant’s asset total, a life settlement could be a mechanism a consumer could use to convert the life policy asset into an asset that would be exempt from Medicaid asset calculations, according to Moses’ report.

A consumer could, for example, could use a life settlement to get cash from a policy and use the cash to create an “exempt” asset, such as paying off a home mortgage, according to Moses’ report.

3. Life care contracts

A life care contract is a payment to an organization that promises to provide housing and long-term care for an individual throughout the individual’s life.

Many life care contract providers are operators of continuing care retirement communities, or entities that provide a combination of apartments for older people with no disabilities, support services for older people with some limitations, and services aimed at older people who are unable to perform basic activities of daily living.

A life care contract is the long-term care equivalent of a staff-model health maintenance organization health coverage arrangement in the acute health care world.

As long as a consumer uses assets to buy a life care contract before qualifying for Medicaid nursing home benefits, Medicaid programs will leave the assets out of the eligibility determination process, according to Moses’ report.

“It doesn’t matter if Mom has a massive stroke is a candidate for long-term care six months later,” Moses comments.

— Read Moses to Lead LTCI Campaign on ThinkAdvisor. 


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