Getting Stuck With the Tab

Tighter Asset Spend-Down Rules Will Force More Families to Cover Nursing Home Costs Alone

(Katherine Frey - Twp)

Seniors who had been expecting Medicaid to help pay their nursing home bills may soon be facing those expenses alone. A measure signed by President Bush on Feb. 8 puts a heavier onus on families to save for an elderly loved one's stay in a nursing home.

"This is a message to the American people that long-term care is no a longer a free lunch," said Stephen Moses, president of the Center for Long-Term Care Reform, a Seattle group that says it encourages "private financing as an alternative to Medicaid dependency for most Americans." Moses said that many wealthy and middle-class families have looked at Medicaid, the state/federal health program for the poor, as "inheritance insurance," using loopholes to qualify well-off seniors for expensive assistance.

"The bill tightens the loopholes that allowed people to game the system by transferring assets to their children so they can qualify for Medicaid benefits," said Bush upon signing the new law.

While it is unclear how much gaming of the system occurs, legal experts say that the changes aimed at the affluent will also ensnare needy seniors by creating lengthy waiting periods before they qualify for Medicaid.

For every undeserving person deterred by the new law, predicted Charles Sabatino, director of the American Bar Association's Commission on Law and Aging, "there will be 10 other sick and frail seniors who are put in jeopardy because they engaged in normal, supportive financial transactions."

With nursing home care increasingly expensive -- a year's stay averages $74,000 nationally and $99,000 in the Washington area, according to the MetLife Mature Market Institute -- most nursing home residents qualify for Medicaid either immediately or as their savings are depleted. Medicaid paid nearly half the nation's $111 billion nursing home bill in 2003, according to the Kaiser Family Foundation. Individuals and families picked up 28 percent of those costs. Most of the remainder was covered by Medicare and private insurance.

To qualify for Medicaid nursing home coverage, most states require a single individual to have no more than about $2,000 in cash and other resources; certain assets, such as a home, a car and some trusts are not counted. Married couples are allowed more resources. After qualifying, an individual must spend virtually his or her income on nursing home care.

Medicaid allows individuals to reduce their assets by paying off debt, making home modifications, buying a car and prepaying funeral expenses. But other methods, such as giving away assets, transferring property and creating certain annuities, can trigger a penalty. The new law aims to clamp down further on such transfers. In addition, a person with more than $500,000 in equity in a home now may be declared ineligible for Medicaid. (Each state has the option of raising that equity ceiling to $750,000.)

Disposing of the Assets

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Lisa Covel of Silver Spring says she realizes the government can't pick up the tab for everyone. But she doesn't think people should have to spend everything on nursing home care, either. As caregiver for her father, William Matthews, she arranged for him to enter a nursing home about five years ago and quickly realized that the cost of such care, about $5,000 a month, could gobble his life savings.

Covel sought help from a lawyer. He recommended a legitimate and commonly used asset spend-down plan, where Matthews gave his three children a total of about $100,000 over a two-year period while paying nursing home bills totaling about $120,000.

Under the old rules, Matthews qualified for Medicaid a month after his assets were depleted. Medicaid picked up the nursing home bill for about two more years, until Matthews died last August.

Under the new rules -- at least as they apply in Maryland -- the size of Matthews's gifts to his children would make him ineligible for Medicaid coverage for two years. And while the old rules allowed officials to review an applicant's financial transactions from the preceding three years, the new law extends this "look-back" period to five years.