Getting Stuck With the Tab
Tighter Asset Spend-Down Rules Will Force More Families to Cover Nursing Home Costs Alone

By Christopher J. Gearon
Special to The Washington Post
Tuesday, February 21, 2006

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

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.

Critics of the new law said it will hurt those who have been following the old rules and those who have helped family members years before even thinking about nursing home care.

Bill Novelli, the CEO of AARP, said the changes "mean that a lower-income stroke patient could be prevented from entering a nursing home, even if there were no alternatives, simply because she had helped a grandson with college tuition years earlier. A private-pay nursing home resident could be forced out of the home for a period of time, even after all his assets were exhausted, because he contributed to a hurricane victim."

But supporters of the changes say the new law is designed to deter aggressive estate planning, not to trip up those who tithe to churches or give away money for other legitimate reasons. "If you transfer assets without . . . the sole purpose of qualifying for Medicaid, you're home free," said Moses. But, he added, "you better document it, because you'll have to prove it."

Imperfect Options

Proponents of the new rules see the changes spurring families to better plan for the possibility of nursing home care. But some of the leading options have major shortcomings, according to experts.

While elder law attorneys say they sometimes recommend long-term-care insurance, such policies are not available to everyone.

One such person is Ethel McNie, who has Alzheimer's and whose care at a Rockville nursing home is largely covered by Medicaid. Her daughter, Jamie McNie of Germantown, explained: "She tried to get the long-term-care insurance" well before any signs of dementia appeared, "but they turned her down" because she has diabetes.

Another private-pay possibility -- at least for some people entering a nursing home -- is a reverse mortgage, where the lender pays an older homeowner cash for the equity in a home. The loan is repaid when the borrower sells the home, moves or dies.

Janet Wells, director of public policy for the National Citizens' Coalition for Nursing Home Reform, said the new law's ban on Medicaid eligibility for those with home equity of more than $500,000 was an effort to promote home equity loans. "Such loans, however, are not always a good value," she said, "because interest and fees are deducted from the borrower's equity."

Who's Going to Pay?

Nursing home residents whose funds are running low and seniors who will soon require nursing home care could find themselves harmed by the new rules, according to elder law attorneys and consumer advocates.

"Families will be in greater crisis or nursing homes will be left holding the bag," Sabatino said, if suddenly people don't qualify for Medicaid after spending all their money. Nursing homes, which opposed the new rules, are likely to impose more rigorous screening processes for admission, say lawyers, because they will not want to subsidize residents who cannot qualify quickly for Medicaid. Attorneys also expect nursing homes to be more aggressive in evicting residents whose Medicaid eligibility is delayed and in pressuring families to pay bills that the government will never cover.

"They will go after somebody," said Ed Zetlin, manager of elder law services at Legal Services of Northern Virginia.

Reginald McNeil, a Fort Washington electrician, was sued by his mother's nursing home. She had lived there for about a year and expected, according to her son, that Medicaid would pay most of her bills. Several months after his mother's death and after her claim for coverage was denied, the nursing home sought $37,000 from McNeil, 42, claiming that he was his mother's fiscal agent. "I thought it was crazy," he said. "I always thought it was understood that I was not responsible for my mother's bills."

The debt was eventually settled through the sale of a modest townhouse that McNeil's mother had been renting to a relative.

Attorneys say it will be imperative for people to keep detailed financial records going back five years to prove that any asset transfers were not done for purposes of qualifying for Medicaid.

"My concern is I'm going to be flooded with clients who are stuck," said Zetlin. "Almost everybody I've interviewed has made some form of transfer long before they became ill, or some type of transaction they won't be able to account for." ·

Christopher J. Gearon last wrote for the Health section about the Medicare prescription drug program. Comments:health@washpost.com.