June 11, 2021
Taxpayers Protecting Inheritances –– Newsletter Issue #132

We try to keep an eye on hot health policy developments for you, but we also look ahead at emerging opportunities and dangers.

Today we are focusing on the latter in an article just published in The Hill, written by leading long-term care expert Steve Moses and Galen Senior Fellow and Medicaid expert Brian Blase. The title says it all:  “Using Medicaid to protect inheritances.”

Here’s the issue: Many affluent Americans are hiring lawyers to protect their estates so they don’t have to spend their own money on long-term care.  Homes of more than $900,000 in some states, as well as retirement accounts of near unlimited amounts, can be safely tucked away to pass on to their children while the taxpayer pays for their nursing home care.

“Government should provide Medicaid for the truly indigent,” Moses and Blase write, “but allowing middle and upper-income Americans to preserve a greater inheritance weakens the safety net for those who most need it and is unfair to taxpayers and those who prepare properly.”

The number of Americans over 65 increases by about 4,000 each day, causing the finances of many government programs to become more precarious. Medicaid pays nearly half the nation’s long-term care bills, and improper payments in the program exceed $100 billion a year.

“With minimal prior planning, child heirs can preserve their inheritance by arranging their parents’ finances and assets so that Medicaid picks up the tab in the event long-term care services are necessary. A cottage legal industry has emerged to assist heirs in creating such wealth management schemes,” they write. “A prominent economic study found that Medicaid largely crowds out the market for private long-term care insurance.”

Congress tried to address this with The Omnibus Budget Reconciliation Act of 1993 “that required states to recover long-term care costs borne by the Medicaid program from the estates of deceased recipients,” the explain. “The primary asset in most estates is the home, and U.S. seniors hold $7 trillion of home equity. This law sends the message that Medicaid would pay long-term care bills, but the tab, or at least a portion of it, would be paid out of the deceased person’s estate.”

But here’s the news:  A Medicaid advisory board has a proposal to make the situation worse, recommending that Congress eliminate the requirement for states to pursue estate recoveries.  This will obliterate the incentive for seniors to arrange their financial affairs to plan for their own care out with their own resources, such as purchasing long-term care insurance.

“Here’s our advice,” Moses and Blase write. 
  • “First, don’t make the problem worse by eliminating estate recovery requirements. Doing so will further reduce incentives to prepare properly for long-term care expenses. It also would permit more heirs to shift costs that their parents’ estate should bear onto taxpayers.” 
  • “Second, the government should enforce and publicize Medicaid estate recoveries. This would reduce dependency on Medicaid, preserve Medicaid for the truly needy and encourage responsible private behavior. As federal deficits and debt explode, it has never made more sense to limit welfare programs to those who are poor.”
I served on a joint congressional and administration Commission on Long-Term Care in 2013. We produced dozens of recommendations to improve long-term care in America, some of which have been adopted.  But the liberal and conservative members of the Commission hit a stalemate over how to pay for long-term care, with some preferring a full-out mandatory, government organized program and others of us arguing for an energized private market for long-term care insurance to make it more attractive for middle-aged Americans to begin planning for their senior years, with a strong safety net for the vulnerable.

If Congress adopts this misguided recommendation from the Medicaid and CHIP Payment and Access Commission (MACPAC), it would be repeating other mistakes of the Biden administration that have disproportionately distributed taxpayer resources to affluent Americans to get health insurance. Congress should reject this latest recommendation by MACPAC, which would take us in very much the wrong direction.

Read full article in The Hill:
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