A New Squeeze on Nursing Home Aid

Older Americans who need nursing home care will have a harder time qualifying for government aid if a number of states have their way.

Plagued by revenue shortfalls, some states are asking the federal government for permission to toughen the Medicaid rules that govern eligibility for nursing home and other health care.

But changing the rules may have dire consequences. "If these rules are changed," warns Cheryl Matheis, director of AARP's State Affairs Department, "an individual who helped out a child or made a donation to a charity may, years later, be denied critical medical care. And they may be denied such care even though they lack the funds to pay for it."

Medicaid is the national health care assistance program for the poor. Financed by state governments with matching federal funds, Medicaid pays for 70 percent of elderly nursing home residents at a cost of more than $50 billion per year—a figure that's expected to rise substantially in the future.

Medicaid coverage for nursing home care is available only to those with very limited income and assets.

Medicaid officials have long wanted to clamp down on persons believed to have given away money or assets expressly to qualify for Medicaid.

Now three states—Connecticut, Massachusetts and Minnesota—have asked the federal government for permission to toughen their Medicaid rules. If the federal Centers for Medicare & Medicaid Services (CMS) approves, other states are expected to follow. CMS hasn't yet acted on these requests, but could do so at any time.

These states want to change a key rule that dictates Medicaid eligibility. As federal law now stands, any gift of cash or property, for example to children, charity, religious organization or political party, made during the three years before applying for Medicaid is considered an improper "transfer of assets" and is subject to a penalty.

The three states want to lengthen the amount of time they can "look back" into an applicant's financial and other records to find these transfers.

Under their proposal, any gifts or donations made as many as six years prior to applying for Medicaid could result in the denial of coverage, even for those who may have no alternative way of paying for nursing home or home health care. The absence of records explaining every expenditure could also result in the denial of coverage.

Proponents say these changes are intended to promote fairness. "Should we be helping middle-class people who choose not to pay for their medical care but choose to do something else with their money?" asks Michael P. Starkowski, deputy commissioner in Connecticut's Department of Social Services.

The state proposals—officially called "waiver" requests because they propose to waive existing law—have critics in every corner. Consumer advocacy groups, legal services organizations and many state legislators worry that middle- and lower-income elderly, through no fault of their own, will get caught up in a widening bureaucratic web that they won't understand until it's too late.

"We certainly don't want people who can pay for their own care to be gaming the system," says AARP policy director John Rother. He says AARP views the current three-year "look-back" period as reasonable. But, he adds, "the six-year look-back sought by several states could trap people who never intended to do anything wrong."

Rother and other consumer advocates dispute popular images of wealthy older people huddling with their attorneys to hide millions. In truth, they point out, nursing home costs quickly exhaust the life savings of even the most prudent saver. "Should [people] be penalized because they gave a few hundred dollars to their church three years ago?" asks Julian J. Zweber, a Minnesota attorney on elder law and health care planning.

Even now, without the proposed rule change, applicants must run a perplexing gauntlet to obtain help paying for nursing home care. If there has been a transfer, some states look at the individual's intent in making the gift.

Other states simply assume that every transfer was made for the purpose of qualifying for Medicaid. In any case, good intentions must be proved by the applicant, a feat not easily accomplished.

And assets are judged to be improperly transferred if the applicant simply lacks records of where the assets went.

Purchases for "fair market value"—buying clothes or kitchen equipment, houses or automobiles—are allowed. But for those who pay cash, don't keep documentation of every purchase, or who lose records, Medicaid may disallow thousands of dollars of legitimate expenses. And this can lead to months without care.

For example, says a Washington, D.C., woman, "My 80-year-old mother had her roof replaced, and she paid cash. I'm afraid she won't be able to prove where that money went."

No one knows how many people transfer assets in order to obtain Medicaid benefits, but state officials say the practice is widespread. Connecticut has estimated that 35 or 36 percent of older Medicaid applicants "shifted assets" before applying for Medicaid.

Most of these transfers are legal. Estate planners advise their clients on what is legal under current Medicaid law, the same way tax advisers tell people which deductions are legitimate. But by tightening rules, Connecticut has projected an $87 million savings over five years.

Improper transfers trigger the denial of Medicaid for a certain amount of time based on the value of assets transferred and the cost of medical care. For example, in Connecticut, where nursing home care costs average about $7,400 a month, an applicant who improperly transferred $74,000 would be ineligible for Medicaid for 10 months.

A MATTER OF TIMING

As the law stands now, the period when Medicaid coverage is denied begins at the time of the improper transfer. If the applicant gave money away two years ago, the penalty period would already be over and he could receive benefits immediately.

States hope to save money by changing the timing of the coverage denial period.

Under the proposed waivers, this period would begin at the time of application for Medicaid. In the example above, the applicant would have to wait 10 months for Medicaid coverage. If the applicant was receiving home health care services, those services would be abruptly terminated. An applicant in a nursing home might be discharged or the nursing home might end up providing 10 months of free care.

AARP and other consumer advocates believe the current three-year look-back is fair and that it is unrealistic to ask people to predict the future even farther in advance. They worry about the healthy individual who gives her kids money for a down payment on a house, or her church a few hundred dollars every year, or simply fails to keep records, and then has a disabling stroke.

"Most who would be denied Medicaid under the waivers will be out of money and in need of medical care. What's going to happen to those folks if Medicaid says 'No'?" asks Brenda Kelley, AARP's Connecticut state director.

GETTING CAUGHT IN THE WEB

Kevin Brophy, director of elder law for Connecticut Legal Services, represents low-income elderly. Brophy cites a widow in her 90s who applied for Medicaid-paid home care. She was frail but alert, and needed someone to make sure she ate properly and took her medications. Her husband had handled the family money. After he died, bank statements revealed large withdrawals she couldn't explain. Eventually it was discovered the husband had used the money to gamble.

"This woman had no ill will," says Brophy. "She had no intent to get rid of this money." Because the unexplained transfers had happened a few years before, Medicaid paid Brophy's client for her home care. If the proposed rules had been in place, she would have been ineligible for home care for months.

Although the elderly constitute only 9 percent of Medicaid beneficiaries nationwide, they account for about 27 percent of Medicaid costs, finds one study. Connecticut alone spends $1 billion a year on Medicaid for long-term care.

A BUDGET-BALANCING TRICK?

Critics who watch the hydraulics of state budgets wonder if the waiver requests may be nothing more than budget-balancing tricks in an era of revenue shortfalls. "On paper it will save money," says one Connecticut expert on Medicaid, "but the administrative bureaucracy that has to be set up to do that is mind-boggling."

Meantime, many state officials maintain that people should do a better job assuming "personal responsibility" for their own long-term care, and they contend that private long-term care insurance should be a personal priority.

"We're trying to make a cultural and attitudinal shift," says Connecticut's Michael P. Starkowski. "We want people to say, 'I have personal responsibility if I should need long-term care.' "

Starkowski thinks the market will bring premium prices down to more affordable levels, and that people should get the insurance when they're still young and healthy.

That's fine for the young, says AARP's Rother. "But the people who would be harmed by these waivers are already at an age where they can't get such insurance."

Linda Greider is a freelance writer in Washington, D.C.