Message From The CEO: No Such Thing As A Free Lunch

The passage of the Affordable Care Act (ACA) has certainly made life more interesting for many of us in a variety of ways (yes, I realize this is a generous characterization). However, amidst all the clamor and noise, between the talking points and the talking heads, a new concern has recently emerged, and seems to be gaining traction in the national media; does the phrase “Medicaid Estate Recovery” ring a bell?

If not… well, it should. After all, it’s nothing new.

Permit me a brief history lesson. Medicaid as we know it was created in 1965, as “…an entitlement program to help states provide medical coverage for low-income families and other categorically related individuals”. In essence, Medicaid has evolved into our country’s primary health insurance coverage for low-income and senior/disabled individuals. In 1993, another act was passed (called OBRA-93 for those interested) which required states to implement “Medicaid Estate Recovery” programs – programs designed to “…sue the estate of descendants for medical care costs paid by Medicaid.” (1)

That’s right; Medicaid has the ability to sue your estate to recoup medical costs, and has had the ability to do so since 1993. Why is this only gathering national attention now then? Enter the Obama administration, and the passage of the Affordable Care Act. The ACA has extended the provisions of the Medicaid Estate Recovery program simply by expanding Medicaid eligibility, and adjusting certain measurement criteria. (2) Program factors can vary by state, and there are a variety of available exemptions (such as the inability to recover property from a surviving spouse, minor child, etc.).

Is this an egregious misuse of authority by our government? Is it part of some scheme to pad their coffers with the proceeds of your home after you die?!? It’s hardly as sinister as it sounds, but make no mistake – it’s still important that producers be alerted to this growing problem.

Even though the government has been able to seize property to cover Medicaid costs since 1993,  to date this practice has only been occasionally enforced. However, our state and federal governments continue to look for additional sources of revenue, and some states have been classified as being “aggressive” (i.e. New Jersey) when pursuing Medicaid estate recoveries. Only time will tell how the expanded provisions of Medicaid will affect individual recovery efforts, but with more people qualifying for Medicaid due to the provisions of the ACA, we wouldn’t be surprised if state governments begin catching on to these bigger sources of funds that they have been neglecting. (3)

Despite the minimal impact these programs are currently having, we can’t underestimate the financial and emotional impact that an estate recovery can have on your client’s beneficiaries (your future clients!); although Medicaid may recoup a small fraction of their costs, the direct impact of that “small fraction” to the beneficiary can be staggering – especially if they are caught unawares. This is why it is extremely important, as producers, that we take these possibilities into account and utilize proper planning to negate this threat – now, before it’s too late.

For those of us in the financial industry, we strive every day to ensure that our clients enjoy safe and stable retirement and estate plans; and this includes safety from the government as well. The bottom line remains that while Medicaid Estate Recovery programs are not new, the landscape is still rapidly changing. The federal government has promised additional guidance to states soon – so no one knows for certain how this drama will play out.

Even though recent fears of losing one’s property may have discouraged some clients from enrolling in Medicaid, fear not. It goes without saying that hiding or obscuring a client’s assets is strictly illegal, but there are several legal estate planning strategies that can be implemented if your client is concerned about Medicaid’s Estate Recovery programs, such as:

  • Transferring ownership of their home to a spouse.
  • Gifting to non-spouse family members.
  • Utilizing an irrevocable life insurance trust (ILIT) or “life estate” plan.

Although not yet a mainstream issue, we feel it’s important to prepare you to meet this issue head on so you can adequately help your clients plan. We recommend a strong planning focus, in consultation with an elder law attorney, as the best solution to this emerging concern. Your Zenith Marketing Sales Team has the tools and know-how to help you start protecting your clients from this threat RIGHT NOW – give us a call today to find out how.

(1)    http://en.wikipedia.org/wiki/Medicaid#History
(2)    http://www.factcheck.org/2014/01/medicaid-estate-recovery-program/
(3)    http://www.app.com/article/20140214/NJNEWS2003/302140056/medicaid-asset-protection

About Mike Gorlick

President & CEO, Zenith Marketing Group, Inc.

3 comments on “Message From The CEO: No Such Thing As A Free Lunch

  1. My comments that follow only apply to applying for Medicaid in a long-term care situation. I don’t have any idea whether they would apply for those getting Medicaid under Obamacare.

    It is important to note that there is a federally imposed 5-year look-back period where the value of property that is gifted or transferred in an effort to spend-down assets in order to qualify for Medicaid to pay for long-term care is counted against an individual. This could make an individual ineligible for Medicaid (at least for long-term care expenses) for a period of months or years.

    The same is true for life insurance placed within an irrevocable trust within five years of applying for Medicaid (again, for long-term care expenses). Premiums paid into the trust or the “value” of life insurance transferred to the trust would count against the individual applying for Medicaid. And if death occurred while the individual was on Medicaid, the life insurance proceeds would not be protected from recapture by the state if the ILIT was set up within the 5-year look-back period. An exception is that many states will allow for a “funeral trust” with $10,000 to $15,000 of life insurance in it, provided it is an irrevocable trust with a named funeral home as an irrevocable beneficiary.

    Exempt assets, when trying to qualify for Medicaid, typically include a home and a car along with $2,000 (NJ, as Mike noted) or $3,000 (in MN, for example) if single or a portion of community assets if married (amount varies by state). But these assets are recoverable by the state to cover Medicaid expenditures. Rules vary by state, so it is imperative to check with an elder-care attorney.

    The key is to make gifts or transfers at least five years ahead of the potential need for Medicaid. Many times that is difficult to do, either because the individual doesn’t want to give up control or the need for Medicaid may not yet be evident. Life insurance in an ILIT is often the easiest solution five years out.

  2. You omitted mention of industry grown up around “artificial impoverishment” and the use of Medicaid friendly annuities. It amounts to much more money than collecting a few dollars from the residual estate of a poor person.

  3. Thanks for the heads up.

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