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Some believe that preserving assets for a loved one is not ethical. They contend that the preservation comes at a cost to the taxpayer and should not be allowed. They believe that Medicaid or ALTCS is only for the poor and should not be permitted.
Ironically, however, many of those same individuals who say such services are only for the poor are quick to seek help to preserve their assets when they or a loved one needs long-term care. Long-term care can be ruinously expensive and leave a spouse penniless, making the nursing home or assisted living one’s heir. Consider the following two scenarios:
Kim and her husband Bill both worked and saved for retirement. They paid their taxes and were pillars in the community. Kim developed a rare debilitating condition that left her unable to perform simple daily tasks and was unable to even get from the bed to a wheelchair without assistance. Bill was also frail due to his advanced age.
Kim and Bill had a little over $250,000 in savings. Their home in Arizona had appreciated and was worth more than $800,000. They were told that, because of their savings and home equity above the limit of $636,000, they did not qualify for Arizona Medicaid or ALTCS benefits.
Working with a Certified Medicaid Planner (CMP), they were able to qualify for the program with some simple re-allocation strategies that the CMP recommended. When Kim passed away four years later, Bill was able to stay in his home and still had over $220,000 in assets to live out the remainder of his life.
John had lived with a fairly wealthy older woman until she passed away. She left him with a sizable amount of money in her will, over $1,000,000.
John was not very responsible with the money she left. Over time he managed to squander the money she left and was virtually penniless as he grew older.
He also did not take care of his health, by the time he was 80 years old, he needed some help with all his activities of daily living.
Now poor and needing long-term care, John was able to have his care paid for by the taxpayer despite having acted irresponsibly with both his money and his health.
Let’s further explore the question of whether Arizona Medicaid Planning or ALTCS Planning (hereinafter simply Medicaid Planning) is ethical. First, what is Medicaid Planning?
Long-term care can be ruinously expensive; Medicaid Planning gives people the opportunity to protect assets, plan for the future, and prepare for the uncertainties of paying for long-term care.
Medicaid Planning makes it possible to better plan for long-term care costs, allowing individuals to make sound decisions for the unseen future.
It can go beyond only crisis planning, helping with decisions to purchase a long-term care insurance plan or a combination of asset planning and a short-term care insurance plan.
The principles governing Medicaid Planning can be referred to as Medicaid ethics. When exploring the ethical question of whether Medicaid Planning is ethical, we must consider the legal aspects of the Medicaid program and the planning that is allowed within the law.
Arizona Medicaid, or ALTCS, is governed by the Centers for Medicare & Medicaid Services (CMS) and the Arizona Health Care Cost Containment System (AHCCCS). Since this system is born out of Arizona statutes, it is legal to plan and protect assets while qualifying for Arizona Medicaid or ALTCS.
Medicaid Rules and Regulations are in place to protect the non-institutional or well spouse from being left destitute after caring for a spouse who needed long-term care. In 1988, Congress enacted the Spousal Impoverishment Act, which allows a spouse to keep up to the Maximum Spouse resource allowance. This figure for 2022 is up to $137,400.
Bear in mind that Arizona is a 50% state, so in order to be able to keep the $137,400, the couple would need to have double that or $274,800. Then the spouse that is applying for coverage with ALTCS would have to spend their half down to $2000 or spend down $135,400.
Within the Medicaid Rules and Regulations, there is guidance on how to treat a gift or an uncompensated transfer of an asset. This guidance is called the Divestment Penalty Divisor, which refers to the average cost of a nursing home in a given county. Currently, in Maricopa County, Arizona, the Divestment Penalty Divisor is $8,029.46. The gift amount is divided by the Divestment Penalty Divisor to determine the number of months and days of ineligibility that will be assessed before an applicant’s Arizona Medicaid ALTCS coverage begins.
For example, suppose that in order to qualify, an individual must spend down $48,176.76. Suppose this individual has an income of $2,200 per month from Social Security and a small pension. For ALTCS approval, the CMP might recommend gifting the applicant’s adult child the full $48,176,76. This gift is then divided by the Penalty Divisor: $48,176.76 ÷ 8029.46 = 6 months.
Next, suppose this individual’s cost for care in an assisted living community is $5,500 per month, resulting in a deficit of $3,300 per month after subtracting the $2,200 monthly income. For the next six months, the gift amount will be used to pay the negative cost of care: $3,300 X 6 = $19,800. Subtracting this amount from the original gift amount leaves a total of $28,376 preserved for other unexpected expenses or a legacy to the individual’s loved ones.
If it were illegal to do such planning, what would be the purpose of the Divestment Penalty Divisor?
Many other strategies are provided in the Medicaid Rules and Regulations to allow individuals to preserve assets. Trained CMPs are also provided to help individuals and their loved ones preserve assets while still qualifying for Arizona Medicaid ALTCS.
There is also an annuity product designed to convert a countable asset to a non-countable income. This annuity is called a Medicaid Compliant Annuity, highlighting that it is compliant with Medicaid or ALTCS and with the relevant laws. No state has been successful in disallowing the use of the Medicaid Compliant Annuity in federal court. Thus, federal law allows individuals to preserve assets with this Medicaid-friendly annuity product.
Thus, in the final analysis, Medicaid Planning is like tax planning, which is also legal.
We already mentioned irresponsible John vs. Kim and Bill, the responsible couple.
Now, let’s see how Medicaid planning applies the pillars of ethical planning. This will help us to determine if this type of planning is ethical.
Based on these key pillars of Medicaid ethics, it seems clear that ALTCS planning is ethical. This means it is the right thing to do for yourself and your loved ones.
It was Honorable Lawrence Bracken of the New York Supreme Court who stated: “No agency of the government has any right to complain about the fact that middle-class people confronted with desperate circumstances choose voluntarily to inflict poverty upon themselves when it is the government itself which has established a rule that poverty is a prerequisite to the receipt of government assistance in the defraying of the costs of ruinously expensive, but absolutely essential, medical treatment.”
On the other hand, it is reasonable to argue that it is not ethical to withhold information that could benefit someone or to purposely give false information.
For example, suppose an assisted living group homeowner tells their residents that they do not qualify for Arizona Medicaid or ALTCS because they lose money if they go onto Medicaid or ALTCS.
Or suppose an assisted living sales manager purposely withholds information from a resident that could qualify for Medicaid or ALTCS or provides misinformation to them so they don’t seek help from ALTCS to pay for care. These actions are not illegal, but they are certainly not ethical.
Here is a true story, I was referred by a resource partner to a lady that was due to turn age 100 in just a few weeks.
She had lived in the same assisted living community in Phoenix for over ten years and now was almost out of money.
Turns out that she was medically eligible for Arizona Medicaid – ALTCS for several years. She was also a surviving spouse of a veteran, so she could have been getting the Veterans Pension with Aid and Attendance benefit when she moved into the community.
Then for three to five years, they could have been on Arizona Medicaid – ALTCS too.
Now here is the question part, this same community knowingly withheld this information from their residents.
I know because I personally went to the community multiple times and tried to talk to the management about helping their residents with ALTCS and Veterans Pension for most if not all of the ten years and was turned away each time.
I was told that their residents do not need any help.
Amazing, this cost my client over $150,000 in lost benefits from the VA and caused her savings to drain to Zero!
I spouse that is more ethical than ALTCS Planning and VA benefits planning?
Who is being unethical now? I contend with the management at that assisted living.
Now not all assisted living facilities and group homeowners do this, but many do!
I had one assisted living sales manager with a large assisted living chain say this to me, “Bleed them dry and kick them out!” Then she giggled.
I suppose that is ethical.
Here is my reason I feel strongly about the merits of Medicaid Planning or ALTCS Planning. Here is my why I do what I do.
It was a beautiful day in the spring of 2004. I was in Tucson, Arizona. I had organized what I liked to call a “Fun-Shop.” I call my seminars Fun Shops because who wants to go to a workshop, anyway? I held the Fun Shop at a unique assisted living community initially built as a private mansion in 1926. It has a chapel on the property that is used to hold meetings. So, I was literally on stage at the front of the chapel, and I was to speak on a little-known benefit called at the time the, “The Veteran’s Improved Pension with Aid and Attendance¹.”
Once done with the presentation, I walked to the back of the room to greet the attendees and answer their personal questions.
A lady approached me. She was an attractive, fit woman. She stood with a healthy posture. I guessed her to be about 70 years old. She said to me, “Can I ask you a question.”
I love to joke with people and respond, “I’m married if that is your question!” She laughs and says, “No, that’s not my question.”
She goes on to say, “I recently lost my husband, and we spent all our money caring for him. I now have $25,000 to live on for the rest of my life.” She goes on to ask, “Is there any way I can go back and get these benefits?”
As I looked into her eyes, I saw the sadness and fear that she had. The look in her eyes was the fear of running out of money.
I had to say, “No, there isn’t, mam.”
I vowed to do everything I could to prevent this from being someone else’s story from that day forward. She created a passion in me that continues to energize me to this day.
Ultimately, you have to be the one to decide if Medicaid Planning is the right thing to do for yourself or a loved one. Since Medicaid Planning can be a complex process, it is important that you consult a Certified Medicaid Planner or elder law attorney when you are applying various Medicaid Planning strategies.
Steve Dabbs CMP™, Certified Medicaid Planner™
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