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State takes aim at use of 'voluntary poverty' to avoid care costs
April 21, 2003

St. Paul, Minn. — (AP) Minnesota is one of a handful of budget-crunched states determined to make it harder for well-off retirees to hide their wealth to get the government to pay for their nursing home care.

Minnesota's Department of Human Services is asking for permission from the U.S. Centers for Medicare and Medicaid Services to get tougher on people who give money away to relatives so they can qualify for the poverty program Medicaid - a tactic that costs the state an estimated $12 million a year.

Minnesota's effort follows on the heels of Connecticut, which is seeking federal permission to do roughly the same thing. Other states are considering such action.

While some critics call the wealth-hiding immoral, state officials say their effort is driven primarily by economic necessity.

"It's very reasonable for us to expect people to take responsibility for themselves and use their own resources for their own health care needs," said Kathleen Henry, Health Care Program manager for the Department of Human Services.

She said the changes are especially appropriate as the state is proposing to eliminate Medicaid-paid health insurance coverage for thousands of low-income people out of budget concerns.

Minnesota's version of Medicaid is called Medical Assistance and, broadly, it won't pay for nursing-home care for people worth more than $3,000, not counting their house and car.

The federal government lets states "look back" three years at the finances of someone applying for the program to see if they've given away their assets. The state can then impose a waiting period before it begins to pay the bill.

The wait is based on the amount of money the person gives away, and the average cost of care, now $3,930 per month in Minnesota. So, if a person gave away $200,000, that person wouldn't be eligible to receive Medicaid benefits for a little more than four years after giving their money away.

Pawlenty's plan would add another three years to the "look back" period. Advocates say that would make it trickier for people to try to time giveaways to their need for nursing home care. The waiver request also says it would encourage more people to purchase long-term care insurance instead of planning on the government paying their bills.

The department also wants more leeway in recovering costs of care from the estates of people who received free care when they were alive. And, the change would have penalties start on the day people apply for the program, instead of the day they gave the money away.

While hiding assets through estate planning is legal, many people say it is unethical.

"Doing this says, 'I'm going to pass on my wealth to my descendants and your descendants can pay for my health care,"' says Sen. Sheila Kiscaden, an independent from Rochester who is one of the Senate's experts on health care policy.

She contrasts the practice to people who complain about welfare recipients. "The welfare moms that are most expensive are the 86-year-old moms in the nursing homes," she said.

Kiscaden is the sponsor of one of several bills to allow the change that are making progress in the Legislature

Opponents, though, say the proposal unfairly punishes people who might unexpectedly require nursing home care after, for example, giving money away for a grandchild's college tuition.

Julian Zweber, an attorney who specializes in elderly law, has been fighting the change in the Legislature.

He said the effort wouldn't do much to curb the forces driving up the government's health care bills.

"They're making sheltering of assets the bogeyman, making a big show of trying to do something about that while not doing something about the big problem," he said.

Zweber said the rule change would also likely drive up costs for nursing homes because some patients hit with a waiting period may not have any ability to pay. Henry, though, said the state can makes exceptions in such cases.

Mary Ellen Otremba is a widower, a farmer and a lawmaker. She opposes the changes, saying she's concerned she and other farmers, who often hold their land jointly with relatives, could lose their ability to pass farms to their children.

"Those who are wealthy and have good lawyers will always be able to hide assets," she said. "Is it fair to my children, who already don't have a father, to be totally wiped out?"

Connecticut's effort has met opposition from members of its congressional delegation, nursing homes and attorneys who specialize in estate planning.

Amy McDonough, spokeswoman for Minnesota's AARP chapter, said the group doesn't oppose the overall plan, but does have concerns about the administration's plan to try to recover money from estates.

Some of the estate planning strategies are straightforward - people simply give their money to their children.

Others are more complex, such as having people put all their assets in an annuity, a shift often used by married couples. The sick spouse qualifies for Medicaid, and the healthy spouse receives a monthly check from the annuity.

Still others exploit a loophole that prevents Medicaid from counting assets, often investment property, held jointly with others who aren't willing to sell.

It's unclear how many people use the tactics to shelter income. A state estimate predicts about 627 Minnesotans do so per year, sheltering an average of $35,000 each, thus costing government $22 million.

When the change is fully in place in 2005, the state projects savings of between $24 million to $30 million per year, split between the state and the federal government, which share costs for Medicaid.

Henry, though, called those estimates "very conservative" and based in part on anecdotes.

Prospects for Minnesota getting the waiver aren't certain. The state sought permission for a similar change in 1996, and it was formally turned down in 2000.

But state officials said they have reasons to be more optimistic, in part because the Bush administration has signalled willingness to give states more flexibility in regulating Medicaid and in part because more states are seeking similar waivers.

It's unclear how much money is sheltered nationwide, but overall spending on the program is mammoth. Medicaid pays for roughly half of all long-term care costs, spending about $62 billion in 2000.

According to the General Accounting Office, a year in a nursing home typically costs $50,000 or more.

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