Growing Older / Liz Taylor
When the well-to-do scheme to use Medicaid, they get what they pay for
Shame on Wall Street. Again. This time it's The Wall Street Journal. On April 28, in a column that was otherwise interesting, "Cutting a Deal with the Kids," Jonathon Clement wrote about several ways an older person can create a stream of retirement income from $500,000 in savings. Buy a private annuity, says Clement, or gift the money to your kids who'll pay you a set amount each month.
What's the advantage of that? Clement asks rhetorically. "If the parents make an outright gift and later need nursing-home care, they will have less assets and income, and thus Medicaid is more likely to pay for their long-term care costs."
"What started as an article about an efficient use of $500,000," writes Richard Schafer, a reader in Minneapolis who brought this column to my attention, "regressed to urging the wealthy to purchase 'inheritance insurance' for their kids."
It's the old trick of transferring your savings to a family member so that the taxpayers (Medicaid) foot the bill for your care, no matter how wealthy you are. In a newspaper long known for its well-heeled readers, the nonchalance with which this advice was given speaks volumes for how commonly it's assumed to be OK.
Here's another way to look at it.
Let's say you want to buy a car. The price of your dream car, a new Lexus, is around $50,000. Rather than use your own money, an attorney suggests you give your savings to your kids and plead poverty. Voilà, the state buys you a car.
You anticipate the delivery with glee. But instead of a Lexus, you get a 1982 Chevy. There are big dings on the sides, the odometer has six digits, and the motor runs rough. "Hey," you yell, "what happened to my beautiful Lexus?"
"We said we'd buy you a car," says the state, "because that's the safety net society has created. But we never promised a nice car. After all, you came to the welfare department for assistance, and we don't have the money for a Lexus. You're poor, so be grateful."
And that's what the advisers who propose these eldercare schemes fail to tell you: that Medicaid — our country's safety net for the poorest of the poor — may pay for your care, but beware of the care you get. Medicaid is the payer of last resort because it offers you the poorest quality, provides the fewest choices, and gives you the least control over what happens to you. You don't decide; the welfare department does.
The reality is, Medicaid doesn't pay adequately for care — typically 20 percent to 30 percent lower than the private-pay market. It never has — anywhere in this country. It never will. As a result, many care providers won't accept Medicaid, especially the good ones. We've created a two-tier system with a wide array of high-quality choices for those who pay privately and significantly fewer — sometimes dreadful — options for those on Medicaid.
• Want care at home? Medicaid pays an in-home worker about $7 an hour — usually without benefits — in contrast to the $10 to $20 an hour that private-pay workers make.
• Prefer living in an adult family home or assisted-living facility instead of a nursing home? Medicaid pays both so poorly that most won't accept residents on Medicaid.
In the scheme of things, I'm not concerned about people who give away $20,000 or $30,000 to get onto Medicaid. That's small potatoes. What sends me up the wall are the people who transfer hundreds of thousands of dollars to their children, then get Uncle Sam (a.k.a. you and me) to pick up the tab for their care. I attended an elder-law conference last year at which the main speaker casually bragged about putting a couple with $3 million on Medicaid.
The outcome? In almost every state, Medicaid budgets are going through the roof. We're a rapidly aging nation, and now, with voters zealously cutting taxes, most states are cutting back on Medicaid, dividing an already small pie among a growing number of people. According to the Center on Budget and Policy Priorities (CBPP), the states are in the midst of the most severe budget crisis in recent memory.
"The most obvious potential spot (for cuts) is long-term care," The New York Times stated in an op-ed piece April 17, "which consumes some 40 percent of the nation's Medicaid budget. One overdue reform is to plug loopholes that allow many middle-class people (to get onto Medicaid) by transferring assets to other family members."
Cuts are being made, all right, but not to plug those loopholes — almost half the people losing state-paid health insurance (of about half a million people) are children, while generous eligibility rules for affluent older people remain untouched. You can read more at www.cbpp.org/12-22-03health.pdf.
Liz Taylor's column runs Mondays in the Northwest Life section. As a specialist on aging and long-term care, she consults with individuals and teaches workshops on how to plan for one's aging — and aging parents. E-mail her at email@example.com or write to P.O. Box 11601, Bainbridge Island, WA 98110. You can see all of her columns at www.seattletimes.com/growingolder/.
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