• Office Hours: purposeful spend down to Medicaid

    A few things always come up when I teach intro to the U.S. Health Care System at Duke. One of them is a student’s dad who knows about the friend of a cousin’s uncle who gave away all their money, moved to a nursing home paid for by Medicaid, while their family toured the world with their riches. Or something.

    While I am sure there are persons who engage in purposeful spend down to qualify to Medicaid NH financing, it is useful to remember that this story requires someone who wants to move to a NH. My skepticism lead me to investigate this issue in the first paper I ever did on LTC, published back in 1999 along with Frank Sloan and Edward Norton “Formation of Trusts and Spend Down to Medicaid.” We used the first wave of the Asset and Health Dynamics Among the Oldest Old (AHEAD) database and overlayed the income and wealth information of individuals with their state’s Medicaid spend down rules to determine what proportion of the elderly could benefit from the use of a trust to achieve spend down, as well as the proportion who had any type of trust. Basic findings among the elderly:

    • Around 4 in 10 were spent down in the community and eligible for Medicaid financing of NH care.
    • Around 2 in 10 could never qualify for Medicaid due to their income being above their state’s Medicaid income test.
    • Around 4 in 10 respondents had enough assets that they could have plausibly benefited from purposeful spend down. Of these, only 1 in 10 of them had a trust of any type (respondents were asked about trusts generally, and not in relation to spend down). So, 4% of this sample had a potential spend down motive and a trust of any type, the most common way to accomplish purposeful spend down.

    The figure below demonstrates the asset distribution of the population with respect to how long it would take them to spend down given the average price of a NH in their state.

    There are many, many more elderly persons who are spent down in the community or who would be eligible for Medicaid financing of a NH within a few months of moving to a NH than there are persons with enough assets to make purposeful spend down even potentially worth it and who have a trust. I have always found this general story to be quite implausible, since it requires someone to desire to enter a NH. However, that doesn’t keep it from coming up every time I teach intro to the U.S. health care system. We should stop people from inappropriately using Medicaid, but doing so is no solution to our LTC problems. The study is over 10 years old, but I haven’t seen any evidence to cause me to change my view on this. If you have some, send it to me.

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    Donald H. Taylor, Jr, Frank A. Sloan, Edward C. North. Formation of Trusts and Spend Down to Medicaid. J Gerontol B Psychol Sci Soc Sci (1999) 54B (4): S194-S201.

     

     

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    • AHEAD is a random (weighted) sample of seniors, and it’s probably 10,000 or so respondents representing the whole country. That’s a good sample size. But, to be fair to the conservatives, it’s definitely possible to preserve a significant amount of assets (not necessarily income, that’s harder to hide) with trusts. AHEAD probably didn’t oversample areas of the country like New York and Connecticut, where there are lots of wealthy people and lots of estate planning lawyers. I think AHEAD would understate the fraction of people who would do this – although obviously getting a precise estimate of how many people did this would be difficult!

      It’s also not true that Medicaid restricts you to a nursing home. There are the home- and community-based services waiver programs.

      I do agree that deviously avoiding spend down isn’t likely to be a widespread problem at this point. Furthermore, qualitative surveys of state Medicaid directors generally don’t find that this is a problem either. And your student’s third-hand anecdote does probably miss one or more details.

      • @Weiwen
        that wave N=~8,200. No study is perfect, but to restate the key findings 4 in 10 elderly are spent down in the community; 4% have enough assets to potentially benefit from spend down and a trust of any sort. Does anyone have a study of purposeful spend down in any sample? Are you saying you think rich people in Connecticut and New York are more likely to be trying to figure out how to die in a Medicaid NH so their kids can have their money than rich people in other parts of the nation? Yes to waivers, and generalized attempts at community based options; see this post on rebalancing here http://theincidentaleconomist.com/wordpress/rebalancing-long-term-care/ the trend is away from NH, but for those in the community, there is not the same shift to Medicaid paying for everything as they still must maintain a house and most likely supplement with informal care.

    • I’m quite aware that your paper found that no more than 4% of seniors had assets and a trust of any sort, meaning that the estimated incidence of intentional fraud AND improper (regardless of intention) shielding of assets can be no more than 4%. What I meant was that it’s definitely possible to shield assets. People being people, you can bet that there are some who do it. I’d expect many of them to be in NY, CT, and other places where there are networks of estate planning lawyers. I think we shouldn’t underestimate the number of people who engage in improper estate planning – although I agree that many of the critics are overestimating.

      Personally, I think Medicaid’s asset limits should be raised, and by quite a lot. For example, my generation is all going to come into Medicare with lots of assets in 401ks, rather than pensions, and we don’t want to penalize that. We don’t want to penalize younger disabled individuals from working and saving, either. It’s just that there will be a price, in that some people will get Medicaid who could pay for themselves, but it’ll be hard to write the rules to exclude them in all circumstances.

    • Thanks Don. I suspect i have had a bit of observational bias at work as the occasional spam promoting this kind of activity really nettles me.

      Steve