Those who transfer assets and use other strategies to qualify for Medicaid coverage of nursing home care often wonder whether what they are doing, although legal, is also ethical.

Medicaid (called…MassHealth in Massachusetts) is a welfare program originally created to provide health care to our nations' poor. But due to the lack of any other program, Medicaid has by default become the long-term care insurance of the middle class. With the help of elder law attorneys, those needing long-term care artificially impoverish themselves in order to qualify for Medicaid and preserve their savings for either their healthy spouse or their children.

Two Contrasting Opinions

Stacy L. Bradford of SmartMoney.com says such actions are not ethical. In her column "Ask SmartMoney," November 18, 2002, Ms. Bradford responded to an inquiry from a son seeking advice on transferring his mother's assets before moving her to an assisted living facility.

"For starters," Ms. Bradford replied, "it's highly unethical to transfer funds to family members simply so that the government will pick up the tab." (Read the whole article, which mostly accurately describes the pros and cons of an assisted living facility resident transferring assets, at http://smartmoney.com/ask/index.htm?story=20021118.)

On the other hand, Randy Cohen, the ethics columnist for The New York Times Sunday Magazine, believes that Medicaid planning is ethical if you follow the rules. In Mr. Cohen's July 28 (2002) column, a Seattle woman asked whether it is ethical to divorce her husband who was recently diagnosed with early-onset Alzheimer's disease. If she were to do this, her assets would not be counted in determining her husband's eligibility for Medicaid.

Mr. Cohen replies: "What you are contemplating is not the exploitation of a legal loophole but adherence to the regulations governing Medicaid. But you should seek legal and financial advice: besides divorce, there are other options to consider, including, for instance, transferring some assets to your children (if you have any) or protecting your assets through annuities or trusts. Done with respect for the law and compassion for your husband, such actions, divorce included, are prudent and ethical courses of actions." (Mr. Cohen's entire comment can be read at http://www.nytimes.com/2002/07/28/magazine/28ethicist.html.)

Medicaid Planning vs. Tax Planning

It will be no surprise that we at ElderLaw News agree with Mr. Cohen and not Ms. Bradford. Unfortunately, neither Congress nor the state legislatures have resolved the public policy question of how we as a society should pay for the long-term care of our seniors. The result is a confusing, makeshift system of Medicare, private insurance, out-of-pocket payments, family caregivers and Medicaid as a last resort.

Medicaid has become recognized as the long-term care insurance of the middle class. Congress implicitly accepts this result through rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes. It's just different populations doing the planning.

Some argue that Medicaid planning is unfair because Medicaid is a zero-sum game. More money spent on long-term care for middle-class seniors means less for poor children who need medical care. There's some truth to that argument at the state level, but not at the federal level. The federal and state governments share Medicaid expenses. At the federal level, anyone who qualifies for Medicaid gets covered. At the state level, the same is true, but the states are also allowed to expand their Medicaid programs to serve underinsured individuals who wouldn't qualify under federal guidelines. If states have fewer resources, they are less able to expand Medicaid coverage to other needy individuals.

There is some indication that the Bush administration may try to make this a true zero-sum situation by changing Medicaid to a "block grant" program. Under that approach, the states would receive a specific amount of money from the federal government to spend on health care programs each year. Having more qualified beneficiaries will not mean more finding from the federal government, as it does now. This would definitely play off the various categories of beneficiaries against one another - seniors, children, disabled adults, the working poor. But even if that occurs, Medicaid would only be a zero-sum game if President Bush and Congress limit the amounts of the block grants.

This leads us to the final point in Mr. Cohen's article with which we agree wholeheartedly: "Both major parties must make change, embracing measures to protect the assets of middle-class seniors and taxing the assets of the rich (including through the estate tax) to provide all Americans with catastrophic medical care."

- Reprinted with Permission from ElderLaw News: Legal News for Older Americans and Their Families, Winter 2003, from the Law Office of Thomas R. Mullin, Quincy, MA, 800-770-1051.