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Middle Class Medicaid Planning: Law and Ethics

Medicaid planning is the reduction of assets, by expenditure or transfer, in order to permit a disabled person to qualify for means-tested government Medical Assistance known as “Medicaid.” “Means tested” means that eligibility for the program requires limited income and assets.

Misunderstanding runs rampant about the legality and ethics of Medicaid planning; and, with good reason. With all good intentions, in 1988, Congress created an ambiguity in its Medicaid program which boomeranged against the intended beneficiaries.

By the 1980's, medical advances had extended the lives of the frail elderly so that thousands of middle class families were bankrupted by the costs of nursing home care. In response to this situation, Congress transformed its 1965 Medicaid “poverty” program into a program which would protect middle class couples from joining the welfare ranks.

New laws permitted the spouse of a Medicaid applicant to retain assets and income considerably above the poverty line, including transferred from the Medicaid applicant to the applicant’s spouse. It permitted the retention of the family home, a car and certain businesses. Transfers of assets to non-spouses, such as adult children, subject to a quid pro quo of delayed eligibility for Medicaid benefits. These major innovations accorded middle class people a chance to preserve some of their life’s savings, although the program continued to apply poverty level standards to the applicant.

This hybrid arrangement injected ambiguity into the structure of the Medicaid program. It has been the source of endless confusion and resultant criticism of the very beneficiaries Congress sought to protect. Erroneously assuming that Medicaid remains purely a poverty program and that transferring assets is improper, commentators have blamed middle class applicants for “hiding” money,although their actions in transferring assets comport with the law. No money or transfers are hidden.

New York’s Highest Court gave broad philosophical support to Medicaid planning,strongly disapproving the government’s opposition: in the following language:

[N]o 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 the 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.

New York nursing home costs, of $160,000 per year in 2011, can fairly be described as “ruinously expensive.” Only a small minority can pay privately for a patient’s lifetime nursing home care, without leaving a partner destitute, the very outcome Congress sought to avoid.


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