Map of life expectancy at birth from Global Education Project.

Thursday, February 09, 2006

You can't take it with you

I've been asked to comment on the new rules which make it more difficult for people to qualify for Medicaid who have transferred assets to their heirs in recent years. This is a tricky issue.

Very briefly, because I think most of my readers already understand the gist of this, just about everybody who's 65 or older (or disabled with certain restrictions), is eligible for Medicare. Ubfortunately, Medicare does not pay for long-term care in a nursing home, or other forms of so-called "custodial care" that people might receive through home care or adult day programs. Custodial care basically means services that aren't medical treatment -- feeding, bathing, dressing, protection from wandering and self-injury, social and intellectual stimulation, etc. Furthermore, even if a person needs hard core medical services, in a skilled nursing facility, they aren't covered for longer than six months.

Alas, people who are very frail and/or demented often really need these services. Some people are lucky enough to have a spouse or children who take care of them, but that can become a crushing burden. Others aren't so lucky. These services are very expensive, and will destroy most people's retirement savings in a very few years. In 2003, the average daily rate for a "semi-private" (i.e., not private) room in a nursing home in the U.S. was about $160, which is almost $60,000 a year. And these costs continue to increase faster than inflation.

Once you're broke, you qualify for Medicaid, which does pay for long-term and custodial care. So people have an incentive to give away assets to their heirs before they need long-term care, and the inheritance is destroyed. The old rules required that when someone applies for Medicaid, any assets transferred less than three years ago would be counted as though the person still had them, until three years after the transfer. The new rules impose a five-year "look back period," and the start of the waiting period now begins at the time of the application, rather than the time of the asset transfer. In other words (as I understand it, and I haven't been able to nail this down definitively so clarifications are welcome), if you gave away money to your kids five years ago, and you apply for Medicaid today, you won't be able to qualify for five years. Note that the change affects only middle class people. The poor already qualify for Medicaid, and the wealthy never will.

Now, the spectacle of moderately well-to-do seniors putting the burden of their nursing home care on taxpayers when they might have been able to pay for it themselves is unseemly to some. On the other hand, only a minority of people ever actually need expensive long-term care -- a lot of us are in decent health until a brief final illness. So there is no justice in the destruction of estates by the need for long-term care, it's just misfortune. If Medicare were to pay for it, the burden would be shared by everyone. Perhaps that is more just after all, so why shouldn't people try to arrange for justice for their own heirs?

The new rules create other problems, obviously. People often make gifts to their children without the slightest thought about one day needing nursing care. They give a down payment for a house, college education for grandchildren, etc. Now, if you do this, and then unexpectedly have a long-term illness, you may exhaust your assets and have absolutely no way to pay for your care. What then? Will nursing homes dump people in the parking lot? There seems to be no answer to that question.

Remember that this is the administration that wants to permanently repeal the "death tax," on the grounds that it is somehow immoral for people not to inherit 100% of their parents' assets. But fate imposes a death tax at random, which the administration now wants to make it essentially impossible to avoid. Does this make sense?

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