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Additional Thoughts on Healthcare Costs

In my last post I suggested there are things to think about – things that will need to be resolved through a political process that seems to have little stomach for “cutting benefits to retirees” – specifically, deciding how to pay for care for an aging population, while at the same time healthcare costs are rising and the quality of employment opportunities for those who are paying the taxes are declining. It is not a pretty picture. The same dynamic of course implicates our Social Security system. The current trajectory is unsustainable.

As I indicated below, one answer is to make all government healthcare services means-tested. Is it right that Bill Gates gets healthcare paid by the government because he paid taxes (probably a lot of taxes) and therefore is qualified for Medicare? Should rich people pay more? And if that door opens further (as discussed below, it has already been opened), how long before middle class retirees are in the same boat, and healthcare becomes just another system of wealth redistribution?

Assuming we simply won’t have enough money to keep this house of cards standing, one answer, or one part of the answer, may be cultural. Do we start believing in assisted suicide? The entry of California into the assisted suicide arena a couple months ago should have been louder. It is one thing for Montana, Oregon, Vermont and Washington to allow physician-assisted suicide, but California is a whole other matter. That’s big time. Like it or not, physician-assisted suicide is coming to your state sooner or later, and probably sooner than you think.

The thing about assisted suicide is that it brings with it the implication that there may be a point in life when staying alive is no longer in our best interests. Sometimes things get so unpleasant, the person would be better off dead. As shocking as that sounds, I can’t count the number of clients who have told me that their family member would not want to be alive in their current situation (if that had the capacity to express themselves).

So if we move from a culture that places a premium on quantity of life to one based on the concept of quality of life, will we then accept the proposition that we live life as long as it feels good and get out before or when the ugly part starts? That would certainly reduce healthcare costs. Healthcare for those with chronic conditions, particularly those in institutional care, makes up a disproportionately large part of the healthcare budget. The big challenge would be, where money (healthcare costs) is involved, how would we keep what may be a sincere change in cultural perspective from becoming a tool of the insurance companies – or are we fooling ourselves? Are cultural values always nothing more than expressions of societal convenience?

More questions. Few answers. Just thoughts. I know.

 

The Medicaid Planning Question

I get invited to present to a lot of groups about various topics – one of the most popular topics being planning for long term care. It is an important topic because there is so much misinformation and so many misconceptions about it. As a result, giving people a neutral non-sales oriented place to get information and ask questions is very needed.

Much of what people believe about this topic is a product of what we call the “chicken dinner seminar” circuit – those so-called “educational programs” where Medicaid and VA concepts are tossed out authoritatively – but in a manner that is designed not to enlighten – but rather create fear – so that the presenter can push products – annuities and irrevocable trusts currently being the most popular.

So, at a recent program I got the question I often get: ‘You’re office helps people use schemes to get the government to pay for their care – but what about personal responsibility?’ Or said another way: ‘Why should the taxpayers pay for your clients to get care when they have resources that could be used?’

It’s a good question – a natural question. I have become comfortable answering this question. The challenge is always to respond in a way that does not to make person asking feel uncomfortable.

My answer is twofold: first, the ‘what lawyers do’ response; and second, the ‘disease discrimination response.’

Answer part 1: Medicaid planning is just a lawyer explaining the law and how to use it to the advantage of the client. Just like rich people do. I usually say – just like George Bush or Al Gore do when they talk to their lawyers about planning to avoid taxes (capturing an icon from both sides of the political spectrum so that it doesn’t seem like this perspective is a function of my own politics). So, I suggest, if rich people can do it, why can’t middle class people talk to lawyers about how to use laws to their advantage?

Answer part 2: More importantly and somewhat more complicated is the idea of disease discrimination. Medicaid pays for long term supports and services – which by a quirk in history is a type of healthcare that is not covered under any of the parts of Medicare.

When the two houses of healthcare were created 50 years ago, Medicare was intended to provide healthcare for all people who worked and paid taxes, but in doing so, it was oriented to skilled care, hospitals and doctors visits (the type of care that dominated the healthcare systems at that time.) Medicaid was for poor people and covered all types of costs. Over time, long term supports and services became an important form of healthcare, mainly because people began living longer and with longer life came the epidemic of cognitive impairments, Alzheimer’s disease and the other forms of age-related cognitive impairment. Because the type of care that was required to provide for people with these medical conditions did not fit into the traditional concepts of skilled care, hospital care, and doctors visits; it fell onto Medicaid to cover these costs.

The result is that in the past 20 years or so, older Americans are increasingly finding that the healthcare they need is not covered by Medicare (or the supplemental private insurance policies that are all triggered by the same definitions as Medicare), and so they began to access Medicaid. In recognition of this development, Medicaid policy evolved to create a whole subset of programs specifically oriented to long term care. Over time these programs developed special rules for persons needing this type of care, including spousal protections and divestment rules. Despite these developments, Medicaid eligibility for long term care remains a program based on the concept of impoverishment, with countable and exempt assets, etc..

As I like say to the people who ask the question, and the many who are too shy to ask: My mother had cancer. It was hard on the family. But she was a retired teacher, so she had good insurance, and nobody ever asked my father how many cars he had, or whether he had made any gifts to his children in the past five years. If she had contracted Alzheimer’s, the situation would have been much different, and that difference seems to have no logical basis. Why do people with healthcare needs arising out of some types of diseases have their care provided by their government healthcare programs, while others do not?

That is how I answer this common question.

A related question, but usually not asked, is: Where do we go from here? How do we fix the system? Assuming all forms of illnesses should be treated similarly, should long term care services become a Medicare benefit? Or, should Medicare become more like Medicaid, with all services having some component of impoverishment? Recent developments in Medicare, including Part B premiums being increased for persons with higher incomes, and Part D benefits having asset tests that impact premiums and coverage; suggest it is more likely that we will see the latter. And that would be consistent with the reality that more and more people are getting old, and healthcare costs are only going to continue to rise.

The government healthcare systems that were created in the 1960’s when only about half the people in the system lived long enough to receive benefits, and those that did typically only lived a few years thereafter, is ill-suited for a world in which people commonly live for 30-40 years after they reach the age when the benefits begin, and in which healthcare has evolved to provide amazing, but amazingly expensive, forms of care that continue extend our lives.

Food for thought I hope.

 

An Inconvenient Obstacle to Community Based LTC

Summary

Because asset protection strategies commonly used in the context of nursing home Medicaid are problematic in the context of MI Choice Waiver and PACE programs, a significant number of potential beneficiaries are disincentivized from pursuing these services.

Background

PACE is the Program for All Inclusive Care that is operating in several parts of the State.  It is a unique and growing concept for long term care (“LTC”) that combines Medicare and Medicaid dollars for individuals who meet the Medicaid Level of Care requirements for long term care services.  In that combines Medicare and Medicaid money, PACE is especially interesting as it may anticipate something like what will come (if anything) from the current push for “integrated care” services.

Waiver or “MI Choice” is the home and community based Medicaid long term care benefit that provides benefits to Medicaid beneficiaries who meet the Medicaid Level of Care requirements for LTC services.  Services may be provided in the home or in those Assisted Living Facilities that participate in the program.

Both PACE and Waiver use the traditional Medicaid financial eligibility rules for nursing home Medicaid, but with an income cap.

Currently most PACE programs are looking to fill slots, whereas most Waiver programs are backlogged (but catching up).

Lawyers have long worked to qualify Medicaid beneficiaries in nursing homes while preserving assets for the spouse or other family members.  This practice area has grown dramatically in the past decade so that whereas a decade ago only a hand full of attorneys provided this type of advice and only a small percentage of nursing home residents took advantage of these asset protection strategies, today there are hundreds of lawyers in Michigan offering advice in this practice area and the majority of nursing home Medicaid beneficiaries receive advice on these strategies.

The Issue

Because the rules that allow for asset protection strategies for residents of Medicaid nursing homes are unclear in terms of how they apply to beneficiaries seeking PACE and Waiver services, a significant number of people seeking Medicaid funded LTC services are being, and will continue to be. disincentivized from pursuing PACE and Waiver services until these issues are resolved.  There are two specific areas of concern: (1) Spousal Protections and (2) Divestment.

Spousal Protections

LTC Medicaid policy provides for a so-called “protected spousal amount;” that is an amount of “countable assets” that the so-called “community spouse” (spouse not in the nursing home) gets to keep in addition to the $2,000 that the nursing home resident can keep.  The protected spousal amount is established by looking at the couple’s assets on the “snapshot date” (another term of art) and applying a formula provided by policy.  In PACE and Waiver programs it becomes difficult to establish a snapshot date, and therefore to take steps necessary to exercise strategies available to maximize the protection of assets for the community spouse.  For married couples these protections can be quite generous.  Although Medicaid policy provides a process for establishing a snapshot date in community based programs, most PACE providers and Waiver agents are unfamiliar with the importance of this process and the result is insecurity for the community spouse when pursuing these benefits.

Divestment

“Divestment” is the policy that penalizes asset transfers for people who give away assets before applying for Medicaid benefits in LTC during the five years prior to applying for benefits (the so-called “lookback period”).  Notwithstanding the policy people do give away assets, either because they do not know the consequences, because they think they should notwithstanding the consequences, or because they have been provided advice on how to do so and preserve assets by using the policy to their advantage.  A key component to fixing inadvertent or ill-advised conduct and for using strategies that allow for transfers notwithstanding divestment policy is the ability to trigger the running of the penalty period of ineligibility that arises as a result of the transfer, and further to provide income to pay for care while the penalty period of ineligibility is running.  Policy for PACE and Waiver services provides no clear direction as to how these two important features of divestment rules apply in this context.  Again, for individuals seeking benefits where divestment is an issue, the lack of ability to fix divestment problems and use the rules to protect assets serves as a disincentive to pursuing these benefits.

Conclusion

These obstacles are fixable if PACE and Waiver providers are willing to work with planners, and apply the rules in a manner that allows families to exercise the same options that are now commonly exercised in the nursing home situation.  Until then, these issues will remain disincentives to those who seek these services.

Trending Up: Medicare Set Aside Agreement

This is an important probate issue, although admittedly one that many probate lawyers may never come in contact with.  The topic is Medicare Set Aside Agreements (MSAs).  This topic is significant to those probate attorneys who work with plaintiff’s attorneys to assist in settlements of personal injury actions and workers compensation claims.

Background

MSAs are used to hold a portion of the funds received from settlements to pay for health care expenses that Medicare would otherwise pay for.  The idea is that when someone is injured and receives a settlement, the settlement funds represent a variety of damages, including future medical expenses.  If the injured person is, or is expected to become, covered by Medicare, an MSA holds a portion of those funds to pay for medical expenses incurred in the future so that Medicare is not charged for medical expenses that have already been paid for by a third party (the defendant).

MSA have traditionally been used exclusively in the worker’s compensation context.  The federal entity that runs Medicare (CMS) has long established rules and procedures for settling workers compensation claims: when MSAs are required and how to have the MSA, and the amount of the settlement placed in the MSA, approved.

What’s New

Over the last few years there has been a push to require MSAs be used in liability actions (traditional personal injury cases).  The push has come largely from annuity companies and other interests that operate in the workers compensation world.  They see liability claims as a new and large market for their products and services.

Although the federal law on this point has always cryptically required parties to liability settlements and judgments to “consider Medicare’s interest” in settlement proceeds, CMS has never required liability actions to use MSAs and they have no procedure for having MSAs approved in that context.  However, more recently it appears that those pushing for the expansion of MSAs into the liability arena are gaining traction. It appears we may have, or may soon have, a requirement that MSAs be used in larger liability cases where the plaintiff is, or is expected to become, a Medicare beneficiary.  Defense counsel are already demanding this issue be addressed in larger cases.

The application of MSAs to liability matters would be more complex than in workers compensation, for among other reasons, the allocation of fault among multiple defendants as well as the allocation of damages between future medical costs and the many other possible forms of damages suffered and recoverable in these cases as opposed to workers compensation matters.

It is also important to recognize that a full fledged adoption of MSAs into the liability world is a very bad thing for plaintiffs.  In a worst case scenario, such a requirement could dramatically reduce the benefit realized by the plaintiff in these matters, for the reason that in many cases a substantial portion of the settlement could become unavailable to them, set aside to replace care costs that would otherwise be paid by Medicare.

Of course Special Needs Trusts (SNTs) have long been part of the probate work that arises in the context of assisting personal injury lawyers with settlements.  This will not change.  What may change is the need to also develop and fund MSAs (or SNTs that can also operate as MSAs).