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Elder Law: Transfer of Assets to Qualify for Medicaid Benefits

Introduction

The escalating cost of medical care has placed many American elders in a position where they are unable to afford such care without the assistance of the government. However, in order to qualify for governmental assistance, applicants must meet certain standards of eligibility. For example, if an applicant's income or resources exceed a certain prescribed maximum, that person will not be eligible to receive governmental assistance. This situation has prompted many elders to seek ways of divesting themselves of assets so that they may qualify for assistance. In response to this trend, the federal government has enacted a series of laws restricting the practice and providing penalties for applicants who attempt to become eligible for medical assistance by transferring their assets to others. For this reason, it is important to seek an experienced elder or health law attorney who is versed in the area of Medicaid requirements before attempting to transfer assets for the purpose of becoming eligible for benefits.

Transfer of Assets to Qualify for Medicaid Benefits

The Medicare program was created by the Social Security Amendments of 1965 to provide health insurance coverage for most individuals in the sixty-five and older age bracket. It is a federal program that is intended to cover acute short-term illnesses, some physician charges and most hospitalization costs. Medicare has uniform eligibility requirements and a standardized benefit structure for everyone in the country.

Medicaid, on the other hand, is a joint federal-state program that is intended to provide the poor and disabled with basic medical services, including mental health services. Medicaid often is referred to as a "means-tested" entitlement program, similar to the welfare system. In order to qualify for Medicaid, one must be 1) categorically needy, 2) optionally needy, or 3) medically needy. Medicaid applicants who are categorically needy fall under a prescribed ceiling of income and resources. Those who are medically needy have income and resources large enough to cover daily living expenses, but not to cover medical care. Optionally needy persons are those to whom the state can give assistance at its discretion.

Often, due to the escalating costs of health care, individuals who are not needy will be forced to spend so much of their income and resources on medical concerns that they finally fall into one of the three categories described above. At this point of impoverishment, they finally are able to receive Medicaid assistance. Thus, for some time, many individuals have used various methods designed to divest themselves of assets in order to qualify for medical care assistance - before they have depleted those resources in an effort to obtain medical care.

Before 1980, courts assisted individuals who transferred assets for less than market value in an attempt to qualify for Medicaid. They did this by preventing states from denying Medicaid benefits to these individuals. However, in response to the efforts of states and the insurance industry to curb such practices, Congress began to step in. In 1980, Congress added an amendment to the Parental Kidnapping Prevention Act, which prohibited the transfer of assets solely for the purpose of qualifying for benefits. In subsequent years, Congress passed other laws which attempted to curb the practice and provided penalties for applicants who had, in fact, divested themselves of assets at below-market value in order to achieve qualification.

In 1996, Congress passed the Health Insurance Portability and Accountability Act, which went so far as to criminalize the practice of transferring assets for the purpose of gaining Medicaid eligibility. This law was widely criticized, and thus, was short lived. However, Congress soon replaced this law with section 4734 of the Balanced Budget Act of 1997. Under these rules, anyone who, for a fee, knowingly and willfully counsels or assists an individual to dispose of assets in order to be come eligible for medical assistance under a state plan will be guilty of a misdemeanor. This misdemeanor could bring with it a fine of not more than $10,000 or imprisonment for not more than one year, or both. In other words, no lawyer or financial planner is able to counsel clients to engage in transactions designed to enrich family members as opposed to the medical health system. No one is allowed to counsel elders to transfer assets at below market value for the purpose of becoming eligible for governmental medical assistance. (In a few limited situations, an applicant may transfer assets to a spouse or other close family member, but these situations are rare. Therefore, it is advisable to consult an attorney for the specific requirements involved before attempting any asset transfer prior to applying for medical assistance.)

Criticism of this new law centers around whether or not the law is constitutionally defensible. Many critics find that it is not. Even U.S. Attorney General Janet Reno has decided not to prosecute under this provision. The reason is that the provision attempts to criminalize speech (encouragement to transfer assets) which, in and of itself, is not criminal. Critics ask, since the transfer of assets to become eligible for medical assistance is no longer criminal conduct, how can the encouragement of such conduct be a criminal act?

Some opponents of the practice of transferring assets to become eligible for medical assistance assert that the practice is, at the least, immoral, if not criminal. Chief among these opponents are officials of state medical assistance agencies. These officials contend that every dollar spent on someone who was financially able to afford medical care, but who transferred resources to attain "artificial poverty," and thus, medical assistance, is a dollar that cannot be spent on an applicant who was legitimately impoverished in the first place. Proponents of the practice counter that the practice is not wide spread enough to affect the system to any great extent.

Other opponents of the practice include those in the insurance industry. They contend that individuals who transfer assets to qualify for medical assistance no longer have any incentive to purchase long-term health care. They claim that this causes a depletion in the insurance market that is harmful to the entire industry.

Conclusion

In sum, whether the practice is immoral or not is an ongoing debate. Clearly, it is not illegal. In addition, it is questionable whether it is illegal to counsel or encourage another to engage in a practice of asset transfer to attain eligibility. But again, the morality of the act is questionable. Thus, the issue remains: Should an individual be able to transfer resources gained throughout life to his or her friends and family members and then apply to the state to furnish medical assistance. Or, should an individual be required to spend what he or she has on medical care until the point where there is nothing left, before asking for governmental aid? The answer to these questions will inform any determination as to the morality of pre-application asset transfer. In any case, it is best to consult with a legal advisor before making any asset transfer so as to fully comprehend any resulting consequences.

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