Maneuvering to Obtain Medicaid Coverage Raises Ethics Issues

Middle-income people often can arrange their financial affairs so that the government picks up the tab for nursing home care.

But are such arrangements prudent planning, as some advocates claim, or an abuse of the system, as others suggest?

The only government program that pays for custodial nursing home care is Medicaid, known as Medi-Cal in California. It's a joint state-federal program designed to provide health insurance for the poor. The intent to help the needy makes Medi-Cal and Medicaid different from Medicare, the federal program that provides health insurance--but typically not long-term care costs--for virtually all U.S. citizens over 65.

Lawyers, financial planners and others who specialize in Medi-Cal planning say that middle-income people can take advantage of the program by transferring assets, making gifts and spending their cash to get below Medi-Cal limitations.

Advocates for this type of planning say it allows the elderly to preserve some of their assets to pass along to their children or to live on should they survive a long-term illness. They liken Medi-Cal planning to estate planning or tax planning as a legitimate way to hang on to a hard-won nest egg and to ensure that the elderly are not wiped out by the many expenses of long-term care that are not covered by traditional insurance.

"What is so moral about spending your life savings to enrich the nursing home industry or a insurance company?" asked Robert Rosenfeld, an estate planning attorney in Solon, Ohio. "If you wish to leave any inheritance to your descendants, avoidance of the catastrophic expense of elder care is required."

Proponents of Medi-Cal planning defend themselves by noting inconsistency in the system. For example, certain catastrophic diseases, such as cancer, are fully covered under most medical insurance, but the diseases that require custodial care, such as Alzheimer's, are not.

Detractors say that Medi-Cal planning may be legal but unfairly uses resources originally designed for the poor. Any extra money Medi-Cal spends means more has to come from other taxpayers.

"It makes me uncomfortable," said Marty Richards, a Seattle social worker and geriatric-care manager with 32 years' experience in the issues of aging. Richards worries that widespread use of Medicaid planning by middle-income people could bankrupt the system or force reductions in the level of benefits available to the needy.