GAO Report: The Myth of Millionaires on Medicaid

A new U.S. Government Accountability Office (GAO) report examining Medicaid planning strategies finds that that only 14 percent of Medicaid applicants had more than $100,000 in total resources and that only 5 percent transferred assets, adding support to assertions that Medicaid planning has a negligible impact on program outlays. 

The Report means hard evidence to rebut the assertions of some that perpetuate the myth that Medicaid for long term care provides benefits to "Millionaires on Medicaid"  The arguments ordinarily come from academics who have little real experience how Medicaid works, or the wide array of options available to the wealthy, other than reliance upon Medicaid, that better protect assets from long term care costs.  

The GAO reviewed 294 approved Medicaid nursing home applications in three states – Florida, New York and South Carolina -- to study the extent to which individuals are using available methods to qualify for Medicaid coverage. To identify the methods used to reduce countable assets to qualify for Medicaid coverage for nursing home care, the agency spoke with officials from the Centers for Medicare & Medicaid Services (CMS), interviewed nine attorneys recommended to it by the Director of the American Bar Association’s Commission on Law and Aging, and conducted undercover calls with representatives from 17 law offices whose websites indicated that they provided assistance with Medicaid planning.

During the undercover calls, the investigator posed as an adult child seeking advice on obtaining Medicaid coverage for his parent while preserving the parent’s assets. Two scenarios involved a parent with immediate need for care (one married and one widowed) and one scenario involved a parent who would need care in the future.

The following are some of the key findings in the report:

• Applicants most commonly owned financial and investment resources (95 percent), burial contracts and prepaid funeral arrangements (39 percent), life insurance policies (34 percent), their primary residence (31 percent), and vehicles (26 percent). Only nine applicants owned a trust and three applicants owned annuities.
• Sixty-five percent of applicants had annual gross incomes of $20,000 or less.  
• 30 percent had annual gross incomes between $20,001 and $50,000, and 5 percent had annual gross incomes of more than $50,000.Five percent of applicants transferred assets for less than fair market value.
• The median amount of assets transferred was $24,608, and the amounts ranged from $5,780 to $296,221. All but one of the applicants found to have transferred assets were from New York; the remaining applicant was from South Carolina.
• Five percent of applicants had a personal service contract that was determined to be for fair market value. The median value of the personal service contracts was $37,000; the value of the contracts ranged from $4,460 to $250,004.
• Two percent of applicants (5 applicants) used the “reverse half-a-loaf” method of transferring assets (in which the applicant gifts assets, incurs a penalty period, and then either converts other countable assets into an income stream or accepts a partial return of the assets). Four of those applicants transferred money in exchange for a promissory note and gifted between $20,150 and $227,250 worth of resources, resulting in penalty periods of between 2 months and 22 months.
• Thirteen applicants were able to use spousal refusal to allow the community spouse to retain assets. The median value of non-housing assets retained was $291,888, and two spouses were able to retain more than $1 million.
• According to state Medicaid officials, county eligibility workers, and attorneys interviewed, the value of annuities for the community spouse have average values ranging from $50,000 to $300,000.

To read the full report, "Medicaid: Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Nursing Home Coverage," click here.

For a National Academy of Elder Law Attorneys' press release responding to the GAO report, click here.