Asset Transfer and Nursing Home Use: Empirical Evidence and Policy Significance

The perception that many “well-to-do” elderly Americans transfer assets to gain Medicaid coverage for nursing home care is an issue that has consumed considerable policy interest in recent years. The concern is that the individual’s assets should be used to pay privately for nursing home care, instead of being transferred to relatives. Because Medicaid was designed to be a safety net only for the poor, asset transfer practices are thought to distort the intent of the Medicaid program and unnecessarily inflate public spending. In response to these concerns and as an attempt to reduce spending, the Deficit Reduction Act of 2005 (DRA) included provisions tightening the Medicaid eligibility rules related to asset transfers and nursing home use. The claim that asset transfers are utilized to gain Medicaid eligibility is mainly supported by anecdotal evidence about elder law attorneys’ assistance to elders in estate planning and nursing home care. Prior empirical studies also provide little indication of asset transfers and expected future nursing home use (See O’Brien, 2005, for a recent review of the literature). Little is known, however, about the frequency of such asset transfers occurring for the purpose of obtaining Medicaid coverage and the amounts of money involved.

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We used multiple waves of the Health and Retirement Study (HRS) to relate nursing home use, asset transfers, and Medicaid coverage. We examined the timing of these events to provide insight on the likelihood that asset transfers might have been utilized for the purpose of gaining Medicaid covered nursing home care. Our findings indicate that relatively few people who become Medicaid nursing home residents have transferred a substantial number of dollars. Asset transfer patterns were most common among nursing home residents who were “always private pay” meaning they did not receive Medicaid assistance to cover the cost of their nursing home care. Our analysis also estimated the maximum number of dollars that could possibly be recovered by Medicaid if all cases of transferred assets were deemed inappropriate and were collected as program savings and found that even the most aggressive pursuit of transferred assets would recover only about 1 percent of total Medicaid spending for long-term care.

Background

Elderly persons who are disabled or have chronic conditions that will shortly lead to disability presumably begin to think about how they will receive and pay for long-term care services. Because Medicare does not cover long-term nursing home care, Medicaid is the only source of public financing for this type of service. The Medicaid program was designed for the poor, however, and financial eligibility standards are very restrictive. In most states, Medicaid eligibility requires low levels of income and financial assets of $3000 or less. Thus, to gain Medicaid coverage for nursing home care, people with substantial assets have to exhaust them on nursing care or find ways to shelter any assets above the Medicaid qualifying levels. Even after qualifying for Medicaid an individual must put all their income except for a small personal needs allowance toward the cost of care.

For the full report, click here - (courtesy of The Henry J. Kaiser Family Foundation)