Medicaid for Kin in Nursing Home May Be Reduced

WASHINGTON — In a stark illustration of the pain of cutting federal spending, the budget bill now before Congress would make it far more difficult for middle-class families to use Medicaid funds to help pay nursing home costs for elderly or disabled relatives.

In a little-noticed provision, the massive budget bill would substantially tighten the rules that govern when families become eligible for Medicaid coverage for nursing home care. By taking the steps, federal budget officials estimate they will save nearly $1 billion over the next five years. They concede, however, that because they have little hard data on who actually seeks Medicaid coverage, their savings estimates could be off significantly.

Budget officials contend that many families, including some with considerable wealth, have abused Medicaid--using legal loopholes to convert a program that was designed to help poor people into a backdoor form of government-funded long-term care for the middle class.

In recent years, nursing home coverage has contributed substantially to the skyrocketing health care costs that have made Medicaid the fastest-growing part of many state budgets and one of the chief causes of the swelling federal deficit.

“Some families with sharp lawyers get covered, while others don’t,” said Health and Human Services Secretary Donna Shalala. “The point is to introduce some fairness into the system.”

But critics of the proposed changes argue that--in the rush to end perceived abuses, which they say may have been exaggerated--Congress and the Administration could unjustly harm many families. In the end, they say, a middle-class family with a relative suffering from Alzheimer’s disease, for example, would be forced to impoverish itself before it could become eligible for federal assistance for nursing home costs.

“A lot of people are going to get hurt,” said Rep. Henry A. Waxman (D-Los Angeles), whose House subcommittee oversees the Medicaid program. “There’s a lot of righteous indignation about people taking advantage of the program but a lot of people have done this because there’s no alternative for them.” The Clinton Administration had sought even tighter restrictions, which Waxman successfully resisted.

With the cost of nursing-home care exceeding $50,000 a year in many states, hundreds of thousands of Americans have turned to Medicaid--called MediCal in California--to help pay the bills. Medicaid covers about two-thirds of the roughly 1.8 million people now in nursing homes.

The Administration, particularly First Lady Hillary Rodham Clinton, had suggested that the health care reform package President Clinton intends to unveil late next month might include a long-term care package to help ease the burden of nursing home bills. But now officials concede that budget realities will largely eliminate that possibility.

As a result, it is likely that many families will continue to look to Medicaid for help with nursing home bills.

Under Medicaid rules, a person generally can receive benefits only if he or she has limited income and less than $3,000 in assets--not including a house, car and personal possessions.

To meet those requirements, many families “spend down” their assets--paying nursing home bills until they have impoverished themselves and can become eligible for Medicaid. The result, in some cases, has been to leave a surviving spouse--often a person who has built up assets over a lifetime of work--with nothing to live on.

To avoid that, lawyers have developed ways to shelter assets so families can become eligible for Medicaid coverage without becoming impoverished. But those same techniques also have allowed wealthy families to shelter their funds so that substantial estates can be passed along to heirs while the taxpayers pay the costs of nursing home coverage.

The ease of sheltering assets varies from state to state. California, for example, already has some of the toughest rules in the country. But the new federal provisions, if they become law, would make even California’s provisions more stringent.

Under one common practice, for example, if a couple had $100,000 in retirement savings and the husband required nursing home care, the wife might be able to transfer the money to a child or put the funds in a trust and thereby obtain Medicaid coverage for her spouse. The child could then use the $100,000 later to help provide for the mother. If both the husband and wife died before the money ran out, the child might be able to keep the remaining funds.

Current law imposes a waiting period of up to 2 1/2 years between the time a person transfers assets and the time Medicaid will begin paying nursing home bills. Under the new law, the waiting period would grow, depending on how much a person tried to shelter.

The new rules would also crack down even harder on the use of trusts, essentially making a person ineligible to receive Medicaid payments if he or she had set up a trust within five years of applying for benefits.

An additional change would require all states to copy California’s practice of looking to the estates of Medicaid patients for funds that can be used to reimburse the government for Medicaid payments.

Under that program, California in some cases has tried to seize homes that couples have willed to their children. A recent court decision blocked the state from doing so, however, saying that under Medicaid rules, the value of a house is excluded from a person’s assets for the purpose of paying Medicaid costs. But the new law would change that rule and explicitly allow states to seize and sell the homes of Medicaid patients after the death of a surviving spouse and any disabled children.