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Low Medicaid estate recoveries in Rhode Island is one big leak in the budget bucket that can be easily plugged to the benefit of everyone concerned.

Social Safety-Net spending consumes 46 percent of Rhode Island’s state budget.

Most of that money goes for Medicaid, the state/federal health-care program ostensibly for the poor. The Journal reported Aug. 20 that “80 percent of those Medicaid dollars are spent on just 30 percent of Medicaid enrollees.” That’s because the frail or infirm elderly account for the lion’s share of Medicaid costs, especially for long-term care, all across America.

But what do I mean that Medicaid is “ostensibly” for the poor? Isn’t Medicaid a means-tested public assistance program, i.e. welfare? Doesn’t it enforce strict income and asset limits that allow only the poorest of the poor to qualify?

All true for poor women and children who need preventive, acute or emergency care. But not true at all for people 65 or older who have a medical need for long-term care. The elderly qualify for Medicaid under a totally different set of rules.

Do they have to be low income to qualify? No, anyone with income below the cost of a nursing home ($7,777 per month) qualifies on the basis of income. Rhode Island Medicaid has denied only two applicants ever because of excessive income. So income is virtually never an obstacle.

But what about assets? Anything over $4,000 disqualifies you, right? Yes, but that’s only cash or resources easily convertible to cash. Medicaid applicants and recipients may also keep unlimited exempt assets, e.g., home equity up to $500,000 and, without any dollar limit, one business including the capital and cash flow, one automobile, prepaid burial plans, term life insurance, home furnishings and other assets. Converting non-exempt assets to exempt assets is as easy as buying a new car or adding a room to Grandma’s house.

For the truly affluent who still don’t qualify under these already extremely generous rules, Rhode Island has many “Medicaid estate-planning” specialists who make their livings artificially impoverishing people to qualify them for Medicaid benefits. These lawyers use techniques like “reverse half-a-loaf,” purchase of “life estates,” irrevocable income-only trusts, legal (beyond the five-year look-back) asset transfers, purchase of exempt assets and many other less common practices.

Now, here’s the kicker.

In 1993, the federal government made it mandatory for state Medicaid programs to recover the cost of benefits paid to older people with exempt (sheltered) assets out of their estates. In research I conducted for the Health Care Financing Administration in 1988, we found that Oregon, for example, recovered 5.2 percent of its Medicaid nursing-home expenditures from the estates of deceased recipients.

The comparable number for Rhode Island is only .67 percent. In other words, Rhode Island, which recovered only $2 million last year from estates, is leaving over $13 million on the table by not pursuing this non-tax resource more vigilantly.

Whoa! Wait a minute. Isn’t estate recovery like “picking the bones of the elderly”?

Not at all. With very generous income- and asset-eligibility rules, easy ways to self-impoverish and little estate recovery, Rhode Island’s Medicaid long-term care program has become, in effect, free inheritance insurance for Baby Boomer heirs. Is that really how Ocean Staters want to use their scarce public-welfare resources?

Wouldn’t it be much better for all concerned to recover Medicaid expenditures from the estates of deceased recipients and put that money back into the budget to relieve taxpayers and fund better care for those in need?

If everyone knows there’s no free lunch, that they’ll have to pay for their own long-term care up front or after the fact anyhow, won’t the public be more likely to plan responsibly; save, invest or insure; pay privately for their LTC; and leave welfare for the poor?

Low Medicaid estate recoveries in Rhode Island is one big leak in the budget bucket that can be easily plugged to the benefit of everyone concerned.

Stephen A. Moses is Health Care Policy Fellow for the Ocean State Policy Research Institute (OSPRI) and president of the Center for Long-Term Care Reform, in Seattle. His recent report titled “The Age Wave, the Ocean State, and Long-Term Care” is available at http://www.oceanstatepolicy.org/docs/AgeWave.pdf.