Is Medicaid Planning Considered Ethical?

In 1965, President Lyndon Johnson signed Medicare and Medicaid into law. Since then, the federal system for providing long-term care to our nation’s seniors has changed little, but the need for systemic reforms has grown dramatically as the population has aged and costs have exploded.

America is facing a long-term care crisis decades in the making. Until our leaders meaningfully address the crisis, many seniors will continue to have no choice but to rely on Medicaid to pay for the care they need.

America’s Long-Term Care System Has Been Broken For Decades

Medicaid is a public assistance program originally created to provide health insurance to our nation's poor. Yet the failure to implement a coherent long-term care system in this country means that Medicaid has by default also become the long-term care insurance of the middle class.

To qualify for Medicaid, those needing long-term care can opt to spend down their resources. The law also allows them to preserve some assets, either for their healthy spouse or their children.

The debate over Medicaid planning ethics is not new. ElderLawAnswers originally wrote on this topic in 2002. At the time, we cited writers from opposite sides of the debate.

The Ongoing Debate

Stacey L. Bradford of SmartMoney.com said in one article: "For starters, it's highly unethical to transfer funds to family members simply so that the government will pick up the tab."

On the other hand, Randy Cohen, the former ethics columnist for The New York Times Sunday Magazine, wrote in 2002 that Medicaid planning is ethical if you play within the rules. Speaking to a woman considering divorcing her second husband who had Alzheimer's disease, he said:

“What you are contemplating is not the exploitation of a legal loophole but adherence to the regulations governing Medicaid. Done with respect for the law and compassion for your husband, such actions, divorce included, are prudent and ethical courses of action.”

The Changing Demographics

While the substance of the Medicaid planning debate hasn’t changed substantially since the early aughts, the nation’s elderly demographics have.

In 2000, the country’s approximately 35 million seniors (age 65 and over) made up 13 percent of the U.S. population. Today, about 62 million adults, making up 18 percent of the U.S. population, are 65 and older.

By 2054, the 65-and-older population is expected to reach 84 million adults, or 23 percent of the population. Over the same period, the number of people 85 or older is expected to nearly triple.

The Need for (Expensive) Long-Term Care

About 70 percent of Americans who reach age 65 will, at some point, require care for basic living tasks like bathing, cleaning, and getting in and out of bed. Men will need help for on average 2.2 years and women for 3.7 years.

The median annual costs of long-term services and supports (LTSS) range from around $25,000 to more than $288,000. These costs far exceed the median income of Medicare beneficiaries ($36,000 per year) and would rapidly deplete their median savings ($104,000).

Medicare and private insurance generally do not cover long-term care. Long-term care insurance is available, but the market for these policies has shrunk over the years and rates have increased by around 30 percent to 40 percent over the past decade.

Long-term care costs and insurance costs have been going up for years at the same time that the need for long-term care has been increasing. A shortage of home health aides, workers in nursing homes and assisted living complexes, and geriatricians adds to the unfolding crisis.

Family caregivers often step in and fill long-term care gaps. More than 50 million Americans are already giving a portion of their day to helping a loved one with cleaning, feeding, transportation, and other daily living tasks. But not every senior has a relative living close by, and the number of kinless older Americans is expected to rise from 15 million in 2015 to 21.1 million in 2060.

Writing in The Hill, Katie Smith Sloan, an expert on aging services, called our patchwork system of paying for long-term care “dangerously broken” and says that professionals have long been sounding the alarm about it, to no avail.

“Will our leaders finally care enough to take action?” she asks. “If the past is prologue, the answer is a terrifying ‘no.’”

Middle-Class Americans Forced to Go Broke or Go Without Care

The result of perennial failures in our long-term care system is that many seniors are simply going without care.

A recent report from the Schwartz Center for Economic Policy Analysis at the New School found that, in 2020, about 40 percent of Americans age 55 and over who needed assistance with daily tasks did not get it, placing them at a far greater risk of injury, disability, and death.

According to the report, adults in the highest and lowest wealth quartiles are the most likely to receive professional elder care. Seniors in higher-income households can more easily afford out-of-pocket care, while those in lower-income households qualify for means-tested Medicaid programs that pay for professional care.

Members of the middle class often have no option other than to exhaust their assets to qualify for Medicaid and receive government-funded long-term care, forcing them to sell much of their property and empty their bank accounts. The New York Times and KFF Health News capture this lose-lose situation in painful detail in their series “Dying Broke.”

The Long-Term Care Crisis and Medicaid Planning

Attempts since the 1980s to create a national long-term care system — including the CLASS Act, the WISH Act, the Medicare Long-term Care Services and Supports Act, and other efforts — have repeatedly come up short.

Unless and until this broken long-term care system is fixed, Medicaid will likely remain the long-term care insurance of the middle class. In 2021, Medicaid was the leading payer for LTSS, with $207 billion dollars spent — nearly half of all LTSS spending.

Congress implicitly accepts this result through Medicaid rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes. It's just a different population doing the planning.

Some argue that Medicaid planning is unfair because Medicaid is a zero-sum game. More money spent on long-term care for middle-class seniors means less for poor children who need medical care.

There may be some truth to that argument at the state level, but not at the federal level. The federal and state governments share Medicaid expenses.

At the federal level, anyone who qualifies for Medicaid gets coverage. At the state level, the same is true, but the states have discretion on how far they expand Medicaid to serve underinsured populations. Lack of resources could mean narrower coverage on a state-by-state basis.

An important measure of a nation’s moral progress is how well it cares for its most vulnerable members. In terms of how much the U.S. spends on long-term care, America lags far behind most other wealthy countries.

The Build Back Better Act of 2021 contained a proposal that would have allocated $150 billion for in-home and community-based services for Medicaid, but it was dropped to reduce the final cost of the legislation.

Moving forward, lawmakers and community leaders must work together to embrace measures that protect the assets of middle-class seniors and provide all Americans with long-term care. LeadingAge, an association of nonprofit aging services providers, has outlined one such public-private partnership, focused on financing, housing, models of care, and professional caregivers.

Get Medicaid Planning Help From an Elder Law Attorney

Is Medicaid planning considered ethical? A better question might be: Is it ethical to force seniors to choose between making themselves penniless and receiving care that lets them age with dignity?

For help with planning strategies like trusts, annuities, life estates, and legal gifting, an elder law attorney will have the expertise to offer you guidance that conforms with the law.