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EXAMINING ABUSES OF MEDICAID ELIGIBILITY

RULES

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

SEPTEMBER 21, 2011

Serial No. 112–90

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF COLUMBIA, CENSUS AND THE

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman

PAUL A. GOSAR, Arizona, Vice Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

PATRICK T. MCHENRY, North Carolina

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

DANNY K. DAVIS, Illinois, Ranking Minority

Member

ELEANOR HOLMES NORTON, District of

Columbia

WM. LACY CLAY, Missouri

CHRISTOPHER S. MURPHY, Connecticut
(III)

C O N T E N T S

Page

Hearing held on September 21, 2011 ..................................................................... 1

Statement of:

Moses, Stephen, president, Center for Long-Term Care Reform; David

Dorfman, attorney, Law Offices of David A. Dorfman; Janice Eulau,

assistant administrator, Medicaid Services Division, Suffolk County Department of Social Services; and Julie Hamos, Director, Illinois Department of Healthcare and Family Services .................................................... 9

Dorfman, David ......................................................................................... 16

Eulau, Janice ............................................................................................. 21

Hamos, Julie .............................................................................................. 25

Moses, Stephen .......................................................................................... 9

Letters, statements, etc., submitted for the record by:

Dorfman, David, attorney, Law Offices of David A. Dorfman, prepared

statement of ................................................................................................... 18

Eulau, Janice, assistant administrator, Medicaid Services Division, Suffolk County Department of Social Services, prepared statement of ......... 23

Gowdy, Hon. Trey, a Representative in Congress from the State of South

Carolina, prepared statement of .................................................................. 4

Hamos, Julie, Director, Illinois Department of Healthcare and Family

Services, prepared statement of ................................................................... 27

Moses, Stephen, president, Center for Long-Term Care Reform, prepared

statement of ................................................................................................... 12

(1)

EXAMINING ABUSES OF MEDICAID

ELIGIBILITY RULES

WEDNESDAY, SEPTEMBER 21, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2247, Rayburn House Office Building, Hon. Trey Gowdy (chairman

of the subcommittee) presiding.

Present: Representatives Gowdy, Gosar, DesJarlais, Davis, Clay,

and Cummings [ex officio].

Staff present: Brian Blase, professional staff member; Will L.

Boyington and Nadia A. Zahran, staff assistants; Christopher

Hixon, deputy chief counsel, oversight; Sery E. Kim, counsel; Mark

D. Marin, senior professional staff member; Jaron Bourke, minority

director of administration; Yvette Cravins, minority counsel; Ashley

Etienne, minority director of communications; Devon Hill and

Adam Koshkin, minority staff assistants; and Jennifer Hoffman,

minority press secretary.

Mr. GOWDY. Good morning. Welcome to everyone.

This is a hearing on examining abuses of Medicaid eligibility

rules. Pursuant to committee rules, I will read the mission statement.

We exist to secure two fundamental principles. First, Americans

have a right to know the money Washington takes from them is

well spent. Second, Americans deserve an efficient and effective

government that works for them. Our duty on the Oversight and

Government Reform Committee is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers

because taxpayers have a right to know what they get from the

government.

We will work tirelessly in partnership with citizen watchdogs to

deliver the facts to the American people and to bring genuine reform to the Federal bureaucracy. This is the mission of the Oversight and Government Reform Committee.

I will now recognize myself for an opening statement and then

the gentleman from Illinois, ranking member, Mr. Davis.

As this committee’s mission statement just made clear, Americans have a right to know the money Washington takes from them

is well spent. Americans also have the right to know whether social

programs that were designed for a specific purpose have been hi-
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jacked wittingly or unwittingly by those who have figured out how

to game the system.

Today, we will examine alleged abuses of Medicaid eligibility

rules. As we do, we are guided by the principle that each dollar

taken from a private citizen has a real cost and government needs

a compelling rationale for taking that dollar.

To be clear, this country has a rich history of providing a social

safety net for the elderly and the indigent. Some seek to turn the

safety net into a hammock or trampoline. Not only is this fiscally

irresponsible, it erodes the very little public trust people have left

in the institutions of government.

Without question, the Medicaid program is on an unsustainable

course. Over the past two decades, national Medicaid spending has

increased from less than $75 billion per year to over $400 billion

per year. At the State level, Medicaid growth has put tremendous

pressure on budgets and is crowding out other State priorities such

as education and public safety. At the Federal level, Medicaid

growth has the same effect. Plus, it is contributing to our national

debt at more than 40 cents of each dollar is borrowed.

Medicaid is a means tested welfare program designed to provide

medical care to the poor and disabled. But, today’s testimony will

reveal that Medicaid is not being used solely by the indigent. Although Medicaid technically has income and asset tests, these tests

are easy to circumvent and abuse. In fact, an entire cottage industry has arisen seeking to educate the wealthy on how to transfer

or hide assets, so taxpayers can pay for their long term care.

In 1982, Congress made it clear all of the resources available to

an institutionalized individual, including equity in a home which

are not needed for the support of a spouse or dependent children,

will be used to defray the costs of supporting the individual and the

institutions. Despite this congressional intent, all the resources

available to the institutionalized individual are not being used to

defray the taxpayers’ cost of supporting these individuals.

According to the CMS, less than 1 percent of the money spent

on nursing home care is recovered. The art of artificially impoverishing oneself to gain Medicaid coverage has spawned a stand

alone industry. Medicaid planning is pervasive. A Google search

which includes quotes around Medicaid planning yield over a half

million hits. Popular books are available like the one entitled,

‘‘How to Protect Your Family’s Assets from Devastating Nursing

Home Costs: Medicaid Secrets.’’

This book includes tips on how to title your homes so you don’t

lose it to the State, how to make transfers to family members that

don’t disqualify you from Medicaid, how annuities make assets disappear, smart tricks for spending down your assets, what to change

in your will to save thousands of dollars if your spouse ever needs

nursing home care to avoid the State’s reimbursement claim, following the nursing home resident’s death. Government programs

should not have secrets and artificially impoverishing oneself to become eligible for a program that was not designed for you is wrong.

In 2006, the Europost ran an article about Medicaid millionaires

in one county in the State. In that year, nine millionaires had taxpayers paying for their Medicaid bills. One man, worth nearly $2

million, had Medicaid pick up over $80,000 in nursing home costs
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for his wife. One woman, worth $1.6 million, had Medicaid pick up

over $200,000 in nursing home costs for her husband.

Since half of New York’s Medicaid bill is financed by Federal taxpayers, taxpayers in my home State of South Carolina are paying

for millionaires on Medicaid in New York.

About once a decade, Congress revisits the eligibility rules for

Medicaid to crack down on their abuse. In 1993 the Omnibus Budget and Reconciliation Act, Congress required States to do a State

recovery. In the 2005 Deficit Reduction Act, Congress closed some

loopholes and extended Medicaid’s look-back period. Today’s testimony will reveal whether previous congressional action in this area

has worked.

We all know that tough choices are coming and that there will

be strong partisan differences about the way forward. Today’s hearing offers us an opportunity to explore an area where there should

be genuine bipartisan agreement. Medicaid was intended for the

poor and the disabled. Millionaires should not be on welfare. If the

rules of Medicaid allow individuals with sizable portfolios to qualify

for the program and protect the inheritance of their children, then

Medicaid needs reforming.

[The prepared statement of Hon. Trey Gowdy follows:]
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Mr. GOWDY. With that, I now recognize the gentleman from Illinois, the ranking member, Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman. Let me thank

you for holding this very important hearing.

I also want to thank all of the witnesses for being here. I would

especially like to thank Ms. Julie Hamos who probably just came

in this morning on the flight that I usually take when I want to

get here by 10 a.m. And, sometimes the traffic is difficult and you

have a hard time making it. Thank you very much, Julie.

Mr. Chairman, I appreciate the importance of this hearing and

I am happy to have dialog on this very critical issue.

Since its inception in 1965, I have always said that Medicaid and

Medicare were the best things that happened to health care, especially for elderly and low income people in this country, since the

Indians discovered corn flakes. I am a firm believer that those individuals who have no other recourse, who have no other way to be

cared for, should, in fact, be cared for by the resources that we

make available to them.

The Medicaid Program funds one of six of all personal health

spending in the United States. Additionally, Medicaid spending has

increased to over $400 billion last year. This number gives us

pause. Those of us who continue to view Medicaid solely as a budget challenge are missing the mark. This program involves real people and is about real people and their needs.

Policy solutions that focus only on limiting public obligations or

long term care financing do the citizens of our country a great injustice. Realistically, individuals and families bear the majority of

care giving and financial consequences. Families and friends provide upwards of 80 percent of long term care in the United States.

I am open to new ideas to facilitate the care of people across all

age groups who are needy and certainly not for those who are simply greedy.

But these discussions cannot be filled with flawed assumptions

about peoples’ resources. The vast majority of Medicaid’s enrollees

have limited resources, including the 33 million children, the 11

million persons with disabilities, the 17 million non-disabled adults

and the 6 million seniors.

In Illinois, more than 2.7 million Illinois seniors, children and individuals with disabilities rely on Medicaid services and programs.

Long term care is a valued program. It includes medical as well as

non-medical care to those who have a chronic illness or disability.

Long term care helps meet health or personal needs. Most long

term care is to assist people with support services such as activities

of daily living like dressing, bathing and using the bathroom. Long

term care can be provided at home in the community, in assisted

living or in nursing homes. The dignity and peace of mind given

to people who utilize these services is immeasurable.

Certainly there are those who attempt to misuse the system, but

the vast majority of enrollees are simply those who otherwise

would not have the wealth or income for such personal daily care.

These bad actors must not cause us to throw up our hands and surrender.

I have a term that I often use that says, ‘‘I don’t ever want to

throw out the baby with the bath water.’’ I want to throw out all
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of the waste, abuse and misuse of the program that we possibly

can. Medicaid must continue to provide coverage based on Federal

standards that ensure maximum access for low income and special

needs populations with funding allocations based on the needs of

these populations.

A meaner Medicaid is not a sufficient solution. Now is not the

time to reduce access. Compassion and common sense must prevail.

Affordable, accessible quality health care should not be a partisan

or political issue but a human one.

Last, I am proud that Ms. Hamos has agreed to join us and I am

delighted again that she was able to make it.

I agree with you, Mr. Chairman, I agree wholeheartedly that

those individuals who are misusing the system, those individuals

who are using it as a way to make sure that they can transfer

wealth, all of those efforts that are underway to provide subterfuge,

to provide ways to deny access to individuals who really need the

services. I will work with you and other Members of this body to

exercise, to carve out and get rid of all those individuals and those

opportunities.

Again, I thank you for the hearing and look forward to the testimony of the witnesses.

Mr. GOWDY. I thank the gentleman from Illinois.

I would now recognize the gentleman from Arizona, the vice

chairman of the subcommittee, Dr. Gosar.

Dr. GOSAR. Mr. Chairman, I would like to echo the concerns that

you shared about the unsustainable growth in Medicaid spending.

This is a significant problem in my State of Arizona. The crippling recession of late has affected my State tragically, reducing

the money in the General Fund by $2 billion in only a couple short

years. The Governor and legislature are finding of the biggest expenses the State has is its Medicaid Program.

In a time when this program meant for low income people in

need of basic health care is facing deficits, we need to explore critical reforms that will ensure limited Medicaid dollars reach those

who need it most. I think we will find today that long term care

eligibility standards in current Federal law do not achieve this

goal.

I also agree with you that this hearing should be bipartisan. We

have strong disagreements with the massive Medicaid expansion

contained in the President’s takeover of health care, but we should

be able to find common ground. The taxpayer program should not

serve as inheritance protection and that the rules that can be navigated so millionaires can qualify for welfare are in desperate need

of reform.

According to the law firm, Wright, Abshire in Houston, TX, even

if a client’s assets are substantial, the firm will be in almost every

case be able to successfully achieve a satisfactory plan for the client

to preserve assets. An organization in California called Nursing

Home Solutions states, ‘‘We get middle class families excellent

nursing home care funded by Medi-Cal.’’ This advertising makes

Medicaid planning sound like the proverbial free lunch.

But while the individual family benefits from taxpayers supporting long term care services received by that individual, there

are also clear costs. The obvious cost is to future generations and
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business owners who will have to pay this bill and who have the

result of less capital to invest in the economy. The less obvious cost

is that nursing homes and long term care providers are harmed by

more individuals receiving Medicaid’s low reimbursement rate.

So the policy question is, who should bear the burden of paying

the cost of long term care? It would be convenient to say the other

guy, but what happens when the other guy is tapped out? Taxpayers are simply tapped out and our Nation is running a $1.6 trillion deficit for the third straight year.

Our friends on the other side of the aisle may say this cost

should be socialized, but that solution is misguided for two reasons.

The first is that we need to be figuring out ways to reform Medicare and Medicaid, not to expand it. The second is that it runs

counter to the obvious principle that individuals spend their own

money better than they spend other people’s money. Since the private sector does most things better than the government, can the

private sector play a role in figuring out a way out of this problem?

I respectfully assert that the free market solutions have never

been able to take hold in the market for long term care because of

Medicaid. Since it is so easy to get taxpayers to foot a person’s long

term care needs, individuals don’t have any incentive to plan for

these expenses.

Don’t take my word for it, whoever, In 2008, Jeff Brown at the

University of Illinois and Amy Finklestein of MIT wrote an article

entitled, ‘‘The Interaction of Public and Private Insurance, Medicaid and a Long Term Care Insurance Market.’’ This article appeared in the Nation’s most prestigious peer-reviewed economics

journal, American Economic Review.

The findings are that all but the wealthiest households in the

country have virtually no reason to purchase long term care insurance. This is because a private policy pays for many benefits that

simply replace benefits Medicaid would have paid for. It is important to note that Brown and Finklestein did not even account for

the art of Medicaid planning. They assumed that people actually

have to spend down their assets in order to qualify for Medicaid.

Therefore, it is unfair to criticize the private, long term care insurance industry for lack of policies. A private insurer is not competing on a level playing field with Medicaid since Medicaid is so

heavily subsidized.

The way I see it is, the choice is clear. We can fail to reform

these rules. This would continue to allow relatively affluent individuals on welfare to discourage all of us from taking seriously the

possibility of needing to take care of long term care in the future.

This failure will doom the whole system as a whole.

The alternative is to reform the rules and reduce the loopholes.

Real reform should prevent affluent people from qualifying for welfare with the effect of preserving the inheritance of their adult children. Real reform would also promote personal responsibility and

awaken Americans to the fact that while living longer is a great

thing, it comes with the possibility of requiring assistance. Real reform would preserve taxpayer dollars to assist genuinely needy individuals in getting care. Real reform would reduce Medicaid burden on State budgets and the Federal budget and would decrease

the amount of money that Washington borrows from abroad.
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Mr. Chairman, thank you for calling this hearing. I eagerly await

the testimony of our witnesses to learn more about this issue and

steps that can be taken to reform the program.

I yield back.

Mr. GOWDY. I thank the gentleman from Arizona.

I would also like to recognize and thank the gentlemen from Missouri and Tennessee, respectively, for their presence and their contributions to this subcommittee.

Members may have 7 days to submit opening statements and extraneous material for the record.

It is now my pleasure to welcome our distinguished panel of witnesses. I will introduce you at once and then we will go from my

left to right, your left to right, in terms of opening remarks.

Mr. Stephen Moses is the president of the Center for Long-Term

Care Reform. Mr. David Dorfman is an attorney with the law offices of David A. Dorfman. Ms. Janice Eulau is the assistant administrator, Medicaid Services Division, Suffolk County Department of Social Services. My friend, Mr. Davis, joins me in introducing and welcoming the Honorable Julie Hamos, director of the

Illinois Department of Healthcare and Family Services.

Pursuant to committee rules, all witnesses will be sworn before

they testify, so I would ask you to please rise and raise your right

hands.

[Witnesses sworn.]

Mr. GOWDY. Let the record reflect that the witnesses answered

in the affirmative.

Mr. Moses, we will start with you. The lights, which I hope you

can see, mean what they traditionally mean. Green means go. Yellow, unlike in real life does not mean speed up and see if you can

get under it, means you have about a minute left and then, red

means conclude your last comment if you can.

With that, again on behalf of all of us, thank you. We are honored to have such a distinguished group of witnesses.

Mr. Moses.

STATEMENTS OF STEPHEN MOSES, PRESIDENT, CENTER FOR

LONG-TERM CARE REFORM; DAVID DORFMAN, ATTORNEY,

LAW OFFICES OF DAVID A. DORFMAN; JANICE EULAU, ASSISTANT ADMINISTRATOR, MEDICAID SERVICES DIVISION,

SUFFOLK COUNTY DEPARTMENT OF SOCIAL SERVICES; AND

JULIE HAMOS, DIRECTOR, ILLINOIS DEPARTMENT OF

HEALTHCARE AND FAMILY SERVICES

STATEMENT OF STEPHEN MOSES

Mr. MOSES. Thank you, Mr. Chairman and members of the committee. Thank you for inviting me to speak to you about Medicaid

and long-term care financing today.

I have worked in this field since 1981, first as a career U.S. Government employee with the Health Care Financing Administration,

the predecessor of the current CMS; then for the Inspector General

of the U.S. Department of Health and Human Services; and since

1989, in the private sector. I am currently president of the Center

for Long-Term Care Reform.
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In each of these roles, I conducted national and State studies of

Medicaid and long-term care financing. My remarks today are fully

developed and documented in published reports available on our

Web site at centerltc.com.

Medicaid is supposed to be a long-term care safety net for people

in dire financial need. Instead, it has become the dominant payer

for most Americans who require extended care at home or in a

nursing, including the middle class and even the affluent. How can

this be true if Medicaid is a means-tested public assistance program? That is the key question before you today. Here is the answer.

Although everyone says Medicaid eligibility requires low income,

that is untrue for people over the age of 65 who need long term

care. Federal rules require most States to deduct medical expenses,

including the cost of nursing home care, from applicants’ income

before determining eligibility. Some States apply income caps but

these are easily evaded by means of special income diversion

trusts. Bottom line, income almost never disqualifies anyone for

Medicaid long term care eligibility.

What about assets? It is true that cash and negotiable securities over $2,000 are disqualifying in most States, but it doesn’t matter

how people spend down to that level as long as they don’t give

away their assets. Financial advisors frequently tell clients to purchase exempt assets, take a world cruise, throw a big party, all

non-disqualifying spend-down methods.

Just how many exempt assets can applicants retain and still

qualify for Medicaid long-term care benefits? There really is no

meaningful limit. Exempt home equity is capped at $500,000 to

$750,000 which is 13 to 20 times the amount protected in England’s socialized health care system.

The following resources are exempt without any limit: one business including the capital and cash-flow; individual retirement accounts or IRAs; one automobile; prepaid burial plans not only for

the Medicaid recipient but for all immediate family members; term

life insurance which allows recipients to evade the Medicaid estate

recovery mandate; and household goods and personal belongings,

all without any capped limits.

The Federal regulations and policies that require these exemptions are documented in our report entitled, ‘‘Medi-Cal Long-Term

Care: Safety Net or Hammock.’’ Medi-Cal is Medicaid in California

and these problems and issues apply nationwide.

Married applicants for Medicaid LTC benefits can retain substantially more income and assets than single people, up to $2,739

per month of income and half the joint assets of the couple up to

$109,500. If the healthy spouse’s personal income and assets are

below these levels, the Medicaid spouse’s income and assets are

transferred to bring him or her up to the limit. These spousal impoverishment protections increase annually with inflation.

Because of these very generous basic eligibility rules, the vast

majority of America’s elderly qualify easily for Medicaid when they

need long term care. The conventional wisdom that people must

spend down into impoverishment before Medicaid will help is demonstrably untrue. Only the most affluent need to consult Medicaid planners and use special legal techniques such as trusts,
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transfers, annuities, life estates, life care contracts and promissory

notes to qualify.

The other panelists will discuss Medicaid planning. The key

point I want to make is that we need to remember that egregious

Medicaid planning is only the tip of the iceberg. The bigger problem is that Medicaid’s basic eligibility rules allow most people to

qualify after they need long term care and without spending down

their wealth first.

To conclude, easy access to Medicaid has the effect of desensitizing the public to long term care risks and costs. Medicaid’s

home equity exemption prevents people from using reserve mortgages to finance home care. With most of their assets protected by

Medicaid, few people plan early to save, invest or insure for long

term care.

Well intentioned public policy has turned into a perverse incentive discouraging responsible long term care planning. Furthermore, consuming scarce public welfare resources to indemnify affluent baby-boomer heirs of well-to-do seniors hurts the poor instead

of helping. It is like friendly fire in the class war. Medicaid could save up to $30 billion per year if people had to

consume their home equity before qualifying for public benefits as

is true in England. The program’s most expensive dual eligible recipients could be reduced by 20 percent. Reverse mortgages to fund

long term care would thrive and generate new jobs and tax revenue.

The private long term care insurance market would expand creating even more jobs and revenue, but most importantly, relieving

the financial pressure on Medicaid in this way would enable the

program to survive as a quality safety net for those who are truly

in need.

My analysis explaining how Medicaid can save $30 billon per

year by encouraging financing of long term care through private financing alternatives has been made available to the committee.

Thank you.

[The prepared statement of Mr. Moses follows:]
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Mr. GOWDY. Thank you, Mr. Moses.

Mr. Dorfman.

STATEMENT OF DAVID DORFMAN

Mr. DORFMAN. Good morning, Mr. Chairman, and members of

the committee. Thank you so much for having me here this morning.

My name is David Dorfman and for about the last 20 years until

January of this year, I practiced Medicaid planning law in Manhattan, Brooklyn and Queens.

I came to elder law out of a family experience. My grandmother

and her two sisters all went to Portia Law School, the first law

school for women in Boston in the 1930’s. I grew up with elder law

around the house, when her friends would come over to probate

their husbands’ wills, to transfer keys to the children, to take care

of those family matters that her senior friends had.

When I began my practice, OBRA 93 had just become the law

and I attended Bar Association meetings, met leaders in the Medicaid legal field and began teaching other people how the system

works because while Medicaid is certainly not a secret program, it

is so difficult for people to understand how it works, given the massive unfairnesses and confusion in qualifying for benefits.

My clients would come to me typically because they had a spouse

who had Parkinson’s or Alzheimer’s, a parent who needed care, and

they didn’t know what to do. They weren’t sure what their options

were. What we set about doing was educating people as to how the

system works and creating an individual, tailored plan, much like

for health care, what was the best thing for that particular individual to do.

It might be trusts or annuities, changing title to the home, investing in pensions or insurance, but I am going to suggest that the

abuse is a myth. That is not really what is happening. That is not

what any of my clients wanted. None of them wanted to game the

system. They all wanted to know what should I do, the same way

a woman whose husband has had a stroke says to the doctor, what

am I supposed to do, they say to the social worker, what am I supposed to do, how am I supposed to live, where will I be living, what

will happen to the pension, the social security, who is going to provide the care?

Soup kitchens are free and nobody checks 5 years worth of bank

statements and millionaires don’t go there for lunch.

In terms of creating a health care system, we don’t need a punishment health care system, periods of ineligibility or penalty periods. We need a system that has a cost sharing approach that invites people in so they can access necessary care and share in the

costs. That is what people want, not an all or nothing approach. We

can’t mandate abject poverty because that is what people are terrified of. If that has to be created, no matter what the rules are, people will do whatever they have to do to get the necessary health

care for their loved ones or they will suffer and die without care.

I saw people who were increasingly afraid to get care as Medicaid laws became more onerous, people who qualified for benefits,

people who were poor and needed health care but didn’t fill out the

application because they didn’t have the bank statements. Let us
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create a system that invites people in who need care, not one that

punishes them.

Thank you.

[The prepared statement of Mr. Dorfman follows:]
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Mr. GOWDY. Thank you, Mr. Dorfman.

Ms. Eulau.

STATEMENT OF JANICE EULAU

Ms. EULAU. Good morning, Chairman Gowdy, Ranking Member

Davis and members of the subcommittee. Thank you for the opportunity to speak to you today about this important topic.

My name is Janice Eulau and I have been employed by the Suffolk County, New York Department of Social Services for the past

36 years. I currently serve as the assistant administrator for the

Medicaid Program in that county.

Approximately 180,000 individuals receive Medicaid in Suffolk

County with 5,300 in receipt of nursing home care. In 2010, the

nursing home care costs for those 5,300 individuals was $429.9 million with a Federal cost of $213.7 million.

As a long-time employee of the local Medicaid office, I have had

the opportunity to witness the diversion of applicants’ significant

resources in order to obtain Medicaid coverage. It is not at all unusual to encounter individuals and couples with resources exceeding $500,000, some with over $1 million.

There is no attempt to hide that this money to exists, there is

no need. There are various legal means to prevent those funds from

being used to pay for the applicant’s nursing home care. Wealthy

applicants for Medicaid’s nursing home coverage consider that benefit to be their right, regardless of their ability to pay themselves.

There is limited understanding that Medicaid nursing home care

remains a means tested program not an entitlement program. This

misunderstanding seems to be perpetuated by the elder law and

Medicaid estate planning industry.

The two most often used by single clients is the promissory note.

Half of the applicant’s excess resources transfer to the children

without compensation. This transfer results in a penalty period

where Medicaid will not pay for nursing home care, approximately

1 month for every $10,000 transferred. The other half of the excess

resource is also transferred to the children but in return for a

promissory note which will produce an income stream to cover the

cost of care during the penalty period. Our county regularly sees

promissory notes in excess of $150,000 with matching, uncompensated transfers.

For couples, the most common method of preserving resources is

spousal refusal. In this case, the spouse in the nursing home transfers all resources beyond those he is allowed to keep to the well

spouse living at home, since transfers to a spouse do not incur a

penalty period. In New York, the institutionalized spouse may retain $13,800. The spouse living at home can retain up to $109,000.

In addition, the home and prepaid burial expenses are exempt.

Any amount in excess of these resources is deemed available to

meet nursing home costs. However, Federal law allows the spouse

at home to refuse to support the applying spouse and requires

States to then base Medicaid eligibility determination on the income and assets of only the applying spouse.

States then have the right to bring support proceedings against

the refusing spouse. My county has pursued the refusing spouse in

the past. However, in family court, we are only allowed to address
22

the excess income and attach resources for past Medicaid payments. Any future proceedings would need to be addressed in New

York Supreme Court, a process that would take months or years

for each case and severely strain our limited local resources.

The remedy for these abuses lies in education as well as changes

to law. Many seniors believe that Medicare and their supplemental

insurance policy will pay for the nursing home care when in fact

these policies will only pay up to 100 days of care and only under

certain circumstances.

Medicaid communication through their annual handbook and

their official Web site is woefully lacking information in this area.

Not surprisingly, wealthy seniors fail to realize the value or need

for long term care insurance. Having a better understanding of the

limits of Medicaid would enable seniors to make timely and informed decisions regarding their future care needs. In addition, incentives for the purchase and use of long term care insurance

should be provided by the Federal Government.

I also respectfully suggest that the law allowing spousal refusal

be adjusted to enforce the current resource limit and allow the

spouse at home to petition court for higher resource levels should

his or her circumstances call for such an increase instead of requiring the State to address each refusal. Allowing wealthy spouses to

ignore their financial responsibility to one another is a policy we

cannot afford.

In closing, I would hope that the Medicaid Program can fulfill its

original mission, to provide quality health coverage to individuals

who are unable to afford such care or the insurance to pay for this

care. However, individuals with resources above and beyond the

level prescribed by law should not be allowed to fund their children’s inheritance while the taxpayers fund their nursing home

care. I strongly believe this is not a partisan issue. I also believe

in the merits of the Medicaid Program but feel just as deeply that

these issues regarding resource diversion need to be addressed.

Thank you.

[The prepared statement of Ms. Eulau follows:]
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Mr. GOWDY. Thank you, Ms. Eulau.

Ms. Hamos.

STATEMENT OF JULIE HAMOS

Ms. HAMOS. Thank you.

Good morning, members of the subcommittee and Mr. Chairman.

I am Julie Hamos, director of the Illinois Department of

Healthcare and Family Services, which among our other responsibilities, manages one of the largest Medicaid programs in the Nation. Illinois serves 2.7 million clients through Medicaid and

SCHIP at an overall program cost of $16.6 billion.

Today, we are talking about eligibility policies for Medicaid long

term care and this, for us in Illinois, is a most propitious time to

be talking about this since we are tackling this exact issue. As a

new director of HFS last April, I learned that Illinois’ previous administration had not yet implemented the Federal DRA that

passed in 2006.

Accordingly, almost immediately when I came in, we set to work

to create rules involving Medicaid eligibility for long term care,

rules that incorporate the DRA but go beyond it to actually deal

with the loopholes that you are hearing about today since we have

now learned from the experiences of other States.

Some of those loopholes are, in fact, spelled out in the Council

for Long Term Care Report that I have read very closely. I have

to be honest and tell you that this is a struggle in Illinois to convince our legislative rulemaking committees to adopt these rules.

This is not a Democrat nor Republican problem. There seems to be,

much to my surprise, a bipartisan acceptance of the so-called Medicaid estate planning practices that allow people to divest their assets in order to qualify for Medicaid nursing homes. The paper, I

think, articulates the problem which is that there is no stigma attached to this.

We agree with you that it is our responsibility to eliminate any

abuse in the Medicaid Program and we are working hard right now

to move along on some of these reforms. Today, I would like to

touch on two other issues that have the potential to drive down

Medicaid costs for long term care.

Of our 2.7 million clients, 14 percent are seniors and adults with

disabilities, yet these 14 percent of Medicaid clients incur 54 percent of the costs. Many of these same clients are also expensive dually eligible Medicare clients. While we are fully committed to providing for their care and maintenace, most of them really are low

income and very vulnerable people, and they need long term care,

but our focus is all about service delivery reform.

Illinois historically has had an institutional bias building up

state-operated institutions and nursing home beds. We currently

have an excess of 15,000 empty nursing home beds, so we have

overbuilt on that side but we have failed to invest in home and

community-based services, obviously at a much better cost.

We believe that we can achieve Medicaid savings and promote a

higher quality of life for seniors and disabled who prefer to stay in

their homes by rebalancing our long term care system to shift from

nursing homes and make investments in home and communitybased services.
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In addition, many health care services are fragmented for both

Medicaid and Medicare and result in unnecessary and wasteful

hospitalizations with the revolving door of admissions and readmissions to acute care hospitals, to psych wards of hospitals and to

free-standing psychiatric hospitals.

In order to drive down these costs, Medicaid must, in conjunction

with Medicare for those who are dually eligible, provide care coordination for these most complex and expensive clients who have

chronic health and behavior health conditions with the goal of

keeping them healthier, stable in the community and not in hospitals but in community-based long term care.

I just want to convey to you that in this period of the Affordable

Care Act planning, we are spawning an era of innovation in the

health care delivery system. Federal CMS is offering incentives and

guidance almost daily to encourage us to focus on quality

healthcare and health outcomes in home and community-based settings that will ultimately result in cost savings for both Medicaid

and Medicare.

I urge you to maintain the Federal funding for State Medicaid

programs and funding for these Federal demonstrations, waivers,

innovations and policy initiatives. They present the unique opportunity to truly transform the Medicaid Program into a more effective and efficient health care system.

Thank you.

[The prepared statement of Ms. Hamos follows:]
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Mr. GOWDY. Thank you.

I will recognize myself for 5 minutes of questions.

Mr. Dorfman, what is the purpose of Medicaid?

Mr. DORFMAN. The purpose of Medicaid is to provide health care.

Mr. GOWDY. Universal health care or just for the indigent?

Mr. DORFMAN. The program has financial qualifications

which——

Mr. GOWDY. I hadn’t gotten to those yet. I am just asking you

a general question. Do you think the purpose of Medicaid is to provide universal health care or only for the indigent?

Mr. DORFMAN. Health care for anyone who qualifies for the program.

Mr. GOWDY. Do you agree with me that there is a difference between actual indigency and legal indigency?

Mr. DORFMAN. Absolutely, there is an incredible distinction.

Mr. GOWDY. So people can voluntarily impoverish themselves?

Mr. DORFMAN. People can voluntarily impoverish themselves.

Mr. GOWDY. To become eligible for government programs?

Mr. DORFMAN. Absolutely.

Mr. GOWDY. Do you think that is consistent with the underlying

purpose and mission behind Medicaid?

Mr. DORFMAN. It absolutely can be, yes.

Mr. GOWDY. You seem to take exception to my characterization

of people gaming the system. You don’t believe that millionaires

who voluntarily impoverish themselves so their heirs can inherit

money and taxpayers can provide for their Medicare, you don’t consider that gaming the system?

Mr. DORFMAN. No, because that is not most of what happens or

the way it happens. There are those aberration cases.

Mr. GOWDY. Are there millionaires who have voluntarily impoverished themselves so their children can have an inheritance and

we can pay for their long term care?

Mr. DORFMAN. That is not the typical experience across 20 years

of doing Medicaid planning, although there are certainly exceptions.

Mr. GOWDY. When people come, and I am not trying to violate

any attorney-client privilege, but when people come to seek your

counsel, how often do they come by themselves and how often do

they come with their adult children?

Mr. DORFMAN. They frequently come with their adult children. It

is almost always with either a spouse or an adult child, unless it

is an isolated individual who doesn’t have family.

Mr. GOWDY. You consider your client to be whom, the individual

or the children?

Mr. DORFMAN. The client is always the individual, but the individual is almost always concerned about what is going to happen

to their spouse or family members.

Mr. GOWDY. Speaking of spouses, Mr. Moses, what is spousal refusal?

Mr. MOSES. Well, that is a practice recognized primarily in New

York and Florida whereby the well spouse, as Ms. Eulau explained,

simply refuses to contribute under normal Medicaid requirements

for the cost of the care of the Medicaid recipient. Under the law,

the Medicaid recipient has to have assigned his or her rights to the
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wealth in essence so that the State can go after the well spouse for

what is legally owed but this rarely happens because it is so complicated to do.

The Elder Law Bar in frequent annual conferences urges the rest

of the country to take advantage of what they consider our right

under the Federal law to simply have the spouse refuse to contribute to the cost of the care. It is very, very expensive in New

York and Florida. Frankly, I don’t think most of the other States

have the impunity to try to pull that off.

Mr. GOWDY. Before I ask you about key payments, Mr. Dorfman

and I disagree a little bit about the purpose of Medicaid. I think

it is for the indigent, he thinks it is for whomever qualifies. What

do you think?

Mr. MOSES. Well, there are problems in how Medicaid eligibility

is determined so that there are what some people call loopholes but

there are provisions in the law that make it quite easy and feasible

for people with substantial wealth to qualify. As I explained in my

testimony, the real problem is not just the tip of the iceberg which

is the egregious Medicaid planning millionaires onto welfare, as

Mr. Dorfman was saying, the real problem is that the median elderly person in terms of income and assets walks right onto Medicaid because of all of the exempt assets without limit.

So really it is difficult to characterize the program as a program

for the indigent because over the years through the intent of Congress, the program has been expanded. I call it eligibility bracket

creep to the point where virtually anyone, if they don’t plan ahead

to prepare to pay their own long term care, can get Medicaid relatively easily no matter how much money they have.

Mr. GOWDY. My time has expired. The gentleman from Illinois,

Mr. Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman.

I think there is generally some consensus that individuals should

not gain Medicaid eligibility by inappropriately shielding their

wealth. In the studies I have looked at by GAO as well as Kaiser,

and some others, it would suggest to me that the numbers of individuals who are able to shield large wealth portfolios is relatively

small.

Could I ask if your experiences would indicate that that’s the

way it goes? Are we finding large numbers of individuals who are

millionaires or close to who have large sums who are able to get

around the requirements and are inappropriately receiving Medicaid benefits?

Mr. MOSES. Mr. Davis, as I just explained, the egregious Medicaid planning of the millionaires, that is just the tip of the iceberg.

What GAO looked at was just one technique of Medicaid planning,

transfer of assets. That is not even the most common form of Medicaid planning. There are annuities, life care contracts, the reverse

half a loaf strategy using promissory notes. There are any number

of ways to get people qualified, but the transfer of assets technique,

minor as it is, is still a $1 billion a year according to GAO.

As I can’t reiterate enough, the real problem is that most people

don’t have to use fancy legal planning because they are eligible

anyway. This has the effect of having sent the message since 1965

when Medicaid became part of the law to the public that you can
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ignore the risk of long term care, you don’t have to save, invest or

insure for the risk, and when the time comes, may be you die with

your boots on and you are home free, but if you do get one of the

chronic illnesses of old age—Alzheimer’s, Parkinson’s and stroke—

and you need the expensive care, families who provide 80 percent,

as you said in your opening remarks, 80 percent of the care for

free, if you have to have the expensive care, then virtually everyone

ends up on Medicaid.

The program cannot sustain that weight now so the secret is to

target it to the people who need it most and thereby insure a quality safety net for the truly indigent.

Mr. DAVIS. Mr. Dorfman.

Mr. DORFMAN. Millionaires don’t want Medicaid. Millionaires

still have other law planning issues but not Medicaid planning

issues. They want fancy care, they want care that they control.

They want to be able to fire the people they don’t like and hire the

people they do like. Millionaires never come in for Medicaid planning. They do want planning, they do need surrogate decisionmakers as they suffer the illnesses of aging, but they don’t want

Medicaid.

Ms. EULAU. We find that about 60 percent of the people that

come in for nursing home care have done some type of Medicaid estate planning. Suffolk County is a fairly affluent county in New

York State. That is what we are seeing.

In terms of people receiving long term care in the community, we

don’t see it as often but we still are seeing it because transfers, if

you transfer your money out of your control for community long

term care, there is no penalty. We are seeing that as well, may be

about 15 percent of the cases.

As soon as I joined AARP, I started receiving invitations in the

mail to come to free seminars to talk about Medicaid estate planning.

Mr. DAVIS. Ms. Hamos.

Ms. HAMOS. Congressman Davis, what we are finding in Illinois

is that this is more of a middle class family issue than millionaires.

I agree with Mr. Dorfman that the millionaires don’t want to live

in our Medicaid nursing homes. I think that what we are seeing

is that middle class families, say if there is a savings, a little pot

of money of $100,000, somewhat modest by some peoples’ standards, the family doesn’t want all of that to go into nursing home

care and it is eaten up almost immediately in nursing home care.

That is why in Illinois what we are struggling with our legislative rulemaking committee is that there seems to be this widespread acceptance of that on behalf of middle class families and

that is who they are representing but we are learning from other

States and we really want we think there are reasonable ways to

impose and tighten the eligibility rules that we need to put in place

immediately while also maintaining a better service delivery system and reducing the cost of long term care generally.

We are trying to do it at both ends because there are so many

costs for low income people that are wasteful and unnecessary. We

could do a better job just by revising and reforming our service delivery system.

Mr. DAVIS. Thank you very much. I yield back, Mr. Chairman.
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Mr. GOWDY. I thank the gentleman from Illinois.

The gentleman from Arizona, Dr. Gosar.

Dr. GOSAR. Mr. Dorfman, can you please give me the typical assets of a client that would qualify for Medicaid that comes to you?

Mr. DORFMAN. A typical client that comes to me has a home, a

co-op, a condominium worth approximately $500,000; they have approximately $100,000 in retirement savings; they are a married

couple and they have approximately $30,000 in cash assets.

Dr. GOSAR. Ms. Eulau, would you kind of agree with some of

those, could you confirm those?

Ms. EULAU. We are seeing assets much greater than that. People

often come and have total resources of over $300,000–$400,000

total beyond their home, beyond prepaid burial expenses, beyond

those things they are allowed to have. In New York, we take the

Federal resource standard, choose the highest resource standard

for the community spouse in a nursing home care situation. They

are allowed to keep $109,000 of the combined resources and we

very often find that it is significantly higher than that.

Probably most of the people that do some kind of Medicaid estate

planning could at least pay for 3 to 6 months of care on their own

and many could pay for 2 years or more.

Dr. GOSAR. Staying with you, when you see someone that genuinely needs Medicaid long term care and cannot afford it, do you

see an average person come in like that? How many times do they

not qualify or not get it? Do you see someone like that?

Ms. EULAU. That should qualify for resources that don’t get it?

Dr. GOSAR. Yes.

Ms. EULAU. No, we don’t. If they qualify, they would be receiving

it.

Dr. GOSAR. Ms. Hamos, you talked about the rebalancing aspect

of care. Can you tell me a little bit more about that, kind of like

a home care aspect and what’s your idea and kind of give me some

balance about why that would reduce the cost of long term care?

Ms. HAMOS. In Illinois, we really do have this institutional bias.

I guess again, there are some powerful special interests behind

maintaining State operated facilities as well as nursing homes and

that is why we really did over invest in those over time that we

have 15,000 empty nursing home beds right now. We paid three

times as much at least to maintain someone per month in a nursing home bed than what we are providing with a limited set of

services for seniors who stay at home.

What we are really working on now is looking at how we could

increase the package of services to keep people in their home to

keep them from having to go into nursing homes which is obviously

a much more expensive form of long term care.

Dr. GOSAR. If we paid for this rebalancing, can you actually cite

examples that would actually show us that we save money?

Ms. HAMOS. Yes. We will be able to.

Dr. GOSAR. We would be able to. Is there something right now

you can point to, a State that actually shows we save money? It

seems to me there isn’t. Actually, there isn’t, is there, because we

can’t find it. What we will actually do in rebalancing is open the

exposure to more expenses for folks at home.
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Ms. HAMOS. That hasn’t been our experience yet. We are putting

place a different kind of system and the kind of services people

need in their home. Yes, sometimes it is very expensive to keep

people in their homes, people who are really chronically ill or have

very severe disabilities but there are people who can maintain

themselves in their home and have a higher quality of life, at a

much reduced cost, and we are going to show not just cost neutrality but real savings in this arena.

Dr. GOSAR. But it doesn’t exist.

Mr. Moses, can you actually answer that question too?

Mr. MOSES. I am not aware of any State that has actually reduced the cost of long term care due to rebalancing. There are certain countervailing factors to consider such as people would rather

get their care at home. You make a popular form of service delivery

available under Medicaid, it creates a stronger incentive for people

to find ways to qualify, not to say we shouldn’t provide home and

community-based care. We should but you need to understand why

we have an institutional bias in long term care.

That is because Medicaid made nursing home care free in 1965

and resulted in there being no market for privately financed home

and community-based services. That is why that infrastructure

isn’t out there. It is why we are trying to retrofit the home and

community-based system on a nursing home-based system funded

by welfare which never has enough money to provide adequate financing.

So it is I think not a very satisfactory solution to expand home

community-based care under Medicaid unless and until you get the

eligibility hemorrhage that this hearing is about under control.

Otherwise, you will just create more and more incentives for people

to rely on Medicaid.

The best way to get access to home and community-based care

is to be able to pay privately. Then you get red carpet access to the

best possible care.

Dr. GOSAR. It is more about the qualifying than anything?

Mr. MOSES. Yes.

Mr. GOWDY. I thank the gentleman from Arizona.

I would now recognize the gentleman from Maryland, the ranking member of the full committee, Mr. Cummings.

Mr. CUMMINGS. Thank you, very much.

Ms. Hamos, in Maryland there is an organization in my district,

Visiting Nurses Association, you know you might want to credit

them that has home care. That is what they do. They are one of

the few organizations in Maryland who are increasing jobs by leaps

and bounds because they are saving people money, allowing people

to stay in their homes and most of these people are seniors. So it

does work. I just visited them about 2 weeks ago. We just have to

be innovative and I think you are going in the right direction.

Mr. Moses, so you would have the government pay less money

with regard to Medicaid and then for patients to do what? What

would you have them do? Be brief because I have a lot of questions.

Mr. MOSES. You have scarce public welfare resources available.

All I am suggesting is that you target them to the people who are

most in need and create incentives for the affluent and the middle
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class before they are too old to and too infirm to plan for long term

care and prepare to pay privately so they don’t become dual.

Mr. CUMMINGS. So you would advocate for them getting insurance?

Mr. MOSES. Well there are many ways to prepare, you can save

and invest, but insurance is one way. Home equity is the huge pot

of money out there.

Mr. CUMMINGS. With people losing their homes in my district big

time, value going down, I am not sure about that one.

I want to go back to something Mr. Davis said. He said this is

a multifaceted problem but one that we can find a reasonable solution. I want to thank you, Mr. Chairman, for calling this hearing,

but I want us to be clear on where we are.

Mr. Moses, you were invited by the majority and your bio states

that you are the president of something called the Center for LongTerm Care Reform. I guess this is meant to sound like a think

tank. Your bio also states that you have testified before most of

America’s State legislatures, something that think tanks often do,

is that right?

Mr. MOSES. Yes.

Mr. CUMMINGS. Mr. Moses, when I asked my staff to learn more

about you, to try to understand where you were coming from, it

seems that your views are really nothing more than the views of

the insurance industry, hardly a disinterested or objective observer.

Isn’t it true that the policy advocacy center you operate is a for

profit company? Is that right, is it for profit?

Mr. MOSES. Yes.

Mr. CUMMINGS. Isn’t it true that when you applied to IRS in

2000 for recognition for tax exemption, your group was told it was

better classified as a ‘‘business league‘‘ for the long term care insurance industry?

Mr. MOSES. No. The organization was originally certified as a

501(c)(3) charitable nonprofit. I didn’t feel I could carry the overhead of that, so I decided to become what I call a no profit because

I just couldn’t carry the overhead of being a nonprofit.

Mr. CUMMINGS. I understand. Isn’t it true that your organization

stated in June 2000 in correspondence to the IRS that historically

all the Center for Long-Term Care Reform’s funding has been contributed by the long-term care insurance industry? Is that right?

Did you report that?

Mr. MOSES. I have a membership organization, so individual

members contribute $150 a year in order to get my publication and

I have corporate members as well.

Mr. CUMMINGS. I just want to make sure we understand who is

funding you.

Was the funding to originate the Center paid for by the longterm care insurance industry?

Mr. MOSES. Some of the funding for the Center.

Mr. CUMMINGS. When you say some, was that 50 percent, 90 percent?

Mr. MOSES. Probably most in the early stages, all the first year

and less over time.
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Mr. CUMMINGS. Isn’t it true that your organization’s principal

purpose is to advocate for the purchase of long-term care insurance?

Mr. MOSES. No, that is not true. If you can permit me to answer

the question fully, I will explain.

Mr. CUMMINGS. Sure, briefly, because I have a lot of questions

and what I may have to do is just get your written response, but

I want to be fair to you.

Mr. MOSES. Maybe another Member will allow me to answer

your question in such a manner that can appease you.

My roots are, sir, in government service. I was an 18 year, U.S.

Government employee. I discovered that Medicaid is intended to be

for the poor and was not being so used effectively. I have become

an advocate first as a Federal employee working for the Health

Care Financing Administration, then for the Inspector General,

writing national studies that have led to changes in Federal law.

When I decided I couldn’t get it done within the Federal Government, I left to be on the outside but my mandate, my mission is

to preserve Medicaid as a safety net for people who need it such

as the people in this room.

Mr. CUMMINGS. Then you and I are in agreement on that. On

that point, I have to ask you this consistently with what you said

so you can have further opportunity to explain. In a fund-raising

appeal letter, does your organization brag that it may be ‘‘long

term care industry’s top producer’’ and isn’t it true that in your fiscal year 2000 fund-raising letter, you assert ‘‘the Center would

open the floodgates of demand for your products?’’ In your 2000

fund-raising appeal, you were attempting to raise $1 million, and

requested $10,000 from brokers and $20,000 from small carriers.

Will you provide this committee with a comprehensive list of donors to your organization?

Mr. MOSES. You are talking about 11 years ago. That organization, the Center for Long-Care Financing doesn’t exist anymore.

That was a 501(c)(3) charitable nonprofit. We are now a no-profit,

as I explained, and I do not have to and will not disclose all of my

donors. Most of them, about a third, are individuals who just believe in what we are doing and make a contribution annually.

There are corporate members, some from the insurance industry,

some from the provider industry.

Mr. CUMMINGS. Were Charles and David Cook included in it?

Mr. MOSES. No.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. GOWDY. The gentleman from Tennessee, Dr. DesJarlais.

Dr. DESJARLAIS. Thank you, Mr. Chairman, and thanks to the

panel.

Mr. Moses, I think we will just kind of continue where we left

off there because I find this really an interesting and important

hearing. Clearly, we are facing Federal deficits that are

unsustainable. We have health care programs that are in jeopardy

whether it is Medicare or Medicaid. I think what we are trying to

do here today is preserve Medicaid for those that really need it.

We have a large group in here who should have been very interested in this because clearly those are the ones who need it. For

the past two decades as a primary care physician, I have struggled
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with the frustration of getting care for people who really need it

and everybody knows people getting it who don’t need it. To me

this hearing should be a very bipartisan thing.

Mr. Dorfman mentioned the wife who is talking to the doctor of

a husband who has just had a stroke, wondering what do I do and

indeed, that is a frightening time. Clearly, if the government isn’t

there, then what indeed does she do, who does she turn to? Does

she turn to family, does she turn to her resources?

We are hearing talk right now that the rich need to pay their fair

share. This hearing is about people being responsible for themselves and not relying on the Federal Government when they can

afford to do it. I applaud you and everyone who is here today trying

to solve this problem because clearly our government cannot afford

to pay long term care for everybody in this country. We have to

have a better solution. I think that is why we are here.

Do you think it is better that people have insurance and prepare

for long term care than not?

Mr. MOSES. Yes. Here is my problem. My goal is to preserve

Medicaid as a safety net for people in need. Unfortunately, people

in need don’t have money to donate to organizations like mine. The

people who don’t are the ones who might benefit from a change in

Medicaid policy that protects the program for the poor. Where would we go if there weren’t a $500,000 home equity exemption? Families would tap their home equity after age 62

through products like reverse mortgages which enable them to remain in the home and purchase that home and community-based

care that we would rather people have.

Once home equity becomes something that is at risk in case you

have a long term care problem, once Medicaid stops being free inheritance insurance for the baby boom generation, then the

boomers will plan ahead and will be more likely to buy the insurance that enables them to pay privately.

If we could divert only 20 percent of the people who are likely

to become the dual eligibles that are only 15 percent of the Medicaid population but 39 percent of the cost, 70 percent of their costs

are long term care, if we could divert only 20 percent of them from

ever becoming dual eligibles, it would save Medicaid $30 billion a

year which is enough by the way to cover the doc fix.

Dr. DESJARLAIS. Briefly, the way things stand now with proper

legal counsel, somebody like even Bill Gates or Warren Buffet could

qualify for Medicaid?

Mr. MOSES. You could as long as you transferred all your assets

5 years in advance.

Dr. DESJARLAIS. So there is means for people like that to do it

if they wanted to do that?

Mr. MOSES. Yes.

Dr. DESJARLAIS. Ms. Eulau, how often do you think someone who

is genuinely poor, may be someone who cannot privately finance

more than a quarter or so of their long term care has assistance

qualifying for Medicaid long term care?

Ms. EULAU. I am sorry?

Dr. DESJARLAIS. I am sorry, that wasn’t very clear. How often do

you think someone who is genuinely poor, may be someone who

cannot privately fund more than a quarter or so of their long term
37

care, has assistance in qualifying. How often do they get help qualifying for Medicaid long term care?

Ms. EULAU. If they fit under the income resource standards, they

would get it all the time.

Dr. DESJARLAIS. Would you say that most of the individuals in

nursing homes on Long Island could privately finance at least some

of their care?

Ms. EULAU. Yes.

Dr. DESJARLAIS. How difficult is it to recover assets from an estate of an individual who has used Medicaid services?

Ms. EULAU. It is very difficult, especially for spousal refusal, once

they have done the refusal and separated out the resource, quite

often if the spouse in the community does not need care, they then

transfer that money out to their children prior to their death. We

can’t go after the resources if there is still a spouse in the community and quite often they are doing their own Medicaid estate planning.

Dr. DESJARLAIS. Do you get the sense that people are afraid of

the idea of estate recovery? Is that something they fear or not?

Ms. EULAU. I don’t think they think about it.

Dr. DESJARLAIS. I was thinking about this hearing and the idea

of getting people on insurance. I think people are very naı ̈ve. I

think a lot of people think Medicare will pay for this. Do you think

this would be an area that public service messaging, if they knew

this was going away and they didn’t have this option, public serving messaging to help get people to obtain long term health coverage might be useful?

Mr. MOSES. It can’t hurt but the problem is the public doesn’t fail

to buy long term care insurance or plan for long term care because

they aren’t aware of the problem. All the surveys show people know

it is a big risk, but they still don’t buy. Why, because ignore the

risk, avoid the premiums, wait to get sick and the government

pays.

Dr. DESJARLAIS. So all the loopholes right now are allowing people to skirt the system, maybe even cheat the system?

Mr. MOSES. Not just the loopholes, just the basic eligibility rules

let most people on.

Dr. DESJARLAIS. Once again, it is a case of our government enabling people to skirt the proper channels?

Mr. MOSES. Well intentioned, perverse incentives.

Dr. DESJARLAIS. I yield back.

Mr. GOWDY. I thank the gentleman from Tennessee.

I would now recognize the gentleman from Missouri, Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

According to a 2009 report by the Non-partisan Kaiser Commission on Medicaid and the Uninsured, the number one reason that

people who shop for but do not buy long term care insurance is

cost. In 2009, the Kaiser report found that long term care insurance premium costs vary significantly depending on the age of the

purchaser.

For individuals aged 60 with no partner, the annual premiums for a typical policy average $2,329. For a couple the same age, premiums for the same policy design averaged $3,096 combined for the

two people. If purchased at age 70, premiums would cost on aver-
38

age $4,515 per year for an individual and $6,010 for a married couple.

Another Kaiser study published in June of this year found that half of all Medicare beneficiaries had incomes below $21,100 in

2010. Furthermore, many elderly individuals are already spending

a significant amount of their income on health expenses. In 2006,

Kaiser found that 1 in 4 Medicare beneficiaries spent 30 percent

or more of their income on health expenses and 1 in 10 beneficiaries spent more than half of their income on health expenses.

Ms. Hamos, given that a significant number of Medicare beneficiaries are already spending a large part of their relatively small

income on health care expenses, do you think it is realistic to ask

your average senior citizen to purchase long term care insurance

which is cost prohibitive for many?

Ms. HAMOS. I think you hit the nail on the head. It is cost prohibitive, but I think the key to long term care insurance is that

young people need to buy it when it is affordable and they need to

be thinking ahead to their own futures and their families’ futures.

Young people, as we all know, don’t think that way. That is the big

problem. If people wait until they become seniors, even middle age

and close to being seniors, I think most people don’t start down

that road because it is very expensive.

Mr. CLAY. It is my understanding that long term care insurance

premiums have increased significantly above the overall rate of inflation. Isn’t it true, Ms. Hamos, that from 1995 to 2005, average

age adjusted premiums have increased 59 percent above the overall

rate of inflation for individuals aged 55 to 64 and by 32 percent for

those aged 65 to 69? Between 2000 and 2005, the more comprehensive policies which often included inflation protection, raised premiums on average 30 percent. Have you found that in your studies?

Ms. HAMOS. This is not my expertise at all but I have read those

studies and I have learned that as well about long term care insurance. We would all like to encourage more use of long term care

insurance quite honestly I think if it is out there. The insurance

companies tell us there is not a robust market for it.

I think what we are hearing today is that in part because Medicaid policy has impacted that, but I would say part of the problem

is that it is a costly purchase for a lot of low income and middle

income families and they don’t really think ahead far enough to be

able to buy and hold on to it and maintain it throughout their

lives. That is why it is so cost prohibitive and that is why it is increasing because the insurance companies don’t see a big market

for it.

Mr. CLAY. Thank you for that response.

Mr. Moses, I noticed that your fund-raising solicitation ends by

asserting that ‘‘Our established credibility as an independent third

party voice allows us to perform an essential role that no one else

can fill for reasons perceived by self interests.’’ Do you normally

disclose to congressional committees and State legislatures that

you have testified before the details of your ties to the long term

care insurance industry?

Mr. MOSES. It is public knowledge. As your researchers have determined and provided you the information, that is out there. But
39

as I explained earlier, I am not about selling insurance. I am about

saving Medicaid. The problem is, as one of the testimonies explained, between two-thirds and 90 percent of the potential market

for long term care insurance is crowded out by the availability of

Medicaid. That was in the American Economic Research Journal.

As long as that is the case, as long as the public can ignore the

enormous cost of long term care, no financial product is affordable

if you don’t think you need it.

Mr. CLAY. Will you provide the subcommittee the names of your

corporate donors?

Mr. MOSES. No.

Mr. CLAY. Thank you and I yield back.

Mr. GOWDY. I thank the gentleman from Missouri.

Given the impressive panel of witnesses that we have, with your

indulgence, we would like to have a second round of 2 minutes each

if that is amenable to you all. We are so fortunate to have witnesses like yourselves. We want to be good stewards of your time,

so if you have time, 2 minutes. My math’s not great, maybe 8 minutes.

Mr. Moses, key payments, is that a phrase you are familiar with

and what is it?

Mr. MOSES. The idea of key payments, the notion is that if you

are doing Medicaid planning and sheltering or divesting hundreds

of thousands of dollars, you don’t want to end up in one of those

awful Medicaid nursing homes.

Mr. GOWDY. That is exactly why I asked you because there have

been two witnesses who have said wealthy people don’t want to

wind up in one of those gosh awful Medicaid places. The good news

for them is there is a way around that.

Mr. MOSES. Absolutely, there is.

Mr. GOWDY. Tell Mr. Dorfman how he can keep his rich clients

from having to stay in one of those horrible Medicaid facilities.

Mr. MOSES. This is routinely recommended in the Elder Law

Journal articles. Don’t worry Mr. and Mrs. Client, we can get you

into a nice place because when we divest the rest of your assets,

we will hold back $50,000 to $100,000 so that you can pay privately

for 6 months to a year. Why does that make a difference? You will

get red carpet access to the best quality care because nursing

homes, for example, only get about two-thirds from Medicaid what

they would get from a private pay resident, so they will roll out the

red carpet to attract people who can pay privately. They may have

only a few Medicaid beds and be mostly private pay and Medicare.

They are the really nice nursing homes and the Elder Law Bar always knows which ones those are.

The problem is while the nicest beds and the best facilities are

being filled by people who could have, would have and should have

paid their own way, Medicaid people, the appropriate indigent people, can’t get into the nice places and they end up in the 100 percent Medicaid places that are the kind of places that 20/20 goes in

with the minicams showing people lying in their own waste with

bed sores down to the bone.

Mr. GOWDY. To summarize it, because I only have a couple seconds, just save back enough money to be a private pay patient for

3 months at a minimum, perhaps up to 6 months, then quit paying
40

your private pay, that very nice facility can’t kick you out because

of your former payment, you could just live off your Medicaid?

Mr. MOSES. Correct.

Mr. GOWDY. There is a way contrary to what has been said this

morning. Wealthy people don’t have to wind up in those gosh awful

Medicaid facilities, they can be at a super nice place if they just

get the right legal counsel, right?

Mr. MOSES. A Medicaid planner simply flips the switch, the Medicaid plan kicks in and your private payer becomes a Medicaid recipient overnight.

Mr. GOWDY. I would recognize the gentleman from Illinois, Mr.

Davis.

Mr. DAVIS. Thank you very much, Mr. Chairman.

We noticed a number of individuals here earlier in wheelchairs

who are part of the disabilities community. For a number of years

now, Senator Harkin and I have been working very hard trying to

get something passed called Community Choice, which would allow

these individuals to live at home and still get the nursing care or

the medical care they needed and not have to live in nursing homes

to do so.

Of course we have not fared very well with that legislation. We

have not been able to get it passed. Since we are looking for ways

to save money from Medicaid, what would each one of you think

of that? Would that be a way to save some of the money we are

currently spending because nursing home care, the average cost, is

about $75,000 a year. If individuals could live at home and we pay

for the medical services, then it seems we would save a lot of

money.

Mr. MOSES. You would indeed target Medicaid to the people who

really need it and you will have more than enough resources to

provide a full continuum of care from home, community-based care,

assisted living and nursing home care but only when it is needed.

Mr. DORFMAN. There is a system we run through VA, the Community Senior Foster Care Program. It is the kind of program that

could be duplicated across the entire Medicaid spectrum. An example of what it might do is take three senior veterans suffering from

Alzheimer’s and Parkinson’s, put all three together in a community

setting in someone’s home and pay them for providing care. It cost

a fraction of institutional care and is a model that could be replicated across the system to provide community care.

Ms. EULAU. New York has a waiver program, a long-term home

health care program that services clients at home, giving them all

the nursing home services they would normally get in a facility in

their home, nutrition care, therapy and such. The program itself

requires that it not cost more than 75 percent of what it would cost

in a nursing home setting. We do try to do that.

Could I also say that I don’t really think in my county there are

Medicaid nursing home facilities. All of our nursing facilities have

about 80 percent Medicaid patients.

Ms. HAMOS. That was surprising to hear. Every State really does

have different experiences.

I wanted to reflect on the chairman’s questioning before, in our

case in Illinois, there are some nursing homes that actually do figure out ways to kick out people when they are done with their re-
41

sources. They figure out how to transfer them to hospitals and then

don’t invite them back. It is risky to start out in the fancy nursing

home and not know where your granny is going to be a year or 10

months later.

I would say again we think that home and community-based care

is more cost effective and a higher quality of care kind of approach

for people who are low income, disabled and that is the preponderance of the clients we deal with. I think exactly what Ms. Eulau

was talking about is what we are finding too, that we can set a

standard for what nursing home care would cost and go below it

and meet that standard and provide a higher quality of care.

Mr. DAVIS. Mr. Chairman, I have a couple questions I would like

to submit.

Mr. GOWDY. Yes, sir, without objection.

The Chair would now recognize the gentleman from Arizona, Dr.

Gosar.

Dr. GOSAR. Mr. Dorfman, do you worry that Medicaid planning

exploits taxpayers?

Mr. DORFMAN. No. Medicaid planning is the way to protect the

individuals who need the government program set up for their benefit.

Dr. GOSAR. So it doesn’t undermine personal responsibility and

contributes to a free rider culture?

Mr. DORFMAN. No, not at all. What it is doing is taking an individual in any circumstance and looking at what are the most responsible choices at that moment given the existing government

program. Sometimes that means transferring the money to protect

the wife who is still living at home when you need a nursing home.

Dr. GOSAR. Mr. Moses, do you worry about the exploits to the

taxpayer contributing to a free rider culture in this Medicaid planning?

Mr. MOSES. Yes. The research shows that people don’t plan for

long term care because Medicaid pays for most of the expensive

care later on. It is not that the public knows all there is to know

about long term care and plans to go on Medicaid, it is the fact that

Medicaid has always paid for most expensive long term care that

has kind of desensitized the public to the risk.

That is why all the survey studies show that people are aware

that they should have a plan for long term care but they think

Medicare covers it which doesn’t, but Medicaid does and that is the

simple, basic fact that is you could change that, we could preserve

Medicaid as a safety net for people in need and if you had to spend

some of your own resources before you got help from the government, as you do in England, England only protects $38,000 worth

of all assets including home equity. If you had that in place, then

you would have a demand for planning, saving, investing and insuring.

Dr. GOSAR. Ms. Eulau, how would you feel about that?

Ms. EULAU. I agree that people don’t know enough before they

get to that point in their lives about what is going to pay for their

care, so I really think there needs to be a lot more education out

there. I see commercials every day for Medicaid estate planning on

the television and in print. Like I said, I received free seminar invi-
42

tations myself just as an AARP member in the community. I think

there needs to be more education.

The other thing is it really could teach people who is paying for

it and I think once people find out that the taxpayer is funding

wealthy recipients of care, there’s going to be some changes.

Dr. GOSAR. I just want to say I have heard some things here

today. I was raised from immigrant grandparents. The American

dream was about personal accountability and personal responsibility. When did we lose honor, when did we lose ethics and when

did we lose character? What I have heard today astonishes me.

In the other aspect of selling insurance, what is so wrong about

selling an insurance plan for somebody to take care of themselves?

What is wrong with that?

I am from Arizona and I have seen a group of people who have

been on the government dole for the longest period of time fighting

to get off it and that is Native Americans. Something is wrong with

government provided health care when it can’t look at these aspects.

I look at Ms. Hamos, we had DRAs that we were supposed to follow and we are still not there because it is a bipartisan problem.

Something is wrong here and we have to look at the whole core.

It started in 1965 when we did not identify those proper rules,

proper protocols and etiquettes. I am apologizing.

Thank you.

Mr. GOWDY. I thank the gentleman from Arizona.

The Chair would now recognize the gentleman from Missouri,

Mr. Clay.

Mr. CLAY. Thank you, Chairman Gowdy.

Mr. Moses, going back to the point about the names of your corporate donors, I just don’t find you as a disinterested, public policy

expert expressing a personal opinion but in fact, a paid, long term

care industry advocate. In the interest of full disclosure, why

wouldn’t you want to provide the names of your corporate donors

to this subcommittee?

Mr. MOSES. I am not required and I choose not to do it. The point

is that kind of argument, Congressman Clay, is a logical fallacy. It

is called the ad homonym to attack somebody based on aspects

other than the quality of their work. I would encourage you to read

the many reports that are on our Web site and make a judgment

based on facts and not personal attacks.

Mr. CLAY. Mr. Moses, before I came here, I was a State legislator

for 17 years and I see the trends of what is going on in the States,

that they are quickly shirking their responsibility to take care of

the disabled and the people that are older because, first of all, they

don’t want to raise the necessary revenues to pay their share of

Medicaid and are putting less and less in annually to pay for those

people who helped build those States and build this country, especially our seniors who happen to be in a long term care facility. You

don’t want to provide the subcommittee with full disclosure for

whatever reason.

Mr. MOSES. I spent 30 years, my career, trying to find ways to

save Medicaid for people in need. The only tools I have are private

sector industries that stand to gain from a system that would save

Medicaid for people in need. If we save Medicaid for people in need,
43

others, the more affluent people, will need to spend their money instead of hiring attorneys.

They will need to use their home equity through things like reverse mortgages so they can get quality care in the private market.

Once their home equity is at risk, they will see the need to buy the

insurance and we will take some of the burden off the public programs currently unable to provide guaranteed access to quality

care across the whole spectrum of care for people truly in need and

we will increase the jobs in the private sector and the tax revenue

that enables Congress to do worthwhile things. Right now, we are

operating a system that does not achieve its original intent.

Mr. CLAY. I thank you for your response.

Mr. GOWDY. I thank the gentleman from Missouri and on behalf

of all of us, we want to thank each of our panelists. It has been

informative for all of us and we appreciate your expertise, your professionalism and how you interacted with one another and especially how you have interacted with questioners.

With that, the committee is adjourned and we thank you again.

[Whereupon, at 11:40 a.m., the subcommittee was adjourned.]

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