Is Medicaid Planning Ethical?

Written by Timothy L. Takacs, Certified Elder Law Attorney

The Elder Law Attorney's Ethical Dilemma

In 2002 David L. McGuffey and I wrote the first of a two-part series on the ethics of Medicaid planning. The first part was published by the William Mitchell Law Review in the summer 2002 special issue on elder law. (See Timothy L. Takacs and David L. McGuffey, "Medicaid Planning: Can It Be Justified?, Legal and Ethical Implications of Medicaid Planning," 29 William Mitchell Law Review 111 (2002).)

Clients request Medicaid planning advice primarily to lessen the economic impact of long-term care. The cost of long-term care is often catastrophic for elderly, middle-class individuals and couples. Is it "wrong" to help the elderly protect their assets by engaging in Medicaid planning?

Many Elder Law Attorneys are sensitive about the public image associated with Medicaid planning. Medicaid planners are often accused of "gaming the system" for their undeserving and overprivileged clients.

Unfortunately, members of the Medicaid planning bar have sometimes been their own worst enemies. For example, at the May 1996 Symposium of the National Academy of Elder Law Attorneys, two prominent NAELA members (one a former president of the organization) gave a presentation on Medicaid planning. Using the format of a skit in which other NAELA members played the roles of the family, the presenters took the audience through a session in which an elderly couple, whose net worth exceeded $750,000, was counseled on how to arrange their affairs to attain Medicaid eligibility. Among the assets in the couple's portfolio was a vacation home. The skit became fodder for critics of Medicaid eligibility planning and indeed was widely criticized by other NAELA members.

Critics of Medicaid planning sometimes have their own interests to advance. Some may have connections to the long-term care insurance industry. People should buy long-term care insurance, not rely on Medicaid, they contend. If the risk of paying the nursing home can be transferred instead to the taxpayers -- that is, the Medicaid program -- at less cost, what incentive is there for an individual to purchase long-term care insurance?

The Usual Objections to, and Justifications for, Medicaid Planning

In our article, we list several common objections to Medicaid planning. The principal objections are usually stated as:

  • Medicaid is for the "poor," not for people who have money and can hire the lawyers to shelter their assets.
  • If left unchecked, Medicaid planning will bankrupt the system.
  • The result of unchecked Medicaid planning will be a two-tiered system of long-term care: those who can pay privately for good care and those with no money who are forced into Medicaid nursing homes that provide substandard care.
  • Medicaid planning is a form of elder abuse. Because many elders in nursing home lack the mental capacity to choose to do Medicaid planning, their children -- who stand to gain most from saving the money from the nursing home -- make the choice for them. Instead of the elder's assets being expended to pay for good long-term care, the assets wind up in the children's hands -- and the elder winds up with substandard long-term care.
  • Medicaid planning discourages "personal responsibility."

The practice of Medicaid planning has many defenders. Most arguments put forward by its practitioners are not very convincing. One I've heard made is that Mom and Dad, members of America's "greatest generation," are now expected to spend all of their money on their nursing home care. Shouldn't they be allowed to leave their money to their children?

Here's another: Mom and Dad worked all of their lives and paid into the system. Why then is it unethical for them to do Medicaid planning and get their money back out?

Another argument makes an analogy of Medicaid planning to estate tax planning: if it is OK to do estate tax planning to minimize estate taxes, why is it not OK to save nursing home costs by Medicaid planning?

Or, defenders say, Medicaid planning, like estate tax planning, is legal. Healthcare costs threaten to deplete an elder's estate during his or her lifetime. The goal of Medicaid planning is therefore to preserve the individual's estate. Ethical rules allow elder law attorneys to assist clients who wish to minimize those costs, even if the plan is aggressive, as long as the representation is carried out within the bounds of the law.

As David McGuffey and I stated, merely because the law (and, by extension, lawyer's ethical rules) permits people (and their lawyers) to engage in Medicaid planning does not mean that people should engage in it. In other words, it may be legal, but is it ethical?

What Medicaid Planning Really Is, and Why It is Justified

David McGuffey and I examined differing stakeholder positions, current long-term care financing issues, and reform options, albeit with Medicaid planning as the focal point. The current system, or Medicaid planning, for that matter, is not necessarily the best long-term solution for the elderly. In the end, we wrote, the law should be structured to provide adequate healthcare, including long-term care, for all persons, regardless of economic status or age. Elders should be guaranteed access to good health care.

Medicaid planning can be justified ethically only by placing it within the context of the economic system in which the planning takes place, we assert. Within the United States free market system, no one has a right to basic health care and long-term care. Instead, better care goes to the individual who can afford to pay for better care. The individual whose dire health care needs force him to "spend down" to Medicaid benefits loses his ability to pay for his other basic needs (such as food, shelter, and clothing, as well as other healthcare and long-term care goods and services). Within this system, Medicaid planning is not only ethically justified, it is imperative to the individual's survival.

As we wrote, "Where the market permits planning which results in a reduced net price, a purchaser cannot be faulted for availing himself of the lower price even if he could pay more. In a health care system in which the commodity known as health is bought and sold, there is no reason why any market participant should value another person's property (that is, health) more than his own. Until the United States elevates health care to a moral right, instead of a property right, Medicaid planning is morally and ethically justified."

How Medicaid Planning Causes Harm

It is not enough to assert that because Medicaid planning takes place within the U. S. free market, it is always ethically justified. As David McGuffey and I wrote in the second article in our two-part series, Medicaid planning that results in harm to the elder is unethical. (Timothy L. Takacs and David L. McGuffey, "Revisiting the Ethics of Medicaid Planning," NAELA Quarterly, Summer 2004.)

Many Medicaid planners are sensitive to the charge that Medicaid planning exploits the incapacitated elder. They respond by asserting that mentally-incapacitated persons should not be deprived of the right to engage in prudent financial planning merely because of their disability. That is why elders make durable powers of attorney and create joint tenancies with children, so that others can manage their assets on their behalf.

No one should be deprived of the right to plan his own affairs merely because he lacks capacity, when the law gives him such tools (powers of attorney and the like) just for that purpose. Medicaid planning as it is usually practiced, however, focuses solely on attaining Medicaid eligibility, not on protecting assets in order to meet the other basic needs of the individual. Is the Medicaid planner protecting assets for the benefit of the client-elder, or to protect the children's inheritance?

David McGuffey and I criticize asset-focused Medicaid planning that elevates protecting the elder's assets from the nursing home above all other goals, particularly above the goal of promoting and maintaining the elder's quality of life and quality of care. As we concluded, the elder law attorney who is hired to do Medicaid planning, but who fails to take reasonable measures to avoid or minimize the likelihood that harm will result to his client, is acting unethically.

Yet, as our second article discussed, what would the elder want to do with his or her money? How much does the Elder Law Attorney and the family member really know about the elder's wishes? Are decisions being made that are in the best interests of the elder or of the elder's family? Is there a fundamental and irreconcilable conflict between assuring quality of care and asset protection?

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