Legislators want to curtail Medicaid loophole

JEFFERSON CITY, Mo. -- When Joe Maple's mother started forgetting things, his attorney suggested the family find ways to squirrel away her assets, so when she needed to enter a nursing home, Medicaid, rather than her money, would foot the bill.

But Maple said he didn't think that was right, so the family used the $150,000 from selling her farm to pay for the nursing home care, instead of relying on the government-run health-care program for the poor.

"We have always felt that if you've got money, you shouldn't be asking the taxpayers of the state to take care of your obligations," said Maple, of Ballwin.

While Maple chose not to use the law to shield his mother's money, other people do. And some state lawmakers who want to limit what they describe as a loophole are being opposed by attorneys for the elderly, who say annuities are a rarely used but important element of estate planning.

The concern over the use of annuities, an agreement under which someone puts aside some money and then receives fixed payments over a period of time, is playing out around the country.

The practice is estimated to have cost Medicaid programs nationwide more than $1 billion, according to the National Center for Policy Analysis, a free-market public policy research organization based in Dallas.

A bill limiting annuities and making other changes to curb the growth of Medicaid failed during the Missouri legislative session that ended May 14, but the issue is likely to return next year.

Other states, such as Texas and Louisiana, already have made the changes that Missouri legislators debated, including barring large payouts at the end of an annuity's term and allowing the state to recover its costs from providing health care if the person dies before the annuity runs out.

Lawyers who handle estate planning and other issues for the elderly or disabled say Missouri and federal laws already are fairly restrictive, so only certain annuities qualify as exempt from Medicaid's income and asset limits.

But lawyers say annuities can be a valuable tool to allow a spouse with little income to remain at home while his or her partner is in a nursing home, or to provide care for a disabled child.

Several lawyers said they don't recommend such annuities for most people because once that money is locked away, it cannot be retrieved if needed, and if people outlive their life expectancy, they have gained little.

The Missouri legislation, as considered by the Senate, would have required the Department of Social Services to determine whether a person applying for Medicaid had purchased an annuity within three years, and if so, if it meets certain criteria. The annuity would have to pay out over the person's life expectancy and could not contain a balloon payment, in which a small amount is paid for most of the agreement and then a large sum is due at the end.

The bill also would have made the state a beneficiary to recover what Medicaid paid for the person's health care if the person died before the annuity ran out.

The department says it already follows most of those criteria.

Officials estimated that adding further restrictions to annuities might prevent about one person a month from becoming Medicaid eligible. Democrats argued the financial savings would not make up for the cost of hiring extra staff to conduct the stricter eligibility reviews, and Republican lawmakers and legislative researchers said the projected number of affected people was too low.