A few months ago, I attended an Elder Law Forum in Albany, New York intended to explain and promote a new concept of long-term care (LTC) protection called the New York State Compact for Long Term Care. The New York State Senate passed the compact last summer, and the Assembly is scheduled to vote on it this spring.
The compact is the brainchild of the “Compact Working Group”–six elder law attorneys and the vice president of business development for a major New York carrier. It is being sold as a way to offer LTC services to those diagnosed as chronically ill and uninsurable who cannot qualify for an LTC policy. Its purpose is to protect patient assets if LTC services are ever needed.
On the surface, the concept sounds interesting. However, the compact is not really about protecting the assets of only the chronically ill–it’s about protecting the assets of every citizen statewide.
Here’s how it works: A chronically ill person in need of LTC services can make a pledge to the state and pay the equivalent of either three years of nursing home costs (at the going rate when services are required) or one-half of his total assets, whichever is less. After a participant’s pledge is fulfilled, the state will pay all future costs of care.
If the compact were law today and a chronically ill individual with only $40,000 in assets needed care, he would make a pledge of $20,000 and then rely on the state to pay for the rest of his LTC services. Not a bad deal, given that nursing homes in the New York metro area currently cost about $120,000 per person per year.
What’s in it for the state? According to the Compact Working Group, this option will prevent people who need care from transferring their assets and artificially impoverishing themselves to qualify for Medicaid. What’s in it for insurance carriers? They believe the compact will help sell more long-term care insurance (LTCi), reasoning that more policies will be sold to cover the cost of the participant’s three-year pledge.
So, what’s the problem? There are several.
First, in my opinion the compact is really saying, “Healthy 50-year-olds should not take responsibility for their future by purchasing an LTCi policy, because 30 years down the road, if they become chronically ill and require care, they can always make a pledge and become a compact participant.”
This program was developed and is being promoted by a group of elder law attorneys. It’s no secret that many elder law attorneys generate substantial income by setting up trusts and transferring their clients’ assets in order to qualify them for Medicaid. My first thought was: What’s in it for the attorneys?
The federal Deficit Reduction Act (DRA) of 2005 was supposed to stop all of that, right? Medicaid planning was dead. There could be no more “half-a-loaf” asset-protection schemes and no more 100 percent home exemptions when qualifying for Medicaid, to name just two of the changes.
The DRA did what it was supposed to do.
But here comes the compact. Is it just coincidence that the compact looks, feels, and smells like Medicaid?
Color it any way you want, in reality it is nothing more than a Medicaid program with a different name. Why does it have a different name? If it’s not part of Medicaid, it’s not required to follow Medicaid’s rules and regulations, including the DRA.
The DRA changed the look-back period from three years to five. The compact has a three-year look-back period. Medicaid will protect up to $750,000 of home equity in New York; the compact protects 100 percent, with no upper limit.
Therefore, three years before applying for the compact, a person could take all of his or her assets and purchase a home. It doesn’t matter if it’s a $10 million residence–the compact will protect every dollar. If the only remaining countable assets other than the home are $40,000, a pledge of only $20,000 will be enough for someone to participate in the compact. And unlike Medicaid, which mandates estate recovery, the compact has no such provision.
How does a consumer join the compact? To find out, why not attend a seminar sponsored by elder law attorneys? And who would get a “finder’s fee” for compact participation? No surprise here either: the attorney.
With an attorney’s help, an individual can funnel all his or her assets into a residence three years before signing the pledge. This is pre-DRA all over again, only better. I can see it now: a new cottage industry called “Compact Planning.”
The compact allows an individual to take responsibility for his long-term care after becoming chronically ill. That’s like purchasing fire insurance once the house is ablaze. Why pay premiums on an LTCi policy for years if you can roll the dice and make a pledge when you need care?
Costing Taxpayers a Fortune
The compact will not save the state money, as it claims; it will do the opposite.
Those with little or no assets will continue to qualify for Medicaid by spending down, and those with substantial assets, instead of seeing an attorney to make Medicaid-qualifying transfers, will now see one to become compact participants.
If passed, the compact will devastate the LTCi industry–not only in New York, but also eventually nationwide. The only people who will benefit are the lawyers.
Arthur Rudnick ([email protected]) is an independent agent specializing in long-term care insurance in White Plains, New York.