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Best Practice
NOTES

Vol. 8, Nos. 3 & 4

On Delivery of Legal Assistance to Older Persons

November 1997



Update: Criminalization of Advising on Asset Transfers in Medicaid Planning

As reported in the September, 1996 issue of Best Practice Notes, on August 21, 1996, President Clinton signed the Health Insurance Portability and Accountability Act of 1996. Buried in this Act was the Medicaid Asset Transfer Criminalization provision which made it a federal crime to transfer certain assets in order to qualify for Medicaid. As advocates struggled with this vague and poorly worded law, public outrage began to grow. Often referred to as the "granny goes to jail" law, it appeared that the focus of this criminal penalty was the typical or prospective nursing facility resident: a frail older woman.

Reacting to a growing chorus of indignation over older, sick people in need of nursing home care being threatened with prison, Congress amended the Medicaid Asset Transfer provision one year later. The amendment, which was included in the Balanced Budget Act of 1997, was signed by the President on August 5, 1997. The amendment changes the focus of the criminal penalty: rather than criminalizing the actions of the older person who transfers assets to become eligible for Medicaid, the amendment criminalizes the actions of any individual who, for a fee, counsels or assists an individual to transfer his or her assets in order to become eligible for Medicaid. Thus, the essence of the old law remains, but the person to be punished shifts from the older person to the older person's advisor.

A. Background

Medicare is the primary health care insurance for almost all Americans age 65 years or older. Medicaid is a needs-based health care program for uninsured Americans whose income and assets do not exceed certain state-specific limits. Since Medicare provides very limited coverage for long-term care such as nursing facilities, and only about five percent of nursing home residents have long-term care insurance, many older people that require long-term care must either pay for nursing care facilities privately or rely on Medicaid. Further, when many private-pay individuals ultimately deplete their savings, they turn to Medicaid for assistance. In an effort to qualify for Medicaid benefits, some individuals may attempt to divest themselves of their assets by transferring them to family members or setting up trusts rather than use their assets to support their long-term care needs.

B. Previous Laws & Penalties

Prior to August 21, 1996, Congress had addressed the issue of improper transfers and had established civil penalties for those people improperly transferring assets to qualify for Medicaid. Generally, under the Medicaid law, there is a set period of time (the "look back" period) during which the transfer of assets results in a period of ineligibility for Medicaid payment of nursing home care or care under a home and community based waiver. For most transfers, the look back period is the thirty-six months prior to application; in the case of certain trusts, it is sixty months prior to application.

For example, such things as making gifts or selling property without receiving fair market value during the three years prior to applying for Medicaid makes the applicant ineligible for Medicaid benefits for a certain amount of time. The period of ineligibility is equal to the value of all uncompensated asset transfers during the "look back' period, divided by the monthly cost of nursing facility services in the given state. There is no set limit on the resulting period of ineligibility. An individual may attempt to prevent the penalty by demonstrating that the assets were transferred for a purpose other than to qualify for Medicaid.

As mentioned above, on August 21, 1996, President Clinton signed the Health Insurance Portability and Accountability Act of 1996 ("Health Reform Act"). Although the primary focus of this act was to address issues of coverage and portability of health insurance, the act also established criminal penalties for transferring assets to become eligible for Medicaid. Specifically, the 1996 law added the new criminalization provision to the existing Medicare/Medicaid fraud law as follows. (New language is in bold) ("Title XIX" is the Medicaid Title in the Social Security Act.)

(a) Making or causing to be made false statements or representations.
Whoever --
(1) - (5)
(6) knowingly and willfully disposes of assets (including by any transfer in trust) in order for an individual to become eligible for medical assistance under a State plan under title XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance under section 1917 (c)...

This new provision in the Medicare/Medicaid Fraud law was very poorly drafted and raised many questions among elder law attorneys, health care advocates and older persons themselves. It was not clear from the writing if the crime was a misdemeanor or felony, or if any penalty would occur for the transfer of assets; furthermore, it was not clear which transfers would be considered criminal or even if the provision would pass constitutional scrutiny.

C. Current Laws & Penalties

On August 5, 1997, President Clinton signed The Balanced Budget Act of 1997 which included an amendment to the Health Reform Act language by amending paragraph (6) above and clarifying the penalty section somewhat. The amendment reads as follows, new language is in bold:

(a) Making or causing to be made false statements or representations.
Whoever --
(1) - (5)
(6) for a fee knowingly and willfully counsels or assists an individual to dispose of assets (including by any transfer in trust) in order for the individual to become eligible for medical assistance under a State plan under title XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance under section 1917 (c), shall

...

(ii) in the case of such a statement, representation, concealment, failure, conversion, or provision of counsel or assistance by any other person, be guilty of a misdemeanor and upon conviction thereof fined not more than $10,000 or imprisoned for not more than one year, or both. (To be codified at 42 U.S.C. 1320a-7b(a).)

Thus the potential criminal is no longer the individual who transfers the assets but the lawyer or financial planner who, for a fee, advises an individual in certain circumstances to transfer their assets in order to become eligible for Medicaid.

Further, the amended language clarifies that the provision of counsel or assistance for a fee is a misdemeanor rather than a felony, and is punishable by a fine of not more than $10,000 or imprisonment for not more than one year, or both.

D. Analysis

As with the original Medicaid asset transfer provision in the Health Reform Act, there are serious ambiguities and questions surrounding this amended version. Much of what was unclear and ambiguous in the original language remains unclear. For a more detailed analysis of those ambiguities, see Best Practice Notes September, 1996.

Beyond this, the amended language poses new questions and concerns, particularly regarding the First Amendment right to free speech. The amended language indicates that disposing of assets itself is not criminal, but the counseling and assistance associated with such disposal is criminal. According to one expert in law and aging, this "raises a constitutional 'red flag' because of its criminalizing of certain speech regarding actions that are not themselves criminal." As a result of this amendment, lawyers, financial advisors and others commit a crime when they advise their clients of actions that are not themselves a crime.

Although the ramifications of this amendment are not yet clear, it is evident that this law has the potential to greatly affect older individuals' ability to obtain full and complete representation from lawyers, financial advisors, or other persons who provide advice or assistance for a fee. Such advisors are likely to be hesitant to discuss any aspect of Medicaid asset transfers, for fear that it will be misconstrued as counseling or assisting in a transfer of assets covered by this law and result in a criminal offense.

E. Conclusion

At this point, TCSG does not feel it can draw conclusions or provide answers as to how the aging network should deal with the criminalization of advising on Medicaid asset transfers. We will try to stay current on any and all developments and will be happy to share that information with anyone who contacts us.

A final note: At the time the 1996 law was enacted, there was much confusion about the origin of this amendment, with no one claiming authorship. The likely culprit seemed to be the long-term-care insurance industry. In the October, 1997 Consumer Reports article on long-term-care insurance, they clearly point the finger at the insurance industry, particularly regarding the 1997 amendment, and quote New York attorney Robert Freedman, as follows: "it's [the 1997 amendment] designed to have a chilling effect. The industry feels that if people can't do Medicaid planning, more people will buy [LTC] insurance."


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The Center for Social Gerontology, Inc.
A National Support Center in Law and Aging
2307 Shelby Avenue  Ann Arbor, MI  48103
Tel: (734) 665-1126  Fax: (734) 665-2071
Email:  tcsg@tcsg.org