Is Medicaid Planning Ethical?
Medicaid planning has a bad reputation. When I bring up the subject to my clients, I am often met with questions about whether the process is even legal, let alone ethical. Moving assets around to qualify for government benefits feels ethically dubious to some people. After all, is this not just a way to defraud the government? The answer to that question is a resounding “No.” Medicaid planning is not fraud, is not illegal, and is not unethical.
Medicaid planning is simply the process of taking advantage of government rules to help people qualify for benefits. Put differently, Medicaid planning uses the published Medicaid rules, similar to the way one might use the Internal Revenue Code to minimize tax liability. [1] Just as one may “arrange his affairs that his taxes shall be as low as possible” one is free to arrange his affairs in such a manner that he is eligible for government benefits without a depletion of her assets. [2] If we have no issue with the wealthy moving assets and income around to save taxes (and thus reduce the government’s money), why should we have an issue with the lower and middle classes moving assets and income around to qualify for Medicaid benefits? Why is it suddenly considered unethical when a different class of people wants to take advantage of government rules in a sophisticated manner?
When the Medicaid program was first enacted, there was concern that wealthy individuals would just give assets to family members to qualify for Medicaid. This fear led to a solution built right into the Medicaid system: the lookback period. [3] The lookback penalties stop people from being able to just give away their assets to immediately qualify for Medicaid. Every cent that you give away counts against your ability to qualify for up to five years after the gift. Thus, Medicaid planning is not as simple as giving away wealth so you can live off the government. If you want to qualify for Medicaid, you typically have to either spend down your assets or put them into a special needs trust. [4] In the case of a spenddown, you literally lose the assets. And in the case of a special needs trust, your assets will be used to repay Medicaid for your expenses. Either way, we are not looking at fat cats taking government money with no consequences.
Good Medicaid planning is about helping people take advantage of rules put in place for their benefit. Nothing is hidden from the government. Indeed, a good Medicaid planning attorney will write a cover letter for the government employees, explaining exactly what is being done and how their own manual states this is acceptable.
So, yes, Medicaid planning is an ethical area of legal practice. In fact, I believe Medicaid planners should feel proud of the work they do, helping some of the most vulnerable and needy in society get the care they deserve.
References
[1]Thompson v. Dep't of Children & Families, 835 So. 2d 357, 359 (Fla. 5th DCA 2003).
[2] Helvering v. Gregory, 69 F.2d 809, 810 (1934). However, Ms. Gregory’s particular tax scheme did not survive judicial scrutiny.
[3] This problem and solution is discussed in Rainey v. Guardianship of Mackey, 773 So.2d 118 (Fla. 4th DCA 2000).
[4] There are other methods as well, such as transferring assets to a spouse who then refuses to support you, but to keep matters simple I only discuss the main techniques in this post.