Is Medicaid Planning Ethical?

Medicaid is a welfare program originally created to provide health care to our nation's poor. Due to the lack of any other program, Medicaid has by default become the long-term care insurance of the middle class. With the help of elder law attorneys, those needing long-term care artificially impoverish themselves in order to qualify and preserve their savings either for their healthy spouse or their children. Is this practice ethical?

Stacey L. Bradford of said in a 2002 article: "For starters, it''s highly unethical to transfer funds to family members simply so that the government will pick up the tab." 

On the other hand, Randy Cohen, the former ethics columnist for The New York Times Sunday Magazine, wrote in 2002 that Medicaid planning is ethical if you play within the rules. Speaking to a woman considering divorcing her second husband who has Alzheimer's disease, he says:

"What you are contemplating is not the exploitation of a legal loophole but adherence to the regulations governing Medicaid. But you should seek legal and financial advice: besides divorce, there are other options to consider, including, for instance, transferring some assets to your children (if you have any) or protecting your assets through annuities or trusts. Done with respect for the law and compassion for your husband, such actions, divorce included, are prudent and ethical courses of action."

(Mr. Cohen''s entire 2002 comment can be read here.) 

It will be no surprise that we at ElderLawAnswers agree with Mr. Cohen and not Ms. Bradford. Unfortunately, neither Congress nor the state legislatures have resolved the public policy question of how we as a society should pay for the long-term care of our seniors. The result is a confusing, makeshift system of Medicare, private insurance, out-of-pocket payments, family caregivers, and Medicaid as a last resort.

Medicaid has become recognized as the long-term care insurance of the middle class. Congress implicitly accepts this result through rules that protect spouses of nursing home residents and permit others to qualify after spending down and transferring some of their savings. To plan ahead and accelerate qualification for Medicaid is no more unethical than planning to avoid taxes. It's just different populations doing the planning.

Some argue that Medicaid planning is unfair because Medicaid is a zero-sum game. More money spent on long-term care for middle-class seniors means less for poor children who need medical care. There's some truth to that argument at the state level, but not at the federal level. The federal and state governments share Medicaid expenses. At the federal level, anyone who qualifies for Medicaid gets covered. At the state level, the same is true, but the states have discretion on how far they expand Medicaid to serve underinsured populations. Lack of resources could mean narrower coverage on a state-by-state basis.

We agree wholeheartedly with Mr. Cohen's final point: Both major parties must make changes, embracing measures to protect the assets of middle-class seniors and taxing the assets of the rich (including through the estate tax) to provide all Americans with catastrophic medical care.