July 8, 2008

Filial Responsibility Laws, Medicaid, and LongTermCare Insurance

For over forty years, a federal law (14 USC 1396(a)(17)(D)) has blocked any real enforcement of state filial responsibility laws because it outlaws states from considering the financial responsibility of anyone other than a spouse, or disabled minor child, when deciding Medicaid benefits (or other poverty-assistance program benefits). Here's what that federal law instructs the states, in part:

"do not take into account the financial responsibility of any individual for any applicant or recipient of assistance under the plan unless such applicant or recipient is such individual’s spouse or such individual’s child who is under age 21 or (with respect to States eligible to participate in the State program established under subchapter XVI of this chapter), is blind or permanently and totally disabled, or is blind or disabled as defined in section 1382c of this title (with respect to States which are not eligible to participate in such program); and provide for flexibility in the application of such standards with respect to income by taking into account, except to the extent prescribed by the Secretary, the costs (whether in the form of insurance premiums, payments made to the State under section 1396b (f)(2)(B) of this title, or otherwise and regardless of whether such costs are reimbursed under another public program of the State or political subdivision thereof) incurred for medical care or for any other type of remedial care recognized under State law"

What is Medicaid to a Senior Citizen?

Medicaid is both a federal and state program to help the poor. When the elderly exhaust their assets, and their Medicare benefits run out, then Medicaid steps in and covers their long-term care costs - as long as that care involves nursing homes or other, analogous skilled facilities. Medicaid doesn't cover home health care, or assisted living. (See 42 USC 1395(d), 1396(a), 42 CFR 409.33).

The Medicaid Estate Planning Strategy vs. Program Budget Projections

Savvy estate planners work with families regularly, and legally, moving assets out of the elderly person's estate so when incapacity comes, family inheritances are protected and Medicaid can cover the costs of care to the extent that long-term care insurance hasn't been purchased in advance. Federal law 42 USC 1396a (see above) protects the assets now held by the kids, and the parent(s) can feel secure that they will have long term care costs covered, nevertheless.

Knowing this strategy exists, federal law first allowed Medicaid to go back as far as three years to gather assets transfered from the elderly and placed into the hands of children, loved ones, or trusts. Past that 3 year mark, and the transfer was secure.

In 2005, the Deficit Reduction Act expanded that time frame to five (5) years. It also denied Medicaid nursing home coverage to anyone with home equity greater than $500,000 and allowed states to increase that amount to $750,000 within their program jurisdictions. The Act also took into account the long term insurance policy, allowing Medicaid to exempt dollar for dollar every dollar provided under the policy until it is exhausted.

Here Comes The Aging Boomer Generation

A. Reevaluation of the Filial Responsiblity Laws

As The Boomer generation ages, Medicaid will be inudated with long-term care responsibilities and program costs are expected to skyrocket. Accordingly, both federal and state officials are taking a second look at filial responsibility laws, some of which have been setting on the books for decades, as a way to deal with this impending program crisis.The National Center for Policy Analysis sees enforcement of filial responsibility laws as a good idea for the country.

B. Government-Industry Partnerships to Encourage Long-Term Care Policies

Already, insurance companies are explaining to parents and children the details of long term care costs, and the potential need to plan now for a policy. The premiums are tax-deductible as medical expenses, with the deduction amounts correlated to inflation and the elder's age.

Some states have established partnerships with long-term-care insurance companies to encourage the purchase of these premiums and avoid a future Medicaid burden. These partnerships offer those who buy long-term care policies the ability to keep a certain amount of assets and still get Medicaid nursing home coverage. There's also talk of a national partnership program.

What Does Your State Say?

The states in bold-faced type are those with civil and/or criminal filial responsibility laws on their books. Those with established insurance company partnership programs are:



New York

States investigating these partnerships, as of Spring 2008, included:


North Dakota

Rhode Island
South Dakota


For more information:

The Tax Adviser, April 2008, "What is Long Term Care and Who Is Responsible for Its Cost?" by Dianne Odem, CPA/PFS and editor, Michael David Schulman, CPA/PFS

List of States Having Filial Responsibility Laws (statutes given)

Filial Responsibility Law - Adult Kids Sued for Care of Parents

Wikipedia, Medicaid.
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