[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




                               before the



                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION


                           SEPTEMBER 21, 2011


                           Serial No. 112-90


Printed for the use of the Committee on Oversight and Government Reform

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                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Health Care, District of Columbia, Census and the 
                           National Archives

                  TREY GOWDY, South Carolina, Chairman
PAUL A. GOSAR, Arizona, Vice         DANNY K. DAVIS, Illinois, Ranking 
    Chairman                             Minority Member
DAN BURTON, Indiana                  ELEANOR HOLMES NORTON, District of 
JOHN L. MICA, Florida                    Columbia
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
SCOTT DesJARLAIS, Tennessee          CHRISTOPHER S. MURPHY, Connecticut
JOE WALSH, Illinois
                            C O N T E N T S

Hearing held on September 21, 2011...............................     1
Statement of:
    Moses, Stephen, president, Center for Long-Term Care Reform; 
      David Dorfman, attorney, Law Offices of David A. Dorfman; 
      Janice Eulau, assistant administrator, Medicaid Services 
      Division, Suffolk County Department of Social Services; and 
      Julie Hamos, Director, Illinois Department of Healthcare 
      and Family Services........................................     9
        Dorfman, David...........................................    16
        Eulau, Janice............................................    21
        Hamos, Julie.............................................    25
        Moses, Stephen...........................................     9
Letters, statements, etc., submitted for the record by:
    Dorfman, David, attorney, Law Offices of David A. Dorfman, 
      prepared statement of......................................    18
    Eulau, Janice, assistant administrator, Medicaid Services 
      Division, Suffolk County Department of Social Services, 
      prepared statement of......................................    23
    Gowdy, Hon. Trey, a Representative in Congress from the State 
      of South Carolina, prepared statement of...................     4
    Hamos, Julie, Director, Illinois Department of Healthcare and 
      Family Services, prepared statement of.....................    27
    Moses, Stephen, president, Center for Long-Term Care Reform, 
      prepared statement of......................................    12



                     WEDNESDAY, SEPTEMBER 21, 2011

                  House of Representatives,
Subcommittee on Health Care, District of Columbia, 
                  Census and the National Archives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m. in 
room 2247, Rayburn House Office Building, Hon. Trey Gowdy 
(chairman of the subcommittee) presiding.
    Present: Representatives Gowdy, Gosar, DesJarlais, Davis, 
Clay, and Cummings [ex officio].
    Staff present: Brian Blase, professional staff member; Will 
L. Boyington and Nadia A. Zahran, staff assistants; Christopher 
Hixon, deputy chief counsel, oversight; Sery E. Kim, counsel; 
Mark D. Marin, senior professional staff member; Jaron Bourke, 
minority director of administration; Yvette Cravins, minority 
counsel; Ashley Etienne, minority director of communications; 
Devon Hill and Adam Koshkin, minority staff assistants; and 
Jennifer Hoffman, minority press secretary.
    Mr. Gowdy. Good morning. Welcome to everyone.
    This is a hearing on examining abuses of Medicaid 
eligibility rules. Pursuant to committee rules, I will read the 
mission statement.
    We exist to secure two fundamental principles. First, 
Americans have a right to know the money Washington takes from 
them is well spent. Second, Americans deserve an efficient and 
effective government that works for them. Our duty on the 
Oversight and Government Reform Committee is to protect these 
rights. Our solemn responsibility is to hold government 
accountable to taxpayers because taxpayers have a right to know 
what they get from the government.
    We will work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and to 
bring genuine reform to the Federal bureaucracy. This is the 
mission of the Oversight and Government Reform Committee.
    I will now recognize myself for an opening statement and 
then the gentleman from Illinois, ranking member, Mr. Davis.
    As this committee's mission statement just made clear, 
Americans have a right to know the money Washington takes from 
them is well spent. Americans also have the right to know 
whether social programs that were designed for a specific 
purpose have been hijacked wittingly or unwittingly by those 
who have figured out how to game the system.
    Today, we will examine alleged abuses of Medicaid 
eligibility rules. As we do, we are guided by the principle 
that each dollar taken from a private citizen has a real cost 
and government needs a compelling rationale for taking that 
    To be clear, this country has a rich history of providing a 
social safety net for the elderly and the indigent. Some seek 
to turn the safety net into a hammock or trampoline. Not only 
is this fiscally irresponsible, it erodes the very little 
public trust people have left in the institutions of 
    Without question, the Medicaid program is on an 
unsustainable course. Over the past two decades, national 
Medicaid spending has increased from less than $75 billion per 
year to over $400 billion per year. At the State level, 
Medicaid growth has put tremendous pressure on budgets and is 
crowding out other State priorities such as education and 
public safety. At the Federal level, Medicaid growth has the 
same effect. Plus, it is contributing to our national debt at 
more than 40 cents of each dollar is borrowed.
    Medicaid is a means tested welfare program designed to 
provide medical care to the poor and disabled. But, today's 
testimony will reveal that Medicaid is not being used solely by 
the indigent. Although Medicaid technically has income and 
asset tests, these tests are easy to circumvent and abuse. In 
fact, an entire cottage industry has arisen seeking to educate 
the wealthy on how to transfer or hide assets, so taxpayers can 
pay for their long term care.
    In 1982, Congress made it clear all of the resources 
available to an institutionalized individual, including equity 
in a home which are not needed for the support of a spouse or 
dependent children, will be used to defray the costs of 
supporting the individual and the institutions. Despite this 
congressional intent, all the resources available to the 
institutionalized individual are not being used to defray the 
taxpayers' cost of supporting these individuals.
    According to the CMS, less than 1 percent of the money 
spent on nursing home care is recovered. The art of 
artificially impoverishing oneself to gain Medicaid coverage 
has spawned a stand alone industry. Medicaid planning is 
pervasive. A Google search which includes quotes around 
Medicaid planning yield over a half million hits. Popular books 
are available like the one entitled, ``How to Protect Your 
Family's Assets from Devastating Nursing Home Costs: Medicaid 
    This book includes tips on how to title your homes so you 
don't lose it to the State, how to make transfers to family 
members that don't disqualify you from Medicaid, how annuities 
make assets disappear, smart tricks for spending down your 
assets, what to change in your will to save thousands of 
dollars if your spouse ever needs nursing home care to avoid 
the State's reimbursement claim, following the nursing home 
resident's death. Government programs should not have secrets 
and artificially impoverishing oneself to become eligible for a 
program that was not designed for you is wrong.
    In 2006, the Europost ran an article about Medicaid 
millionaires in one county in the State. In that year, nine 
millionaires had taxpayers paying for their Medicaid bills. One 
man, worth nearly $2 million, had Medicaid pick up over $80,000 
in nursing home costs for his wife. One woman, worth $1.6 
million, had Medicaid pick up over $200,000 in nursing home 
costs for her husband.
    Since half of New York's Medicaid bill is financed by 
Federal taxpayers, taxpayers in my home State of South Carolina 
are paying for millionaires on Medicaid in New York.
    About once a decade, Congress revisits the eligibility 
rules for Medicaid to crack down on their abuse. In 1993 the 
Omnibus Budget and Reconciliation Act, Congress required States 
to do a State recovery. In the 2005 Deficit Reduction Act, 
Congress closed some loopholes and extended Medicaid's look-
back period. Today's testimony will reveal whether previous 
congressional action in this area has worked.
    We all know that tough choices are coming and that there 
will be strong partisan differences about the way forward. 
Today's hearing offers us an opportunity to explore an area 
where there should be genuine bipartisan agreement. Medicaid 
was intended for the poor and the disabled. Millionaires should 
not be on welfare. If the rules of Medicaid allow individuals 
with sizable portfolios to qualify for the program and protect 
the inheritance of their children, then Medicaid needs 
    [The prepared statement of Hon. Trey Gowdy follows:]
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    [GRAPHIC] [TIFF OMITTED] T1967.002
    Mr. Gowdy. With that, I now recognize the gentleman from 
Illinois, the ranking member, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman. Let me thank 
you for holding this very important hearing.
    I also want to thank all of the witnesses for being here. I 
would especially like to thank Ms. Julie Hamos who probably 
just came in this morning on the flight that I usually take 
when I want to get here by 10 a.m. And, sometimes the traffic 
is difficult and you have a hard time making it. Thank you very 
much, Julie.
    Mr. Chairman, I appreciate the importance of this hearing 
and I am happy to have dialog on this very critical issue.
    Since its inception in 1965, I have always said that 
Medicaid and Medicare were the best things that happened to 
health care, especially for elderly and low income people in 
this country, since the Indians discovered corn flakes. I am a 
firm believer that those individuals who have no other 
recourse, who have no other way to be cared for, should, in 
fact, be cared for by the resources that we make available to 
    The Medicaid Program funds one of six of all personal 
health spending in the United States. Additionally, Medicaid 
spending has increased to over $400 billion last year. This 
number gives us pause. Those of us who continue to view 
Medicaid solely as a budget challenge are missing the mark. 
This program involves real people and is about real people and 
their needs.
    Policy solutions that focus only on limiting public 
obligations or long term care financing do the citizens of our 
country a great injustice. Realistically, individuals and 
families bear the majority of care giving and financial 
consequences. Families and friends provide upwards of 80 
percent of long term care in the United States. I am open to 
new ideas to facilitate the care of people across all age 
groups who are needy and certainly not for those who are simply 
    But these discussions cannot be filled with flawed 
assumptions about peoples' resources. The vast majority of 
Medicaid's enrollees have limited resources, including the 33 
million children, the 11 million persons with disabilities, the 
17 million non-disabled adults and the 6 million seniors.
    In Illinois, more than 2.7 million Illinois seniors, 
children and individuals with disabilities rely on Medicaid 
services and programs. Long term care is a valued program. It 
includes medical as well as non-medical care to those who have 
a chronic illness or disability. Long term care helps meet 
health or personal needs. Most long term care is to assist 
people with support services such as activities of daily living 
like dressing, bathing and using the bathroom. Long term care 
can be provided at home in the community, in assisted living or 
in nursing homes. The dignity and peace of mind given to people 
who utilize these services is immeasurable.
    Certainly there are those who attempt to misuse the system, 
but the vast majority of enrollees are simply those who 
otherwise would not have the wealth or income for such personal 
daily care. These bad actors must not cause us to throw up our 
hands and surrender.
    I have a term that I often use that says, ``I don't ever 
want to throw out the baby with the bath water.'' I want to 
throw out all of the waste, abuse and misuse of the program 
that we possibly can. Medicaid must continue to provide 
coverage based on Federal standards that ensure maximum access 
for low income and special needs populations with funding 
allocations based on the needs of these populations.
    A meaner Medicaid is not a sufficient solution. Now is not 
the time to reduce access. Compassion and common sense must 
prevail. Affordable, accessible quality health care should not 
be a partisan or political issue but a human one.
    Last, I am proud that Ms. Hamos has agreed to join us and I 
am delighted again that she was able to make it.
    I agree with you, Mr. Chairman, I agree wholeheartedly that 
those individuals who are misusing the system, those 
individuals who are using it as a way to make sure that they 
can transfer wealth, all of those efforts that are underway to 
provide subterfuge, to provide ways to deny access to 
individuals who really need the services. I will work with you 
and other Members of this body to exercise, to carve out and 
get rid of all those individuals and those opportunities.
    Again, I thank you for the hearing and look forward to the 
testimony of the witnesses.
    Mr. Gowdy. I thank the gentleman from Illinois.
    I would now recognize the gentleman from Arizona, the vice 
chairman of the subcommittee, Dr. Gosar.
    Dr. Gosar. Mr. Chairman, I would like to echo the concerns 
that you shared about the unsustainable growth in Medicaid 
    This is a significant problem in my State of Arizona. The 
crippling recession of late has affected my State tragically, 
reducing the money in the General Fund by $2 billion in only a 
couple short years. The Governor and legislature are finding of 
the biggest expenses the State has is its Medicaid Program.
    In a time when this program meant for low income people in 
need of basic health care is facing deficits, we need to 
explore critical reforms that will ensure limited Medicaid 
dollars reach those who need it most. I think we will find 
today that long term care eligibility standards in current 
Federal law do not achieve this goal.
    I also agree with you that this hearing should be 
bipartisan. We have strong disagreements with the massive 
Medicaid expansion contained in the President's takeover of 
health care, but we should be able to find common ground. The 
taxpayer program should not serve as inheritance protection and 
that the rules that can be navigated so millionaires can 
qualify for welfare are in desperate need of reform.
    According to the law firm, Wright, Abshire in Houston, TX, 
even if a client's assets are substantial, the firm will be in 
almost every case be able to successfully achieve a 
satisfactory plan for the client to preserve assets. An 
organization in California called Nursing Home Solutions 
states, ``We get middle class families excellent nursing home 
care funded by Medi-Cal.'' This advertising makes Medicaid 
planning sound like the proverbial free lunch.
    But while the individual family benefits from taxpayers 
supporting long term care services received by that individual, 
there are also clear costs. The obvious cost is to future 
generations and business owners who will have to pay this bill 
and who have the result of less capital to invest in the 
economy. The less obvious cost is that nursing homes and long 
term care providers are harmed by more individuals receiving 
Medicaid's low reimbursement rate.
    So the policy question is, who should bear the burden of 
paying the cost of long term care? It would be convenient to 
say the other guy, but what happens when the other guy is 
tapped out? Taxpayers are simply tapped out and our Nation is 
running a $1.6 trillion deficit for the third straight year.
    Our friends on the other side of the aisle may say this 
cost should be socialized, but that solution is misguided for 
two reasons. The first is that we need to be figuring out ways 
to reform Medicare and Medicaid, not to expand it. The second 
is that it runs counter to the obvious principle that 
individuals spend their own money better than they spend other 
people's money. Since the private sector does most things 
better than the government, can the private sector play a role 
in figuring out a way out of this problem?
    I respectfully assert that the free market solutions have 
never been able to take hold in the market for long term care 
because of Medicaid. Since it is so easy to get taxpayers to 
foot a person's long term care needs, individuals don't have 
any incentive to plan for these expenses.
    Don't take my word for it, whoever, In 2008, Jeff Brown at 
the University of Illinois and Amy Finklestein of MIT wrote an 
article entitled, ``The Interaction of Public and Private 
Insurance, Medicaid and a Long Term Care Insurance Market.'' 
This article appeared in the Nation's most prestigious peer-
reviewed economics journal, American Economic Review.
    The findings are that all but the wealthiest households in 
the country have virtually no reason to purchase long term care 
insurance. This is because a private policy pays for many 
benefits that simply replace benefits Medicaid would have paid 
for. It is important to note that Brown and Finklestein did not 
even account for the art of Medicaid planning. They assumed 
that people actually have to spend down their assets in order 
to qualify for Medicaid.
    Therefore, it is unfair to criticize the private, long term 
care insurance industry for lack of policies. A private insurer 
is not competing on a level playing field with Medicaid since 
Medicaid is so heavily subsidized.
    The way I see it is, the choice is clear. We can fail to 
reform these rules. This would continue to allow relatively 
affluent individuals on welfare to discourage all of us from 
taking seriously the possibility of needing to take care of 
long term care in the future. This failure will doom the whole 
system as a whole.
    The alternative is to reform the rules and reduce the 
loopholes. Real reform should prevent affluent people from 
qualifying for welfare with the effect of preserving the 
inheritance of their adult children. Real reform would also 
promote personal responsibility and awaken Americans to the 
fact that while living longer is a great thing, it comes with 
the possibility of requiring assistance. Real reform would 
preserve taxpayer dollars to assist genuinely needy individuals 
in getting care. Real reform would reduce Medicaid burden on 
State budgets and the Federal budget and would decrease the 
amount of money that Washington borrows from abroad.
    Mr. Chairman, thank you for calling this hearing. I eagerly 
await the testimony of our witnesses to learn more about this 
issue and steps that can be taken to reform the program.
    I yield back.
    Mr. Gowdy. I thank the gentleman from Arizona.
    I would also like to recognize and thank the gentlemen from 
Missouri and Tennessee, respectively, for their presence and 
their contributions to this subcommittee.
    Members may have 7 days to submit opening statements and 
extraneous material for the record.
    It is now my pleasure to welcome our distinguished panel of 
witnesses. I will introduce you at once and then we will go 
from my left to right, your left to right, in terms of opening 
    Mr. Stephen Moses is the president of the Center for Long-
Term Care Reform. Mr. David Dorfman is an attorney with the law 
offices of David A. Dorfman. Ms. Janice Eulau is the assistant 
administrator, Medicaid Services Division, Suffolk County 
Department of Social Services. My friend, Mr. Davis, joins me 
in introducing and welcoming the Honorable Julie Hamos, 
director of the Illinois Department of Healthcare and Family 
    Pursuant to committee rules, all witnesses will be sworn 
before they testify, so I would ask you to please rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Gowdy. Let the record reflect that the witnesses 
answered in the affirmative.
    Mr. Moses, we will start with you. The lights, which I hope 
you can see, mean what they traditionally mean. Green means go. 
Yellow, unlike in real life does not mean speed up and see if 
you can get under it, means you have about a minute left and 
then, red means conclude your last comment if you can.
    With that, again on behalf of all of us, thank you. We are 
honored to have such a distinguished group of witnesses.
    Mr. Moses.



    Mr. Moses. Thank you, Mr. Chairman and members of the 
committee. Thank you for inviting me to speak to you about 
Medicaid and long-term care financing today.
    I have worked in this field since 1981, first as a career 
U.S. Government employee with the Health Care Financing 
Administration, the predecessor of the current CMS; then for 
the Inspector General of the U.S. Department of Health and 
Human Services; and since 1989, in the private sector. I am 
currently president of the Center for Long-Term Care Reform.
    In each of these roles, I conducted national and State 
studies of Medicaid and long-term care financing. My remarks 
today are fully developed and documented in published reports 
available on our Web site at centerltc.com.
    Medicaid is supposed to be a long-term care safety net for 
people in dire financial need. Instead, it has become the 
dominant payer for most Americans who require extended care at 
home or in a nursing, including the middle class and even the 
affluent. How can this be true if Medicaid is a means-tested 
public assistance program? That is the key question before you 
today. Here is the answer.
    Although everyone says Medicaid eligibility requires low 
income, that is untrue for people over the age of 65 who need 
long term care. Federal rules require most States to deduct 
medical expenses, including the cost of nursing home care, from 
applicants' income before determining eligibility. Some States 
apply income caps but these are easily evaded by means of 
special income diversion trusts. Bottom line, income almost 
never disqualifies anyone for Medicaid long term care 
    What about assets? It is true that cash and negotiable 
securities over $2,000 are disqualifying in most States, but it 
doesn't matter how people spend down to that level as long as 
they don't give away their assets. Financial advisors 
frequently tell clients to purchase exempt assets, take a world 
cruise, throw a big party, all non-disqualifying spend-down 
    Just how many exempt assets can applicants retain and still 
qualify for Medicaid long-term care benefits? There really is 
no meaningful limit. Exempt home equity is capped at $500,000 
to $750,000 which is 13 to 20 times the amount protected in 
England's socialized health care system.
    The following resources are exempt without any limit: one 
business including the capital and cash-flow; individual 
retirement accounts or IRAs; one automobile; prepaid burial 
plans not only for the Medicaid recipient but for all immediate 
family members; term life insurance which allows recipients to 
evade the Medicaid estate recovery mandate; and household goods 
and personal belongings, all without any capped limits.
    The Federal regulations and policies that require these 
exemptions are documented in our report entitled, ``Medi-Cal 
Long-Term Care: Safety Net or Hammock.'' Medi-Cal is Medicaid 
in California and these problems and issues apply nationwide.
    Married applicants for Medicaid LTC benefits can retain 
substantially more income and assets than single people, up to 
$2,739 per month of income and half the joint assets of the 
couple up to $109,500. If the healthy spouse's personal income 
and assets are below these levels, the Medicaid spouse's income 
and assets are transferred to bring him or her up to the limit. 
These spousal impoverishment protections increase annually with 
    Because of these very generous basic eligibility rules, the 
vast majority of America's elderly qualify easily for Medicaid 
when they need long term care. The conventional wisdom that 
people must spend down into impoverishment before Medicaid will 
help is demonstrably untrue. Only the most affluent need to 
consult Medicaid planners and use special legal techniques such 
as trusts, transfers, annuities, life estates, life care 
contracts and promissory notes to qualify.
    The other panelists will discuss Medicaid planning. The key 
point I want to make is that we need to remember that egregious 
Medicaid planning is only the tip of the iceberg. The bigger 
problem is that Medicaid's basic eligibility rules allow most 
people to qualify after they need long term care and without 
spending down their wealth first.
    To conclude, easy access to Medicaid has the effect of 
desensitizing the public to long term care risks and costs. 
Medicaid's home equity exemption prevents people from using 
reserve mortgages to finance home care. With most of their 
assets protected by Medicaid, few people plan early to save, 
invest or insure for long term care.
    Well intentioned public policy has turned into a perverse 
incentive discouraging responsible long term care planning. 
Furthermore, consuming scarce public welfare resources to 
indemnify affluent baby-boomer heirs of well-to-do seniors 
hurts the poor instead of helping. It is like friendly fire in 
the class war.
    Medicaid could save up to $30 billion per year if people 
had to consume their home equity before qualifying for public 
benefits as is true in England. The program's most expensive 
dual eligible recipients could be reduced by 20 percent. 
Reverse mortgages to fund long term care would thrive and 
generate new jobs and tax revenue.
    The private long term care insurance market would expand 
creating even more jobs and revenue, but most importantly, 
relieving the financial pressure on Medicaid in this way would 
enable the program to survive as a quality safety net for those 
who are truly in need.
    My analysis explaining how Medicaid can save $30 billon per 
year by encouraging financing of long term care through private 
financing alternatives has been made available to the 
    Thank you.
    [The prepared statement of Mr. Moses follows:]
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    Mr. Gowdy. Thank you, Mr. Moses.
    Mr. Dorfman.


    Mr. Dorfman. Good morning, Mr. Chairman, and members of the 
committee. Thank you so much for having me here this morning.
    My name is David Dorfman and for about the last 20 years 
until January of this year, I practiced Medicaid planning law 
in Manhattan, Brooklyn and Queens.
    I came to elder law out of a family experience. My 
grandmother and her two sisters all went to Portia Law School, 
the first law school for women in Boston in the 1930's. I grew 
up with elder law around the house, when her friends would come 
over to probate their husbands' wills, to transfer keys to the 
children, to take care of those family matters that her senior 
friends had.
    When I began my practice, OBRA 93 had just become the law 
and I attended Bar Association meetings, met leaders in the 
Medicaid legal field and began teaching other people how the 
system works because while Medicaid is certainly not a secret 
program, it is so difficult for people to understand how it 
works, given the massive unfairnesses and confusion in 
qualifying for benefits.
    My clients would come to me typically because they had a 
spouse who had Parkinson's or Alzheimer's, a parent who needed 
care, and they didn't know what to do. They weren't sure what 
their options were. What we set about doing was educating 
people as to how the system works and creating an individual, 
tailored plan, much like for health care, what was the best 
thing for that particular individual to do.
    It might be trusts or annuities, changing title to the 
home, investing in pensions or insurance, but I am going to 
suggest that the abuse is a myth. That is not really what is 
happening. That is not what any of my clients wanted. None of 
them wanted to game the system. They all wanted to know what 
should I do, the same way a woman whose husband has had a 
stroke says to the doctor, what am I supposed to do, they say 
to the social worker, what am I supposed to do, how am I 
supposed to live, where will I be living, what will happen to 
the pension, the social security, who is going to provide the 
    Soup kitchens are free and nobody checks 5 years worth of 
bank statements and millionaires don't go there for lunch.
    In terms of creating a health care system, we don't need a 
punishment health care system, periods of ineligibility or 
penalty periods. We need a system that has a cost sharing 
approach that invites people in so they can access necessary 
care and share in the costs. That is what people want, not an 
all or nothing approach. We can't mandate abject poverty 
because that is what people are terrified of. If that has to be 
created, no matter what the rules are, people will do whatever 
they have to do to get the necessary health care for their 
loved ones or they will suffer and die without care.
    I saw people who were increasingly afraid to get care as 
Medicaid laws became more onerous, people who qualified for 
benefits, people who were poor and needed health care but 
didn't fill out the application because they didn't have the 
bank statements. Let us create a system that invites people in 
who need care, not one that punishes them.
    Thank you.
    [The prepared statement of Mr. Dorfman follows:]
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    [GRAPHIC] [TIFF OMITTED] T1967.008
    [GRAPHIC] [TIFF OMITTED] T1967.009
    Mr. Gowdy. Thank you, Mr. Dorfman.
    Ms. Eulau.

                   STATEMENT OF JANICE EULAU

    Ms. Eulau. Good morning, Chairman Gowdy, Ranking Member 
Davis and members of the subcommittee. Thank you for the 
opportunity to speak to you today about this important topic.
    My name is Janice Eulau and I have been employed by the 
Suffolk County, New York Department of Social Services for the 
past 36 years. I currently serve as the assistant administrator 
for the Medicaid Program in that county.
    Approximately 180,000 individuals receive Medicaid in 
Suffolk County with 5,300 in receipt of nursing home care. In 
2010, the nursing home care costs for those 5,300 individuals 
was $429.9 million with a Federal cost of $213.7 million.
    As a long-time employee of the local Medicaid office, I 
have had the opportunity to witness the diversion of 
applicants' significant resources in order to obtain Medicaid 
coverage. It is not at all unusual to encounter individuals and 
couples with resources exceeding $500,000, some with over $1 
    There is no attempt to hide that this money to exists, 
there is no need. There are various legal means to prevent 
those funds from being used to pay for the applicant's nursing 
home care. Wealthy applicants for Medicaid's nursing home 
coverage consider that benefit to be their right, regardless of 
their ability to pay themselves. There is limited understanding 
that Medicaid nursing home care remains a means tested program 
not an entitlement program. This misunderstanding seems to be 
perpetuated by the elder law and Medicaid estate planning 
    The two most often used by single clients is the promissory 
note. Half of the applicant's excess resources transfer to the 
children without compensation. This transfer results in a 
penalty period where Medicaid will not pay for nursing home 
care, approximately 1 month for every $10,000 transferred. The 
other half of the excess resource is also transferred to the 
children but in return for a promissory note which will produce 
an income stream to cover the cost of care during the penalty 
period. Our county regularly sees promissory notes in excess of 
$150,000 with matching, uncompensated transfers.
    For couples, the most common method of preserving resources 
is spousal refusal. In this case, the spouse in the nursing 
home transfers all resources beyond those he is allowed to keep 
to the well spouse living at home, since transfers to a spouse 
do not incur a penalty period. In New York, the 
institutionalized spouse may retain $13,800. The spouse living 
at home can retain up to $109,000. In addition, the home and 
prepaid burial expenses are exempt.
    Any amount in excess of these resources is deemed available 
to meet nursing home costs. However, Federal law allows the 
spouse at home to refuse to support the applying spouse and 
requires States to then base Medicaid eligibility determination 
on the income and assets of only the applying spouse.
    States then have the right to bring support proceedings 
against the refusing spouse. My county has pursued the refusing 
spouse in the past. However, in family court, we are only 
allowed to address the excess income and attach resources for 
past Medicaid payments. Any future proceedings would need to be 
addressed in New York Supreme Court, a process that would take 
months or years for each case and severely strain our limited 
local resources.
    The remedy for these abuses lies in education as well as 
changes to law. Many seniors believe that Medicare and their 
supplemental insurance policy will pay for the nursing home 
care when in fact these policies will only pay up to 100 days 
of care and only under certain circumstances.
    Medicaid communication through their annual handbook and 
their official Web site is woefully lacking information in this 
area. Not surprisingly, wealthy seniors fail to realize the 
value or need for long term care insurance. Having a better 
understanding of the limits of Medicaid would enable seniors to 
make timely and informed decisions regarding their future care 
needs. In addition, incentives for the purchase and use of long 
term care insurance should be provided by the Federal 
    I also respectfully suggest that the law allowing spousal 
refusal be adjusted to enforce the current resource limit and 
allow the spouse at home to petition court for higher resource 
levels should his or her circumstances call for such an 
increase instead of requiring the State to address each 
refusal. Allowing wealthy spouses to ignore their financial 
responsibility to one another is a policy we cannot afford.
    In closing, I would hope that the Medicaid Program can 
fulfill its original mission, to provide quality health 
coverage to individuals who are unable to afford such care or 
the insurance to pay for this care. However, individuals with 
resources above and beyond the level prescribed by law should 
not be allowed to fund their children's inheritance while the 
taxpayers fund their nursing home care. I strongly believe this 
is not a partisan issue. I also believe in the merits of the 
Medicaid Program but feel just as deeply that these issues 
regarding resource diversion need to be addressed.
    Thank you.
    [The prepared statement of Ms. Eulau follows:]
    [GRAPHIC] [TIFF OMITTED] T1967.010
    [GRAPHIC] [TIFF OMITTED] T1967.011
    Mr. Gowdy. Thank you, Ms. Eulau.
    Ms. Hamos.

                    STATEMENT OF JULIE HAMOS

    Ms. Hamos. Thank you.
    Good morning, members of the subcommittee and Mr. Chairman.
    I am Julie Hamos, director of the Illinois Department of 
Healthcare and Family Services, which among our other 
responsibilities, manages one of the largest Medicaid programs 
in the Nation. Illinois serves 2.7 million clients through 
Medicaid and SCHIP at an overall program cost of $16.6 billion.
    Today, we are talking about eligibility policies for 
Medicaid long term care and this, for us in Illinois, is a most 
propitious time to be talking about this since we are tackling 
this exact issue. As a new director of HFS last April, I 
learned that Illinois' previous administration had not yet 
implemented the Federal DRA that passed in 2006.
    Accordingly, almost immediately when I came in, we set to 
work to create rules involving Medicaid eligibility for long 
term care, rules that incorporate the DRA but go beyond it to 
actually deal with the loopholes that you are hearing about 
today since we have now learned from the experiences of other 
    Some of those loopholes are, in fact, spelled out in the 
Council for Long Term Care Report that I have read very 
closely. I have to be honest and tell you that this is a 
struggle in Illinois to convince our legislative rulemaking 
committees to adopt these rules. This is not a Democrat nor 
Republican problem. There seems to be, much to my surprise, a 
bipartisan acceptance of the so-called Medicaid estate planning 
practices that allow people to divest their assets in order to 
qualify for Medicaid nursing homes. The paper, I think, 
articulates the problem which is that there is no stigma 
attached to this.
    We agree with you that it is our responsibility to 
eliminate any abuse in the Medicaid Program and we are working 
hard right now to move along on some of these reforms. Today, I 
would like to touch on two other issues that have the potential 
to drive down Medicaid costs for long term care.
    Of our 2.7 million clients, 14 percent are seniors and 
adults with disabilities, yet these 14 percent of Medicaid 
clients incur 54 percent of the costs. Many of these same 
clients are also expensive dually eligible Medicare clients. 
While we are fully committed to providing for their care and 
maintenace, most of them really are low income and very 
vulnerable people, and they need long term care, but our focus 
is all about service delivery reform.
    Illinois historically has had an institutional bias 
building up state-operated institutions and nursing home beds. 
We currently have an excess of 15,000 empty nursing home beds, 
so we have overbuilt on that side but we have failed to invest 
in home and community-based services, obviously at a much 
better cost.
    We believe that we can achieve Medicaid savings and promote 
a higher quality of life for seniors and disabled who prefer to 
stay in their homes by rebalancing our long term care system to 
shift from nursing homes and make investments in home and 
community-based services.
    In addition, many health care services are fragmented for 
both Medicaid and Medicare and result in unnecessary and 
wasteful hospitalizations with the revolving door of admissions 
and readmissions to acute care hospitals, to psych wards of 
hospitals and to free-standing psychiatric hospitals.
    In order to drive down these costs, Medicaid must, in 
conjunction with Medicare for those who are dually eligible, 
provide care coordination for these most complex and expensive 
clients who have chronic health and behavior health conditions 
with the goal of keeping them healthier, stable in the 
community and not in hospitals but in community-based long term 
    I just want to convey to you that in this period of the 
Affordable Care Act planning, we are spawning an era of 
innovation in the health care delivery system. Federal CMS is 
offering incentives and guidance almost daily to encourage us 
to focus on quality healthcare and health outcomes in home and 
community-based settings that will ultimately result in cost 
savings for both Medicaid and Medicare.
    I urge you to maintain the Federal funding for State 
Medicaid programs and funding for these Federal demonstrations, 
waivers, innovations and policy initiatives. They present the 
unique opportunity to truly transform the Medicaid Program into 
a more effective and efficient health care system.
    Thank you.
    [The prepared statement of Ms. Hamos follows:]
    [GRAPHIC] [TIFF OMITTED] T1967.012
    [GRAPHIC] [TIFF OMITTED] T1967.013
    Mr. Gowdy. Thank you.
    I will recognize myself for 5 minutes of questions.
    Mr. Dorfman, what is the purpose of Medicaid?
    Mr. Dorfman. The purpose of Medicaid is to provide health 
    Mr. Gowdy. Universal health care or just for the indigent?
    Mr. Dorfman. The program has financial qualifications 
    Mr. Gowdy. I hadn't gotten to those yet. I am just asking 
you a general question. Do you think the purpose of Medicaid is 
to provide universal health care or only for the indigent?
    Mr. Dorfman. Health care for anyone who qualifies for the 
    Mr. Gowdy. Do you agree with me that there is a difference 
between actual indigency and legal indigency?
    Mr. Dorfman. Absolutely, there is an incredible 
    Mr. Gowdy. So people can voluntarily impoverish themselves?
    Mr. Dorfman. People can voluntarily impoverish themselves.
    Mr. Gowdy. To become eligible for government programs?
    Mr. Dorfman. Absolutely.
    Mr. Gowdy. Do you think that is consistent with the 
underlying purpose and mission behind Medicaid?
    Mr. Dorfman. It absolutely can be, yes.
    Mr. Gowdy. You seem to take exception to my 
characterization of people gaming the system. You don't believe 
that millionaires who voluntarily impoverish themselves so 
their heirs can inherit money and taxpayers can provide for 
their Medicare, you don't consider that gaming the system?
    Mr. Dorfman. No, because that is not most of what happens 
or the way it happens. There are those aberration cases.
    Mr. Gowdy. Are there millionaires who have voluntarily 
impoverished themselves so their children can have an 
inheritance and we can pay for their long term care?
    Mr. Dorfman. That is not the typical experience across 20 
years of doing Medicaid planning, although there are certainly 
    Mr. Gowdy. When people come, and I am not trying to violate 
any attorney-client privilege, but when people come to seek 
your counsel, how often do they come by themselves and how 
often do they come with their adult children?
    Mr. Dorfman. They frequently come with their adult 
children. It is almost always with either a spouse or an adult 
child, unless it is an isolated individual who doesn't have 
    Mr. Gowdy. You consider your client to be whom, the 
individual or the children?
    Mr. Dorfman. The client is always the individual, but the 
individual is almost always concerned about what is going to 
happen to their spouse or family members.
    Mr. Gowdy. Speaking of spouses, Mr. Moses, what is spousal 
    Mr. Moses. Well, that is a practice recognized primarily in 
New York and Florida whereby the well spouse, as Ms. Eulau 
explained, simply refuses to contribute under normal Medicaid 
requirements for the cost of the care of the Medicaid 
recipient. Under the law, the Medicaid recipient has to have 
assigned his or her rights to the wealth in essence so that the 
State can go after the well spouse for what is legally owed but 
this rarely happens because it is so complicated to do.
    The Elder Law Bar in frequent annual conferences urges the 
rest of the country to take advantage of what they consider our 
right under the Federal law to simply have the spouse refuse to 
contribute to the cost of the care. It is very, very expensive 
in New York and Florida. Frankly, I don't think most of the 
other States have the impunity to try to pull that off.
    Mr. Gowdy. Before I ask you about key payments, Mr. Dorfman 
and I disagree a little bit about the purpose of Medicaid. I 
think it is for the indigent, he thinks it is for whomever 
qualifies. What do you think?
    Mr. Moses. Well, there are problems in how Medicaid 
eligibility is determined so that there are what some people 
call loopholes but there are provisions in the law that make it 
quite easy and feasible for people with substantial wealth to 
qualify. As I explained in my testimony, the real problem is 
not just the tip of the iceberg which is the egregious Medicaid 
planning millionaires onto welfare, as Mr. Dorfman was saying, 
the real problem is that the median elderly person in terms of 
income and assets walks right onto Medicaid because of all of 
the exempt assets without limit.
    So really it is difficult to characterize the program as a 
program for the indigent because over the years through the 
intent of Congress, the program has been expanded. I call it 
eligibility bracket creep to the point where virtually anyone, 
if they don't plan ahead to prepare to pay their own long term 
care, can get Medicaid relatively easily no matter how much 
money they have.
    Mr. Gowdy. My time has expired. The gentleman from 
Illinois, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    I think there is generally some consensus that individuals 
should not gain Medicaid eligibility by inappropriately 
shielding their wealth. In the studies I have looked at by GAO 
as well as Kaiser, and some others, it would suggest to me that 
the numbers of individuals who are able to shield large wealth 
portfolios is relatively small.
    Could I ask if your experiences would indicate that that's 
the way it goes? Are we finding large numbers of individuals 
who are millionaires or close to who have large sums who are 
able to get around the requirements and are inappropriately 
receiving Medicaid benefits?
    Mr. Moses. Mr. Davis, as I just explained, the egregious 
Medicaid planning of the millionaires, that is just the tip of 
the iceberg. What GAO looked at was just one technique of 
Medicaid planning, transfer of assets. That is not even the 
most common form of Medicaid planning. There are annuities, 
life care contracts, the reverse half a loaf strategy using 
promissory notes. There are any number of ways to get people 
qualified, but the transfer of assets technique, minor as it 
is, is still a $1 billion a year according to GAO.
    As I can't reiterate enough, the real problem is that most 
people don't have to use fancy legal planning because they are 
eligible anyway. This has the effect of having sent the message 
since 1965 when Medicaid became part of the law to the public 
that you can ignore the risk of long term care, you don't have 
to save, invest or insure for the risk, and when the time 
comes, may be you die with your boots on and you are home free, 
but if you do get one of the chronic illnesses of old age--
Alzheimer's, Parkinson's and stroke--and you need the expensive 
care, families who provide 80 percent, as you said in your 
opening remarks, 80 percent of the care for free, if you have 
to have the expensive care, then virtually everyone ends up on 
    The program cannot sustain that weight now so the secret is 
to target it to the people who need it most and thereby insure 
a quality safety net for the truly indigent.
    Mr. Davis. Mr. Dorfman.
    Mr. Dorfman. Millionaires don't want Medicaid. Millionaires 
still have other law planning issues but not Medicaid planning 
issues. They want fancy care, they want care that they control. 
They want to be able to fire the people they don't like and 
hire the people they do like. Millionaires never come in for 
Medicaid planning. They do want planning, they do need 
surrogate decisionmakers as they suffer the illnesses of aging, 
but they don't want Medicaid.
    Ms. Eulau. We find that about 60 percent of the people that 
come in for nursing home care have done some type of Medicaid 
estate planning. Suffolk County is a fairly affluent county in 
New York State. That is what we are seeing.
    In terms of people receiving long term care in the 
community, we don't see it as often but we still are seeing it 
because transfers, if you transfer your money out of your 
control for community long term care, there is no penalty. We 
are seeing that as well, may be about 15 percent of the cases.
    As soon as I joined AARP, I started receiving invitations 
in the mail to come to free seminars to talk about Medicaid 
estate planning.
    Mr. Davis. Ms. Hamos.
    Ms. Hamos. Congressman Davis, what we are finding in 
Illinois is that this is more of a middle class family issue 
than millionaires. I agree with Mr. Dorfman that the 
millionaires don't want to live in our Medicaid nursing homes. 
I think that what we are seeing is that middle class families, 
say if there is a savings, a little pot of money of $100,000, 
somewhat modest by some peoples' standards, the family doesn't 
want all of that to go into nursing home care and it is eaten 
up almost immediately in nursing home care.
    That is why in Illinois what we are struggling with our 
legislative rulemaking committee is that there seems to be this 
widespread acceptance of that on behalf of middle class 
families and that is who they are representing but we are 
learning from other States and we really want we think there 
are reasonable ways to impose and tighten the eligibility rules 
that we need to put in place immediately while also maintaining 
a better service delivery system and reducing the cost of long 
term care generally.
    We are trying to do it at both ends because there are so 
many costs for low income people that are wasteful and 
unnecessary. We could do a better job just by revising and 
reforming our service delivery system.
    Mr. Davis. Thank you very much. I yield back, Mr. Chairman.
    Mr. Gowdy. I thank the gentleman from Illinois.
    The gentleman from Arizona, Dr. Gosar.
    Dr. Gosar. Mr. Dorfman, can you please give me the typical 
assets of a client that would qualify for Medicaid that comes 
to you?
    Mr. Dorfman. A typical client that comes to me has a home, 
a co-op, a condominium worth approximately $500,000; they have 
approximately $100,000 in retirement savings; they are a 
married couple and they have approximately $30,000 in cash 
    Dr. Gosar. Ms. Eulau, would you kind of agree with some of 
those, could you confirm those?
    Ms. Eulau. We are seeing assets much greater than that. 
People often come and have total resources of over $300,000-
$400,000 total beyond their home, beyond prepaid burial 
expenses, beyond those things they are allowed to have. In New 
York, we take the Federal resource standard, choose the highest 
resource standard for the community spouse in a nursing home 
care situation. They are allowed to keep $109,000 of the 
combined resources and we very often find that it is 
significantly higher than that.
    Probably most of the people that do some kind of Medicaid 
estate planning could at least pay for 3 to 6 months of care on 
their own and many could pay for 2 years or more.
    Dr. Gosar. Staying with you, when you see someone that 
genuinely needs Medicaid long term care and cannot afford it, 
do you see an average person come in like that? How many times 
do they not qualify or not get it? Do you see someone like 
    Ms. Eulau. That should qualify for resources that don't get 
    Dr. Gosar. Yes.
    Ms. Eulau. No, we don't. If they qualify, they would be 
receiving it.
    Dr. Gosar. Ms. Hamos, you talked about the rebalancing 
aspect of care. Can you tell me a little bit more about that, 
kind of like a home care aspect and what's your idea and kind 
of give me some balance about why that would reduce the cost of 
long term care?
    Ms. Hamos. In Illinois, we really do have this 
institutional bias. I guess again, there are some powerful 
special interests behind maintaining State operated facilities 
as well as nursing homes and that is why we really did over 
invest in those over time that we have 15,000 empty nursing 
home beds right now. We paid three times as much at least to 
maintain someone per month in a nursing home bed than what we 
are providing with a limited set of services for seniors who 
stay at home.
    What we are really working on now is looking at how we 
could increase the package of services to keep people in their 
home to keep them from having to go into nursing homes which is 
obviously a much more expensive form of long term care.
    Dr. Gosar. If we paid for this rebalancing, can you 
actually cite examples that would actually show us that we save 
    Ms. Hamos. Yes. We will be able to.
    Dr. Gosar. We would be able to. Is there something right 
now you can point to, a State that actually shows we save 
money? It seems to me there isn't. Actually, there isn't, is 
there, because we can't find it. What we will actually do in 
rebalancing is open the exposure to more expenses for folks at 
    Ms. Hamos. That hasn't been our experience yet. We are 
putting place a different kind of system and the kind of 
services people need in their home. Yes, sometimes it is very 
expensive to keep people in their homes, people who are really 
chronically ill or have very severe disabilities but there are 
people who can maintain themselves in their home and have a 
higher quality of life, at a much reduced cost, and we are 
going to show not just cost neutrality but real savings in this 
    Dr. Gosar. But it doesn't exist.
    Mr. Moses, can you actually answer that question too?
    Mr. Moses. I am not aware of any State that has actually 
reduced the cost of long term care due to rebalancing. There 
are certain countervailing factors to consider such as people 
would rather get their care at home. You make a popular form of 
service delivery available under Medicaid, it creates a 
stronger incentive for people to find ways to qualify, not to 
say we shouldn't provide home and community-based care. We 
should but you need to understand why we have an institutional 
bias in long term care.
    That is because Medicaid made nursing home care free in 
1965 and resulted in there being no market for privately 
financed home and community-based services. That is why that 
infrastructure isn't out there. It is why we are trying to 
retrofit the home and community-based system on a nursing home-
based system funded by welfare which never has enough money to 
provide adequate financing.
    So it is I think not a very satisfactory solution to expand 
home community-based care under Medicaid unless and until you 
get the eligibility hemorrhage that this hearing is about under 
control. Otherwise, you will just create more and more 
incentives for people to rely on Medicaid.
    The best way to get access to home and community-based care 
is to be able to pay privately. Then you get red carpet access 
to the best possible care.
    Dr. Gosar. It is more about the qualifying than anything?
    Mr. Moses. Yes.
    Mr. Gowdy. I thank the gentleman from Arizona.
    I would now recognize the gentleman from Maryland, the 
ranking member of the full committee, Mr. Cummings.
    Mr. Cummings. Thank you, very much.
    Ms. Hamos, in Maryland there is an organization in my 
district, Visiting Nurses Association, you know you might want 
to credit them that has home care. That is what they do. They 
are one of the few organizations in Maryland who are increasing 
jobs by leaps and bounds because they are saving people money, 
allowing people to stay in their homes and most of these people 
are seniors. So it does work. I just visited them about 2 weeks 
ago. We just have to be innovative and I think you are going in 
the right direction.
    Mr. Moses, so you would have the government pay less money 
with regard to Medicaid and then for patients to do what? What 
would you have them do? Be brief because I have a lot of 
    Mr. Moses. You have scarce public welfare resources 
available. All I am suggesting is that you target them to the 
people who are most in need and create incentives for the 
affluent and the middle class before they are too old to and 
too infirm to plan for long term care and prepare to pay 
privately so they don't become dual.
    Mr. Cummings. So you would advocate for them getting 
    Mr. Moses. Well there are many ways to prepare, you can 
save and invest, but insurance is one way. Home equity is the 
huge pot of money out there.
    Mr. Cummings. With people losing their homes in my district 
big time, value going down, I am not sure about that one.
    I want to go back to something Mr. Davis said. He said this 
is a multifaceted problem but one that we can find a reasonable 
solution. I want to thank you, Mr. Chairman, for calling this 
hearing, but I want us to be clear on where we are.
    Mr. Moses, you were invited by the majority and your bio 
states that you are the president of something called the 
Center for Long-Term Care Reform. I guess this is meant to 
sound like a think tank. Your bio also states that you have 
testified before most of America's State legislatures, 
something that think tanks often do, is that right?
    Mr. Moses. Yes.
    Mr. Cummings. Mr. Moses, when I asked my staff to learn 
more about you, to try to understand where you were coming 
from, it seems that your views are really nothing more than the 
views of the insurance industry, hardly a disinterested or 
objective observer. Isn't it true that the policy advocacy 
center you operate is a for profit company? Is that right, is 
it for profit?
    Mr. Moses. Yes.
    Mr. Cummings. Isn't it true that when you applied to IRS in 
2000 for recognition for tax exemption, your group was told it 
was better classified as a ``business league`` for the long 
term care insurance industry?
    Mr. Moses. No. The organization was originally certified as 
a 501(c)(3) charitable nonprofit. I didn't feel I could carry 
the overhead of that, so I decided to become what I call a no 
profit because I just couldn't carry the overhead of being a 
    Mr. Cummings. I understand. Isn't it true that your 
organization stated in June 2000 in correspondence to the IRS 
that historically all the Center for Long-Term Care Reform's 
funding has been contributed by the long-term care insurance 
industry? Is that right? Did you report that?
    Mr. Moses. I have a membership organization, so individual 
members contribute $150 a year in order to get my publication 
and I have corporate members as well.
    Mr. Cummings. I just want to make sure we understand who is 
funding you.
    Was the funding to originate the Center paid for by the 
long-term care insurance industry?
    Mr. Moses. Some of the funding for the Center.
    Mr. Cummings. When you say some, was that 50 percent, 90 
    Mr. Moses. Probably most in the early stages, all the first 
year and less over time.
    Mr. Cummings. Isn't it true that your organization's 
principal purpose is to advocate for the purchase of long-term 
care insurance?
    Mr. Moses. No, that is not true. If you can permit me to 
answer the question fully, I will explain.
    Mr. Cummings. Sure, briefly, because I have a lot of 
questions and what I may have to do is just get your written 
response, but I want to be fair to you.
    Mr. Moses. Maybe another Member will allow me to answer 
your question in such a manner that can appease you.
    My roots are, sir, in government service. I was an 18 year, 
U.S. Government employee. I discovered that Medicaid is 
intended to be for the poor and was not being so used 
effectively. I have become an advocate first as a Federal 
employee working for the Health Care Financing Administration, 
then for the Inspector General, writing national studies that 
have led to changes in Federal law.
    When I decided I couldn't get it done within the Federal 
Government, I left to be on the outside but my mandate, my 
mission is to preserve Medicaid as a safety net for people who 
need it such as the people in this room.
    Mr. Cummings. Then you and I are in agreement on that. On 
that point, I have to ask you this consistently with what you 
said so you can have further opportunity to explain. In a fund-
raising appeal letter, does your organization brag that it may 
be ``long term care industry's top producer'' and isn't it true 
that in your fiscal year 2000 fund-raising letter, you assert 
``the Center would open the floodgates of demand for your 
products?'' In your 2000 fund-raising appeal, you were 
attempting to raise $1 million, and requested $10,000 from 
brokers and $20,000 from small carriers. Will you provide this 
committee with a comprehensive list of donors to your 
    Mr. Moses. You are talking about 11 years ago. That 
organization, the Center for Long-Care Financing doesn't exist 
anymore. That was a 501(c)(3) charitable nonprofit. We are now 
a no-profit, as I explained, and I do not have to and will not 
disclose all of my donors. Most of them, about a third, are 
individuals who just believe in what we are doing and make a 
contribution annually. There are corporate members, some from 
the insurance industry, some from the provider industry.
    Mr. Cummings. Were Charles and David Cook included in it?
    Mr. Moses. No.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Gowdy. The gentleman from Tennessee, Dr. DesJarlais.
    Dr. DesJarlais. Thank you, Mr. Chairman, and thanks to the 
    Mr. Moses, I think we will just kind of continue where we 
left off there because I find this really an interesting and 
important hearing. Clearly, we are facing Federal deficits that 
are unsustainable. We have health care programs that are in 
jeopardy whether it is Medicare or Medicaid. I think what we 
are trying to do here today is preserve Medicaid for those that 
really need it.
    We have a large group in here who should have been very 
interested in this because clearly those are the ones who need 
it. For the past two decades as a primary care physician, I 
have struggled with the frustration of getting care for people 
who really need it and everybody knows people getting it who 
don't need it. To me this hearing should be a very bipartisan 
    Mr. Dorfman mentioned the wife who is talking to the doctor 
of a husband who has just had a stroke, wondering what do I do 
and indeed, that is a frightening time. Clearly, if the 
government isn't there, then what indeed does she do, who does 
she turn to? Does she turn to family, does she turn to her 
    We are hearing talk right now that the rich need to pay 
their fair share. This hearing is about people being 
responsible for themselves and not relying on the Federal 
Government when they can afford to do it. I applaud you and 
everyone who is here today trying to solve this problem because 
clearly our government cannot afford to pay long term care for 
everybody in this country. We have to have a better solution. I 
think that is why we are here.
    Do you think it is better that people have insurance and 
prepare for long term care than not?
    Mr. Moses. Yes. Here is my problem. My goal is to preserve 
Medicaid as a safety net for people in need. Unfortunately, 
people in need don't have money to donate to organizations like 
mine. The people who don't are the ones who might benefit from 
a change in Medicaid policy that protects the program for the 
    Where would we go if there weren't a $500,000 home equity 
exemption? Families would tap their home equity after age 62 
through products like reverse mortgages which enable them to 
remain in the home and purchase that home and community-based 
care that we would rather people have.
    Once home equity becomes something that is at risk in case 
you have a long term care problem, once Medicaid stops being 
free inheritance insurance for the baby boom generation, then 
the boomers will plan ahead and will be more likely to buy the 
insurance that enables them to pay privately.
    If we could divert only 20 percent of the people who are 
likely to become the dual eligibles that are only 15 percent of 
the Medicaid population but 39 percent of the cost, 70 percent 
of their costs are long term care, if we could divert only 20 
percent of them from ever becoming dual eligibles, it would 
save Medicaid $30 billion a year which is enough by the way to 
cover the doc fix.
    Dr. DesJarlais. Briefly, the way things stand now with 
proper legal counsel, somebody like even Bill Gates or Warren 
Buffet could qualify for Medicaid?
    Mr. Moses. You could as long as you transferred all your 
assets 5 years in advance.
    Dr. DesJarlais. So there is means for people like that to 
do it if they wanted to do that?
    Mr. Moses. Yes.
    Dr. DesJarlais. Ms. Eulau, how often do you think someone 
who is genuinely poor, may be someone who cannot privately 
finance more than a quarter or so of their long term care has 
assistance qualifying for Medicaid long term care?
    Ms. Eulau. I am sorry?
    Dr. DesJarlais. I am sorry, that wasn't very clear. How 
often do you think someone who is genuinely poor, may be 
someone who cannot privately fund more than a quarter or so of 
their long term care, has assistance in qualifying. How often 
do they get help qualifying for Medicaid long term care?
    Ms. Eulau. If they fit under the income resource standards, 
they would get it all the time.
    Dr. DesJarlais. Would you say that most of the individuals 
in nursing homes on Long Island could privately finance at 
least some of their care?
    Ms. Eulau. Yes.
    Dr. DesJarlais. How difficult is it to recover assets from 
an estate of an individual who has used Medicaid services?
    Ms. Eulau. It is very difficult, especially for spousal 
refusal, once they have done the refusal and separated out the 
resource, quite often if the spouse in the community does not 
need care, they then transfer that money out to their children 
prior to their death. We can't go after the resources if there 
is still a spouse in the community and quite often they are 
doing their own Medicaid estate planning.
    Dr. DesJarlais. Do you get the sense that people are afraid 
of the idea of estate recovery? Is that something they fear or 
    Ms. Eulau. I don't think they think about it.
    Dr. DesJarlais. I was thinking about this hearing and the 
idea of getting people on insurance. I think people are very 
naive. I think a lot of people think Medicare will pay for 
this. Do you think this would be an area that public service 
messaging, if they knew this was going away and they didn't 
have this option, public serving messaging to help get people 
to obtain long term health coverage might be useful?
    Mr. Moses. It can't hurt but the problem is the public 
doesn't fail to buy long term care insurance or plan for long 
term care because they aren't aware of the problem. All the 
surveys show people know it is a big risk, but they still don't 
buy. Why, because ignore the risk, avoid the premiums, wait to 
get sick and the government pays.
    Dr. DesJarlais. So all the loopholes right now are allowing 
people to skirt the system, maybe even cheat the system?
    Mr. Moses. Not just the loopholes, just the basic 
eligibility rules let most people on.
    Dr. DesJarlais. Once again, it is a case of our government 
enabling people to skirt the proper channels?
    Mr. Moses. Well intentioned, perverse incentives.
    Dr. DesJarlais. I yield back.
    Mr. Gowdy. I thank the gentleman from Tennessee.
    I would now recognize the gentleman from Missouri, Mr. 
    Mr. Clay. Thank you, Mr. Chairman.
    According to a 2009 report by the Non-partisan Kaiser 
Commission on Medicaid and the Uninsured, the number one reason 
that people who shop for but do not buy long term care 
insurance is cost. In 2009, the Kaiser report found that long 
term care insurance premium costs vary significantly depending 
on the age of the purchaser.
    For individuals aged 60 with no partner, the annual 
premiums for a typical policy average $2,329. For a couple the 
same age, premiums for the same policy design averaged $3,096 
combined for the two people. If purchased at age 70, premiums 
would cost on average $4,515 per year for an individual and 
$6,010 for a married couple.
    Another Kaiser study published in June of this year found 
that half of all Medicare beneficiaries had incomes below 
$21,100 in 2010. Furthermore, many elderly individuals are 
already spending a significant amount of their income on health 
expenses. In 2006, Kaiser found that 1 in 4 Medicare 
beneficiaries spent 30 percent or more of their income on 
health expenses and 1 in 10 beneficiaries spent more than half 
of their income on health expenses.
    Ms. Hamos, given that a significant number of Medicare 
beneficiaries are already spending a large part of their 
relatively small income on health care expenses, do you think 
it is realistic to ask your average senior citizen to purchase 
long term care insurance which is cost prohibitive for many?
    Ms. Hamos. I think you hit the nail on the head. It is cost 
prohibitive, but I think the key to long term care insurance is 
that young people need to buy it when it is affordable and they 
need to be thinking ahead to their own futures and their 
families' futures. Young people, as we all know, don't think 
that way. That is the big problem. If people wait until they 
become seniors, even middle age and close to being seniors, I 
think most people don't start down that road because it is very 
    Mr. Clay. It is my understanding that long term care 
insurance premiums have increased significantly above the 
overall rate of inflation. Isn't it true, Ms. Hamos, that from 
1995 to 2005, average age adjusted premiums have increased 59 
percent above the overall rate of inflation for individuals 
aged 55 to 64 and by 32 percent for those aged 65 to 69? 
Between 2000 and 2005, the more comprehensive policies which 
often included inflation protection, raised premiums on average 
30 percent. Have you found that in your studies?
    Ms. Hamos. This is not my expertise at all but I have read 
those studies and I have learned that as well about long term 
care insurance. We would all like to encourage more use of long 
term care insurance quite honestly I think if it is out there. 
The insurance companies tell us there is not a robust market 
for it.
    I think what we are hearing today is that in part because 
Medicaid policy has impacted that, but I would say part of the 
problem is that it is a costly purchase for a lot of low income 
and middle income families and they don't really think ahead 
far enough to be able to buy and hold on to it and maintain it 
throughout their lives. That is why it is so cost prohibitive 
and that is why it is increasing because the insurance 
companies don't see a big market for it.
    Mr. Clay. Thank you for that response.
    Mr. Moses, I noticed that your fund-raising solicitation 
ends by asserting that ``Our established credibility as an 
independent third party voice allows us to perform an essential 
role that no one else can fill for reasons perceived by self 
interests.'' Do you normally disclose to congressional 
committees and State legislatures that you have testified 
before the details of your ties to the long term care insurance 
    Mr. Moses. It is public knowledge. As your researchers have 
determined and provided you the information, that is out there. 
But as I explained earlier, I am not about selling insurance. I 
am about saving Medicaid. The problem is, as one of the 
testimonies explained, between two-thirds and 90 percent of the 
potential market for long term care insurance is crowded out by 
the availability of Medicaid. That was in the American Economic 
Research Journal.
    As long as that is the case, as long as the public can 
ignore the enormous cost of long term care, no financial 
product is affordable if you don't think you need it.
    Mr. Clay. Will you provide the subcommittee the names of 
your corporate donors?
    Mr. Moses. No.
    Mr. Clay. Thank you and I yield back.
    Mr. Gowdy. I thank the gentleman from Missouri.
    Given the impressive panel of witnesses that we have, with 
your indulgence, we would like to have a second round of 2 
minutes each if that is amenable to you all. We are so 
fortunate to have witnesses like yourselves. We want to be good 
stewards of your time, so if you have time, 2 minutes. My 
math's not great, maybe 8 minutes.
    Mr. Moses, key payments, is that a phrase you are familiar 
with and what is it?
    Mr. Moses. The idea of key payments, the notion is that if 
you are doing Medicaid planning and sheltering or divesting 
hundreds of thousands of dollars, you don't want to end up in 
one of those awful Medicaid nursing homes.
    Mr. Gowdy. That is exactly why I asked you because there 
have been two witnesses who have said wealthy people don't want 
to wind up in one of those gosh awful Medicaid places. The good 
news for them is there is a way around that.
    Mr. Moses. Absolutely, there is.
    Mr. Gowdy. Tell Mr. Dorfman how he can keep his rich 
clients from having to stay in one of those horrible Medicaid 
    Mr. Moses. This is routinely recommended in the Elder Law 
Journal articles. Don't worry Mr. and Mrs. Client, we can get 
you into a nice place because when we divest the rest of your 
assets, we will hold back $50,000 to $100,000 so that you can 
pay privately for 6 months to a year. Why does that make a 
difference? You will get red carpet access to the best quality 
care because nursing homes, for example, only get about two-
thirds from Medicaid what they would get from a private pay 
resident, so they will roll out the red carpet to attract 
people who can pay privately. They may have only a few Medicaid 
beds and be mostly private pay and Medicare. They are the 
really nice nursing homes and the Elder Law Bar always knows 
which ones those are.
    The problem is while the nicest beds and the best 
facilities are being filled by people who could have, would 
have and should have paid their own way, Medicaid people, the 
appropriate indigent people, can't get into the nice places and 
they end up in the 100 percent Medicaid places that are the 
kind of places that 20/20 goes in with the minicams showing 
people lying in their own waste with bed sores down to the 
    Mr. Gowdy. To summarize it, because I only have a couple 
seconds, just save back enough money to be a private pay 
patient for 3 months at a minimum, perhaps up to 6 months, then 
quit paying your private pay, that very nice facility can't 
kick you out because of your former payment, you could just 
live off your Medicaid?
    Mr. Moses. Correct.
    Mr. Gowdy. There is a way contrary to what has been said 
this morning. Wealthy people don't have to wind up in those 
gosh awful Medicaid facilities, they can be at a super nice 
place if they just get the right legal counsel, right?
    Mr. Moses. A Medicaid planner simply flips the switch, the 
Medicaid plan kicks in and your private payer becomes a 
Medicaid recipient overnight.
    Mr. Gowdy. I would recognize the gentleman from Illinois, 
Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    We noticed a number of individuals here earlier in 
wheelchairs who are part of the disabilities community. For a 
number of years now, Senator Harkin and I have been working 
very hard trying to get something passed called Community 
Choice, which would allow these individuals to live at home and 
still get the nursing care or the medical care they needed and 
not have to live in nursing homes to do so.
    Of course we have not fared very well with that 
legislation. We have not been able to get it passed. Since we 
are looking for ways to save money from Medicaid, what would 
each one of you think of that? Would that be a way to save some 
of the money we are currently spending because nursing home 
care, the average cost, is about $75,000 a year. If individuals 
could live at home and we pay for the medical services, then it 
seems we would save a lot of money.
    Mr. Moses. You would indeed target Medicaid to the people 
who really need it and you will have more than enough resources 
to provide a full continuum of care from home, community-based 
care, assisted living and nursing home care but only when it is 
    Mr. Dorfman. There is a system we run through VA, the 
Community Senior Foster Care Program. It is the kind of program 
that could be duplicated across the entire Medicaid spectrum. 
An example of what it might do is take three senior veterans 
suffering from Alzheimer's and Parkinson's, put all three 
together in a community setting in someone's home and pay them 
for providing care. It cost a fraction of institutional care 
and is a model that could be replicated across the system to 
provide community care.
    Ms. Eulau. New York has a waiver program, a long-term home 
health care program that services clients at home, giving them 
all the nursing home services they would normally get in a 
facility in their home, nutrition care, therapy and such. The 
program itself requires that it not cost more than 75 percent 
of what it would cost in a nursing home setting. We do try to 
do that.
    Could I also say that I don't really think in my county 
there are Medicaid nursing home facilities. All of our nursing 
facilities have about 80 percent Medicaid patients.
    Ms. Hamos. That was surprising to hear. Every State really 
does have different experiences.
    I wanted to reflect on the chairman's questioning before, 
in our case in Illinois, there are some nursing homes that 
actually do figure out ways to kick out people when they are 
done with their resources. They figure out how to transfer them 
to hospitals and then don't invite them back. It is risky to 
start out in the fancy nursing home and not know where your 
granny is going to be a year or 10 months later.
    I would say again we think that home and community-based 
care is more cost effective and a higher quality of care kind 
of approach for people who are low income, disabled and that is 
the preponderance of the clients we deal with. I think exactly 
what Ms. Eulau was talking about is what we are finding too, 
that we can set a standard for what nursing home care would 
cost and go below it and meet that standard and provide a 
higher quality of care.
    Mr. Davis. Mr. Chairman, I have a couple questions I would 
like to submit.
    Mr. Gowdy. Yes, sir, without objection.
    The Chair would now recognize the gentleman from Arizona, 
Dr. Gosar.
    Dr. Gosar. Mr. Dorfman, do you worry that Medicaid planning 
exploits taxpayers?
    Mr. Dorfman. No. Medicaid planning is the way to protect 
the individuals who need the government program set up for 
their benefit.
    Dr. Gosar. So it doesn't undermine personal responsibility 
and contributes to a free rider culture?
    Mr. Dorfman. No, not at all. What it is doing is taking an 
individual in any circumstance and looking at what are the most 
responsible choices at that moment given the existing 
government program. Sometimes that means transferring the money 
to protect the wife who is still living at home when you need a 
nursing home.
    Dr. Gosar. Mr. Moses, do you worry about the exploits to 
the taxpayer contributing to a free rider culture in this 
Medicaid planning?
    Mr. Moses. Yes. The research shows that people don't plan 
for long term care because Medicaid pays for most of the 
expensive care later on. It is not that the public knows all 
there is to know about long term care and plans to go on 
Medicaid, it is the fact that Medicaid has always paid for most 
expensive long term care that has kind of desensitized the 
public to the risk.
    That is why all the survey studies show that people are 
aware that they should have a plan for long term care but they 
think Medicare covers it which doesn't, but Medicaid does and 
that is the simple, basic fact that is you could change that, 
we could preserve Medicaid as a safety net for people in need 
and if you had to spend some of your own resources before you 
got help from the government, as you do in England, England 
only protects $38,000 worth of all assets including home 
equity. If you had that in place, then you would have a demand 
for planning, saving, investing and insuring.
    Dr. Gosar. Ms. Eulau, how would you feel about that?
    Ms. Eulau. I agree that people don't know enough before 
they get to that point in their lives about what is going to 
pay for their care, so I really think there needs to be a lot 
more education out there. I see commercials every day for 
Medicaid estate planning on the television and in print. Like I 
said, I received free seminar invitations myself just as an 
AARP member in the community. I think there needs to be more 
    The other thing is it really could teach people who is 
paying for it and I think once people find out that the 
taxpayer is funding wealthy recipients of care, there's going 
to be some changes.
    Dr. Gosar. I just want to say I have heard some things here 
today. I was raised from immigrant grandparents. The American 
dream was about personal accountability and personal 
responsibility. When did we lose honor, when did we lose ethics 
and when did we lose character? What I have heard today 
astonishes me.
    In the other aspect of selling insurance, what is so wrong 
about selling an insurance plan for somebody to take care of 
themselves? What is wrong with that?
    I am from Arizona and I have seen a group of people who 
have been on the government dole for the longest period of time 
fighting to get off it and that is Native Americans. Something 
is wrong with government provided health care when it can't 
look at these aspects.
    I look at Ms. Hamos, we had DRAs that we were supposed to 
follow and we are still not there because it is a bipartisan 
problem. Something is wrong here and we have to look at the 
whole core. It started in 1965 when we did not identify those 
proper rules, proper protocols and etiquettes. I am 
    Thank you.
    Mr. Gowdy. I thank the gentleman from Arizona.
    The Chair would now recognize the gentleman from Missouri, 
Mr. Clay.
    Mr. Clay. Thank you, Chairman Gowdy.
    Mr. Moses, going back to the point about the names of your 
corporate donors, I just don't find you as a disinterested, 
public policy expert expressing a personal opinion but in fact, 
a paid, long term care industry advocate. In the interest of 
full disclosure, why wouldn't you want to provide the names of 
your corporate donors to this subcommittee?
    Mr. Moses. I am not required and I choose not to do it. The 
point is that kind of argument, Congressman Clay, is a logical 
fallacy. It is called the ad homonym to attack somebody based 
on aspects other than the quality of their work. I would 
encourage you to read the many reports that are on our Web site 
and make a judgment based on facts and not personal attacks.
    Mr. Clay. Mr. Moses, before I came here, I was a State 
legislator for 17 years and I see the trends of what is going 
on in the States, that they are quickly shirking their 
responsibility to take care of the disabled and the people that 
are older because, first of all, they don't want to raise the 
necessary revenues to pay their share of Medicaid and are 
putting less and less in annually to pay for those people who 
helped build those States and build this country, especially 
our seniors who happen to be in a long term care facility. You 
don't want to provide the subcommittee with full disclosure for 
whatever reason.
    Mr. Moses. I spent 30 years, my career, trying to find ways 
to save Medicaid for people in need. The only tools I have are 
private sector industries that stand to gain from a system that 
would save Medicaid for people in need. If we save Medicaid for 
people in need, others, the more affluent people, will need to 
spend their money instead of hiring attorneys.
    They will need to use their home equity through things like 
reverse mortgages so they can get quality care in the private 
market. Once their home equity is at risk, they will see the 
need to buy the insurance and we will take some of the burden 
off the public programs currently unable to provide guaranteed 
access to quality care across the whole spectrum of care for 
people truly in need and we will increase the jobs in the 
private sector and the tax revenue that enables Congress to do 
worthwhile things. Right now, we are operating a system that 
does not achieve its original intent.
    Mr. Clay. I thank you for your response.
    Mr. Gowdy. I thank the gentleman from Missouri and on 
behalf of all of us, we want to thank each of our panelists. It 
has been informative for all of us and we appreciate your 
expertise, your professionalism and how you interacted with one 
another and especially how you have interacted with 
    With that, the committee is adjourned and we thank you 
    [Whereupon, at 11:40 a.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record