Society is full of mixed messages these days. You're supposed to save for your old age and build a nest egg that will see you through an attractive funeral. But increasingly you hear you're a sucker if you do-when you're old and infirm the costs will be so staggering that you can't possibly shoulder them yourself. If you end up in a nursing home, your savings may be wiped out faster than you can get an attendant to answer your call button. The average bed costs $32,000 a year, and some run as high as $80,000. When your own money is gone, you'll end up on Medicaid, the nation's health insurer to the poor, which, unlike Medicare, will pay for nursing home bills. So what's the point of saving, only to have your money go to Shady Acres? Why not plan ahead to be poor?

Nobody knows how widespread the practice is, but tips on how to shelter your assets and still qualify for Medicaid are the stuff of hot-selling self-help books, financial-planning seminars and even adult-education courses. It's the buzz of dinner conversations and political campaigns: Illinois Democrat Carol Moseley Braun was dogged by allegations that her 71-year-old mother, who is in a nursing home on Medicaid, had received $28,750 from the sale of timber rights that wasn't reported to Medicaid. But Braun won her Senate seat anyway; voters seemed to sympathize. A growing industry of elder-law attorneys has also sprung up to guide clients in the fine points of "Medicaid estate-planning"--all of which are perfectly legal. After all, the lawyers argue, if Congress didn't want Americans to use the loopholes, it wouldn't have created them in the first place.

But the counterargument also is compelling: why should taxpayers shell out so that people with money can save it for their heirs? The surge of "middle class" Medicaid patients terrifies state budget directors struggling to hold down Medicaid costs. Medicaid has become the fastest-growing item in most state budgets--it's set to account for 28 percent of all state spending by 1995. Some $30 billion, more than one quarter of all Medicaid funds, went to nursing homes last year, supporting nearly two thirds of all nursing home residents.

What many of the affluent elderly playing Medicaid games don't realize is that their actions are squeezing programs for the really poor. Medicaid was supposed to provide health care for women and children on welfare. But it currently covers fewer than half of Americans in poverty. (In Alabama, a family of four with more than $1,860 in annual net income couldn't qualify for basic health services last year.) "As costs rise, states have to make a choice between long-term care and services for families," says Connie Wessner of the Intergovernmental Health Policy project. In short, the more revenue that goes to nursing homes, the more poor families will go without health insurance.

Medicaid does not support nursing-home residents in luxury, either. In most states, it reimburses homes for less than the actual cost of providing care, forcing rates for private-paying patients higher to compensate. In Georgia, the average cost of providing a nursing-home bed in 1989 was about $80 a day; Medicaid paid only $45 and private residents were charged $90. Elma Holder of the National Citizens Coalition for Nursing Home Reform says meager Medicaid reimbursements are partly responsible for understaffing that leaves patients neglected and debilitated at some facilities. "If people knew what was going on, they'd be less likely to go on Medicaid," she says.

Nursing homes aren't supposed to "dump" Medicaid patients out to make room for private payers, or refuse to accept them in the first place. But in most states, competition for Medicaid beds is tight and waiting lists are long, so an affluent retiree who shelters his assets may find his choice of homes limited--or unavailable--when he needs it. "He could have had red-carpet care, but instead his estate is saved and his kids are going to get it," says long-term-care consultant Steven Moses.

California elder-law attorney Mark Woolpert, who also owns several nursing homes, says he carefully advises his clients of such pitfalls when they come for advice. (He also sometimes wonders whose interests he is really serving--the elderly parents or their grown children who stand to benefit from larger inheritances?) Nevertheless, Woolpert and his colleagues insist their work is no different from looking for legal deductions in the tax system. If lawmakers don't like it, Woolpert says, "what they have to do is make sound policy decisions as to who is appropriate to qualify [for Medicaid], not blame attorneys who are doing their jobs."

Most elder-law attorneys say the vast majority of their clients are simply middle-class Americans desperate to survive. "People are in tears when they find out their life savings will be lost," says Cleveland attorney Armond Budish, author of "Avoiding the Medicaid Trap: How to Beat the Catastrophic Cost of Nursing Home Care" and star of a newly released video version, "What, Me Pay for Nursing Home Costs?" Budish says it's a terrible irony that Americans who sacrificed and saved for their later years are, in effect, financially punished. His clients agree: "I don't feel guilty in the least," says Emma Kmet, 77, whose husband, an Alzheimer's patient, is in an Ohio nursing home. Kmet figures she will pay $100,000 of her savings for his care before she is able to shelter the rest and qualify for Medicaid.

Eligibility rules vary widely from state to state--but in general, "it's much easier to get poor than to get rich," says Brian Burwell of SysteMetrics, a Massachusetts consulting firm. As a rule, a single person in a nursing home on Medicaid can keep only $2,000 in assets; a healthy spouse is allowed to keep no more than $68,700. But some assets aren't counted in those totals, and the trick is to move as much money as possible into exempt categories.

One of the best shelters is a home. In most states, a primary residence is exempt and there's no limit on the value. Some artful dodgers convert their savings into home equity by paying off the mortgage, buying a more expensive house or making repairs to the old one. Build an addition, lay new carpeting or put in a new driveway and you've sheltered still more money. Many states don't count household goods either, so money spent on a new refrigerator or fine art is also effectively sheltered. A stay-at-home spouse is also allowed to keep a car--no matter how expensive. Most attorneys do advise discretion, though: "The object is to bend the rules, not break them," says Burwell.

You can also transfer money to your children--in effect, giving them an early inheritance. The downside is that the money is then theirs to spend--which some parents realize, Budish says, only when the kids call the next day from their vacation in Hawaii. And, he notes, "kids have a nasty habit of getting divorced, and your money may wind up in the hands of that in-law, the one you never approved of in the first place." Instead, you can put your money into a Medicaid trust that will revert to your heirs upon your death. In most states, this must be done 30 months before you apply for Medicaid. Here, too, you lose control of the funds; you cannot revoke the trust, change the terms or withdraw the principal. But a nursing home can't tap the money either to pay its bills. You or your spouse can use the income the trust produces--but check your state's laws carefully. Most states require that a nursing-home resident's own income--from a pension, social security, dividends and other sources--go toward paying the nursing-home bill. A stay-at-home spouse can keep income that comes in his or her own name, no matter how much it is.

Some states are cracking down on asset-sheltering practices. A few have even tried to recoup money from the estates of deceased Medicaid recipients--by placing liens on homes, for example. Led by Connecticut, other states are taking an "if you can't beat 'em, join 'em" approach, allowing elderly residents to keep more of their assets and still qualify for Medicaid, provided they buy private nursing-home insurance first. (To date, the market for such private policies has been limited. They're expensive-and the availability of Medicaid has put a damper on their appeal. As Steven Moses says: "Why pay for apples when someone is giving them away across the street?") State officials are gambling that fewer people will end up on Medicaid under such plans, since some may die before their private insurance runs out. But some advocates for the elderly, including the American Association of Retired Persons, have criticized the plans, on the ground that they divert attention from the need for a national long-term-care program.

That is the bottom line in the "middle-class Medicaid" debate: if the federal government had a program, like Medicare, that paid for nursing-home care for everyone, then families wouldn't have to spend their savings--or compete with the poor for scarce funds. More than 100 different long-term-care bills have been introduced in Congress in recent years. But the price tags ran as high as $42 billion a year, and the effort has gotten lost in the larger debate over reforming the nation's health-care system in general. In the meantime, the bitter debate keeps raging, the ranks of the nation's elderly keep growing, and so do the costs of caring for them in their last, most expensive, years. ..MR.-


With a little foresight, you can shelter much of your life savings and get the government to pay your nursing-home bills. Most moves must be made 30 months before you apply for Medicaid. State laws vary, so be sure to play with a lawyer.

Pay off your mortgage or buy a bigger home; your residence is completely exempt if your spouse lives there.

Buy a new refrigerator; carpeting, paintings or other household goods.

Repaint, build an addition, landscape your yard, invest in other home improvements.

Buy a bigger engagement or wedding ring; other jewelry may be exempt within reason.

Trade in the old clunker--or even last year's model--on a fancy new car.

Give money to your children (but remember, then it's theirs to spend).

Travel; your heirs won't get the money, but neither will the nursing home. And the memories are all yours.

Prepay your funeral expenses and buy a burial plot.

Set up an irrevocable trust; you can't touch the principal-- but neither can the nursing home.

Buy private nursing home insurance; it's expensive, but it will buy you time to shelter other assets.

Sign a durable power of attorney; if you're incapacitated, someone else can shelter your assets.


You qualify for Medicaid, and you've protected most of your savings.