Chapter 9.A--Sources of Health Insurance

Updates on coverage and spending statistics can be found on the web pages of CMS and the Census Bureau.

This page has resources and notes on the following topics:

Web Resources and Notes on Private Insurance, Long-term Care, Uncompensated Care, and Health Care Fraud

The Georgetown Institute for Health Care Research and Policy has produced a very useful set of consumer guides that describe in each state all of the various state and federal provisions that affect the availability, pricing, and coverage of private health insurance. These guides can be found at: Although they are very user friendly and clearly written, the dominant impression one takes away from reading them is how incredibly complex the fragmented health insurance system is in the U.S.  See also University of Houston Health Law and Policy Institute, Choosing a Health Care Plan..  A good place to explore what type of information is available in choosing among health plans, and how a managed competition system might work, is the web site for federal employees.  To get a sense of what health insuarnce costs at different benefit levels, go to EHealthInsurance.Com.  

Here is a link to various federal statutes discussed in this section, such as the  Health Insurance Portability and Accountability Act and COBRA.

The results of an in-depth study of various components of health insurance market reforms such as open enrollment and community rating can be found at:  Wake Forest University Health Insurance Market Reform Study.

For discussion of various, more incremental or private-sector based reform proposals that are receiving current attention, see update for section F.1 of this chapter.

Analysis of bankruptcy filings reveals that medical problems are a leading cause of personal bankruptcy.  David U. Himmelstein, Elizabeth Warren, et al., Illness and Injury as Contributors to Bankruptcy, W5 Health Aff. 63 (2005) ; M.B. Jacoby, T.A. Sullivan, and E. Warren, “Rethinking the Debates over Health Care Financing: Evidence from the Bankruptcy Courts,” New York University Law Review 76 (2001): 375–418.  However, many of these problems appear to stem from  loss of work due to health problems, rather than unpaid medical bills. Melissa B. Jacoby and Elizabeth Warren, Beyond hospital misbehavior: an alternative account of medical-related financial distress, 100 Nw. U. L. Rev. 535-584 (2006).

For overviews and discussions of recent developments in private health insurance generally, see Symposium, The Future of Insurance,  23(6) Health Affairs (Dec. 2004); Symposium, 32(3) J. L. Med. & Ethics 386 (Fall 2004); John K. Iglehart, Changing Health Insurance Trends, 347 New Eng. J. Med. 956 (2002); Peter Budetti, 10 Years Beyond the Health Security Act Failure, 292 JAMA 2000 (2004). 

Discussing the logic and fairness of insurance risk classification, see Mary Crossley, Discrimination against the unhealthy in health insurance. 54 U. Kan. L. Rev. 73-153 (2005): Katherine Swartz, Reinsuring Health: Why More Middle-Class People are Uninsured and What Government Can Do (2006).  Swartz's book also discusses a new approach to making insurance more afforable, known as reinsurance, in which the government reimburses private health insurers for subscribers who have very high claims costs.  See also John V. Jacobi, Government reinsurance programs and consumer-driven care, 53 Buff. L. Rev. 537-576 (2005).

On health care fraud, see Keith D. Barber, David B. Honig and Neal A. Cooper, Prolific plaintiffs or rabid relators? Recent developments in False Claims Act litigation, 1 Ind. Health L. Rev. 131-173 (2004).

For additional discussion of federalism themes, see Symposium, Federalism In Health Care, 3 Hous. J. Health L. & Pol'y 151-340 (2003); Wendy Netter Epstein Bottoms up: a toast to the success of health care collaboratives ... what can we learn? 56 Admin. L. Rev. 739-798 (2004); Lars Noah, Ambivalent Commitments to Federalism in Controlling the Practice of Medicine, 53 U. Kan. L. Rev. 149 (2004); Linda Fentiman, Internet Pharmacies and the Need for a New Federalism: Protecting Consumers While Increasing Access to Prescription Drugs, 56 Rutgers Law Review 119 (2003).

For a thorough analysis of the problem of adverse selection generally in insurance law and public policy, see Peter Siegleman, Adverse Selection in Insurance Markets: An Exaggerated Threat, 113 Yale L. J. 1223 (2004).

Consumer-Driven Health Care

For additional discussion of consumer-directed health plans and increased patient cost-sharing, see updates to Chapter 1.C.3; Beth Fuchs & Julia A. James, Health Savings Accounts: The Fundamentals (National Health Policy Forum, April 2005); Edward A. Zelinsky, The Defined Contribution Paradigm, 114 Yale L. J. 451 (2004); John V. Jacobi, Consumer-Driven Health Care and the Chronically Ill, 38 U. Michigan J. Law Reform 531 (2005);  J.M. Razor, Health savings accounts: increasing health care access in America? 17 Loy. Consumer L. Rev. 419-449 (2005); Richard L. Kaplan, Who's afraid of personal responsibility? Health savings accounts and the future of American health care. 36 McGeorge L. Rev. 535-568 (2005); Timothy Stoltzfus Jost, Consumer-driven health care in South Africa: lessons from comparative health policy studies. 1 J. Health & Biomed. L. 83-109 (2005); Edward J. Larson & Marc Dettmann, The Impact of HSAs on Health Care Reform: Preliminary Results after One Year, 40 Wake Forest L. Rev. 1087 (2005); Timothy S. Jost and Mark A. Hall, The role of state regulation in consumer driven health care, 31 Am. J.L. & Med. 395-418 (2005); Amy B. Monahan, The promise and peril of ownership society health care policy, 80 Tul. L. Rev. 777-848 (2006); Mark A. Hall and Clark C. Havighurst, Reviving Managed Care with Health Savings Accounts, 24(6) Health Affairs 1490-1500 (Nov/Dec 2005); Douglass Farnsworth, Moral Hazard in Health Insurance: Are Consumer-Directed Plans the Answer?, 15 Ann. Health L. 251 (2006).

Consumer-driven ideas being applied even to Medicaid.  Jeb Bush, Market principles: the right prescription for Medicaid, 17 Stan. L. & Pol'y Rev. 33-55 (2006).
Questioning the premise that moral hazard is a problem under health insurance, see Malcom Gladwell, The Moral-Hazard Myth, The New Yorker, Sept. 8, 2005.

The Treasury Department has a useful website on Health Savings Accounts, at
See also  John C. Goodman and Devon M. Herrick, Health Savings Accounts: Answering the Critics (March 21, 2006).;  Paul Fronstin and Sara R. Collins, Early Experience With High-Deductible and Consumer-Driven Health Plans (Commonwealth Fund, Dec. 2005);  U.S. GAO, First-Year Experience with High-Deductible Health Plans and Health Savings Accounts  (Jan. 2006);   U.S. GAO, Early Experience with a Consumer-Directed Health Plan  (Nov. 2005).

Web Resources and Notes on Medicare and Medicaid

A good source for Medicare/Medicaid statutes and regulations is:

Information about the current status of Medicare and Medicaid can be found on these two government web sites, and  See also  Kaiser Family Foundation, Medicare at a Glance (June 2001);  Eleanor Kinney, ed., Guide to Medicare Coverage Decision-Making and Appeals (2002); Terry Coleman, Medicare Law (AHLA, 2nd ed. 2006).

From Tom Mayo on the Health Law Professors blog:  Kaiser Family Foundation has a slick website to commemorate the 40th anniversary of the passage of Titles XVIII and XIX of the Social Security Act - the Medicare and Medicaid laws.  What caught my eye were video documentaries on the political history of the two programs, from the 1930s to the mid-1960s.  The documentaries (one on Medicare, one on Medicaid, one on both) are quite well done, partly because of some compelling excerpts of interviews with some of the principal players in 1965.  Of course, Wilbur Mills and LBJ are long gone, but there are still some terrific interviews with the president of the AMA at that time, Edward Annis; Joe Califano, a White House staffer at the time; LBJ's chief of staff, Jim Jones, and others.  Best of all, longer (7- to 9-minute) interviews with each of these fellows are available on the same page.  I like the way these videos really make the federal health care programs come alive.”

Additional discussion of issues relating to the history and future of Medicare generally can be found at:  Symposium: The Future of Medicare, Post Great Society and Post Plus-Choice: Legal and Policy Issues,  60 Wash. & Lee L. Rev. 1087-1512 (2003); Jonathan Oberlander, The Political Life of Medicare (Univ. Chicago Press, 2003); David A. Hyman, Medicare Meets Mephistopheles, 60 Wash. & Lee L. Rev. 1165 (2003); Dean M. Harris, Beyond Beneficiaries: Using the Medicare Program to Accomplish Broader Public Goals, 60 Wash. & Lee L. Rev. 1251 (2003).

More detailed information on managed care under Medicare (known variously as "Medicare Advantage" or "Medicare+Choice" or Medicare Part C) can be found at:  See also Brian Biles, et al., Medicare Advantage: Deja vu All Over Again?, W4 Health Affairs 586 (Dec. 15, 2004). Questioning the wisdom and practicality of using consumer choice principles to reform Medicare, see Yaniv Hanoch & Thomas Rice, Can Limiting Choice Increase Social Welfare? The Elderly and Health Insurance, 84 Milbank Q. 37 (2006).

Excellent information about Medicaid, including a primer, program overview, and detailed fact sheets, can be found on the web site for the Kaiser Family Foundation, at these three links:  primer       program overview    fact sheet           See also Murphy's Unofficial Medicaid Page  and the AHLA's question and answer Guide to Medicaid Basics (or here).  John K. Iglehart, The Dilemma of Medicaid, 348 New Eng. J. Med. 2140 (2003); Jeanne M. Lambrew, Making Medicaid a Block Grant Program: An Analysis of the Implications of Past Proposals, 83 Milbank Q. 41 (2005); John V. Jacobi, Dangerious Times for Medicaid, __ J. L. Med. & Ethics 834 (2005); Richard P. Nathan, Federalism and Health Policy, 24(6) Health Aff. 1458 (2005).

For detailed explanation of Medicaid eligibility for nursing home benefits, see

The Supreme Court upheld Maine’s requirement that pharmaceutical companies doing business with its state Medicaid program must give equivalent discounts to uninsured residents of the state.  Pharmaceutical Research and Manufactuers of America v. Walsh, 538 U.S. 644 (2003).  For extensive analysis of pharmaceutical pricing and importation issues, see Kevin Outterson, Pharmaceutical Arbitrarge: Balancing Access and Innovation in International Prescription Drug Markets, 5 Yale J. Health Policy L. & Ethics 193 (2005).

In an intriguing article, Barak Richman argues that expanding access to Medicaid may not achieve its goals since many people who are eligible for public coverage do not see the need to apply for it, and health insurance does not improve health status as much as other social and economic interventions such as education.    Behavioral Economics and Health Policy: Understanding Medicaid's Failure, 90 Cornell L. Rev. Law Rev. 705 (2005).

For more on "concierge" or "boutique" physician practices, see John R. Marquis, et al., Legal Issues Involved in Concierge Medical Practices, Health Lawyers News, March 2005, at 18; 17 Wash. U. J.L. & Pol'y 313-340 (2005); Sandra J. Carnahan, Law, medicine, and wealth: does concierge medicine promote health care choice, or is it a barrier to access? 17 Stan. L. & Pol'y Rev. 121-163 (2006).

The New Medicare Prescription Drug Coverage Law

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, H.R. 1.  This is the most significant change to the Medicare program since its inception in 1965.   The major provisions are:

• Effective in 2006, there will be a new “Part D” of Medicare that provides outpatient prescription drug coverage.
• Part C of Medicare (also called Medicare+Choice), which provides HMO and other private managed care options for Medicare enrollees, is renamed “Medicare Advantage.”  Payments to private health plans are increased to be the same as Medicare fee-for-service costs.
• Beginning in 2010, Medicare will begin to experiment with giving beneficiaries financial incentives to enroll in private health plans such as HMOs or PPOs, by accepting competitive bids from these plans and passing on to beneficiaries a portion of any savings from bids that are lower than the average, risk-adjusted cost for standard Medicare coverage.
• Starting in 2006, Part B premiums will be based in part on income (“means tested”).  After phase-in, those earning $200,000 or more will pay three time more than those earning $80,000 or less, with a sliding scale between these two points.
• Medical Savings Accounts (MSAs), which are discussed in section ____, are made more generous and are renamed Health Savings Accounts (HSAs).  These are tax-advantaged  accounts that non-Medicare people can use to pay for health care costs not covered by insurance, if they have a high-deductible (“catastrophic”) insurance policy.

Several of these provisions are discussed in more detail elsewhere in these web pages.  Below are the key features of the Part D Prescription Drug Benefit.  For additional discussion, see the detailed summary by McDermott Will & Emery, the shorter summaries by the Kaiser Family Foundation here and here, and the extensive Congressional Committee report  and diagram. The following government report provides useful background for understanding the details of the new prescription drug benefit that are described in notes after this report.  See also Symposium, 23(1) Health Affairs 1 (Jan. 2004):

Issues in Designing a Prescription Drug Benefit for Medicare
Congressional Budget Office (October 2002)

One of lawmakers’ highest health related priorities [in recent years has been] adding a prescription drug benefit to Medicare. Although that program gives older Americans broad insurance coverage for many health needs, it provides only limited coverage of drugs not dispensed during a hospital stay. That gap in coverage has become increasingly significant as prescription drugs have assumed greater importance in the treatment of disease and as spending for outpatient prescription drugs has soared.

Designing a Medicare drug benefit is a complex task, however. The competing goals for such a benefit mean that policymakers must make trade offs (such as between broad coverage or widespread enrollment and cost). They must consider many different design elements and how those elements might interact. And they must try to avoid various problems that arise in creating such a benefit. Ultimately, the choices that designers make will affect not only the cost of the benefit but a host of other factors, such as demand for and prices of prescription drugs, spending by other federal and state programs, and how various parts of the market for health insurance operate. . . .

Although most Medicare beneficiaries use some prescription drugs, that spending is concentrated among a relatively small part of the Medicare population: people with chronic conditions requiring long term drug therapy. Only 17 percent of Medicare beneficiaries will spend more than $5,000 on prescription drugs in 2005, CBO estimates, but their combined spending will make up nearly 54 percent of total drug expenditures by Medicare beneficiaries that year.

Roughly one quarter of Medicare beneficiaries have no prescription drug coverage . . . . Thus, they must pay all of their drug costs out of pocket. The other three quarters obtain drug coverage as part of a plan that supplements Medicare’s benefits. But those supplemental plans differ greatly in the extent of coverage they provide. . . .  Medicare beneficiaries who lack drug coverage tend to be people in the low to middle part of the income distribution. People with higher income are more likely to have employment based plans or individually purchased medigap policies (which charge high premiums for drug coverage). . . . Proposals that would target Medicare drug coverage to ward low  to middle income beneficiaries who are not eligible for Medicaid would concentrate new federal spending on those least likely to have drug coverage now. Broad based proposals, by contrast, would tend to replace coverage that three fourths of beneficiaries now get from private and nonfederal sources with Medicare funded
coverage. . . .

How Comprehensive Will the Benefit Be?
The most important factor determining the cost of a Medicare drug benefit is the scope and structure of its coverage. Choices about coverage include:
• The deductible amount—whether coverage begins with an enrollee’s first dollar of drug spending in a given year or after the deductible amount is reached
• Cost-sharing rates—what part of the cost of a prescription is the responsibility of the enrollee
• The benefit cap—the level of spending beyond which the enrollee must pay the full cost of each prescription; and
• The catastrophic stop-loss amount—the level of spending beyond which the enrollee pays little or nothing for prescriptions.

The possible variations on those choices are endless.  Some combinations could produce Medicare drug benefits unlike anything available in the private sector today. For example, [the new Medicare drug benefit has] a hole in coverage: a spending level between the benefit cap and the stop-loss amount at which enrollees would have no drug coverage. Employment-based drug plans almost never include such holes.

The benefit structure would affect the cost of the Medicare drug program not only directly but also indirectly, through the out-of-pocket expenses it would require of enrollees. For instance, benefits with low cost-sharing rates would encourage those enrollees who were newly shielded from paying the full cost of a prescription to use more—and more expensive—drugs.

How Will the Benefit Be Administered?
Almost all of the recent proposals for a Medicare drug benefit envision using organizations such as pharmacy benefit managers (PBMs) to administer the benefit—an approach that is common in the private sector. Critical choices, however, are the number of such organizations that would serve a region, the restrictions they would be subject to, the basis on which they could compete for enrollees, and whether they would assume any insurance risk (that is, be liable for any costs that were not fully covered by enrollees’ premiums or federal reimbursements).

In examining prescription drug proposals, CBO has concluded that certain administrative features offer the greatest opportunity to control federal costs and total spending on outpatient prescription drugs. Those features are allowing benefit managers to employ the full array of cost-management tools now available to private-sector drug plans, forcing benefit managers to compete among themselves for enrollees’ business, and making managers assume financial risk for delivering benefits. . . . [Cost management] tools include formularies (lists of drugs that a health plan will cover) and related approaches that steer demand to preferred drugs [and] networks of pharmacies . . . All of those tools, to one degree or another, work by influencing physicians’ or consumers’ choices about what drug to prescribe or where to fill a prescription.
In addition, requiring benefit managers to assume some insurance risk for the benefits they pay out and allowing multiple entities to compete for enrollees on the basis of premiums and reimbursements would give managers a greater incentive to hold down spending.

However, the savings from those features would be partly offset by plan’s marketing costs.  Competition [among private drug plans] would introduce additional expenses associated with marketing to and enrolling Medicare beneficiaries, which would not arise if a single plan administered the drug benefit in each region. Competing plans would have to provide specific information about their plans to beneficiaries. If plans were also responsible for enrolling people and collecting their premiums, the cost of carrying out those administrative functions would be higher than under a single-plan system. . . .

Even the most effective benefit management, however, would not keep the prices of some drugs from rising under a Medicare drug benefit. By raising the limit on consumers’ willingness or ability to pay for covered drugs, a generous drug benefit would make newly insured patients more tolerant of high prices. With such a benefit, if a manufacturer developed a unique drug whose target population consisted mainly of Medicare beneficiaries, it could raise the drug’s price (or, if the drug was new, enter the market with a high launch price). Preventing very high prices for such drugs would be difficult apart from imposing direct price controls or threatening to deny or delay coverage of the drug—actions that could increase uncertainty about the market for new drugs and thus discourage investment in pharmaceutical research and development.

Adverse Selection
A stand-alone prescription drug benefit could be especially prone to the insurance-market phenomenon known as adverse selection, in which people who expect to have higher-than-average costs disproportionately enroll in an insurance plan. . . . Adverse selection is a problem because it undermines the purpose of insurance, which is to spread financial risks among a wide pool of people. . . . The main way to prevent adverse selection into the drug program would be to encourage as many people as possible to enroll. The government could do that through a number of approaches:
• Requiring One-Time Enrollment. A "choose it or lose it" policy would boost enrollment because even healthy Medicare beneficiaries might be worried enough about developing an expensive medical condition someday that they would enroll in the drug benefit if they had only one chance to do so.
• Subsidizing the Program to a Large Extent. Broad federal subsidies would mean that even fairly healthy people would be likely to get more in benefits than they paid in premiums.
• Risk-Rating Premiums. Adjusting the premiums that enrollees would pay according to their risk of high drug spending would encourage healthier people to enroll because their costs would be lower. . . .

It is possible that only one plan or even no plans would participate in the drug program in some [regions]. Without multiple plans in a region, the full benefits of competition would not be realized. If that happened, the government might have to provide its own public plan as a fallback in those areas . . . to ensure a competitive program nationwide. Fallback plans would be very vulnerable to . . . adverse selection in any region where there was also a [private] plan. If the fallback plan was less aggressive than [private] plans in managing costs, the government could end up paying more, on average, in areas requiring such direct intervention.


Notes on Medicare Part D, Prescription Drug Benefit:

Like Part B, the new Part D prescription drug benefit will be voluntary, i.e., Medicare-eligible individuals choose whether or not to enroll and pay a subsidized premium.   Unlike Part B, however, Prescription Drug Plans (Rx Plans) will be offered primarily by competing private companies, such as insurance companies, HMOs, and pharmacy benefit managers.  The government would directly offer a drug benefit plan only if fewer than two private Rx Plans are not available in a geographic region.

Significantly, the premiums for private Part D plans will be set by private insurers and will vary from region to region.  This is in marked contrast to the Medicare Part B premium, which is the same nationwide.   The government will subsidize 75 percent of the Part D premium for most Medicare beneficiaries, but will pay 100% of the premium for low-income beneficiaries (135% of federal poverty level) who are not covered by another source such as Medicaid.   Payments to health plans will be adjusted for health status and insurance risk, to counter adverse selection.

The private companies offering Rx Plans will submit plan designs and premium bids to the government for approval.  The most recent estimates by the Congressional Budget Office are that the monthly premium for a standard Rx Plan will be $35 per month; however, standard plan premiums offered to individuals in 10-50 regions of the U.S. will vary between companies and across regions.  Furthermore, Rx Plans may offer “alternate” plan designs that are “actuarially equivalent” (or better) and for which premiums may also vary.

Thus, when the new Medicare drug benefit is implemented in 2006, retirees will face the following dizzying array of alternatives:
• A Rx Plan-provided “standard” benefit plan design
• A Rx Plan-provided “alternate” benefit plan design
• A Medicare Advantage HMO or PPO plan that includes prescription drug coverage
• A government-underwritten “fallback plan” if fewer than two Rx Plans are offered in a geographic area
In order to provide marketing information to seniors, private companies will be given the names and addresses of Medicare beneficiaries.

The standard Part D coverage will have a $275 deductible and then pay for 75% of drug costs up to $2250 a year.  Then, coverage ceases until total costs reach $3600 (the “doughnut hole”), at which point 95% of drug costs are paid.  These dollar thresholds increase each year at the same rate as Medicare’s overall costs for the program.  The deductibles, copayments, and gap in coverage are lowered or eliminated for people who are below 150% of the federal poverty level.

The legislation prohibits the government from regulating or negotiating drug costs.  Instead, costs will be whatever drug companies charge, subject to negotiation by the private Rx Plans.  Rx Plans may also adopt “formularies” that require the use of generic drugs and that refuse to  cover more expensive drugs when less expensive ones are equally effective, but beneficiaries may appeal these restrictions in individual cases of medical necessity.

To encourage employers to continue providing drug coverage to retired workers, employers who do so will receive a subsidy for paying the costs of a qualifying drug plan.  However, the law prohibits any coverage that pays for the deductibles and copayments in the standard plan.

Opponents of this new law fall into several camps.  Some believe the law is too generous and costly by offering drug benefits to all Medicare recipients rather than targeting only those who needed this benefit the most.  Others believe the law is too stingy because of the “doughnut hole” in coverage and  because there is no cap on the total amount of drug costs a person could incur.  Another point of criticism is prohibiting the government from using its purchasing power to negotiate lower prices.  The strongest opposition comes from those who opposed the move toward delivering Medicare benefits through private insurance companies.  See generally the materials compiled by Community Catalyst.

This law has two elements that indicate how Congress might be inclined to reform other parts of Medicare in the future.  First, some benefits are means-tested for the first time.  Second, there is a move away from a defined entitlement to set of governmental benefits and toward a structure that subsidizes beneficiaries’ purchase of private benefits.

The government maintains a webpage for the Medicare Moderization Act.   For additional discussion, see John Rother, Advocating for a Medicare prescription drug benefit, 3 Yale J. Health Pol'y L. & Ethics 279-290 (2003); John K. Iglehart, The New Medicare Prescription-Drug Benefit: A Pure Power Play, 350 New Eng. J. Med. 826 (2004); Thomas R. Oliver, et al., A Political History of Medicare and Presription Drug Coverage, 82 Milbank Q. 283 (2004); Timothy S. Jost, The Most Important Health Care Legistiona of the Millennium (So Far): The Medicare Modernization Act, 5 Yale J. Health Policy & Ethics 437 (2005).

Capturing the maddening complexity of all of this is the following diagram, prepared by Yaniv Hanoch & Thomas Rice, Can Limiting Choice Increase Social Welfare? The Elderly and Health Insurance, 84 Milbank Q. 37 (2006).

Part D Flow Chart

The following is an example of how Medicaid estate planning can be used to pay for long term care for the middle class elderly. It was prepared by Wake Forest University law student Daren McDonough (class of 1999). Do you think this use of Medicaid funds is proper, or does this constitute abuse?

Example: Medicaid Estate Planning

Widow is a 70 year old woman who has recently been diagnosed with Alzheimer's disease. She owns a lovely home in suburban Charlotte, North Carolina. The home is completely paid off with a fair market value of $250,000. This does not include the value of the half acre garden which is adjacent to the property and which is used to produce vegetables which Widow consumes herself. She has one car, a 1991 Cadillac El Dorado. Widow has never worked, she was supported by her husband, Dirk, who was a pilot for U.S. Air. Dirk owned a restaurant as a tenant in common with two other individuals, and upon his death he transferred his interest in the business to Widow, along with $500,000 in the form of proceeds from a life insurance policy and other cash savings.

Widow has recently used her money to buy a new 1997 Lexus (after trading in her El Dorado), titled in only her name, a new bedroom setting, a new kitchen lay out, as well as three new pieces of jewelry. Upon learning that she has Alzheimer's, Widow contacted a local attorney, Will Mack, who advised Widow she had a number of options concerning her estate. At the time of her meeting with Mr. Mack, Widow received $800/month in social security and $300/month from Dirk's pension fund. Widow has four children, all over 22, one child has severe mental retardation and currently lives in an assisted living home. (This is paid for by a trust set up by Dirk, which has Mercantile Bank as the trustee, and upon the child's death the remainder is to be given to a stated charity.)

Widow is worried about losing her home. She currently has the home willed to one of her children. Widow has over $100,000 dollars invested in stocks and bonds and plans on giving these assets along with proceeds from her full life insurance policy to her three able bodied children at her death.

Mr. Mack informs Widow that there is a way she can keep her home, give away her other assets as she sees fit, and let Medicaid pay for her upcoming nursing home care. Mr. Mack informs Widow that in order to qualify for Medicaid assistance some assets may need to be transferred and some assets may need to change form or be liquidated and invested into other areas. Mr. Mack's proposal sets out:

Once this is done, Widow's assets will be below $2,000. Her income is $1,100/ month and she would be entitled to receive Medicaid reimbursement.

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