Association for Public Policy Analysis & Management

A substantial portion of Medicaid expenditures pays for the nursing home expenses of qualified individuals; yet, out-of-pocket spending for nursing home use remains a source of considerable financial risk and burden for older persons. One strategy to mitigate that risk is to transfer assets to family members or to donate to charity so as to qualify for Medicaid in case a move to a nursing home becomes necessary. To block that strategy there are government restrictions in the way transfers or donations may be counted as depleted assets. Using data from the Health and Retirement Study, we find evidence for modest strategic spend-down by single older persons as well as couple households prior to the Deficit Reduction Act (DRA) of 2005. The DRA increased penalties for transfers and donations, and based on data from the period after its implementation we no longer find evidence for spend-down, suggesting the policy had the intended effect. We estimate an annual national cost to Medicaid of strategic transfers of around $275M before the DRA for singles (couples final results still pending). After DRA our estimate of that cost is $100M for singles, but that estimate is based on an effect that is not statistically different from zero. Thus, there is some evidence for strategic transfers in aggregate before DRA, but not after, and in both cases the costs were small relative to the overall budget of Medicaid nursing home payments.