The Horrors of Estate Recovery

New Orleans    The horrors visited on low-and-moderate income families are numerous and their damage inestimable and often devastating now and onward to future generations.  Even knowing this, it is still shocking to find additional examples hidden right before our eyes.

A case in point is estate recovery.  The Medicaid Estate Recovery Program in its present form is a legacy of the Clinton Administration.  Prior to 1993, estate recovery for repayment of Medicaid debts was voluntary, but President Bill Clinton signed the bill that year making it mandatory as a part and parcel of his deficit-reduction act and the false rhetoric of changing “welfare as we know it” and the mythical hype of personal responsibility as an antidote for poverty.  Much of the recovery was linked to the aging boomer population and the soaring costs of long-term care in nursing homes.

Medicaid, remember is not Medicare.  Medicare is available for those individuals over the age of sixty-five.  Medicaid is for the very poor.  Since the expansion of Medicaid through Obamacare, the Affordable Care Act, many understand how critical the program is for both the poor and lower waged workers.   In short, let there be no doubts on this score, this was a program deliberately designed and made obligatory in order to punish the poor by trying to raid whatever small estates that they might have when they die in order to impoverish their relatives as well as the deceased.

According to an article in the October issue of The Atlantic, the full level of the mean-spiritedness of this program is revealed, contrary to former Speaker Newt Gingrich and the Clintonista myth of the poor’s irresponsibility, in the almost infinitesimal level of recovery involved relative to the total cost of the Medicaid program or the long=term care program and its cost recovery, and the disproportionate horror it brings to the families trying to pay the bills.  As the story is reported in The Atlantic,

“…the overwhelming majority of estates are not worth hundreds of thousands of dollars.  In 2005, the Public Policy Institute of the AARP published a study of the first decade of mandatory estate recovery, Massachusetts, it found, recovered of $16,442 per estate in 2003,…offsetting a little more than 1 percent of long-term-care costs that year….In Kentucky…the average amount collected from an state was $93; the state recovered just 0.25 percent of its long-term-care costs.  The total amount states recouped jumped from $72 million in 1996 to $347 million seven years later – but even so, estate recoveries accounted for less than 1 percent of Medicaid’s total nursing-home costs in 2003.”

If it’s not just to hurt the poor and their hapless heirs, what’s the real point of this program?   It probably cost more cumulatively for states to administer the recovery program, than they are able to recover!

The Atlantic detailed one story after another of lower income families losing their homes or farms or their folks’ couple of acres and heirlooms passed on through the generations because of this predatory recovery.  The irony of the same program paying hundreds of thousands of dollars for operations and expecting no recovery compared to nursing home care is obvious.  The outrage that allows wealthy families to shield millions from taxation to bequeath to their heirs, while the poor are forced to become poorer and leave their own poverty as their inheritance to their children is equally obvious.

What excuse can there be for such a horror?

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Disrupting Real Estate Agents’ Commissions

New Orleans     If you ever had to sell or buy a house or even just look around in a neighborhood to try and sort out sales’ pitches from real values, you’ve often dealt with real estate agents in their bizarre and curious world. They speak of their commissions and rates as if they were set by divine law and handed down on tablets, although that is far from the case. They ask you to sign documents that there is no conflict of interest when they are sometimes representing both the buyer and the seller, when obviously they are the only winner there in an Alice-in-Wonderland world of make believe. Times may be changing.

The internet is of course one area where there’s action. People self-list on Craigslist, if you want to go there. Zillow ascribes values for houses and rentals based on its own algorithms and offers direct connections to agents where you might have an interest, even though it does little on the transactional side other than adding its cost to the fixed commission. Nonetheless, there’s more information in the market which helps consumers.

Looking at commission rates in other countries for residential properties might make you feel like an even bigger sucker. Only Russia and China once had higher rates than the USA, but their nearly 8% bite in 2002, according to The Economist, by 2015 had been pushed back to 2% in China and 4% in Russia, leaving the USA as the big dog here where its 6% average only dropped a hair to about 5.5% in the same time span. Britain and Singapore are less than 2%, Hong Kong, Finland, and Australia are at 2% with China. Canada is about 2.5%. Germany joins Russia at 4%. Spain is at 5%, the only close competitor to the US.

Competitors who want to disrupt this practice and do the job for 2% claim the resistance lies in the monopolistic, anti-competitive practice of the Multiple Listing Service (MLS) where “nearly every broker in America lists and searches for homes and the National Association of Realtors (NAR), a trade association with 1.3 million broker members in America, which regulates it.” If this were a labor union, the government would already have stepped in, and lawsuits would have already alleged restraint of trade for price fixing!

It turns out that there are some class action suits on the court dockets now challenging this dominance and some of these good-ol-boy practices and commission splitting arrangements, especially on the front end. The Justice Department has also begun to look at whether or not agents are steering buyers towards homes with the highest commission payoffs to them rather than objectively, if there’s such a thing in the real estate market. The realtors’ association scoffs at all of this, but stocks for some of the publicly listed real estate firms are falling in fear that these inflated commissions won’t last.

It matters to consumers. $1.5 trillion in homes changes hands every year. Tack on an extra percent or two, much less almost four, and you are talking about ripping off homebuyers and sellers by up to $4 billion. The house the real estate brokers association has built on consumers’ backs should not be left standing.

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