CHAPTER  IX -  MEDICAID

ESTATE RECOVERY

People with Medicare are notified of the Medicaid estate recovery program during their initial application for Medicaid eligibility and annual redetermination process.  Individuals in medical facilities (who do not return home) are sent a notice of action by their county Department of Social Services (or similar Department) informing them of any intent to place a lien/claim on their real property.  The notice also informs them of their appeal rights.  Estate recovery procedures are initiated after the beneficiary's death.

The Omnibus Budget Reconciliation Act (OBRA) of 1993 defines "estate" and requires each state to seek adjustment or recovery of amounts correctly paid by the state for certain people with Medicaid.  

The State may, at its option, recover amounts up to the total amount spent on the individual's behalf for medical assistance for other services under the state's plan.  For individuals age 55 or older, States are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services and they may or may not recover payments for all other Medicaid services provided to these individuals.

Dying is no protection, it seems, as in addition, states that had state plans approved after May 14, 1993 that disregarded assets or resources of persons with long-term care insurance policies must recover all Medicaid costs for nursing facility and other long-term care services from the estate of persons who had such policies.  States that had a "partnership program" long-term care insurance policy are exempt because they had state plans approved as of May 14, 1993 and are exempt from seeking recovery from individuals with long-term care insurance policies.  For all other individuals, these states are required to comply with the estate recovery provisions as specified above.

States are also required to establish procedures, under standards specified by the Secretary for waiving estate recovery when recovery would cause an undue hardship.  "Undue hardship" is generally not solidly defined.

SPOUSAL IMPOVERISHMENT

The expense of nursing home care, which ranges from $4,000 to $6,000 a month or more, can rapidly deplete the lifetime savings of elderly couples.  In 1988, Congress enacted provisions to prevent what has come to be called "spousal impoverishment," which can leave the spouse who is still living at home in the community with little or no income or resources.  These provisions help ensure that this situation will not occur and that community spouses are able to live out their lives with independence and dignity.  (Section 1924 of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396r-5)

RESOURCE ELIGIBILITY

The spousal impoverishment provisions apply when one member of a couple enters a nursing facility or other medical institution and is expected to remain there for at least 30 days.  As part of the procedures, when the couple applies for Medicaid, an assessment of their resources is made.  The couple's resources, regardless of who owns what and who inherited what from Great Aunt Vinnie, and regardless of present or past ownership, are combined.  The couple's home, household goods, automobile and burial funds are not included in the couple's combined resources. The result is the couple's combined countable resources.  This amount is then used to determine the Spousal Share, which is one-half of the couple's combined resources.

Note:  If one looks around some of the retirement homes and spots more than a few Mercedes, Cadillacs and Lincolns, this may be because it is a good way to shield assets from Medicaid.  True, they lose value rather rapidly, but the attitude a lot of the time, is that Old Jim is in the nursing home and I'm going out for lunch with the girls and I'm driving my MB 500!  And mean old Uncle Sam (he gets blamed for a lot) is not going to get that money…

Now comes the arithmetic:  To determine whether the spouse residing in a medical facility meets the state's resource standard for Medicaid, the following procedure is used: From the couple's combined countable resources, a Protected Resource Amount (PRA) (new term) is subtracted. The PRA is defined as the greatest of:

1.  The Spousal Share, up to a maximum of $101,640 in 2007;

2.  The state spousal resource standard, which a state can set at any amount between $20,328 and $101,640 in 2007;

3.  An amount transferred to the community spouse for her/his support as directed by a court order; or

4.  An amount designated by a state hearing officer to raise the community spouse's protected resources up to the minimum monthly maintenance needs standard.

The PRA is then subtracted from the couple's combined countable resources; the remainder is considered available to the spouse residing in the medical institution as countable resources.  If the amount of countable resources is below the State's resource standard, the individual is eligible for Medicaid.  Once resource eligibility is determined, any resources belonging to the community spouse are no longer considered available to the spouse in the medical facility.

INCOME ELIGIBILITY

The community spouse's income is not considered available to the spouse who is in the medical facility and the two individuals are not considered a couple for income eligibility purposes.  The state uses the income eligibility standard for one person rather than two, and the standard income eligibility process for Medicaid is used.

POST-ELIGIBILITY TREATMENT OF INCOME

Once a person is determined to be eligible for Medicaid, then the post-eligibility process is used to determine how much the spouse in the medical facility must contribute toward his/her cost of nursing facility/institutional care, while, at the same time, determining how much of the income of the spouse who is in the medical facility is actually protected for the use by the community spouse.

The process starts by determining the total income of the spouse in the medical facility. From that spouse's total income, the following items are deducted:

1.  Personal needs allowance of at least $30;

2.  A community spouse's monthly income allowance (between $1,650.00 and $2,541.00 for 2007), as long as the income is actually made available to her/him;

3.  A family monthly income allowance, if there are other family members living in the household;

4.  An amount for medical expenses incurred by the spouse who is in the medical facility.

The community spouse's monthly income allowance is the amount of the institutionalized spouse's income that is actually made available to the community spouse.  If the community spouse has income of his or her own, the amount of that income is deducted from the community spouse's monthly income allowance.  In the same vein, any income of family members, such as dependent children, is deducted from the family monthly income allowance.

Once the above items are deducted from the institutionalized spouse's income, any remaining income is contributed toward the cost of his or her care in the institution. (Section 1917(c) of the Social Security Act; U.S. Code Reference 42 U.S.C. 1396p(c))

These provisions apply when assets are transferred by individuals in long-term care facilities or receiving home and community-based waiver services, or by their spouses, or someone else acting on their behalf. At state option, these provisions can also apply to various other eligibility groups.

States can "look back" to find transfers of assets for 36 months prior to the date the individual is institutionalized or, if later, the date he or she applies for Medicaid. For certain trusts, this look-back period extends to 60 months.

If a transfer of assets for less than fair market value is found, the State must withhold payment for nursing facility care (and certain other long-term care services) for a period of time referred to as the penalty period.

The length of the penalty period is determined by dividing the value of the transferred asset by the average monthly private-pay rate for nursing facility care in the State. Example: A transferred asset worth $90,000, divided by a $3,000 average monthly private-pay rate, results in a 30-month penalty period. There is no limit to the length of the penalty period.

For certain types of transfers, these penalties are not applied. The principal exceptions are:

1.  Transfers to a spouse, or to a third party for the sole benefit of the spouse;

2.  Transfers by a spouse to a third party for the sole benefit of the spouse;

3.  Transfers to certain disabled individuals, or to trusts established for those individuals;

4.  Transfers for a purpose other than to qualify for Medicaid; and

5.  Transfers where imposing a penalty would cause undue hardship.

Bad news for the seniors – if they are applying for Medicaid benefits to pay for their nursing home care, they must be prepared to be denied.  As the result of some catastrophic (to many elders) on February 1, 2006 Congress voted 216 to 214 in favor of sweeping "reforms" to restrict senior's access to benefits used to pay for long term nursing care as part of a fundamental and sweeping change of the Medicaid program.  Many attorneys who practice elder law are of the opinion that nearly every nursing home resident who applies for Medicaid benefits will be disqualified.  The obvious reasoning seems to be that this is a desperate attempt to get the rapidly increasing costs of Medicaid under control.  The laws had been relative stable for over 10 years, but now, there are new rules regarding eligibility, rather draconian in the opinion of many.

Basically, the new laws changes how gifts can be affected when the giftor soon after gifts are made, goes into a nursing home.  Making gifts prior to entering a nursing home can, and will, disqualify a person from Medicaid benefits.

Taking a look at how it was and how it is now may help to explain what happened.  Prior to the new law if a person gave any assets away, whether or not they thought they might be going to a nursing home they were disqualified for benefits, but the period of disqualification was determined by how much they have gifted.  For instance, if a person gave away $33,000, then they were disqualified for 10 months (using the $3,000 figure), and if they gave away $66,000, they would not be qualified for 20 months.  Almost two years! The key here, however, is not necessarily how long of a penalty period but when did the disqualification period start.

Under the old law the period of disqualification started immediately after the giving of the gift, which makes sense as the smaller gifts never disqualified an applicant and larger gifts with the resulting penalty, would probably expire before the person actually went to the nursing home.

Never mind that Grandpa Joe always gave away his income from junk bonds to his grandkids every Christmas over the past 5 years and there was no gift tax involved.  The person will be disqualified not from the date the transfer was made, but from the date they apply for Medicaid after entering the nursing home.  The bad part is that when the person most needs benefits—when they enter a nursing home—they are penalized for being generous.

 

 

Some numbers may help:  Grandpa gives his three kids $500 each at Christmas.  He gives $20 each week to his church, $1,000 to the Salvation Army, and $1,000 to his Masonic Lodge.  That leaves him with $25,000 in the bank each year, which is just the way he wants it.  But when he goes into a nursing home and applied for Medicaid benefits, Oh, oh! 

First, he will have to spend his $25,000 (good for about 5 months of care) until his assets are down to $2,000, then he can apply for Medicaid benefits.  However, Grandpa gave away nearly $15,000 over the past 5 years, so he will be disqualified for Medicaid benefits for the next approximately 5 months.  Where is he to get the funds?

Every so often on television, a situation arises where the (actor) lawyer states that it is just the "law of unintended consequences."  One of the unintended consequences is that the nursing home has a nonpaying guest on its hands, and in nearly all cases, it would be illegal to put Grandpa out on the street.  (Thought – what would happen if a nursing home put some of its on-paying patients literally "out on the street" and called the local TV station...just a thought.) 

The unintended consequences can be severe if this happens very often, the nursing home could go bankrupt.  The best bet at this time is to hope that Congress comes to its senses and changes that law before nursing homes dump their patients to hospitals, who already are overcrowded.

Other changes to the Medicaid rules include the increase in the look-back period for gift/transfers from three years to five years.  Now all transfers, whether to individuals or trusts, will be subject to a five year look-back period.

In previous years, annuities were often used because there was an actual "loophole" in Medicaid regulations for some time which created an industry of "Medicare Annuities."  Annuities used to not be counted toward assets or income when determining Medicaid eligibility.  Lots of annuities were sold but as expected, soon the states said "Whoa, Nellie."  Now, annuities will be counted.  The exact language states that the state "be named the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant." This appears to mean that the state could demand the entire annuity even though the Medicaid beneficiary pays for only a month of care.  There are some problems with exactly how this is going to work at this time, as perhaps current Medicaid recipients may have to change their existing annuities to make the state the beneficiary upon their annual recertification review.

And then there is the last bastion of the hard-working man—the family homestead.  Homes used to be sacrosanct and were exempt from Medicaid consideration.  No more—the home is exempt if it is worth less than $500,000, but there are allowances to change this to $750,000 on a state-by-state basis.  Obviously, a $500,000 home may be a mansion in rural Kansas, but it would be a two bedroom one bathroom hut in San Jose.

PLANNING FOR LONG TERM CARE

Yes, it is important to plan for long term care.  If the statistics contained in the early part of this text have been absorbed, then the lesson should be obvious. Of course, the usual plaintive cry is that "I am too young to be thinking about nursing homes."  Take it from someone who knows—time goes by quickly (sounds like a song title…).  It is too late to close the barn door after the horses are out.  Seriously—and it is a serious subject—planning for long-term care is an issue important to every family in America.  Nursing homes are a fact of life that will likely affect every one in some way, such as displacement, the loss of independence, role reversals and in most cases the stark reality of financial ruin.  Catastrophe looms large for a family facing an ongoing $6,000 plus per month bill for care.

The latest statistics (according to NPR) shows that one out of every three men will be in a nursing home before they die, for women; it is one out of every two.

Families are dispersed so Great-Aunt can't watch after Susie while John is at work.  Neighbors are often just almost-strangers.  Whether we like it or not, most people turn to Medicaid when there is no option but a nursing home.  This means that there are only three options: Private pay, long-term care insurance, and Medicaid.

PRIVATE PAY

Private pay is simply the person (or his family) paying for long term care.  Usually, the personal savings goes first.  Most people are able to save something for retirement; many use the interest on the amount to supplement their Social Security.  When it becomes necessary to dip into the savings, that is usually acknowledged as the purpose of the savings.  However, at today's (and tomorrow's) nursing home costs, the savings go by quickly.

INSURANCE

For those who have planned ahead, the second option is long-term care insurance.  It can work and is a very valid way of paying for nursing home care.  Unfortunately, it has not sold well, and now other approaches combining the federal and state government and the insurance industry may help considerably.  Thus, the Partnership Program is the subject of this text.

One of the positive aspects of using insurance is that it will often pay for more than just the nursing home.  Many policies today pay for other types of care, including home care and assisted living care.  Long-term care insurance also provides a degree of certainty and peace of mind (the purpose of most insurance) by solving the problem now instead of relying on a less certain solution in the future.

It should always be kept in mind that there are various degrees of long term care, and there is difference between assisted living and nursing home care.  Briefly, a nursing home provides a higher degree of care and has the ability to meet the more significant medical needs of their clients as, for instance, it is required to have a Registered Nurse available 24 hours a day.  An assisted living facility (ALF) on the other hand, provides only modest assistance with daily living needs and is very limited on the type and scope of any medical care it can provide.  Medicaid does not normally pay for assisted living care, only nursing home care, although this may be changing in the future as several states—Florida, for example—has a pilot program that provides for care for assisted living in certain specific circumstances.

The biggest complaint that the public has in discussing Long Term Care Insurance is the cost.  Good Long Term Care Insurance policies can cost between $2500 and $5000 or more per person per year.  For an elderly couple (most new insureds are elderly) on a fixed income, this is a difficult amount to have to pay each month.  After all, they are more concerned with everyday and immediate expenses.

For those that purchase Long Term Care Insurance, it is very important that there is enough coverage not only for today's cost of care, but for what it would cost in the future.  This is discussed in detail in this text, particularly since the Partnership Program makes Inflation Riders mandatory for under policies sold to those under age 75, and optional for those over age 75. 

Elder law attorneys often say that they frequently see heart-rending situations where an elderly person that must start receiving long-term care has an older version of a Long Term Care Insurance policy, but the amount is only for $50 or $75 a day—which was sufficient when the policy was first bought.  Now, they have to come up with enough money to make up the difference.  The person, despite having insurance, despite having paid premiums for years, may still have to use Medicaid to pay for the care. Talk about adding insult to injury.

MEDICAID?

Then, of course, there is Medicaid which is a joint state and federal program that pays for nursing home care, but which was designed for indigent.  While it is far and away the largest payor of nursing home benefits, it was created as part of President Johnson's National Health Care program.  The end result was a dual system, one that paid medical expenses for the poor and one that paid for the medical expenses for the elderly. 

Originally, a common scenario was where spouses would divorce, assets would be split asunder (whatever that means) until there was little if anything left, and then the life savings of a former spouse would be spent for nursing home care and Uncle Sam and it's cousin, the State Medicaid program, would step in and take over as there were no assets left to pay for the necessary care.

Almost too late, the federal law was finally changed in 1986 in order to reduce the burden on our seniors to keep them from becoming truly indigent and it established new criteria to determine eligibility for public benefits.  The new law increased the amount of assets a person could keep and still be eligible for Medicaid benefits to pay for long-term care.  This created a subtle change from a poverty plan to an entitlement, similar to Medicare.

Medicaid was designed and intended to be a welfare program, and for many people, that is exactly what it is.  In today's world of immigrants and their many children, most have no insurance or funds to pay for medical help, so Medicaid is their only salvation.  For the elderly, Medicaid has become something else——a pressing social problem for those elderly persons who find themselves having to receive long term care without the funds to pay for the care,

Medicaid was a very liberal program in the beginning, and it allowed people to move assets around to qualify for benefits.  But as the total number of elderly requiring long term care increased in this country, the budgets of the state and federal governments for Medicaid have expanded, almost exponentially.  This necessitated changes in the regulations and as could be expected, the attempts to limit and reduce the effectiveness of Medicaid for long-term care increased more and more.  In addition, the legal requirements can be difficult to understand and may require legal expertise.

MEDICARE OR MEDICAID?

This question has to be raised as it is amazing how many otherwise well-educated people still confuse Medicaid and Medicare.  Okay, maybe they should have named one or the other differently.

Medicare is where much of the paycheck goes every month, along with the mandatory Social Security payment.  Medicare is a program primarily for those over age 65 or who are totally disabled, and it pays for most hospital and doctor's visits.  Everyone who has paid into the system during their working years is eligible for Medicare.

There are three "parts" to Medicare: Part A, Part B and Part D (drug benefits). The "A" part pays for hospital visits and charges, while the "B" part picks up a portion of your outpatient doctor visits and certain other medically-related services.  Medicare does NOT pay for long-term care in a nursing home.  Part A does pay for a stay in a nursing home for rehabilitative purposes after a minimum 3-day hospital stay, for a period not to exceed 100 days.  What is often forgotten is that the patient must be progressing while in the nursing home.  This automatically eliminates most persons that enter nursing homes. 

The Medicaid eligibility requirements are based on the perceived need for assistance as determined by the individual's financial and medical situation and the person must meet these eligibility requirements and be under the threshold limits before the Medicaid program steps in.

MEDICAID AND ASSISTED LIVING FACILITIES

While Medicaid helps with the cost of nursing home care, the Nursing Home Long-Term Care Diversion Program (a Florida program at this time) and similar programs have been introduced recently.

THE ELIGIBILITY REQUIREMENTS

In order to qualify for Medicaid the applicant must meet the Medicaid program's requirements for eligibility.  The specific requirements the applicant must meet include: (1) Basic "medical" need (also referred to as a level of care); (2) age or disability; and (3) the financial situation of the applicant including the applicant's income and assets.  In order to be eligible for Medicaid the applicant must satisfy all three requirements.

PART ONE – MEDICAL REQUIREMENTS

Basically, Medicaid requires that the applicant have a significant inability to care for him or herself.  Okay, what degree of care or level of care is significant enough?  Simply put, the person must have an impairment or illness severe enough to limit his or her activities of daily living to a point where a nursing home is the appropriate placement.

The specific standards used to determine if the medical need is present are:

• The need must require twenty-four hour nursing care in a "skilled care facility." A skilled care facility is one where professional nursing services such as physicians, respiratory therapists, audiologists, physical and occupational therapists are available;
• The person's needs are so medically complex that he or she requires supervision, assessment or planning by a registered nurse; The person must need the care on a daily basis;
• The person needs ongoing involvement of a registered nurse or other professional in the individual's medical evaluation and the implementation of a treatment plan;
• The person needs continuous observation in order to monitor for complications or changes in the status of his or her condition; and
• The care the person needs should not be of a degree which would normally be provided by a hospital.

These requirements are not as difficult as they may seem as by the time that help is needed, the medical need is already well in place.  As a general rule people delay putting their loved ones into a nursing home until they just absolutely must do so.  Therefore, by the time that placement is actually made, the time that they should have been so placed has long passed.  However, something like Alzheimer's can sneak up on a person so that it is difficult to determine when the best time for commitment actually is.

PART TWO – AGED, DISABLED OR BLIND

In order to be eligible for benefits the applicant must be either over 65, be characterized as "disabled," or blind.  Disabled is defined as the inability to perform gainful activity for a period of time that is expected to exceed one year.  For example, a 60 year-old with Alzheimer's would satisfy this requirement if the Alzheimer's disease sufficiently impairs his or her ability to work to such a degree that he or she is qualified as disabled. It is noteworthy that the person does not actually be declared disabled by the Social Security Administration or be receiving Social Security Disability payments.  A 70 year-old, on the other hand, clearly meets the age requirement and need not be disabled as long as he or she has the medical need and passes the financial requirements.

PART THREE - FINANCIAL

The financial requirement is the most confusing and difficult to attain.  It consists of two parts, the assets of the applicant (income cap states) and in some states, the income of the applicant.  Nine of the states eligibility is determined by income, and the other states are known as "medical needy states" that use income just to determine the amount that the state will contribute to the person's care.  Income cap states are Arizona, Arkansas, Colorado, Florida, Iowa, Louisiana, Oklahoma, Oregon and Texas.

ASSET REQUIREMENTS

Welcome to a new term:  "Community Spouse."  Whether a spouse of a person that had to go into a nursing home would be able to take care of her/him financially, was of obvious concern to the lawmakers that changed Medicaid laws in 1986, hence the term " "community spouse."  The community spouse has special considerations.  However, if both spouses are in the nursing home—even if only one spouse applies for Medicaid—then there is no community spouse and both patients must use the single-applicant limits. 

The allowed asset maximum amount for a typical married couple may keep up to $101,540 in countable assets. ($99,540 for the community spouse and $2,000 for the applicant spouse.)  Contrast that with the limit for a single person, including widows, which is only $2,000 in countable assets. (The $2,000 limit increases to $5,000 if the income of the applicant is under $731 per month.) The following chart summarizes the eligibility levels for assets and income in most states, for example.

 

 

DETERMINATION OF AN ASSET

NOTE:  The methods of determining assets for Medicaid purposes may vary between states, but the information below has been adopted by most states. 
It would be wise to review the state's Medicaid regulations to determine if they are the same as or resemble these methods.

Assets are considered as either countable or non-countable.  This is an important division because many applicants have assets that are not counted and are considered non-countable assets for purposes of determining Medicaid eligibility.  As an example, the first $500,000 of the value of the primary residence is not counted.  Any home value above that figure is considered as an asset.  (At this time, several states are contemplating a $750,000 limit.)  A natural question here is what happens to the home after the Medicaid recipient dies—a good question which is discussed later.

This can be important as often those who approach an Elder Law attorney have already sold their home in desperation in order to pay nursing home bills.  That, of course, is not the thing to do as the value of the house is exempt from being considered as an asset in determining the Medicaid eligibility.  There are other exempt assets, such as the car and a burial account, but these are not as significant as the home.

Bank accounts are another area of confusion to many.  Many people feel that if the bank account is a joint bank account, it is only treated as half an asset—not so, all (100%) of the account is treated as an asset.  Many try to avoid this by having a close relative on the account—son or daughter usually—withdraw most of the account so that it will not all be counted as an asset.  Not only does this not work, it is illegal and is specifically forbidden by law.

Other assets may have been overlooked, such as the cash value of a life insurance policy, or a pre-paid burial plan (if it is not irrevocable it will be considered as an asset.  IRAs and burial contracts are counted if they are not adjusted to change them to non-countable assets. 

INCOME LIMIT

An income cap state imposes an additional factor that must be considered when applying for Medicaid benefits—the income of the applicant.

In most states the 2006 income limit is set at a maximum of $1,809 per month.  This cap amount is determined on the applicant's gross income, not his or her net income. This means that a deduction such as the Medicare premium and any withholding tax must be added back to determine the applicant's gross income.  In income cap states, an applicant who is over the cap, even by a dollar, is not eligible for benefits, despite the fact that he passes every other test. (We will see that this problem has a solution.)

An applicant for Medicaid can be ineligible even if they have no other assets or other means to generate cash.  If the applicant is entering a nursing home, the cost could be $5,000 a month.  Being over income imposes the harsh result of ineligibility for the applicant who is over the income cap even though he or she has no other assets and no other means to generate additional cash flow. While he may have a relatively high income he may not be able to produce the $5,000 each month.  This is known as the Medicaid Gap—too much income to qualify for benefits, too little income to pay for care. 

In these difficult situations, the first thing is to identify just exactly what is income.  Simply put, every source of income is considered countable income, such as Social Security, pensions, disability, VA benefits, interest income, non-taxable income, IRA distributions, annuity income (regardless of whether it is taken out of the annuity or not), dividends, and everything else that the applicant receives is considered income —with only rare exceptions.  Actually, payments from long-term care insurance policies are usually counted as income and just might push the applicant over the income cap.  (If the LTCI policy had inflation protection, then they probably would not have to ask for Medicaid protection—unless, of course, the policy term had been exceeded.  Still, a person in a nursing home that had been covered by an LTCI policy that stays beyond the policy term will not "end up in the street."  But, they will start paying their own money from now on.)

However, even though Congress has taken away many Medicaid planning opportunities in the past 14 years, which restricted the ability to preserve assets, they did provide a solution to the Medicaid Gap—the Qualified Income Trust (described later in detail).

When a person is on Medicaid his or her income is used to help pay for the care in the nursing facility, which is, appropriately enough, called the patient responsibility.   This entails minor arithmetic, though, as the applicant must contribute all of his income to the nursing facility, minus $35 (for the purchase of toiletries, etc.)  If there is a community spouse, the spouse can keep a portion based on his/her need—usually the spouse can divert his/her income to $1,603.75 (2006)…but wait!  If the community spouse has significant expenses for housing such as rent or mortgage payments, property taxes, etc., then they may be able to divert income from the applicant up to (2006) $2,488.50.

The patient responsibility also includes those amounts that are being deposited into an income trust and which are then forwarded to the nursing home as part of the patient's responsibility.  However the arrangement, the entire patient's income, except for a few small deductions for personal needs or a spousal diversion, must go to the nursing home. Income trusts are discussed later also.

 

TRANSFERRING ASSETS

Transferring assets improperly violates the first commandment of Medicaid law, "Thou shalt not give your assets away to qualify for Medicaid benefits."  If the applicant has too many assets and wants to qualify for Medicaid benefits, the tendency for most people is to just give the excess assets away.  This solution sounds too easy, and as with most things, if it sounds too easy, you can't do it.

The government will not allow you to simply give assets away in order to become qualified. There are very strict rules prohibiting gifts of assets to become eligible for Medicaid.  Any uncompensated transfer or even an under-compensated transfer will disqualify the applicant from receiving Medicaid benefits.

Assets may be moved and preserved if done under what the rules allow.  It may not be called a gift or a transfer but nonetheless the assets can be moved, and if moved properly the assets become protected.  This is the essence of Medicaid planning, the movement of assets to preserve and protect them.  

The DRA wording makes it seem that it would be a criminal act to transfer assets to become eligible for Medicaid benefits but  Congress has tried to make it illegal in 1997, but the resulting public outrage forced Congress to amend the law.  Congress's next attempt at Medicaid reform made it a crime for someone, even an attorney, to tell a client how to legally transfer assets in order to qualify for benefits.  It was as if they were saying that while it is legal to transfer assets it would be illegal to tell anyone about it.  The absurdity of such a law has been recognized by the courts and has been overturned for restricting constitutionally guaranteed free speech.  Under the DRA, it remains to be seen how this is played out.  Some attorneys practicing Elder Law feel that it is again a crime to try to shield assets by transferring them in order to qualify for Medicaid.

Transfer Ineligibility

If someone gives assets away, how long does the person have to wait before he or she can become eligible for Medicaid? —this is the fundamental question for most people.  The Deficit Reduction Act has changed how people would be penalized for giving assets away.  For example, prior to February 2006 a person was disqualified from the date the transfer was made, but now the Medicaid applicant is penalized from the date of application for Medicaid benefits after he or she enters the nursing home.

A simple exercise to determine the length of time an improper transfer disqualifies a person for Medicaid is to take the amount of money (or worth of an asset) transferred and then divide that by the state's transfer divisor (many states use 3,300).  The answer is the number of months the person is ineligible for Medicaid starting from the date of application for Medicaid benefits after entry into the nursing home.

Note:  If qualifying for Medicaid is to be discussed intelligently, the agent must determine the accepted average cost of care in that particular state.

The amount of time the person has to wait for benefits is calculated by dividing the amount of assets transferred by the average cost of care, ($3,300 but varies by state).  This "average cost of care" figure does not nor is it intended to reflect the actual current average cost of care, but is simply a part of the state's formula to determine the ineligibility period.

As an example, using the average cost of care of $3,300 per month, if a person transferred $33,000 to a son or daughter (for instance) within the look-back period of 60 months, the person would be ineligible for benefits for a period of ten months from the date of application for Medicaid. (33,000 ÷ 3,300 = 10 months.)

Under the DRA, every gift a person makes during the five years prior to the person's entry into the nursing home will be added together as a "super transfer" as discussed earlier.  The person will be disqualified not from the date the transfer was made, but from the date they apply for Medicaid after entering the nursing home.  

A word on transfers between spouses.  As of the printing of this book inter-spousal transfers, transfers between spouses, are not considered transfers.  No penalties are assessed for transferring assets between husband and wife.

LOOK-BACK PERIODS

The transfer of asset penalty disqualifies you only if you transfer assets within a certain period of time before you apply for benefits.  This period of time is called a look-back period.  There previously were two look-back periods; one that went back 36 months, the other 60 months.  Under the new law effective in February 2006 there is only one look-back period.  Now any transfer or gift made within a 60 month period prior to application must be disclosed during the application process.

A transfer that falls within the time line must be disclosed at the time of the eligibility hearing.  In the example, if a $33,000 transfer was made 10 months ago, it must be disclosed at the time of the Medicaid application, and will now, under the new law, disqualify the applicant for 10 months into the future as would a transfer of $66,000 made 20 months ago would disqualify the applicant for 20 months into the future.   

Transferring or giving assets away has been one of the most basic techniques used to qualify for Medicaid but under the new laws, this almost guarantees a denial.  Since it is impossible to predict the future, transfer of assets are rarely recommended when a person attempts to qualify for Medicaid.

DURABLE POWER OF ATTORNEY

When long-term care becomes an issue it is often because the person cannot provide for their own care.  The same things that put the person into a nursing home are often the same things that remove his or her capacity to act on his or her own behalf.  The individual should always anticipate the possibility of entering a nursing home, and the most important document that they can have is a durable power of attorney.  A durable power of attorney is a document that grants authority to a person to act on behalf of another.  Whether Long Term Care Insurance is involved or not, it is still key part of the overall incapacity plan.

If a person does not have a power of attorney, a court appointed guardian can act on behalf of an incapacitated individual whom can be more difficult and costly to qualify for Medicaid benefits.  Care should be taken that such a document does not restrict the individual from creating trust or limit the ability to make gifts.  An Elder Law attorney can help a person qualify for Medicaid and still protect assets in many cases, but not without such a document if the person becomes incapacitated.

INCOME TRUSTS

If the applicant is in an income cap state and is over the income cap, then the applicant is not eligible for Medicaid benefits.  There is one way that may help a person in this situation, and that is by creating an income trust.  WARNING:  This is not a "do-it-yourself" task as it will require the assistance of an attorney in nearly all cases. 

If the applicant is over the income cap and wants to qualify for Medicaid, the applicant must have an income trust drafted, executed and properly funded in the month that benefits are to begin.

The concept and use of an income trust is relatively simple.  A trust is created (this is where legal experts are needed) and then a checking account is opened in the name of the trust.  Every month the applicant's income is moved from the applicant's individual account to the trust's account in an amount great enough to bring the income below the cap.  In most states the 2007 income cap is $1,869 for single person, $3730 if both spouses are in the same facility. So, for example, if the applicant has $1,869 in monthly income, the applicant is over the cap and will need to put at least $1 into the trust each month in order to get below the income requirement.  After the income trust receives the applicant's income it turns around and pays the income to the nursing home as part of the overall patient's responsibility.  The income trust acts only as a pass through. Nothing stays in the income trust.

Some states have regulations that state, in essence:  "Individuals whose income is over the income standard may still be eligible if they set up an income trust and deposit sufficient funds into a 'qualified income trust' account in order to reduce their income outside the trust to within the income standard.

To qualify, the income trust must:

• Be irrevocable;
•   Be comprised of income only; and
• Designate that the state will receive any funds remaining in the trust upon the death of the recipient, up to the amount of Medicaid payments paid on behalf of the individual."

Patient Responsibility

"Patient responsibility" when used in the Medicaid regulations, refers to the amount that the nursing home resident is required to pay to the nursing home each month and is usually the applicant's gross monthly income minus a $35 personal deduction (used for personal items, such as toiletries, etc.).  If there is a community spouse, such deduction is also applicable.   

Incremental Transfers

Prior to the DRA, those attempting to qualify for Medicaid benefits would move assets on a monthly basis as that would reduce the asset transfer to suit the Medicaid requirements.  Such is no longer the case as any monthly incremental movement of the assets now are added together with the penalty being assessed at the time of Medicaid application instead of when the asset was given away.  These small transfers can even include Christmas gifts and charitable donations.

Other transfer strategies include paying the asset to a family member, moving it to a specialized pooled trust or loaning the asset out.  Assets can be protected by changing their character and converting them from countable assets to non-countable assets, such as improvements to a home.  Purchasing a car (the famous "Mercedes" ownership) and the purchase of a burial or funeral contract is another.  Again, legal expertise is needed.

ANNUITIES

Another category of preservation strategies uses specifically crafted investments called annuities to convert assets into income.  By changing the asset into an income stream with an annuity the applicant's assets are reduced below the asset cap.  As simple as this may seem, this has the most possibility of danger as if the annuity is not written with the correct terms, if the applicant's situation is not just right, the use of an annuity can do more damage than good.  After the annuity is purchased it is an irrevocable act and cannot be undone.  Under recent legislation enacted February 8, 2006, annuities and their use in Medicaid planning have been severely restricted—

MEDICAID ESTATE RECOVERY

Medicaid Estate Recovery refers to the fact that the state tries to recoup what it has paid to take care of the person from his or her estate after he or she has died.  When a Medicaid recipient dies, the state has an enforceable debt against the estate of the Medicaid recipient as the state wants to be repaid for all of the care that it gave to the deceased. OK—but from what does the state expect to be paid?  When the deceased became eligible for Medicaid the recipient's assets were depleted or repositioned, therefore when the Medicaid recipient dies his or her estate has already been moved or spent.  However, they can go after the home, business property and personal injury settlements (if that is involved).  Principally, the big concern would be to protect the home.

The law regarding recovery of assets from a Medicaid recipient is very state specific with each state having  its own set of unique rules and policies concerning paying back Medicaid. The home, though not counted as an asset when determining eligibility, is, at death, in nearly every state, an attachable asset available to pay back Medicaid.  If the state has a homestead law and the property was the primary residence and it is being distributed to a blood relative, generally is can be considered as a homestead

This valuable protection afforded by the homestead status can be placed at risk by a direction contained in the will to sell the property or a disposition to a non-family member.

In many states safeguarding assets other than the home from Medicaid estate recovery requires a change of estate plan from a will to a trust.  If the assets pass to the beneficiaries from the revocable living trust instead of through the will/probate process, these assets will be protected from recovery and if this problem is not addressed, the death of the community spouse will destroy the surviving spouse's eligibility for Medicaid.

This is a legal point, but it is good to know when discussing what is left in an estate upon the death of the husband or wife.  While most wills or estate plans state that upon the death of one spouse, all of his/her assets go to the surviving spouse.  To be safe, Elder Law attorneys recommend (strongly) that the will or estate plan be changed to direct that the assets go to a trust for the benefit of the surviving spouse or to family members other than the surviving spouse.

It is beyond the purpose of this text to go into these laws in much detail, but recently some states have  recently made critical policy changes regarding continuing eligibility of Nursing Home Medicaid (ICP) recipients.  The Problem: When one spouse is on Medicaid in a nursing home, and the spouse who is still at home dies, the spouse in the nursing home may lose his or her eligibility for Medicaid.  Even if the well spouse changes his or her will to bypass the ill spouse, this may not be enough.

Medicaid can collect additional money even if the non-confined spouse has willed all of her assets to her children and then she should die while the other spouse is in a nursing home as a Medicaid patient.  While if this happened, it would seem that the patient's assets have not increased, but under the "elective share" requirement of the Medicaid regulations, this could amount up to 30% of the estate.  Legal help time again. 

MEDICAID QUALIFICATION & PARTNERSHIP PROGRAM

As should be rather obvious by now, the primary advantage of the Partnership Program for those who must be confined to a nursing home is the Medicaid relief.  The theory behind the NAIC Model Long Term Care law in this respect is the inducement of allowing a Medicaid patient to keep some of their assets by purchasing Long Term Care Insurance which will help pay for the expenses of nursing home care.  The goal is to have more long-term care patients self-supporting through an insurance program which will alleviate the huge tax-dollar drain of state and federal funds in financing Medicaid patients.  This program will only succeed if there are more Long Term Care Insurance insureds.

The dollar-for-dollar concept, which has been explained previously, establishes an amount wherein the maximum insurance benefit of the policy is matched by Medicaid exemptions.  For instance, $150 dollars a day for long-term care benefits under a 3 year LTCI policy would equate to $164,250 ($54.750 per year).  If the policyholder entered a nursing home and applied for Medicaid, $164,250 of his personal assets would be exempt—he could keep that much of his assets in addition to certain other exemptions (house, car, burial policy and certain trusts) before he would start paying Medicaid.

 

STUDY QUESTIONS

CHAPTER NINE

 

1.  Medicaid estate recovery procedures are initiated

      A.  after the beneficiary's death.

      B.  after application for Medicaid.

      C.  after notification by Medicare that such is possible.

      D.  while the patient is in a Hospice, generally.

 

2.  OBRA stated that in respect to Medicaid estate recovery, the state must, at a minimum, seek recovery for services provided to

      A.  any person over age 65 in a nursing facility only.

      B.  anybody for any reason.

      C.  a person of any age in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution.

      D.  only those persons who have a life-ending disease or medical condition.

 

3.  The spousal impoverishment provisions apply when one member of a couple enters a nursing facility or other medical institution and

      A.  is expected to remain there for at least 30 days. 

      B.  is in an immediate life-threatening physical condition.

      C.  the other spouse dies.

      D.  has assets exceeding $100,000.

 

4.  The post-eligibility process is used to determine how much the spouse in the medical facility must contribute toward his/her cost of nursing facility/institutional care, while, at the same time, determining how much of the income of the spouse who is in the medical facility is actually protected for the use by the community spouse

      A.  prior to a person being eligible for Medicaid.

      B.  once a person is determined to be eligible for Medicaid.

      C.  once a person is determined to be eligible for Medicare.

      D.  after the death of the Medicaid patient.

 

5.  Many Elder Law attorneys believe that it is now extreme difficult to become qualified for Medicaid because of the new laws, in particular DRA of 2005, and basically, the new laws changes how gifts can be affected when the giftor

      A.  has died.

      B.  is indigent.

      C.  soon after gifts are made, goes into a nursing home.

      D.  is a blood-relative of the giftee.

 

6.  According to DRA, every single gift that a person makes for five years prior to their entering into a nursing home,

      A.  will now be added together as a "super gift."

      B.  will be forgiven.

      C.  will be eligible for capital gains taxation.

      D.  reverts to the giftor and the state (Medicaid) cannot touch it.

 

7.  In order to qualify for Medicaid, the residence may be exempt

      A.  if it is in a hurricane-prone area.

      B.  if its value is less than $500,000 (presently).

      C.  only to the extent of $25,000 for each resident/.

      D.  as the Homestead laws supersede any law, statute or regulation.

 

8.  The biggest complaint or concern that the public has when discussing Long Term Care Insurance is

      A.  coverage.

      B.  the taxability of benefits.

      C.  the government guarantee is considered ineffective.

      D.  the cost.

 

9.  In determining the eligibility for Medicaid, assets are considered

      A  as either countable or non-countable. 

      B.  as either real estate or intangibles.

      C.  only if they are negotiable instruments.

      D.  but only if they are related in some fashion, to real estate outside of the resi-          dence.

 

10.  Simply put, in determining Medicaid payment from an income source of the Medicaid patient, an Income Trust may be used, whereby

      A.  income over the income cap flows from the applicant to the nursing home through an income trust.

      B.  all income of the patient is sent to an offshore bank where Medicaid cannot get it.

      C.  all income goes immediately to the next of kin who may or may not pay Medicaid for the patient’s care.

      D.  Medicaid sets up a trust and income of the patient flows into the trust where Medicaid holds the funds in trust for the heirs of the patient.

 

11.  An income trust does not protect assets since it only addresses the income of the applicant, but

      A.  in confuses matters and it take a long time for Medicaid to catch up.

      B.  it does allow you to satisfy the income requirement so you can move on to preserving assets.

      C.  outside income and assets transferred to family members immediately become exempt.

      D.  courts will usually redefine the trusts and the patient's estate will remain untouched.

 

12.  The primary advantage of the Partnership Program for those who must be confined to a nursing home is the

      A.  extremely high commissions.

      B.  Medicaid relief.                                                                                                                   

      C.  ability to choose the nursing home and never have to pay a cent for care.

      D.  fact that neither the person confined nor any family member will have to pay the premiums on the policy.

 

 

 

ANSWERS TO STUDY QUESTIONS

1A     2C     3A    4B     5C     6A     7B     8D     9A    10A     11B     12B