CHAPTER  X -  MEDICAID

Medicaid is the United States health program for individuals and families with low incomes and resources. It is jointly funded by the states and federal government, and is managed by the states. Among the groups of people served by Medicaid are eligible low-income parents, children, seniors, and people with disabilities. Medicaid is the largest source of funding for medical and health-related services for people with limited income.

Medicaid was created on July 30, 1965 through Title XIX of the Social Security Act. Each state administers its own Medicaid program while the federal Centers for Medicare and Medicaid Services (CMS) monitors the state-run programs and establishes requirements for service delivery, quality, funding, and eligibility standards.

Medicaid is a joint federal-state program that provides health insurance coverage to certain categories of low-income individuals, including children, pregnant women, parents of eligible children, seniors and people with disabilities.  This program has been created in order to help these groups of low-income individuals with any and/or all of their medical bills. Medicaid helps individuals that have no medical insurance or poor health insurance. While Congress and the Centers for Medicare and Medicaid Services set out the main rules under which Medicaid operates, each state runs its own program. As a result, the eligibility rules differ significantly from state to state, although all states must follow the same basic framework.

Both the federal government and state governments have made changes to the eligibility requirements and restrictions over the years. Most recently, the Deficit Reduction Act (DRA) of 2005 (Pub.L. No. 109-171) significantly changed the rules governing the treatment of asset transfers and homes of nursing home residents.  The implementation of these changes will proceed state-by-state over the next few years.

One of the primary requirements for Medicaid eligibility is having a limited income. Medicaid does not pay individuals directly; Medicaid sends benefit payments to health care providers. Medicaid helps individuals that have no medical insurance or poor health insurance. In some states Medicaid beneficiaries are required to pay a small fee (co-payment) for medical services.  There are a number of different Medicaid eligibility categories; within each category there are requirements other than income that must be met. These other requirements include but are not limited to age, pregnancy, disabled, blind, old age, income and resources, and being a U.S. citizen or a lawfully admitted immigrant.  Special rules exist for those living in a nursing home and disabled children living at home. A child may be covered under Medicaid if she or he is a U.S. citizen or a legal immigrant of the U.S. Regardless if their parent is eligible for Medicaid, a child can still be covered based on their individual status, not their parents. Also if a child lives with someone that is not their parent, they may still be eligible because once again their eligibility is based on their individual status.

The DRA equires that anyone seeking Medicaid must produce documents to prove that he or she is a United States citizen or resident alien.

Unlike Medicare, which is solely a federal program, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive matching funds and grants. The federal matching formula is different from state to state, depending on each state's poverty level. The wealthiest states only receive a federal match of 50% while poorer states receive a larger match.

Medicaid funding has become a major budgetary issue for many states over the last few years, with the program, on average, taking up 22% of each state's budget. According to CMS, the Medicaid program provided health care services to more than 46.0 million people in 2001.  In 2002, Medicaid enrollees numbered 39.9 million Americans, the largest group being children (18.4 million or 46 percent).  It is estimated that 42.9 million Americans will be enrolled in 2004 (19.7 million of them children) at a total cost of $295 billion.  Medicaid payments assist nearly 60 percent of all nursing home residents and about 37 percent of all childbirths in the United States.

Medicaid is also the program that provides the largest portion of federal money spent for health care on people living with HIV. Typically, poor people who are HIV positive must progress to AIDS before they can qualify under the "disabled" category. More than half of people living with AIDS are estimated to receive Medicaid payments.  Two other programs that provide financial assistance to people living with HIV/AIDS are the Social Security Disability Insurance (SSDI) and the Supplemental Security Income.

Medicaid planners typically advise retirees and other individuals facing high nursing home costs to adopt strategies that will protect their financial assets in the event of nursing home admission. State Medicaid programs do not consider the value of one's home in calculating eligibility, therefore it is often recommended that retirees pursue home ownership. By adopting the recommended strategies, many seniors hope they will quickly qualify for Medicaid benefits if the need for long-term care arises.

During the 1990s, many states received waivers from the Federal government to create Medicaid managed care programs. Under managed care, Medicaid recipients are enrolled in a private health plan, which receives a fixed monthly premium from the state. The health plan is then responsible for providing for all or most of the recipient's healthcare needs. Today, all but a few states use managed care to provide coverage to a significant proportion of Medicaid enrollees. Nationwide, roughly 60% of enrollees are enrolled in managed care plans.  Core eligibility groups of poor children and parents are most likely to be enrolled in managed care, while the aged and disabled eligibility groups more often remain in traditional "fee for service" Medicaid.

MEDICAID vs LONG TERM CARE INSURANCE

A logical question may be “Why should a Long Term Care Insurance agent care about Medicaid?  Isn’t that program designed for the elderly and indigent folks who can not afford insurance anyway?”  It is important to understand that for decades many “middle-class” persons have considered Medicaid as their “parachute” if they should have to be sent to a nursing home to live out their days.  Elder law attorneys have discovered (and helped write) loopholes in the Medicaid regulations where assets could be hidden away from the prying eyes of Medicaid, or simply become exempt under existing laws—like automobiles, houses (sometimes including second home or vacation cottages, certain insurance plans and annuities, and the hottest tool of them all, trusts.  If a person was able to exempt or hide considerable assets, why would they need Long Term Care insurance? 

At one time, it was easy to convince a prospect that nursing homes had two classes, those with insurance or private pay, and those on Medicaid.  However, laws now do not allow any differentation between paying patients and Medicaid. 

Realizing that Medicaid paid for at least 60% of the nursing home costs of its patients, states and the federal government have tightened up these exemptions so that a “middle-class” patient could easily spend nearly every cent they have for nursing home expenses, leaving little if anything for the surviving spouse—and then when the spouse died, if the nursing home costs have not been recovered in its entirety Medicaid will go after the estate for the remainder. 

Medicaid should not be looked upon as the “enemy,” but only as a vehicle for those who cannot afford to pay their own way and are content to be wards of the state.  It is becoming more and more important to understand Medicaid as recent regulations (such as the recent Deficit Reduction Act) has really tightened up the eligibility requirements.  By understanding Medicaid, an agent is better prepared to discuss the advantages of Long Term Care Insurance, which not only helps the marketing aspect, but as importantly, a prospect can be educated so that he will not be in a position in the future where his assets, most or all of them, are going to the government instead of to his heirs and estate. 

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 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.  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.¹⁴² 

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 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.¹⁴³

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 60 (was 36 months previously)months prior to the date the individual is institutionalized or, if later, the date he or she applies for Medicaid.

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) changes—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 a typical $3,300 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. 

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. 

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 presently are Florida, Arizona, Arkansas, Colorado, 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 Delaware:

 

        APPLICANT            COMMUNITY          ALLOWED      ALLOWED MO.

                                                   SPOUSE                  ASSETS            INCOME

 

*Add $3,000 more in allowed assets for applicants with income less than $731 per month

 

INCOME AND ASSET ELIGIBILITY REQUIREMENTS

DETERMINATION OF AN ASSET

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.  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

In Delaware, the 2006 income limit is set at a maximum of $1,809 per month.  This 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.

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, to 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.)

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.  This has been discussed earlier, but it is so important a revisit does not hurt.

The government will not allow you to simply give assets away in order to become qualified. As discussed, 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, however  Congress 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 (presently typically $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.

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 in Delaware).  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 Delaware's 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."  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 an applicant only if they transfer assets within a certain period of time before you apply for benefits.  This period of time is called a look-back period.  

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.

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 and Delaware has 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.  

Typically, 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.  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.  If this happened, it would seem that the patient's assets have not increased, but under the "elective share" requirement of the Medicaid regulations, which would amount of up to 30% of the estate.  Legal help time again.

 

STUDY QUESTIONS

 

1.  Medicaid is

      A.  part of Social Security.

      B.  provided by the DHS to those over age 65 and those disabled.

      C.  divided into two parts, Part A and Part B

      D.  a United States program for individuals and families with low incomes and resources.

 

2.  Under Medicaid, each state operates its own Medicaid system, and in order for the state to receive matching federal funds and grants,

      A.  each state must spend a pre-determined amount of money for Medicaid health care.

      B.  every citizen over age 65 must be a Medicaid patient.

      C.  the state must conform to federal guidelines.

      D.  only extremely poor citizens can receive health care under Medicaid.

3.  An agent should be prepared to discuss the advantages of LTCI over Medicaid so that

      A.  the agent can get a higher commission if the client goes on Medicaid later as the insurer would not have to pay for his long-term care.

      B.  the client will not be in a position in the future where his assets are going to the government for his long-term care, instead of to his heirs and estate.                                  

      C.  he can better pass the test if the Partnership Plan is introduced in his state.

      D.  the client can move his assets into an area where they will be exempt from Medicaid asset seizure, such as a more expensive home, etc.

 

4.  Federal law requires the state, at a minimum to seek recovery for services provided to a person of any age in a nursing facility, intermediate care facility for the mentally retarded or

      A.  any other medical institution.

      B.  any other institution that treats mentally impaired persons.

      C.  at a day care center for adults.

      D.  for assistance in any activity of daily living.

 

5.  For Medicaid recovery purposes, the items that are exempt from Medicaid are a couple’s home, burial plan and

      A.  any assets in a trust.

      B.  securities held in both names.

      C.  transfer of assets to children or grandchildren.

      D.  automobile.

 

6.  Congress has enacted rather “draconian” reforms on a senior’s access to his benefits used to pay for long-term nursing home care because

      A.  the Democrat congress wants more assets to spend on other projects.

      B.  the President wants more money into the US treasury without obviously raising taxes.

      C.  it is (desperately?) trying to get Medicaid costs under control.

      D.  the government is always looking for ways to steal citizen’s assets.

 

7.  According to the Deficit Reduction Act of 2006 (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 to form a “super gift.”

      B.  will be sorted to where any gifts to immediate families are exempt.

      C.  will suffer a gift tax if the value is more than $20,000 to any one person from any one person.

      D.  will be exempt from Medicaid seizure.

 

8.  All transfers of assets, whether to individuals or trusts, will

      A.  be exempt.

      B.  will be exempt up to value of $500,000.

      C.  subject to a five year look-back period.

      D.  be considered as a criminal evasion of taxes.

 

9.  A home is exempt from Medicaid seizure if

      A.  it is a vacation or second home.

      B.  the home is not less than 5 years old.

      C.  has a present value of up to $500,000.

      D.  has a present value of up to $1 million.

 

10.  In order to qualify for Medicaid, the applicant must have

      A.  debts exceeding 200% of net worth.

      B.  no home or car.

      C.  a significant inability to care for him or herself.

      D.  a doctor’s statement saying that they would be better off in a nursing home.

 

11.  Also, in order for an applicant to be eligible for Medicaid benefits the applicant must be either over 65, characterized as “disabled,” or

      A.  be mentally incompetent.

      B.  in the case of a female, pregnant with no visible means of support.

      C.  blind.

      D.  have a severe psychosis. 

 

12.  For Medicaid income limit, the 2006 income limit is set at a maximum of

      A.  $500 per month.

      B.  $2,000 per month.

      C.  $1,809 per month.

      D.  $100 per week.

 

13.  The transfer of asset penalty for Medicaid disqualifies an applicant who transfers assets within a certain period of time before applying for benefits. This period of time is called

      A.  the disqualification period.

      B.  the termination dates.

      C.  asset manipulation period.

      D.  look-back period.

 

14.  Annuities are not used as much to protect assets from Medicaid seizures as in prior years because of recent regulations, in any respect, if the annuity is to be included in Medicaid eligibility                 

      A  the state must be made the beneficiary.

      B.  the estate must be the beneficiary.

      C.  the beneficiary must be a blood relative.

      D.  the annuity must be immediately annuitized.

 

ANSWERS TO STUDY QUESTIONS

1D     2D     3B     4A     5D     6C     7A     8C     9C     10C     11C     12C     13D     14A