(full of traps and pitfalls for the uninformed)
Every so often, Congress changes the rules of Medicaid eligibility for nursing home coverage. In recent years, the rules have been relatively stable, with no changes in federal law since 1993. However, on February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 (“DRA”), which substantially changed the Medicaid laws.
In our collective experience of 35 years of practicing elder law, we have never seen such drastic changes when it comes to providing benefits to the elderly, disabled, and poor. Michigan enacted the DRA on July 1, 2007 effective retroactively to February 8, 2006. In addition to the drastic changes imposed by DRA, Michigan has implemented additional significant changes in April 2007, September 2007, October 2007 and now more changes have occurred in January 2008. This handout is intended to provide a brief summary and is not meant as a comprehensive summary of the changes.
Increased Look-back Period to Five Years
All transfers under the new law, whether to individuals or to trusts, will be subject to a five year look-back period rather than the prior three year look-back period for individuals (or five years for trusts). It is our understanding that beginning with all Medicaid applications filed from July 2007 and on, Medicaid will examine all transactions and gifts for the five years preceding the application date. This will make the application process more difficult and could result in more applicants being denied for lack of
documentation, given that they will need to produce five years instead of three years of records. This will be particularly true and difficult for families that have a loved one with dementia. Keep in mind, if you work with an experienced elder law attorney, there may be ways to reduce the documentation burden of the five year look-back period.
Altered Penalty Start Date and Computation of Penalty
When one transferred an asset for less than fair market value, Medicaid considered it a divestment which caused an ineligibility for Medicaid benefits. The new laws state for asset transfers (gifts) that are less than fair market value, the penalty period will begin on the date that the individual would otherwise have been eligible for long term care services (Medicaid as well as the Home Based Community Waiver) but for the asset transfers, rather than the date of the asset transfer itself. Simply put, Medicaid will penalize from the date of the Medicaid application instead of the date of the gift. Further, all transfers during the look-back period will be added together to determine the total transfer penalty. The transfer penalty will be broken down to disqualify a nursing home applicant on a daily basis. Specifically, every $197 gifted during the look-back period results in a one-day disqualification for Medicaid.
With respect to asset transfers that occurred prior to February 8, 2006 the old penalty start date, the date of the gift, still applies.
Charitable and political contributions, as well as innocent gifts to family members, are some of examples of transfers that could result in a Medicaid ineligibility period.
For example, a semi-healthy grandmother gives her granddaughter $20,000 to assist with her college education. Three years later, the grandmother has a stroke and requires nursing home care. Over the next eighteen months, she spends her life savings on her own care. Forty-eight months after the gift, the grandmother has depleted her assets and applies for Medicaid. She will be penalized for about four months before she will receive Medicaid benefits, even though she has no money remaining to pay for her care. How her care will be paid for during that four month period of ineligibility is anyone’s guess.
To dissipate the effect of these harsh new rules, Congress is mandating that each state institute a process for seeking a hardship waiver for those instances when the application of the transfer penalty would result in a deprivation of medical care that would endanger the applicant’s health or life, or for “food, clothing, shelter, or other necessities of life.” The process must include notice to the applicant, a timely process for ruling on the application, and an appeal process. Because the standard and procedure of the new hardship provision simply mirrors the pre-DRA hardship provisions, there essentially has been and we expect there will be no change to Michigan’s undue hardship exception policy.
Medicaid previously disregarded the value of a primary residence. However, this in not longer the case. Under new laws, individuals with more than $500,000 in home equity will not be eligible for Medicaid nursing home benefits. Keep in mind that under pre- and post- DRA laws, any home owned by a revocable living trust is considered a countable asset and must be removed
from the trust before the applicant can qualify for Medicaid.
The cap on equity does not apply if there is a spouse or child under 21 or a blind or disabled child residing in the home. These exceptions apply regardless of the equity value of the home.
Treatment of Annuities
The DRA has set forth changes concerning annuities which are very complex. Michigan has changed the current annuity policy effective October 1, 2007. The new laws provide that all Medicaid compliant annuities purchased or amended on or after February 8, 2006 must name the state of Michigan as the remainder beneficiary, or as the second remainder beneficiary after the community spouse or minor or disabled child, for an amount equal to the Medicaid benefits provided.
Long Term Care Insurance Partnership
Under DRA, each state is now able to formulate a regulation that allows Medicaid to disregard any assets or resources in an amount equal to the insurance benefit payments that are made to (or on behalf of) an individual who is a beneficiary under a long term care insurance policy. These policies will not be available in Michigan for another 6 months to a year.
Proof of Citizenship
Effective April 1, 2007, the DRA requires individuals to provide satisfactory documentation evidencing citizenship, nationality, or acceptable alien status when applying for Medicaid or upon a Medicaid recipient’s first annual redetermination.
January 2008 Rules Regarding Personal Care Contracts
Further, these new rules prohibit the use of personal care and home expense contracts. Specifically, contracts and agreements that pay prospectively for expenses such as repairs, maintenance, property taxes, homeowner’s insurance, heat and utilities for real property/homestead or that provide for
monitoring healthcare, securing hospitalization, medical treatment, visitation, entertainment, travel and/or transportation, financial management or shopping, etc. would be considered a divestment unless several complex requirements are met. One of the requirements is that a person cannot be paid for care whether it is prospective, or not if a person is already in a long term care situation.
Estate Recovery means that people who receive Medicaid benefits for nursing home level care can be subject to repaying the state for the costs of their care after they die. Typically, that means a claim against the home of the Medicaid beneficiary.
Prior to passage of the bill, Michigan was the only state in the nation that did not have such a law. Since 1993 the federal government has required all states to have an Estate Recovery law, however, Michigan has been out of compliance with that federal law since that time. As a result of recent federal pressure the State has adopted Estate Recovery.
That’s the bad news. On a brighter note, the law as adopted, provides many protections and opportunities to avoid the potentially harsh impact of Estate Recovery. The Estate Recovery law is full of traps for those that do not have the foresight to plan ahead with an experienced elder law and estate planning attorney, such as those at The Center for Elder Law. With proper planning you can still save your home! The key elements of the law are:
1. The Estate Recovery law ONLY applies to the probateable assets. Assets in revocable trusts are expressly not reachable, however, they are considered countable by Medicaid. While assets that
pass by trust, joint ownership, beneficiary designations, payment on death designations, life estates, and enhanced life estates are not subject to Estate Recovery, the creation of any of these, in many circumstances, can result in a future disqualification for Medicaid. This is why it is critical to consult with an experienced elder law/estate planning attorney before taking any steps on your own.
2. If assets are subject to a probate estate, there are several exemptions to the Estate Recovery law such as those relating to farm property and other income producing property. There is also an exemption based upon 50% of the average price of all the homes in the county where the Medicaid recipient’s home is located. Additionally, there are exemptions for persons living in the home such as a spouse or a child (blind or disabled) as well as exemptions for a “caretaker relative” and some joint owners provided they live in the home.
3. Any recovery is capped at the actual cost of Medicaid medical services paid for on behalf of the recipient, without interest.
4. No Estate Recovery program will be implemented until “approval of the federal government is obtained.”
What people need to do about Estate Recovery?
If an individual or their spouse is receiving long term care Medicaid benefits, or expects to be receiving long term care Medicaid benefits, they should have their estate plan established or reviewed to make sure the assets are set up in such a way to avoid being subject to Estate Recovery. In other words, plan if you haven’t and if you have, have your plan reviewed by an experienced elder law attorney.
What Does This All Mean and What Should People Do?
It should be obvious that the message out of Michigan and our Nation’s Capitol is to plan and plan early or you will have to “go it” on your own. Please remember and understand, although Estate Recovery threatens one’s home and changes to the Medicaid rules enacted this year dramatically alter the “Medicaid Planning” landscape, there remains many viable planning techniques for people seeking to “protect assets” and qualify for Medicaid assistance while preserving the greatest quality of care.
FINALLY Watch Out for Scams
The passage of Estate Recovery and the new laws will give rise to new scams. Unscrupulous individuals will use this news to try to scare senior citizens into purchasing products that are not in their best interests. Individuals over age 55 can expect to be invited to more seminars and to be solicited by the usual suspects: annuity salespeople, reverse mortgage brokers and “living trust” mill operators – each of whom may claim that Estate Recovery is another reason to purchase their products. Before making any financial or legal decision regarding the impact of Estate Recovery, individuals should consult with a qualified trusted advisor with whom they have an established relationship. Individuals should avoid falling victim to high pressure scare tactics.
We at The Center for Elder Law have provided this bulletin for “informational purposes” only and should not be relied upon as “legal advice.” Nothing transmitted from this bulletin shall constitute the establishment of an attorney/client relationship or legal advice. REMEMBER, when dealing with any legal matter, do not rely on this bulletin without first seeking the advise of an attorney about your particular situation and facts, and no person should rely upon or act in any way upon legal information or advice, unless it is received from a duly licensed attorney, in the context of an attorney/client relationship.