2006 Changes in Medical Assistance
June 3, 2008
Introduction
This is a sobering statistic: 50% of our federal budget goes for three programs: Social Security, Medicare, and Medicaid. This does not include education, defense, roads, the environment, medical research, etc. Estimates are that, in the not too distant future, this will increase to 60%.
In April 2005, Congress passed a budget resolution that set a goal of cutting $35 billion in entitlement cuts over the next 5 years, with a large share coming from Medicaid.
Most legislators recognized that something had to be done about the ever expanding outlays for these programs. The Bush Administration tried to paint Social Security as a crisis situation. Independent experts seemed to agree that there was a long term problem, but argued that there was no existing crisis.
On Medicaid, there was more agreement. The consensus was that cuts needed to be made. The national governors’ conference, a body made up of both Republican and Democratic governors, endorsed changes to Medicaid. Even my organization, the National Academy of Elder Law Attorneys, had leaders testify in hearings and advocate certain changes.
To many, it looked like the deficit was being “reduced” on the backs of the poor. In other words, the poor were the only ones “taking a hit.” Not only were taxes not increased for the middle and upper classes, but there was talk of making previous cuts permanent, and possibly, of making additional tax cuts. One suspects that the vote on the cuts would not have been as close if tax breaks for the wealthy had been repealed at the same time
Legislative Journey
Things started to heat up in October of 2005. The Bill was pushed by Republicans. The goal was to have it become law in 2005. Since Republicans controlled the House and the Senate, plus the Presidency, it looked like this would happen.
On December 19, 2005, the Bill passed the House by a vote of 212 to 206. In the Senate, the Bill was passed on December 21, 2005, only by Vice President Cheney flying back from the Middle East to cast a tie-breaking vote.
Technical modifications required the Bill to go back to the House. The House was not in session the last week in December 2005 and all of January 2006. The vote in the House occurred on February 1, 2006. The Bill passed 216 to 214. It was sent to President Bush. Bush signed it on February 8, 2006.
The new law is commonly known as the Deficit Reduction Act of 2005. The Medicaid provisions are contained in Title VI of the Act.
Constitutionality of Law
The Bill passed by the House differed from the Bill passed by the Senate. There are different versions of how this came to be. One goes like this. The Bill passed by the Senate provided that Medicare would pay for certain types of medical equipment (non-oxygen durable medical equipment) for 13 months. After the Bill was passed, a Senate clerk made an error in transcribing the number and inserted “36” instead of “13.” The Bill that passed the House contained the number “36.”
An attorney has brought a declaratory judgment action in Federal Court to have the Bill declared unconstitutional because of this defect. The court dismissed the lawsuit.
Overview of Changes
Here is an overview of the changes:
a. Homestead exclusion limited to $500,000 unless state increases it to $750,000. Section 6014.
Previous law provides that homesteads are excluded in an unlimited amount. The new law limits the equity an MA recipient can have to $500,000. If an applicant has more equity than this, he/she is denied benefits. However, the state can increase this to $750,000. Minnesota has not increased the $500,000 limit.
b. Look-back period – 3 years to 5 years. Section 6011(A).
The look-back period is analogous to a rear view mirror on a motor vehicle. It is the period of time in which Medicaid is permitted to review financial transactions of the applicant. The old law was a two-tiered look-back period: 36 months for transfers to individuals and 60 months for transfers to trusts. Now, all transfers after February 8, 2006, are subject to a phased-in, 60-month look-back period. (Examples of how this will work are given below.)
c. Expansion of Long Term Care Partnership Program. Section 6021.
Four states (Connecticut, California, Indiana, and New York) had what are known as “long term care partnerships.” This program enables people purchasing qualifying long term care insurance policies to get on Medicaid and retain more assets than they otherwise would. Specifically, Medicaid would disregard the amount of assets equal to the amount the applicant receives in long term care benefits.
For example, “A” purchases long term care insurance. He later contracts a debilitating disease and goes to a nursing home. His policy provides for up to $150,000 of benefits. He uses up all his benefits and applies for Medicaid. Medicaid will let him keep $153,000 in available assets ($3,000 personal exemption and $150,000, the amount paid by his insurance company in benefits). Only residents of these states could qualify. Now, residents of all states can participate in this. However, two caveats:
-This is not retroactive. Thus, amounts paid in premiums for existing policies do not count.
-Before any people in Minnesota can participate in this, the state has to adopt a prototype long term care insurance policy. Who knows how long this will take?
d. Income first rule in applying community spouse’s income before assets. Section 6013.
When one spouse goes into a nursing home, the community spouse must be left with a certain amount of income so as not to become impoverished. This is known as the Minimum Monthly Maintenance Needs Allowance. This currently is $1,712.00. When the community spouse’s income itself does not come up to this standard, some states allow the income to be supplemented with income (interest, dividends) from marital assets. Such a policy allows for the retention of substantially more marital assets by the community spouse. Other states require that any shortfall in income must first be supplemented by the income from the institutionalized spouse. This is called the “income-first” rule. This section provides that all states must now compute the community spouse income using the “income-first” rule. This has been the case in Minnesota for several years, so no change will be noticed.
e. Change in beginning date for period of ineligibility. Section 6011 (B).
This is the most dramatic change in the new law. Previous law provided that, if gifts are made, the period of ineligibility caused by the gift begins the month following the date of the gift. Thus, if a person makes a gift of $10,000 in January, the period of ineligibility begins in February. Since the period of ineligibility caused by a $10,000 gift is 2.42 months, the period of ineligibility in this example expires in April.
The new law provides that the period of ineligibility begins when:
-all other periods of ineligibility have expired, and
-the applicant’s assets are at such a level as to qualify for Medical Assistance (MA), and
-the applicant is receiving institution level of care based on an approved application for such care.
f. Disclosure and treatment of annuities. Section 6012.
Any interest in an annuity must be disclosed. The application form or recertification form must contain a statement that the state becomes a remainder beneficiary under such annuity. Also, the state will notify the issuer of the annuity of the right of the state to be a preferred remainder beneficiary in the annuity. Assets transferred to purchase an annuity with a balloon by or on behalf of an annuitant who has applied for Medical Assistance for nursing facility services will be considered available unless:
-it is an annuity meeting the requirements of Sections 408 and 408A of the IRC, or
-it is an annuity that is irrevocable, non-assignable, actuarially sound and pays out equal installment payments.
g. Enforceability of continuing care retirement communities. Section 6015.
A continuing care retirement community is an institution that offers independent living, assisted living, and nursing home care in one setting. People may pay large amounts of money (hundreds of thousands of dollars) in a lump sum before moving into one these. Under existing law, the entrance deposit may be treated as a home and may therefore be considered unavailable for Medical Assistance purposes. The new law makes two changes in this. Since we do not have any of these in South Central Minnesota, I will not elaborate.
h. Impose partial months of ineligibility. Section 6016(A).
Some states allow a period of ineligibility to be rounded down. In other words, if the period of ineligibility is 4.5 months, those states would round it down to 4 months. This used to be true in Minnesota, but was changed several years ago. Thus, this provision does not change existing Minnesota law or practice.
i. Multiple periods into one period of ineligibility. Section 6016(B).
This provision allows states to add gifts together for purposes of calculating the period of ineligibility. Thus, if an applicant made gifts of $50,000 in January and $25,000 in July, this provision allows a state to add them together ($75,000) and determine the period of ineligibility using that number.
j. Inclusion of notes and loans. Section 6016(c).
This provision includes, as available assets, funds used to purchase a promissory note, loan, or mortgage unless such instrument:
-has a repayment term that is actuarially sound,
-provides for payments in equal amounts during the term of the loan with no deferral or no balloon payments made, and
-prohibits the cancellation of the balance upon the death of the lender.
The value counted as an available asset will be the outstanding balance due on the instrument as of the date of the individual’s application for Medical Assistance.
k. Inclusion of transfer to purchase life estates. Section 6016(D).
If a Medical Assistance applicant purchased a life estate in the home of another person (e.g. a relative), the funds used in such purchase will be regarded as available assets unless the applicant lived in the home for at least one year after the date of purchase.
l. Availability of hardship waivers. Section 6011(D).
This requires each state to include a hardship waiver procedure in accordance with 42 U.S. C. Section 1396 c (2) (D). In order for the hardship waiver provisions to apply, the individual’s medical care must be such that his/her health or life will be endangered or he/she will be deprived of food, clothing, shelter, or other necessities of life. Either the applicant or the facility where an institutionalized applicant is residing can file for the waiver. While the application is pending, the state may provide for payments for nursing facility services in order to hold the bed at the facility for a maximum of 30 days.
(My opinion: The law has provided for hardship waivers for years. However, they are rarely used, and my guess is that this will not be used often.)
m. Effective date. Section 6016.
It’s fairly clear that the substantial home equity provisions apply from January 1, 2006. It’s also fairly clear that the provisions on the long term care partnership program do not apply until the state has adopted a prototype long term insurance policy. It is unclear when all the other provisions take effect. Some provisions state that they become effective the day the Bill was signed. Other provisions state that they become effective the first day of the first quarter after the first state legislative session following the date the Act was signed (July 1, 2006?). County financial assistance specialists appear not to have made any changes yet. When they receive notice of changes, will they have to redo applications processed between February 8, 2006, and whenever?
Specific Changes
n. Look-back period.
How long of a period has to run before the applicant doesn’t have to disclose the transfer?
Example #1:
“A” transfers $100,000 on 12/1/2004. Look-back period: 3 years.
“A”’s health fails, and “A” enters a long term care facility on 1/1/2007 and applies for Medical Assistance. Does he have to disclose transfer? Yes, because it was within three years of application.
Example #2:
On 6/1/2003,”A” deeds farm to children and reserves a life estate. On 7/1/2006, “A” has a stroke, enters a long term care facility, and applies for Medical Assistance. Does he have to disclose transfer? No. Since transfer was made in 2003, a 3-year look-back period applies. Transfer of farm was not within 3 years.
o. Period of ineligibility.
Example #3:
“A” transfers $100,000 on 5/1/2006. Look-back period: 5 years. Period of ineligibility: 2 years. To start 2 years running, “A” must enter long term care facility, apply for Medical Assistance, and be denied. Then, 2 years starts running.
“A”’s health fails, and “A” enters a long term care facility on 5/1/2010. Does he have to disclose gift? Yes.
Example #4:
“A” transfers $100,000 on 12/1/2004. “A”’s health fails, and “A” enters a long term care facility on 1/1/2007 and applies for Medical Assistance.
Must the transfer be disclosed? Yes. (It was made within 3 years.) Has period of ineligibility expired? Yes.
$100,000 ÷ $4,198 = 24 months, beginning 1/1/2005 and ending 12/31/2006.
Example #5:
“A” has $200,000. He transfers $100,000 on 5/1/2006. He suffers a stroke 2 years later, enters a long term care facility, and applies for Medical Assistance. The $100,000 he retained is now down to $3,000.
Must the transfer be disclosed? Yes, because it is within the 5-year look-back period. Has the period of ineligibility expired? No, it only starts to run. What will he use to pay for care during the period of ineligibility? Classic half-a-loaf planning no longer works.
Example #6:
It is April 1, 2006. “A” has just entered a long term care facility with dementia. He has $200,000. He transfers $100,000 to his children, thinking he will use the remaining $100,000 to pay for his care during the period of ineligibility. After 2 years, his $100,000 is down to $3,000, and he applies for Medical Assistance.
Does “A” have to disclose the transfer? Yes. (It is within the 5-year look-back period.) Has the period of ineligibility run? No, it has just started. Who will pay for his care?
Example #7:
“A” made gifts of $4,198 for every month in 2005. He made no gifts in 2006. In March 2006, “A” has a stroke, is hospitalized, and goes into a nursing home. “A” has only $3,000 in assets. “A” applies for Medical Assistance. Do the gifts have to be disclosed? Yes, they are within the 3-year look-back period. Will “A” be eligible for Medical Assistance? Yes, each gift created a 1-month period of ineligibility, and each period of ineligibility has now expired.
Example #8:
“A” makes gifts of $4,198 for every month in 2006. In January 2007, “A” has a stroke, is hospitalized, and goes into a nursing home. “A” has only $3,000 in assets. “A” applies for Medical Assistance. Do the gifts have to be disclosed? Yes. The ones from March through December are within the 5-year look-back period. The one in January is within the 3-year look-back period. The one in February also has to be disclosed. (Whether it is in the 3-year or 5-year look-back period depends on when in the month the gift was made.) Is “A” eligible for Medical Assistance? No. The gifts from March through December result in a 10-month period of ineligibility. It does not begin to run until January 2007 at the earliest. The gift in January 2006 created a 1-month period of ineligibility that has expired. The period of ineligibility created by the gift in February depends on the date of the gift (before February 8, 2006, or on or after February 8, 2006).
Example #9:
“H” and “W” are married. They have $300,000 in assets, plus their house. On December 25, 2005, they give $20,000 each to their five children. A year later, they give $10,000 each to their children. “W” later develops Parkinson’s. “H” cares for “W” at home. In October 2008, the family decides that “H” can no longer care for “W” on his own. “W” goes to a nursing home. Told that this would run $5,000 per month, they apply for Medical Assistance.
Which, if any, gifts need to be disclosed?
They need to disclose all gifts. The ones in December 2005 are within the 3-year look-back period. The one in December 2006 is within the 5-year look-back period.
What is the period of ineligibility?
For the gifts made in December 2005, the period of ineligibility started in January 2006. It ran for about 24 months ($100,000 ÷ $4,198 = 24.22 months). That would be through January 2008. For the gifts made in December 2006, the period of ineligibility hasn’t begun to run. It begins only upon (a) “W” receives an institution level of care, (b) is otherwise eligible for Medical Assistance (down to Community Spouse Asset Allowance (CSAA)), (c) is denied Medical Assistance, and (d) all other periods of ineligibility have expired. For a $50,000 gift, this would be about a 12-month period of ineligibility. So, in this example, the couple would not be eligible and would have to pay their own way for the foreseeable future.
What kind of planning is left?
(This list is not exhaustive)
p. If married, they still have the community spouse allowance.
-Convert available assets into exempt assets. If there is a house, make repairs/improvements to the house. Does the community spouse need a new car?
q. Children can still be paid for their services (Caregiver Agreement). See HCPM Section 0909.27.09.
r. If clients are relatively young and relatively healthy, they can make transfers and wait out the period of ineligibility (5 years).
s. Purchase prepaid funeral. (No period of ineligibility.)
t. Pay off debts. (No period of ineligibility.)
u. L everage real estate.
-Use Assessor’s Estimated Market Value (EMV) instead of Fair Market Value (FMV).
-Sell to relative for 2/3rds value. (HCPM Section 0909.13.03.)
-Some property is distressed. If so, get appraisal showing it is worth less than EMV. County generally will accept it
v. Two-year rule.
If an adult child has been caring for a parent in the parent’s home for 2 years, and, but for such care, the parent would have had to live in a nursing home for such 2-year period, and the parent now goes to a nursing home, the county will not force a sale of the home as long as the caregiver continues to reside in the home. (See HCPM Section 0909.27.05.)
w. Pay professional fees.
x. Purchase long term care insurance, especially after the state adopts a prototype plan pursuant to long term care partnership.
y. Other.
We welcome you to contact us to discuss Medical Assistance in more detail.