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Medicaid Planning

Elder Law Attorney: Medicaid, Medicare, Guardianships and More

Serving clients in Nassau, Suffolk and Queens Counties

Experienced New York Medicaid Planning Lawyer

Medicaid was designed to help seniors with medical bills, but as with most federal programs, it is very complicated. A good Medicaid planning attorney can help clients qualify for Medicaid by structuring assets in the right way, while still protecting your assets and financial future. We guide you through the application process, and help with appeals or disputes that may arise.

It’s important to understand the difference between Medicaid and Medicare. Medicaid is based on income, and pays medical bills only for people who convince the government that they need assistance. Medicare, on the other hand, is a medical insurance program available to anyone who gets Social Security benefits.

We Handle All Legal Issues Encountered By the Elderly

Because the Law Offices of Elliot S. Schlissel works in so many legal areas, our attorneys can help our elder clients with anything that comes up. We can help with estate planning, including wills, trusts, powers of attorney, and more. If you have an aged relative, we can help with issues of mental and physical incapacity, guardianships, providing supplemental needs trusts, long-term medical or nursing care and nursing home problems. Our attorneys know how to get nursing home costs covered by Medicaid. (See our Elder Law: Nursing Home page for more.)

We pride ourselves on providing close, attentive, one-on-one service to our clients – always working aggressively on their behalf.

Visit our contact page or feel free to call toll free, any time, day or night, at 1-800-344-6431 or contact us at 718-350-2802. You can also reach us in Nassau County at 516-561-6645. If you cannot make it to one of our offices, in Lynbrook, Queens and Suffolk County, one of our lawyers can come to you. We serve Manhattan, the Bronx, Brooklyn, Queens, Staten Island, Westchester County, Nassau County, Suffolk County, and throughout New York City and Long Island.

Topics Covered

Introduction
Resource (Asset) Rules
The Home
The Transfer Penalty
Exceptions to the Transfer Penalty
Is Transferring Assets Against the Law?
Treatment of Income
Protections for the Healthy Spouse
Estate Recovery and Liens

Introduction

Medicaid (called “Medi-Cal” in California and “MassHealth” in Massachusetts) is a joint federal-state program that provides health insurance coverage to low-income children, seniors and people with disabilities. In addition, it covers care in a nursing home for those who qualify. In the absence of any other public program covering long-term care, Medicaid has become the default nursing home insurance of the middle class. As for home care, Medicaid offers very little except in New York State, which provides home care to all Medicaid recipients who need it. Recognizing that home care costs far less than nursing home care, a few other states—notably Hawaii, Oregon and Wisconsin–are pioneering efforts to provide Medicaid-covered services to those who remain in their homes.

While Congress and the federal Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration) set out the main rules under which Medicaid operates, each state runs its own program. As a result, the rules are somewhat different in every state, although the framework is the same throughout the country. The following describes those basic rules, but check your state for the specific application where you live.

Resource (Asset) Rules

These are general federal guidelines. The specific rules in your state may differ somewhat.

In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in “countable” assets.

The spouse of a nursing home resident–called the ‘spouse’ is limited to one half of the couple’s joint assets up to $99,540 (in 2006) in “countable” assets (see Medicaid, Protections for the Healthy Spouse). This figure changes each year to reflect inflation. In addition, the community spouse may keep the first $19,908 (in 2006), even if that is more than half of the couple’ assets. This figure is higher in some states.

All assets are counted against these limits unless the assets fall within the short list of “noncountable” assets. These include:

(1) personal possessions, such as clothing, furniture, and jewelry;

(2) one motor vehicle, valued up to $4,500 for unmarried recipients and of any value for the healthy (community) spouse;

(3) the applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage (the states vary in whether the Medicaid applicant must prove a reasonable likelihood of being able to return home). Under the Deficit Reduction Act of 2005 (DRA), principal residences may be deemed noncountable only to the extent their equity is less than $500,000, with the states having the option of raising this limit to $750,000. In all states and under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there;

(4) prepaid funeral plans and a small amount of life insurance; and

(5) assets that are considered “inaccessible” for one reason or another.

The Home

Depending on the state, nursing home residents do not have to sell their homes in order to qualify for Medicaid. Under the DRA, principal residences may be deemed noncountable only to the extent their equity is less than $500,000, with the states having the option of raising this limit to $750,000. In some states, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home; in other states, the nursing home resident must prove a likelihood of returning home. In all states and under the DRA, the house may be kept with no equity limit if the Medicaid applicant’s spouse or another dependent relative lives there.

The Transfer Penalty

The second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return. These restrictions, already severe, have been made even harsher by enactment of the DRA.

This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.

Example: For example, if you live in a state where the average monthly cost of care has been determined to be $5,000, and you give away property worth $100,000, you will be ineligible for benefits for 20 months ($100,000 ÷ $5,000 = 20).

Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month.

In theory, there is no limit on the number of months a person can be ineligible.

Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80).

However, for transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called ”lookback” period for all transfers is 60 months.

Example: To use the above example of the $400,000 transfer, if the individual made the transfer on January 1, 2003, and waited until February 1, 2006, to apply for Medicaid — 37 months later — the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2005, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits. On the other hand, if the individual made the transfer on February 10, 2006, he or she would have to wait 60 months before applying for Medicaid in order to avoid an ineligibility period.

The second and more significant major change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 20-month penalty period created by a transfer of $100,000 in the example described above would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state. Under the DRA, the 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.

For instance, if an individual transfers $100,000 on April 1, 2006, moves to a nursing home on April 1, 2007, and spends down to Medicaid eligibility on April 1, 2008, that is when the 20-month penalty period will begin, and it will not end until December 1, 2009. How this change will be implemented from state-to-state will be worked out over the next few years.

Exceptions to the Transfer Penalty

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include:

(1) A spouse (or a transfer to anyone else as long as it is for the spouse’ benefit);

(2) A blind or disabled child;

(3) A trust for the benefit of a blind or disabled child;

(4) A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).

In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:

(1) The applicant’ spouse;

(2) A child who is under age 21 or who is blind or disabled;

(3) Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);

(4) A sibling who has lived in the home during the year preceding the applicant’ institutionalization and who already holds an equity interest in the home; or

(5) A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’ institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.

Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned.

Is Transferring Assets Against the Law?

You may have heard that transferring assets, or helping someone to transfer assets, to achieve Medicaid eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it’ possible, although unlikely under current law, that it will be in the future.

As part of a 1996 Kennedy-Kassebaum health care bill, Congress made it a crime to transfer assets for purposes of achieving Medicaid eligibility. Congress repealed the law as part of the 1997 Balanced Budget bill, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.

In 1998, Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced. Since it is possible that these rulings may change, you should contact your elder law attorney before filing a Medicaid application. This will enable the attorney to advise you about the current status of the law and to avoid criminal liability for the attorney or anyone else involved in your case.

Treatment of Income

The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $60-a-month personal needs allowance (this amount may be somewhat higher or lower in particular states), a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance for the spouse who continues to live at home if he or she needs income support. A deduction may also be allowed for a dependent child living at home.

In some states, known as “income cap” states, eligibility for Medicaid benefits is barred if the nursing home resident’ income exceeds $1,809 a month (for 2006), unless the excess above this amount is paid into a “(d)(4)(B)” or “Miller” trust. If you live in an income cap state and require more information on such trusts, consult an elder law specialist in your state.

For Medicaid applicants who are married, the income of the community spouse is not counted in determining the Medicaid applicant’ eligibility. Only income in the applicant’ name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid.

Protections for the Healthy Spouse

The Medicaid law provides special protections for the spouse of a nursing home resident to make sure she has the minimum support needed to continue to live in the community.

The so-called “spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of “institutionalization,” the day on which the ill spouse enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days. (This is sometimes called the “snapshot” date because Medicaid is taking a picture of the couple’ assets as of this date.)

In general, the community spouse may keep one half of the couple’ total “countable” assets up to a maximum of $99,540 (in 2006). Called the “community spouse resource allowance,” this is the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $19,980 (in 2006).

Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’ assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse.

Some states, however, are more generous toward the community spouse. In these states, the community spouse may keep up to $99,540 (in 2006), regardless of whether or not this represents half the couple’ assets. Example: If the couple had $60,000 in countable assets on the “snapshot” date, the community spouse could keep the entire amount, instead of being limited to $30,000.

In all circumstances, the income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits. But what if most of the couple’ income is in the name of the institutionalized spouse, and the community spouse’ income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depends on what the Medicaid agency determines to be a minimum income level for the community spouse. This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula based on his or her housing costs. The MMMNA may range from a low of $1,604 (in 2006) to a high of $2,488.50 a month (in 2006). If the community spouse’ own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’ income. (In some states, the community spouse is permitted to increase the MMMNA by retaining more resources, as discussed in Long-Term Care Planning, “Increased CSRA”.)

Example: Mr. and Mrs. Smith have a joint income of $3,000 a month, $1,700 of which is in Mr. Smith’ name and $700 is in Mrs. Smith’ name. Mr. Smith enters a nursing home and applies for-Medicaid. The Medicaid-agency determines that Mrs. Smith’ MMMNA is $1,700 (based on her housing costs). Since Mrs. Smith’ own income is only $700 a month, the Medicaid-agency allocates $1,000 of Mr. Smith’ income to her support. Since Mr. Smith also may keep a $60 a month personal needs allowance, his obligation to pay the nursing home is only $640 a month ($1,700 – $1,000 – $60 = $640).

In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid-agency or by obtaining a court order of spousal support.

Estate Recovery and Liens

Under Medicaid-law, following the death of the Medicaid-recipient a state must attempt to recover from his or her estate whatever benefits it paid for the recipient’ care. However, no recovery can take place until the death of the recipient’ spouse, or as long as there is a child of the deceased who is under 21 or who is blind or disabled.

While states must attempt to recover funds from the Medicaid-recipient’ probate estate, meaning property that is held in the beneficiary’ name only, they have the option of seeking recovery against property in which the recipient had an interest but which passes outside of probate. This includes jointly held assets, assets in a living trust, or life estates. Given the rules for Medicaid-eligibility, the only probate property of substantial value that a Medicaid- recipient is likely to own at death is his or her home. However, states that have not opted to broaden their estate recovery to include non-probate assets may not make a claim against the Medicaid-recipient’ home if it is not in his or her probate estate.

In addition to the right to recover from the estate of the Medicaid-beneficiary, state Medicaid-agencies must place a lien on real estate owned by a Medicaid-beneficiary during her life unless certain dependent relatives are living in the property. If the property is sold while the Medicaid-beneficiary is living, not only will she cease to be eligible for Medicaid-due to the cash she would net from the sale, but she would have to satisfy the lien by paying back the state for its coverage of her care to date. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there.

Whether or not a lien is placed on the house, the lien’ purpose should only be for recovery of Medicaid-expenses if the house is sold during the beneficiary’ life. The lien should be removed upon the beneficiary’ death. However, check with an elder law specialist in your state to see how your local agency applies this federal rule.

Frequently Asked Questions About Medicaid

  • Is it a crime to transfer assets for Medicaid-planning purposes?
  • Can a Medicaid transfer be avoided by the return of a transferred asset?
  • Is rental property counted as an asset in determining Medicaid eligibility?

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