Elder Law
_______________________
Medicaid Definitions
________________________
1. Diversion Penalty Divisor: $122.50
Applies when: A potential Medicaid recipient transfers assets
Definition: This figure, based on the statewide average of daily nursing home costs, is used to determine the length of time an individual or couple is ineligible for Medicaid benefits because of transfers they have made.
(NOTE: A penalty is not assessed by the state in a month when the total amount of transfers, or gifts, total less than $200 for that month)
2. Income Cap State : $2,022
Applies when: A person in the nursing home applies for Medicaid benefits
Definition: Monthly income figure that determines income eligibility for Medicaid benefits. If an individual's income is less than this amount, then they are qualified in this area. If an individual's income is greater than this amount, then they have excess income and are ineligible for benefits. However, the state allows a Miller Trust or Qualifying Income Trust to be used to reduce their income on paper and qualify that person for benefits.
3. Maximum Community Spouse Resource Allowance: $109,560
Applies when: One spouse lives in the nursing home and the other lives outside a nursing home
Definition: Maximum amount of assets that the spouse at home may keep in most situations. The spouse at home may keep the lesser of ½ of the total assets or $109,560. This can be higher using a formula from the state if the couple's combined income is less than $2,739 per month.
4. Minimum Community Spouse Resource Allowance: $21,912
Applies when: One spouse lives in the nursing home and the other lives outside a nursing home
Definition: Minimum amount of assets that a spouse at home may keep. If a couple's combined total assets are below this amount, then the spouse at home keeps all of the assets.
5. Monthly Maintenance Needs Allowance: $2,739
Applies when: One spouse lives in the nursing home and the other lives outside a nursing home
Definition: Minimum income each month that the spouse at home may keep. If both spouses combined income is lower than this amount, then the spouse at home keeps all of the income (and it may be possible to expand the resource allowance so the spouse at home can keep more than $109,560 of the total assets).
6. Monthly Personal Needs Allowance: $60.00
Applies when: A person is receiving Medicaid benefits in the nursing home
Definition: Monthly amount that a Medicaid recipient may keep for personal items which Medicaid does not cover (haircuts, snacks, etc.). An additional amount may be available for veterans.
7. Resource Allowance for an Individual: $2,000
Applies when: A single person living in the nursing home applies for Medicaid benefits
Definition: Maximum amount of assets a single person may own and still qualify for Medicaid benefits.
8. Resource Allowance for a Couple: (Both Husband and Wife in a Nursing Home) $3,000
Applies when: Both spouses reside in a nursing home
Definition: Maximum amount of assets a couple may own and still qualify for Medicaid benefits. If one spouse has received benefits for more than one year and then the other spouse moves to a nursing home and makes application, then a different rule may apply.
________________________
Medicare vs. Medicaid
________________________
Medicare Information
• Entitlement-based Federal program
• Provides Medical insurance for the aged and disabled
• Pays for expenses incurred in hospital stays
• Pays nursing home costs for the first 20 days after a three night hospital stay
• Can pay an additional 80 days in the nursing home during which time the individual is required to pay a co-payment for the remaining 80 days. Many people have Medicare Supplement Health Insurance policies that cover this co-payment
You should also know that Medicare coverage does not necessarily remain in effect for the entire 80-day period after the first 20 days. Medicare may stop paying at any time depending on the individual's medical condition.
Medicaid Institutionalized Care Program (ICP) Information
• Needs-based program funded jointly by federal and state funds
• Several benefit programs under the Medicaid umbrella with each having its own set of requirements for qualification of benefits
• Institutionalized Care Program (ICP) under Medicaid is commonly referred to as the Nursing Home Care Program.
• Originally designed to provide low-income persons with financial assistance to meet the costs of medical care and housing
• Pays nursing home costs and most related costs for qualified nursing home residents
Many people think of Medicaid as a source of assistance only for individuals in a poverty stricken condition. See Medicaid Eligibility Requirements below for the dollar amounts listed that you do not have to have a below average income before you can qualify for benefits under Medicaid's ICP program. Even the middle class individual is allowed to benefit from Medicaid during a nursing home stay.
________________________________________
Medicaid Eligibility Requirements in Texas
________________________________________
In order to qualify for Medicaid in Texas, a person must generally meet the follow criteria:
1. 65 years of age or blind or disabled
2. U.S. citizen or a qualified alien
3. Texas Resident
4. Asset limit of $2,000.00 (the community spouse, also called the at-home spouse, may keep 1/2 up to $109,560.00 in assets) – See the Asset Test below
5. Monthly gross income must not exceed the State Income Standard (currently $2,022.00 as of January 1, 2009) – See the Income Test below
6. Appropriate placement – the individual must require institutional care as determined by the state, and they must be placed in a Medicaid certified facility that provides the required level of care
7. The Medicaid program, in most cases, does not pay the entire cost of a person’s nursing home expenses. The person must contribute an amount based on his or her monthly income (Patient Responsibility) , and Medicaid pays the nursing home the approved rate for the facility.
________________________
Asset Test
________________________
The limits for assets and qualifying for benefits are as follows:
Single Individuals: $2,000.00
Married Couple: $3,000.00 (this is when both spouses are residents of the nursing home)
Community Spouse at home: 1/2 of the total assets but not more than$109,560.00 of the total community assets (This occurs when one spouse is in the nursing home (Institutionalized Spouse) and the other spouse is living at home (Community Spouse).
Countable Assets
Examples of countable assets include: Certificates of Deposit, savings accounts, checking accounts, bonds, stocks and money market accounts. Below is a list of assets that are “excluded assets”; that is, they are not counted when determining Medicaid eligibility.
Major Asset Exclusions
· Homestead – If the spouse or certain dependent relatives continue to reside in the home, it is excluded. Also, if the applicant intends to return to the home, the home is excluded. However, a person who is eligible for Medicaid benefits in Texas may not exclude a home in another state.
· Estate Recovery – Without proper planning, a nursing home resident may not be able to leave their home to their family, but instead their heirs may have to sell the home to repay the state for the amount of Medicaid benefits received. See Estate Recovery Info below.
· Vehicle – One vehicle is excluded if its current retail value is $4,500.00 or less. However, the value of a vehicle used for medical purposes at least four times per year is unlimited. In some cases, another vehicle may be exempt.
· Life Insurance – If the total face value of all of the policies is equal to or less than $1,500.00, then the cash value is excluded as an asset. If the total value exceeds $1,500.00, the cash value is considered an asset.
· Burial Funds and Prepaid Funeral Contracts – Up to $10,000.00 of an irrevocable burial contract is excluded as an asset.
· Properly Structured Immediate Annuities – Assets placed into a properly structured Medicaid Friendly Annuity are excluded assets. There are several requirements when applying for Medicaid benefits that must be met in order for the assets placed into the annuity to be excluded. Annuities are underwritten by licensed insurance companies.
Transferring Assets
Occasionally, when applicants are over the stated asset limits they are tempted to gift out the “excess” assets prior to applying for Medicaid. While gifting can be done, any gifts will create a penalty period during which time the applicant is ineligible for Medicaid. Medicaid defines the term Uncompensated Transfer (gift) to be the transfer of any asset for less than fair market value. Therefore, a father couldn’t sell a brand new car to his son for $1 and be considered a valid sale. Since the transfer was made at less than the fair market value for the car, a penalty would be assessed.
In the application process, it is asked if the applicant had given away any assets in the last 60 month period. This is referred to as the “Look Back Period”. If there were no gifts or uncompensated transfers made in the last 60 months, then the person is eligible for Medicaid provided they meet the other requirements.
If the applicant had made gifts during the last 60 months, the Medicaid worker asks for the date and the amount of the gift. The value of the gift determines the number of months that the transfer will affect eligibility. The gift value is divided by a statewide, daily nursing home cost, currently $122.50. That quotient is rounded down to the nearest whole number to determine the number of days of ineligibility resulting from the gift. For example: John gifts $10,000 to his son. $10,000 divided by $122.50 is 81.63, so the penalty period is 81 days. (NOTE: A penalty is not assessed in a month when the total amount of transfers, or gifts, total less than $200.00 for that month)
The start of the penalty period begins when an applicant is "otherwise eligible" for benefits meaning the Medicaid office must review an application submitted for the applicant and determine that he or she has met every Medicaid eligibility requirement other than the requirements concerning gifts. Once that requirement has been met, the 85 day penalty period begins. In the above example: John's gift might have been to attempt to gift the $10,000 out of his name to preserve the assets and qualify for benefits. However, he must submit a Medicaid application and disclose the gift. If he is otherwise eligible for benefits (which includes having a limited amount of assets), then the state will begin the 81 day penalty period. With only a limited amount of assets, John will not be able to pay for his nursing home care for 81 days, so the son must spend the $10,000 on nursing home care. The total savings is zero.
Our office utilizes legitimate and proper transfers to reduce the size of a Medicaid Estate and to preserve at least a portion of the nursing home resident's assets. Some of these strategies involve establishing certain trusts and gifting programs. These strategies have proven crucial in preserving hundreds of thousand of dollars. When an applicant is already in a nursing facility like in the example above, a typical amount that could be preserved would be approximately 60% of the total assets or about $6,000 of the $10,000. If your estate is $100,000, you could save around $60,000 in a typical case. Of course, if you are not yet in a facility, then the savings can be even more.
________________________
Income Test
________________________
In determining Medicaid eligibility, the applicant's gross monthly income is also considered. It is important to note only the applicant's income is counted. If the applicant is married, the community spouse's income is not counted. When a Medicaid eligibility worker considers the applicant's income, his or her gross income is counted, not just the amount the person receives each month in their social security or pension check. Usually taxes and Medicare insurance premiums are automatically deducted from these monthly checks. If this is the case, one has to be sure to add these in to properly calculate the total gross income.
Each state implements Medicaid differently. Texas is an "Income Cap" state. This means if a person's gross income exceeds $2,022.00 per month, he/she does not pass the income test. Normally, the applicant would not qualify for Medicaid. However, since 1993, there is a way to qualify even if the gross income exceeds the cap.
Miller Trust
In the situation when an applicant's gross income exceeds the income cap, he/she can establish a special Medicaid trust generally known as a "Miller Trust". In Texas this trust is sometimes referred to as the "Income Qualified Trust". This type of trust allows the applicant to meet income requirements in spite of having "excess income".
________________________
Medicaid-Friendly Trusts
________________________
A law which has been in effect since 1993 makes it possible for an individual whose income is over the Medicaid income cap to qualify for Medicaid. The phenomenon of the individual’s income exceeding the Medicaid cap, but being insufficient to pay private nursing home rates, is sometimes called the “Utah Gap.” Prior to enactment of the 1993 law, individuals in the “Utah Gap” did not qualify for Medicaid, and their families had to come up with funds necessary to pay the nursing home.
Texas is an “income-cap state,” meaning that if monthly income exceeds the Medicaid cap ($1,911.00 in 2008), the individual is ineligible for Medicaid. The problem with the income cap is that it is much lower than the average monthly nursing home private rate (around $4,500). But the above-referenced law resolves this dilemma. The law provides for a device known as a qualifying income trust (“QIT”) or “Miller Trust” ( named for a Colorado court case involving a similar type trust).
Income that is directed to the QIT during the same calendar month in which it is received is not tested against the $1,911.00 income cap in determining Medicaid eligibility. The effect is to reduce “countable” income to an amount that is within the $1,911.00 income cap. However, all of the individual’s monthly income, whether or not it is directed to the QIT, is considered in calculating the “applied income” (i.e., the individual’s monthly co-payment toward the costs of nursing home care). So, the QIT only makes the individual income-eligible for Medicaid, but it does not affect his/her co-payment toward nursing home costs.
There are many requirements regarding the QIT. One is that the trust must contain a Medicaid payback provision. This means that when the individual dies, Medicaid gets what is left in the trust up to the total amount of medical care paid by Medicaid. In reality, however, there is often
little or nothing left for Medicaid to collect, because most amounts deposited to the trust get paid out as applied income to the nursing home and on other medical expenses.
So the QIT or Miller Trust makes an individual income-eligible for Medicaid and eliminates the tragedy of the “Utah Gap.” But a caveat here is that this is only an income trust. Resources cannot be placed in a QIT, except for nominal amounts necessary to set up the account. Therefore, such a trust does not solve resource problems.
Fortunately, there are certain types of trusts that can be used to shelter resources. Some are third-party-settled, meaning that they are established using monies belonging to someone other than the Medicaid applicant (e.g., a parent or grandparent). This type of trust may be testamentary (it is written into a will) or inter vivos (it takes effect during the lifetime of the individual who establishes it). Other such trusts are self-settled supplemental needs trusts (“SNTs”), meaning that they are set up using the Medicaid applicant’s own resources. These self-settled SNTs are for disabled individuals and must meet very specific criteria, including the Medicaid payback provision. But both types of trusts serve the purpose of providing for the individual’s supplemental needs that enhance his/her quality of life, without providing basic support or interfering with Medicaid coverage.
The important point to remember is that Medicaid is an immensely complicated aspect of the law. Elder law attorneys are experts in this area and are very familiar with Medicaid-friendly trusts. They can help you preserve assets, while simultaneously allowing you or a loved one to access Medicaid.
Medicaid Planning
________________________
Q: What is a "Miller Trust" and do I place my assets into such a trust?
A: Long-term Medicaid has income eligibility requirements (in addition to resource limits and other requirements) in certain states such as Texas (an "income cap" state). As of January 1, 2008, the income cap for year 2008 is $1911 per month. If an individual, who is applying for Medicaid, has income over the cap, then a "Miller Trust" can be created to place the income (not resources) to pass such eligibility requirement. "Miller Trusts" are also known as "qualified income trusts" or as "QITs".
Q: Will I, as the spouse that lives at home (the "community spouse"), be allowed to keep any my spouse's income if such spouse lives in a nursing home (the "institutionalized spouse") and is on Medicaid?
A: It depends on the income of the respective spouses and what strategy is employed. If the income of the community spouse is greater than what is called the minimum monthly maintenance needs allowance ($2610 as of January 1, 2008), then there are limited situations when a court order can be obtained to divert income from his or her institutionalized spouse so that his or her income is above the MMMNA. If there is a "spend down" of resources, then the community spouse can be diverted income so that that the community spouse has income up to the MMMNA. However, it is often best to not "spend down", so this situation must be carefully reviewed with your experienced elder law attorney.
Q: If we get my loved one on long-term care Medicaid, are we going to lose the family home?
A: The state has a right to make a claim againt the probate estate of the Medicaid recipient to the extent that Medicaid benefits have been advanced if the Medicaid recipient applied for Medicaid on or after March 1, 2005. There are several exceptions to the rule (i.e., if there is a surviving spouse, if there is an unmarried adult child living in the home for one year prior to the death of the Medicaid recipient, etc.). Presently, there are also several planning methods to avoid the claim of the state against the home (not to mention other non-countable resources such as a car and a business).
Q: Can I transfer or give away my assets to obtain long-term care Medicaid?
A: A transfer of assets can result in a penalty causing ineligibility for long-term care Medicaid. There are some exceptions to the rule (particularly with regard to disabled children). As a result of the Deficit Reduction Act of 2005 signed by President Bush on February 8, 2006 (which was implemented in Texas on October 1, 2006), the rules regarding transfers for less than fair market value have changed for transfers that occur on or after February 8, 2006. Under the pre-DRA rules (the rules prior to February 8, 2006), there is a 3 year look-back period on uncompensated transfers, such as gifts, and a 5 year look back on transfers to most irrevocable trusts or from revocable trusts to someone other than the grantor. Under those rules, the transfer penalty is determined by dividing the average daily cost of a nursing home in Texas ($122.50) into the amount of the uncompensated transfer from the month of the transfer. Transfers for less than fair market value on or after February 8, 2006 are subject to a 5 year look-back period (which is gradually being implemented - in other words, there will not be a full 5 year look-back period until February 8, 2011 except for transfers into most irrevocable trusts) and thus for such transfers on or after February 8, 2006, the transfer penalty period resulting in ineligibility for long-term care Medicaid starts from the date of application or from when one is otherwise eligible for long-term care Medicaid (unlike the pre-DRA rules where the transfer penalty starts from the 1st day of the month of the transfer for less than fair market value). Under DRA, the presumption is that any uncompensated transfer (even a gift to a charitable organization) within the 5 year look-back period was done for the purpose of obtaining Medicaid benefits. So, under DRA, if you made a gift to a charitable organization and 4 years later you had a stroke and applied for Medicaid, the presumption is that the gift 4 years earlier was for purposes of obtaining Medicaid and the period of ineligibility would start when such person applied (assuming it was within 5 years of the uncompensated transfer) and not from when one made the transfer. Notwithstanding DRA, there are still planning strategies presently available to for asset preservation - even for transfers within the 5 year look-back period.
Q: Can't I always transfer $10,000 to my children?
A: See above. The annual exclusion (which is now $12,000) is still subject to the Medicaid rules. So, the transfer could result in a transfer penalty - depending on when the uncompensated transfer was made and if there was an existing transfer penalty and if the transfer was to a disabled child.
Q: What are countable resources and non-countable resources?
A: Most assets that can be converted to cash are considered countable (such as the cash surrender value of life insurance policies, stocks, IRAs, mutual funds, bank accounts, etc.) and can be used for your support. They are considered in determining Medicaid eligibility. Excluded resources, such as the homestead, a burial space, term life insurance, etc. are considered non-countable for Medicaid eligibility purposes.
Q: Do the accounts that I own jointly with someone else count toward my Medicaid eligibility?
A: It is assumed that the account belongs to the applicant unless it could be proven otherwise.
Q: Do the assets of the community spouse count even if there is a prenuptial or postnuptial agreement?
A: Yes.
Q: Is buying an annuity the best way to protect all of my resources?
A: It depends on the factual situation. With the rule change which became effective as of September 1, 2004, "Medicaid annuities" will be become more popular when there is an institutionalized spouse and a community spouse and their total non-countable resource income exceeds or is close to the minumum monthly maintenance needs allowance ($2610 as of January 1, 2008). For those who entered an institution prior to 9/1/04 it was rarely the best way to protect resources. Before one makes a decision one should consider all of the options. Be wary of anyone who advises this is the only option. Under DRA, there have been additional requirements in the use of this type of annuities - but there is a presently a lack of clarity as to how this rule will be interpreted.
Q: Can the community spouse keep several hundred thousand dollars and still get Medicaid eligibility for her husband without having to change the nature of her resources?
A: Depending on the income of the community spouse and other factors, often the answer is "Yes".
If you or someone you know in Collin or Denton County, Texas, or within the North Texas area, needs elder law legal counsel or the assistance of an elder law attorney, contact Darryl V. Pratt, Attorney and the Law Offices of Darryl V. Pratt, P.C. at 972-712-1515, or use the contact form provided on this site to schedule a consultation with us.