MEDICAID REFORM & PLANNING: A PRIMER FOR ESTATE PLANNERS--PART ONE
May 12, 2003
Many estate planners tend to become disengaged when the
topic of Medicaid and Medicaid planning arises, but it has become an increasing
issue with a number of clients whose needs have been met by a growing number of
attorneys, primarily those who have categorized themselves as being engaged in
the practice of "Elder Law." While some may have read adverse stories in the
mainstream press and concluded that there was something inappropriate about
"Medicaid planning," there are many circumstances in which knowledge of this
area is important, even for those who do not view themselves as "Elder Law
attorneys."
This article provides an overview of Medicaid planning
for the estate planner who has not focused on the area previously. This month,
Part One reviews the issues that have arisen as various states try to carve out
exceptions to the federal Medicaid system, and then reviews the Medicaid
eligibility and transfer rules, particularly the rules governing asset and
income limitations and the ways in which those limitations can be satisfied
through certain permitted transfers. Next month, Part Two will deal with various
Medicaid planning considerations, particularly focusing on asset transfers,
methods of converting assets to income, insuring assets or spending them. In
both Parts, numerous examples are used to clarify this area and help those
unfamiliar with the concepts to better understand them. Indeed, the overall
purpose of the article is to provide in a single source the information that all
planners should know if the issue arises, although each state's specific
requirements may necessitate either involving an Elder Law specialist or
specific research by the estate planner into the nuances of the specific state's
requirements.
STATES MAY OPT OUT OF FEDERAL MEDICAID REGULATIONS
On April 20, 2002, nearly 40 national organizations sent
a letter to Tommy Thompson, Secretary of the Department of Health & Human
Services in Washington, DC, requesting a rejection of the State of Connecticut's
request for a waiver from the Medicaid Transfer of Asset rules under
42 U.S.C.A. § 1396p.
[FN1] This letter marked a line drawn in the sand between organizations
representing the elderly and disabled and many state governors (48
participating) who in February of 2001 reached a consensus on implementing
Medicaid reform at a National Governors Association meeting.
[FN2] It also marked the solidification of a trend among state governments
and state courts to hold back the tide of Medicaid planning, which has been
growing since 1987 with the founding of the National Academy of Elder Law
Attorneys.
Initially introduced as part of President Johnson's "War
on Poverty," Medicaid was designed to be a federal safety net for low income
individuals, so that they would have their basic medical needs furnished,
notwithstanding their inability to pay. The legislation permitted states to
apply for exceptions to the federal rules, initially with the intention that
such states would be providing more extensive coverage than the minimum set
forth in the Federal Medicaid Regulations. As state treasuries have become more
bare, these requests for waivers have actually sought ways by which the state
could provide less than the federal minimum. The resulting controversy between
elder advocacy groups and the states has been exacerbated by some sensationalist
reporting regarding the activities of some attorneys to qualify their clients
for these programs.
These battle lines were further sharpened as a result of
a Newsweek article on January 27, 2003, titled "Cheating Uncle Sam for Mom &
Dad." Bernard A. Krooks, Esq., an estate planner and President of the National
Academy of Elder Law Attorneys (NAELA), sent a terse letter to the editor of
Newsweek defending the work done by NAELA's over 3,000 member attorneys. Krooks
said "Medicaid is the product of our nation's unwillingness to treat health care
-- including long-term care -- as a basic human right. If we did, we would
embrace some system of universal access to care, whether it be a social
insurance model or a private model with guaranteed access. In a universal model,
everyone pays a fair share, and everyone receives coverage."
[FN3]
Krooks further outlined the public policy issues related
to the Medicaid program when he explained, "Paradoxically, we do give seniors
virtual universal coverage for meeting their acute care needs. Heart bypass
surgery, costing tens of thousands of dollars, will not impoverish any senior,
because Medicare will cover it. And we all pay our fair share for that coverage.
But if we are inflicted with a chronic illness such as Alzheimer's disease, then
we are left to fend for our care on our own, until we are officially
impoverished under Medicaid criteria. Is this an ethical social policy that puts
mom and dad into a lose-lose corner? First they lose their health; then they
lose their financial solvency? Is it a surprise to anyone that mom and dad will
look for legal ways to preserve what they can of the fruits of their lifetime in
order to protect each other's solvency and leave some legacy to family? That's
not cheating. That's preservation of one's dignity and self-worth. The ethical
scandal here is our public policy, not mom or dad's avoidance of poverty. Moms
and dads everywhere are willing to pay their fair share. We just don't give them
a system to do it in."
[FN4]
Unfortunately for the elderly and disabled, that system
may soon be in place and it may well be a private pay system that is a backlash
to the nearly two decades of aggressive Medicaid planning around the country. A
recent article in the Wall Street Journal pointed out that many of the practices
labeled Medicaid planning are getting greater scrutiny as states face their
worst fiscal crisis in decades, especially since they pick up roughly half of
the costs of the federal Medicaid program. It cited the Connecticut waiver
request as the beginning of a new trend for a program that pays nearly $50
billion each year for nursing home costs alone.
[FN5]
Connecticut has proposed a transfer of assets Medicaid
waiver. It does not propose to increase access to the federal program or expand
the number of persons on the program that has been the basis for most state
waivers. Instead, it is designed to encourage the purchase of long-term care
insurance and move long-term care costs to a private pay system. The proposal is
designed to discourage people from giving away their assets in order to qualify
for Medicaid nursing home benefits. Under the proposal, Connecticut wants to
impose a prospective penalty period beginning on the date when the applicant
would otherwise be eligible for Medicaid coverage instead of a retroactive
penalty period which begins on the date a transfer or gift was made. Connecticut
also wants to impose a five-year penalty for the transfer of a principal
residence.
EXAMPLE 1
Under current federal rules, a gift of $7,000 in
Connecticut would result in a disqualification for Medicaid benefits for one
month beginning at the time of the transfer. Under the waiver provision, the
$7,000 gift would result in a disqualification for Medicaid benefits for one
month, beginning at the time a person medically and financially qualifies for
benefits. Because the elder or disabled person would have no assets, they would
either need long-term care insurance to cover the cost of that prospective month
of ineligibility or family members would have to pay for the care.
The concept of increased state control of Medicaid is not
something new. For instance, 36 states have implemented 46 Medicaid waivers
dealing with behavioral and mental health issues alone; and the Balanced Budget
Act of 1997 dramatically expanded the authority of the states to provide covered
health services through managed care organizations without seeking a waiver.
[FN6]
Many states are actively seeking to limit the benefits of
their Medicaid programs.
[FN7] The question remains, "Will Connecticut Kill Medicaid Planning?" as
posed by John W. Callinan, Esq., who points out that the largest class of
Medicaid planning clients comes from the lower-middle class and working class.
[FN8]
During the Clinton Administration, many waivers were
denied. Under the Bush Administration, they are being encouraged. The
Connecticut proposal, however, is not consistent with the original intent of
Congress regarding waivers. Timothy L. Takacs, Esq., a practitioner in Tennessee
has explained that when Medicaid became part of the War on Poverty in the 1960s,
the concept of waivers was to encourage states to experiment for the purpose of
increasing access or covering more persons under the program. For instance,
Tennessee has had a Medicaid waiver program since 1994 called TennCare, which
was designed to meet the means tests imposed by the federal Medicaid program and
to provide benefits to state residents who were not insurable under the private
pay system.
[FN9]
While the debate about Medicaid reform continues,
practitioners are still able to recommend a vast array of planning strategies
that allow a person to qualify for the federal Medicaid program. These
techniques include gifting outright or into trust, protecting the principal
residence, and shifting assets and/or income to a spouse who is living in the
community from the spouse who is institutionalized and needs care. Many of the
rules that allow such transfers have been designed to protect the community
spouse from catastrophic financial loss as a result of the other spouse needing
long-term care; they are not always intended to benefit heirs, although that can
be the ultimate consequence of such planning.
MEDICAID ELIGIBILITY AND TRANSFER RULES
Background
For many elders, the prospect of long-term care in a
nursing home is unpleasant, especially because elders are also often concerned
that the cost of long-term care will deplete their estate. The cost of nursing
home care in many states is estimated at between $60,000 and $70,000 per year,
which only serves to compound these fears.
Many elders receive assistance from the federal Medicare
program to help pay some medical expenses and some short-term nursing home care.
Medicare, however, does not pay for extended nursing home care. Medicaid, on the
other hand, is a joint federal-state program that pays for nursing home care for
elders (age 65 or over) who meet the financial eligibility rules. (Medicaid is
also available to blind and disabled individuals who meet the eligibility
guidelines.)
In determining the financial eligibility of an applicant
(an individual applying for Medicaid), Medicaid looks at the applicant's assets
and income. The assets considered include cash, mutual funds, cars, real estate;
the income considered includes Social Security, dividends, pensions, and annuity
payments.
[FN10]
Asset Limitations
Medicaid places a limit on the amount of assets an
applicant can own and still be eligible for Medicaid. Currently, the asset
limitation is usually $2,000, although it can vary from state to state.
[FN11] Medicaid divides an applicant's assets into three categories: (1)
non-countable assets; (2) inaccessible assets; and (3) countable assets.
Non-countable assets, as the name implies, are not included in the calculation
of an individual's assets in determining Medicaid qualification. These excluded
assets include: (a) personal belongings such as clothing and jewelry; (b) burial
plots for the applicant and members of his or her family; (c) pre-paid burial
contracts; (d) a $1,500 burial account for miscellaneous funeral and burial
expenses; (e) life insurance with a face value up to $1,500; and (f) one
automobile for use by the applicant or his or her family.
[FN12]
EXAMPLE 2
Richard owns a house worth $150,000, a car worth $4,000,
and mutual funds worth $50,000. Medicaid does not consider the value of
Richard's house (if he intends to return home) or car when calculating Richard's
countable assets. Medicaid does consider the $50,000 Richard owns in mutual
funds as countable assets.
Special Rules For The Principal Residence. Medicaid will
only categorize an applicant's home as a noncountable asset if any one of the
following conditions is met:
[FN13]
(1) an applicant living in a nursing home intends to
return to the home; (2) the applicant owns a long-term care insurance policy
meeting certain requirements at the time he or she entered the nursing home (a
limited number of states); or (3) any one of the following live in the home: the
applicant; the applicant's spouse; a child under age 21; a disabled child of any
age; a blind child of any age; a relative who is dependent on the applicant; a
child who lived in the home for at least two years before the applicant moved
into a nursing home and provided care which permitted the applicant to remain at
home; and a sibling who has an equity interest in the home and has lived there
for at least one year before the applicant moved into a nursing home.
Inaccessible Assets
Like noncountable assets, inaccessible assets also are
not included in the calculation of an applicant's assets. Inaccessible assets
are assets to which the applicant has no legal access, such as expected
inheritances before probate is completed or marital assets prior to a final
decree of divorce.
[FN14]
EXAMPLE 3
Karen's sister Betty died six months before Karen applied
for Medicaid. Under Betty's Will, Karen is entitled to one-half of Betty's
estate which is worth $200,000. Karen has not yet received any money from
Betty's estate. The $100,000 Karen expects to receive from Betty's estate is an
inaccessible asset. Once Karen receives the $100,000, it is no longer
inaccessible.
Countable Assets
All assets not considered noncountable or inaccessible
are counted towards the $2,000 asset limitation. In some cases, both jointly
held assets and assets in a trust will be viewed as countable assets.
Jointly Held Assets. Medicaid presumes that all funds
held in joint bank accounts are the applicant's assets. This presumption can be
overcome if the joint owner can demonstrate that he or she contributed part or
all of the funds to the account. The proof needed to overcome the presumption
can be in the form of an affidavit (a sworn statement) if no other records exist
to support the claims of the joint owner.
EXAMPLE 4
Andy owns a joint bank account with his daughter, which
totals $10,000. When Andy applies for Medicaid, it is presumed that Andy owns
all of the $10,000 in the joint account. If, however, Andy can prove that $8,000
of this account is attributable to his daughter, only $2,000 will be counted as
Andy's assets.
Other assets held jointly, such as real estate, stocks,
and bonds, are presumed to be owned equally. This presumption can also be
overcome.
EXAMPLE 5
Edna and Charley are joint owners of a sailboat with a
value of $20,000. The certificate of title to the boat does not specify the
percentage of each person's ownership. If Edna applies for Medicaid it will be
presumed that she owns 50% of the sailboat, or $10,000.
Trusts.
[FN15]
If a Medicaid applicant is both the beneficiary and
grantor of a trust, and the applicant may receive payments of interest or
principal from the trust, the income or principal that the applicant can receive
is considered a countable asset. These assets are considered countable even if
distributions from the trust to the applicant are never made.
EXAMPLE 6
Jim sets up a revocable trust with $50,000 he received as
an inheritance from his father's estate. Jim's children are the beneficiaries of
the trust. Medicaid would consider the entire $50,000 as Jim's countable assets,
because the Trust is revocable by Jim.
Even if the applicant is not the grantor of a trust, so
long as his or her beneficial interest is one subject to a broad standard of
invasion (i.e., the familiar HEWS (Health, Education, Welfare & Support)
provisions for an ascertainable standard under the Internal Revenue Code), then
the assets would be included. If, however, there is no invasion standard, or it
is very narrowly drafted, the assets of the trust created by someone other than
the applicant will not be included, although the income may be taken into
account with respect to determining qualification under the income limitations
discussed below.
Income Limitations
In addition to the asset limitation, Medicaid places a
limit on the monthly income an applicant can receive. Medicaid considers both
earned income (wages) and unearned income (interest on investments, pensions,
gifts) when it calculates an applicant's total income.
[FN16]
For applicants living in nursing homes, the income limit
is usually $60 per month. Nursing home residents, however, can deduct the cost
of the nursing home care from their total income to remain under the $60 limit.
All income remaining after the resident keeps a $60 "personal needs allowance"
and deducts money spent on health care must be paid to the nursing home.
Medicaid covers the difference between what the resident can pay and the cost of
the nursing home care.
EXAMPLE 7
Owen lives in a nursing home that costs $5,000 per month.
Owen has $1,200 in monthly income comprised of Social Security benefits and a
pension. Owen spends $140 per month on his Medicare premiums (a Medicare
supplemental insurance). From his $1,200 monthly income Owen can deduct and keep
$60 for his personal needs allowance and can also deduct the $140 he spends on
health care. The $1,000 in income that remains must be spent on the cost of
Owen's nursing home care. Medicaid will pay the balance needed to cover Owen's
bill to the nursing home at state rates.
Community Spouse Resource Allowance
Under the Medicaid rules, a couple's assets are pooled
(added together) for the purpose of determining eligibility. At the time an
applicant is institutionalized (the first day of a stay in a long-term care
facility or hospital which lasts 30 days or more), Medicaid calculates the
couple's total "countable assets." The couple's assets are pooled without regard
to which spouse actually owns the assets. The spouse still living in the
community (the "community spouse") is allowed to keep a portion of the couple's
countable assets.
[FN17]
This portion of the countable assets is called the
"community spouse resource allowance." The community spouse resource allowance
is around $90,000. Thus, the most that the community spouse can keep is $90,000.
In some jurisdictions, a community spouse can only keep half of the assets up to
$90,000.
In situations where one member of a couple refuses to
cooperate with Medicaid, such as a refusal to supply the necessary documents,
Medicaid will disregard the uncooperative spouse's assets. In this situation,
however, the uncooperative spouse will not be able to take advantage of the
community spouse resource allowance or the community spouse maintenance needs
allowance; this is called a spousal refusal (discussed later).
EXAMPLE 8
On the date Mr. Jones enters a nursing home he has
$150,000 in countable assets and Mrs. Jones has $40,000 in countable assets. The
Jones' pooled assets are $190,000. Of this total, Mrs. Jones, as the community
spouse, is allowed to keep $90,000 as the community spouse resource allowance.
The assets attributed to Mr. Jones, therefore, total $100,000 (pooled assets-
community spouse resource allowance). Of this $100,000, Mr. Jones is allowed to
keep $2,000 and still be eligible for Medicaid. Thus, the Jones' must spend down
$98,000 before Mr. Jones is eligible for Medicaid. (See the discussion below on
spend-down procedures).
In order to distribute assets between a couple to ensure
that an institutionalized spouse has only $2,000 in his or her name, Medicaid
allows a 90-day period after an eligibility determination within which transfers
between spouse can be made or 120 days if a court order is required for
applicants under guardianship.
[FN18]
EXAMPLE 9
In the previous example, assume that the Jones' have
spent down $98,000 to make Mr. Jones eligible for Medicaid. There remains,
however, $20,000 in assets in Mr. Jones' name. The Jones' are allowed 90 days
within which to transfer the $20,000 into Mrs. Jones' account.
Community Spouse Maintenance Needs Allowance
Under the Medicaid rules, the spouse of an individual in
a nursing home is entitled to a portion of the institutionalized spouse's income
under certain circumstances.
[FN19]
This sharing of income is allowed when the community
spouse has monthly income below the level of the "community spouse maintenance
needs allowance." This minimum level is about $1,500, which may be increased by
an excess shelter allowance if the spouse qualifies; in that event, the actual
expenses that exceed that state's guidelines will qualify for the excess shelter
allowance although there is a cap on this allowance of around $2,000, unless the
spouse can successfully appeal that limitation. The excess shelter allowance is
the community spouse's actual monthly housing costs, including mortgage
payments, rent, property taxes, and utilities.
The community spouse is entitled to as much of his her
spouse's income as is needed to bring the community spouse's income up to the
minimum level. If the couple's combined income does not reach the minimum level,
the community spouse is entitled to the couple's total income (less around
$50.00 or $60.00 for the institutionalized spouse's personal needs allowance).
EXAMPLE 10
Mr. and Mrs. Haywood have a total monthly income of
$2,500, $2,000 of which comes in Mr. Haywood's name and $500 in Mrs. Haywood's
name. Mr. Haywood lives in a nursing home and Mrs. Haywood lives in the
community. Mrs. Haywood's excess shelter allowance is $200, giving her a
community spouse maintenance needs allowance of $1,700 (minimum level of about
$1,500 plus excess shelter allowance of $200). Mrs. Haywood is entitled to a
share of her husband's income that will bring her from her current income level
of $500 up to her $1,750 allowance. Mrs. Haywood's is therefore entitled to
$1,200 of Mr. Haywood's monthly income.
Transfer Rules
Medicaid was designed to benefit those individuals with
little or no assets. Through a number of rules, Medicaid discourages individuals
from intentionally impoverishing themselves to qualify for Medicaid. The most
important of these rules involves transfer made within the 36-month period prior
to applying for Medicaid.
The purpose of the 36-month "look-back period" is to
determine if any transfers (gifts or sales) the applicant made in the 36 months
prior to applying for Medicaid will act to disqualify him or her from Medicaid.
(The look-back period for transfers relating to certain trusts is 60 months.) A
disqualifying transfer will exist if in this period the applicant transferred a
countable asset or principal place of residence for less than fair market value.
[FN20]
EXAMPLE 11
Florence owns a house with a fair market value of
$150,000. On January 1, 2003, Florence transfers the house to her daughter as a
gift. On June 1, 2003, Florence applies for Medicaid. The gift of the house is
considered a disqualifying transfer, because it was made within the 36-month
period prior to Florence's application for Medicaid.
The period of ineligibility for Medicaid for a
disqualifying transfer is obtained by dividing the fair market value of what was
transferred by the average daily (sometimes calculated as monthly) cost of a
nursing home in the state of the applicant's residence.
[FN21]
The average monthly nursing home cost ranges from $2,000
to $7,500.
[FN22]
The ineligibility period equals the fair market value of
the transferred asset divided by the average daily cost of the nursing home.
EXAMPLE 12
In the previous example, Medicaid would take the fair
market value of Florence's house, and divide it by the daily cost of a nursing
home in her home state of Massachusetts. $200,000.00 divided by $200.00 per day
= 1000 days of ineligibility in Massachusetts, more or less.
This transfer rule does not apply to applicants living in
the community but will apply if the applicant living in the community is
subsequently institutionalized. Also, transfers made to an applicant's blind or
disabled child are not disqualifying transfers.
[FN23]
For transfers made on or before August 10, 1993, the
ineligibility period for a disqualifying transfer is limited to 30 months.
[FN24]
EXAMPLE 13
Mike owned a house with a fair market value of $334,000.
On January 1, 1993, Mike transferred the house to his son as a gift. On May 1,
1995, Mike applied for Medicaid. Because the transfer was made prior to August
10, 1993, Medicaid looked back 30 months from the date of Mike's application and
recognized the disqualifying transfer. Medicaid will calculate the ineligibility
period ($300,000/$185 per day or the state daily disqualification rate) to get a
2000 day ineligibility period today. The maximum ineligibility period for
transfers made prior to August 10, 1993, however, is 30 months. Therefore,
Mike's ineligibility period was 30 months from the date of the transfer or July
1, 1995.
Ineligibility periods for transfers made after August 10,
1993, are not capped. Thus, the ineligibility period for large transfers is
considerable. If an applicant, however, delays his or her application for
Medicaid for 36 months after making a disqualifying transfers, the transfer is
not reported to Medicaid. In this manner, applicants can essentially cap their
ineligibility at 36 months.
Spend-Down Process
When an applicant has countable assets that exceed the
amount allowed by Medicaid, he or she will want to reduce these assets below the
$2,000 limit. The process by which an applicant reduces his or her assets to
$2,000 is called a "spend-down." During the spend-down, the applicant will
usually want to avoid making disqualifying transfers in order to qualify for
Medicaid as quickly as possible. (In some circumstances, a disqualifying
transfer may be an effective Medicaid planning tool.)
EXAMPLE 14
Jack has countable assets that total $90,000. In order to
become eligible for Medicaid, Jack will need to spend-down $88,000 (Jack is
allowed to keep $2,000). Jack chooses to spend-down his assets in the following
way:
Purchase of a pre-paid burial contract-- $ 8,000
Purchase of burial plot-- $ 1,000
Pay off credit card debt [FN25]-- $ 5,000
Purchase of an annuity-- $35,000
-------
Total $ spend-down= $49,000
Once Jack spends-down the remaining $39,000 he will be
eligible for Medicaid. He could gift $20,000 for a four-month disqualification
(where the disqualification rate is $5,000 per month) and spend the remaining
funds for nursing home care (this is called a half-a-loaf transfer).
Estate Recovery
Medicaid has the right to recover money it paid on a
recipient's behalf after age 55.
[FN26]
Recovery, however, is limited to a recipient's probate
estate. Medicaid can only pursue claims against the recipient's probate estate
if there is no surviving spouse, child under age 18, or disabled child of any
age.
If the recipient owns a house, Medicaid may place a lien
on the house for the amount of funds expended on the recipient's behalf after
the recipient reached age 55. This lien may be placed on the house even before
the recipient's death provided that the following conditions are met: (1) the
recipient permanently resides in a nursing home and is not expected to return
home; (2) the recipient receives notice of the lien; (3) there is no surviving
spouse, child under age 18, or disabled child of any age residing in the house.
These pre-death liens are used in a limited number of jurisdictions and are
simply "notice" liens; Medicaid has no claim against the real estate until the
recipient dies. (If the house is sold during the recipient's life, however,
Medicaid can seek recovery from the proceeds of the sale.)
Medicaid Application
The Medicaid Application is often difficult and extremely
time consuming to complete. The supporting documents needed for a successful
application are substantial and include a birth certificate, Medicaid card and
premium information, 36 months of bank statements, 3 years of tax returns,
investment information and insurance policies, all income checks, expense
information, and trust documents. Any substantial withdrawals of assets
occurring in the 36- month period preceding the application must be explained or
disqualification period may result.
Applications are submitted to a local office of the
Division of Medical Assistance's Long Term Care Units.
[FN27]
As a general rule, a response can be expected within 30
to 90 days. If the response is unfavorable, the applicant has a right of appeal
within the state agency, generally governed by the appropriate state's
Administrative Procedures Act. If the determination is still unfavorable, the
applicant needs to resort to judicial intervention in the appropriate Court for
the jurisdiction in question.
[FNa1]. David J. Correira is a partner in the national law firm of Holland &
Knight LLP, resident in the Boston and Providence offices. He concentrates in
the areas of trust & estate litigation, tax & business planning, estate
planning, elder law & Medicaid, and probate. He frequently speaks and writes on
trust and estate topics and has been previously published by the Estate Planning
Journal, the American Bar Association, the National Academy of Elder Law
Attorneys, the Rhode Island Bar Journal, and both Massachusetts and Rhode Island
Lawyers Weekly.
[FN1]. The Leadership Council of Aging Organizations, Letter to Tommy
Thompson, Secretary of the Department of Health & Human Services, Washington,
D.C., available online at http://www.lcao.org/legagenda/ ss/reject_conn.htm
(August 20, 2002).
[FN2]. Guiden, Governors Give Thumbs Up to Medicaid Reform, Stateline.org,
http://www.stateline.org/story.do?storyId=116905 (February 28, 2001).
[FN3]. Bernard A. Krooks, Esq., Letter to the Editor of Newsweek (January
23, 2003).
[FN4]. Bernard A. Krooks, Esq., Letter to the Editor of Newsweek (January
23, 2003).
[FN5]. Higgins, States Crack Down on Families That Shed Assets to Get
Benefits, Personal Lifestyle Section, page 1, Wall Street Journal (February 2,
2003).
[FN6].
Pub. L. No. 105-33 (Aug. 5, 1997).
[FN7]. See The Nation's Voice on Mental Illness, State Trends, www.nami.org
(February 4, 2002); see also Medicaid-State by State Descriptions & Plans,
http://64.82.65.67/medicaid/states.html (revised March 16, 2003).
[FN8]. Callinan, Will Connecticut Kill Medicaid Planning?, http://
www.njseniorlaw.com/connwaiver.html.
[FN9]. See Takacs, State Proposes Controversial Medicaid Waiver, Elder Law
FAX, http://www.tn-elderlaw.com/prior/021118.html (November 18, 2002); see also
Niesz et al., Connecticut Medicaid Overview and Recent Changes, OLR Research
Report, Document 2002-R-0560, available online at http:// www.cga.state.ct.us/2002/olrdata/hs/rpt/2002-R-0560.htm
(June 7, 2002); Medicaid and SCHIP, Recent HHS Approvals of Demonstration Waiver
Projects Raise Concerns, Report to the Committee on Finance, U.S. Senate, by the
United States General Accounting Office, GAO-02-817, available online at http://www.gao.gov/
new.items/d02817.pdf (July 2002).
[FN10]. The federal government has tried to control and curb Medicaid
planning for almost two decades, dating from TEFRA in 1982. TEFRA authorized
restrictions on transfers of assets, liens, and recoveries from estates to
discourage Medicaid planning. OBRA '85 attempted to curb the misuse of trusts to
hide assets. MCCA '88 made restrictions on transfers of assets longer and
stronger while implementing protection against spousal impoverishment in an
attempt to eliminate the need for Medicaid planning. OBRA '93 further
discouraged Medicaid planning. This legislation closed some key eligibility
provisions and made recovery from estates mandatory by requiring states to
impose liens on probate property. These rules challenged estate planners to use
in the Medicaid context more creative techniques that had been traditionally
used for estate tax planning. The Health Insurance Portability and
Accountability Act of 1996 (HIA) contained language intended to limit Medicaid
planning, and purported to make such planning a crime in some cases. The law
applied to whoever "knowingly and willfully disposes of assets (including by any
transfer in trust) in order for an individual to become eligible for medical
assistance under a state plan under title XIX [i.e. Medicaid], if disposing of
the assets results in the imposition of a period of ineligibility for such
assistance." There were many uncertainties regarding the measure, known as the
"Granny Goes to Jail" law. It was clear, however, that the legislation attempted
to some degree to create criminal liability for Medicaid planning that used the
routine legal technique called the "half-a-loaf" strategy. Under this strategy,
an individual gives away half of his estate in order to become eligible for
Medicaid benefits in half the time with half the penalty intended by Congress.
This technique always seemed to be applicable to anyone who applied for Medicaid
during a "disqualification period," which may or may not run the full length of
the look-back period, particularly if one applies during that particular period.
Many seniors' groups lobbied for the repeal of the "Granny Goes to Jail" law, as
did the National Academy of Elder Law Attorneys. As a result, the Balanced
Budget Act of 1997 (BBA '97), signed by the President on 8/5/97, limited the
penalties to anyone (including attorneys) who, for a fee, "counsel or assist an
individual to dispose of assets" in order to become eligible for Medicaid. BBA
'97 thus eliminated the "Granny Goes to Jail" provisions and replaced it with a
"Granny's Advisor Goes to Jail" law. This latest revision was challenged by the
New York State Bar Association on constitutional grounds. Two attorneys in Rhode
Island filed a similar suit. With respect to the suit by the New York State Bar
Association, the U.S. District Court for the Northern District of New York
approved, on 4/9/98, the Bar Association's request for a preliminary injunction.
This relief barred U.S. Attorney General Reno from enforcing the "Granny's
Advisor Goes to Jail" law. Furthermore, papers submitted by the government
indicate that on 3/11/98, Reno wrote to the Speaker of the House Gingrich and to
Vice President Gore, stating that the Justice department will neither defend the
constitutionality of this current version of the Act nor prosecute anyone for
violation of it.
[FN11]. HFCA Transmittal Letter 64.
[FN12]. HFCA Transmittal Letter 64.
[FN13]. HFCA Transmittal Letter 64.
[FN14]. HFCA Transmittal Letter 64.
[FN15]. Specific rules pertaining to trusts vary according to the date the
trust was established and the specific terms of the trusts.
[FN16].
42 U.S.C.A. § 1396r-5.
[FN17]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396r-5.
[FN18]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396r-5.
[FN19].
42 U.S.C.A. § 1396r-5.
[FN20]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396p.
[FN21]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396p.
[FN22]. The average daily or monthly nursing home costs that translate as
the asset transfer penalty rate will vary from state to state. Here are a few
examples of the monthly rates: California, $4,300; Connecticut, $7,062; Hawaii,
$7,314; Louisiana, $3,000; Maryland, $4,300; Massachusetts, $6,200; Michigan,
$5,043; New Hampshire, $5,348; Oklahoma, $2,000; Rhode Island, $5,512 (Note:
these figures change on a regular basis). List Serv Survey, National Academy of
Elder Law Attorneys (Winter 2003).
[FN23]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396p.
[FN24]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396p (prior to 1993 amendment by
Pub. L. No. 103-66).
[FN25]. Note that the mere existence of debt does not
reduce the asset for purposes of the limitations test unless the indebtedness is
actually paid off by the applicant before making the application for Medicaid.
[FN26]. HFCA Transmittal Letter 64;
42 U.S.C.A. § 1396p.
[FN27]. The federal and state Medicaid regulatory manuals can be found with
the following links and provide ready access to practitioners of all Medicaid
rules across the country: http://cms.hhs.gov/manuals and http:// 64.82.65.67/medicaid/states.html.
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