Dovetailing Medicaid with the Aid & Attendance Benefit
Why Aid and Attendance Pension Leads to Planning for Medicaid
If the person receiving pension is also receiving home care, adult day care, assisted living care or nursing home care there is a high likelihood that Medicaid may become part of the planning strategy for receiving care. The application for aid and attendance becomes a great opportunity to examine the consequences of Medicaid on income and assets prior to the need for applying for Medicaid. Most people only deal with Medicaid when they reach debt crisis moment or assets or income or insufficient to pay for existing care. Doing some planning in advance may allow individuals or households to save some assets or to provide more income for a healthy spouse. This planning may also allow the opportunity to preserve the home from Medicaid recovery.
A Brief Description of Medicaid
Medicaid was established as Title IX of the 1965 Amendment to the Social Security Act while Medicare was established at the same time as Title VIII of the Act. Medicaid is a health insurance program for certain low-income people. These include: certain low-income families with children; aged, (65 and older) blind, or disabled people on Supplemental Security Income; certain low-income pregnant women and children; and people who have very high medical bills.
Medicaid is funded and administered through a state-federal partnership. Although there are broad federal requirements for Medicaid, states have a wide degree of flexibility to design their programs. States have authority to establish eligibility standards, determine what benefits and services to cover, and set payment rates. All states, however, must cover these basic services: inpatient and outpatient hospital services, laboratory and X-ray services, skilled nursing and home health services, doctor’s services, family planning, and periodic health checkups, diagnosis and treatment for children.
Funds for Medicaid are provided jointly by the federal government and the states. On average, the federal government provides about 57% of Medicaid funds and the states provide the other 43%. The amount of shared funding varies from state to state depending on the per capita income in each state. States with low per capita income such as Mississippi receive up to 83% of their Medicaid funding from the federal government and the state provides the other 17%. On the other hand, states with high per capita income such as Connecticut share Medicaid funding with the federal government on a 50% to 50% basis.
Long-term care recipients of Medicaid come almost exclusively from the aged, blind and disabled group of eligible beneficiaries but very few of those are actually receiving SSI (Supplemental Security Income). SSI is a welfare payment for certain disabled or handicapped individuals who are unable to work, have no assets and have no extended family financial support. Certain provisions of the enabling Act, as well as congressional amendments since 1965 have allowed the aged, blind and disabled who don't qualify for SSI to receive Medicaid under an alternate set of eligibility rules.
Currently there are about 60 million people or 20% of the US population receiving Medicaid support. Most of these people are receiving various forms of health care services and are younger than age 65. Our interest lies with those Medicaid beneficiaries who need long term care and can receive help from Medicaid to pay those costs. In addition, we focus almost exclusively on aged long term care beneficiaries -- those over the age of 65.
Aged long term care Medicaid beneficiaries represent about 7% of the entire Medicaid population or about 4 million beneficiaries. Out of these long term care Medicaid beneficiaries, approximately 1 million are receiving various levels of Medicaid funding support in nursing homes and approximately 3 million are receiving some form of home-based or community-based Medicaid long term care support. Even though elderly long term care beneficiaries only represent about 7% of the Medicaid population they account for about 19% of all Medicaid spending. This is because long term care services are very expensive, particularly those funds used for nursing home care.
Medical Eligibility for Long Term Care
An individual must go through an evaluation with a state Medicaid assessment specialist in order to determine a need for care. If the individual fails to meet the minimum level of care needed to qualify for that State's Medicaid coverage, then no Medicaid help is forthcoming.
A need for skilled nursing care will automatically qualify a person in any state. It's also likely that a candidate already in a nursing home but not needing skilled care will still qualify. Skilled care must be needed on a frequent basis. Examples of skilled care might include the need for: frequent monitoring of vital signs, wound dressing changes, maintenance of mechanical ventilation equipment, maintenance of a catheter, help with elimination problems, maintenance of IV administrations, careful monitoring of medication usage, managing colostomy problems, careful supervision of severe diabetes, frequent injections, maintaining a feeding tube and many more problems requiring the skill of a nurse or doctor.
Medical eligibility for home and community-based services could be based on different criteria from those for nursing homes; but in some states, a person must qualify for Medicaid based on the nursing home eligibility standards in order to receive Medicaid services at home or in assisted living.
Income and Asset Tests
There is both an income and an asset test to qualify for Medicaid long term care services. In general, these tests are applied for nursing home services but these same tests may also be used to qualify individuals for home or community-based Medicaid services as well. In other states the financial requirements for community-based services may be more stringent than those for nursing homes or they may be less stringent.
The following information was taken from the Kaiser Commission on Medicaid and the Uninsured; http://www.kff.org/medicaid/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=36296
For the elderly and people with disabilities with long-term care needs, income qualifying levels are often tied to the Supplemental Security Income (SSI) program—$674 per month in 2010 —but income limits can be higher in states that have more liberal rules.
Most states allow the “medically needy”—those with large medical or long-term care bills -- to deduct these costs from their gross income to reach the required income level and participate in Medicaid. These criteria are usually quite stringent as most states set their medically needy income level at or below SSI levels. This deduction from income can happen in a direct manner or it can happen indirectly by potential beneficiaries paying in a so-called "co-pay" for their share of the services. This co-pay represents the amount of income above the state income qualification level. This medically needy program is optional for states, however, and 15 states (plus the District of Columbia) do not have medically needy programs.
In some states that do not have medically needy programs, individuals needing nursing home care can be covered under the “300 percent rule”. Under this option, individuals with income up to 300% of SSI ($2,094 per month in 2012), can qualify for institutional care. Other states may have more stringent income rules for Medicaid qualification. In states that apply a strict income rule, individuals having more than the state income limit cannot receive Medicaid assistance regardless of their expenses. These states are called "income cap states." There are currently 22 income cap States.
Under the Medicare Catastrophic Coverage Act, income cap states must allow those individuals with incomes above the cap to qualify for Medicaid if they put their excess income in a trust known as a “Qualifying Income Trust.” States are allowed to recover funds in the trust after the person’s death.
Nursing home residents who qualify as medically needy or through the 300 percent rule must apply the majority of their monthly income toward the cost of care, thereby reducing the amount that the Medicaid program must pay. Medicaid nursing home residents may keep only a small personal needs allowance (between $30-$90 per month) to pay for items that are not covered by Medicaid, such as clothing, books, toiletries, or telephone service.
Medicaid beneficiaries receiving home and community based services are also required to apply a portion of their income to the cost of care, although states may allow them to retain more of their income to maintain themselves at home than if they were in an institution, where Medicaid covers room and board.
States are required to allow nursing home residents with spouses living in the community to retain a certain amount of income for the support of the community-residing spouse. This set-aside for the healthy spouse at home avoids impoverishing that spouse instead of using all of the household income for nursing home costs. States may set their own income limits for this spousal allowance but must allow a community spouse to keep between $1,838.75 and $2,841 per month in 2012. The community spouse is also required to receive additional income allowances above the minimum rate and not to exceed the maximum rate for excessive utility costs or excessive costs expended to maintain shelter.
In most states, an individual needing Medicaid nursing home care must have assets less than $2,000. A couple needing Medicaid nursing care must have assets less than $3,000 in most states. When one member of a couple needing care in a nursing home becomes a resident, Medicaid will take a "snapshot" of the couple's combined resources at that point. Resources are anything that can be converted to cash to pay for nursing home care. The healthy spouse is allowed to keep up to half of these resources not to exceed $113,640 (for the year 2012). The balance of the resources belong to the nursing home spouse and must be spent down to below $2,000 before Medicaid will start contributing its share of the cost. There is no requirement that the nursing home Medicaid recipient must spend his or her share of the resource assets on the nursing home. The money can be spent on anything.
If the combined resources are less than $22,728 (for the year 2012) the healthy spouse keeps it all. If assets are between $22,728 and $222,280, some states will allow the community spouse to keep everything up to $113,640. These states are called 100% states. Other states, called 50% states, are less generous and only allow the community spouse to keep 50% of the assets up to $113,640. Many states have more lenient rules pertaining to the amount of resources that can be retained by the so-called community spouse and in addition, some states exclude certain types of community spouse assets as counting towards the resource test.
Certain assets are not counted towards the less than $2,000 asset limit. These assets are exempt.
• Personal possessions, such as clothing, furniture, and jewelry
• One motor vehicle is excluded, regardless of value, as long as it is used for transportation of the applicant or a household member. The value of an additional automobile may be excluded if needed for health or self-support reasons. (Check your state's rules.)
• The applicant's principal residence, provided it is in the same state in which the individual is applying for coverage
• Prepaid funeral plans and a small amount of life insurance
• Assets that are considered "inaccessible" for one reason or another
In some states if a single Medicaid beneficiary is not residing in the personal residence and there is no anticipation that person can return to his or her home, the State may require that the home be sold to pay for Medicaid costs. In other states, the home can be left vacant in anticipation of the beneficiary returning whether the beneficiary is medically capable or not. In some states, the beneficiary must sign an intent to return home document to keep the home from being sold or counting as an asset for the asset test. For those states that have adopted the Deficit Reduction Act of 2005, a home worth more than $525,000 ($786,000 in some states) is not exempt and must be counted as an asset to qualify under the asset test. These equity limits increase in response to inflation. The house may be kept with no equity limit if the Medicaid applicant's spouse or another dependent relative lives there.
Although mandatory for nursing home residents, states are not required to offer the spousal
impoverishment protections discussed above to home and community-based service waiver program participants. Consequently, a substantial number of states (19) fail to offer the spouses
of waiver participants the full level of income and/or asset protection afforded the spouses of nursing home residents. Thirteen states protect neither the income nor assets of spouses of waiver participants, and an additional 6 states protect the assets but not the incomes of the community spouses of waiver participants
The discussion below is based on new rules for Medicaid eligibility that were established by the Deficit Reduction Act of 2005. This act was incumbent upon all states to adopt the new rules. Many states have already changed legislation and regulations to incorporate the new rules under the DRA, but a number of states have not fully implemented these rules -- notably California and Florida. In general, in those states that have not adopted the new rules, restrictions under the act discussed below are more liberal towards transferring assets and income to qualify for Medicaid.
Transferring Cash Assets
A number of people who eventually need Medicaid assistance have gifted cash or cash-equivalent assets to their children or other members of the family either inadvertently or deliberately prior to applying for Medicaid. Any transfer for less than value, whether it is a gift or at a reduced purchase price, is subject to a penalty from Medicaid at any time during 60 months from the date of the gift. The penalty is calculated by dividing the less-than-value amount of the transfer by the average monthly Medicaid nursing home cost in the state. Each state calculates its monthly average Medicaid cost at least yearly.
As an example, suppose John transferred $500,000 in an irrevocable trust to his children 4 years ago. He received nothing in return. Now John needs long term care in a nursing home and applies for Medicaid. Because he is applying for Medicaid inside of the 60 month look back period for assessing a penalty, he will not qualify for Medicaid assistance until the penalty has been satisfied. John has two options. He can have his children reinstate the $500,000 back into his name and do away with the penalty or he can accept the penalty and have the children pay it out of the trust.
The penalty is calculated by dividing the $500,000 by the state Medicaid rate which is $5,000 a month. The result is a period of 100 months or approximately 8.3 years where John must pay for his nursing home cost out of his own pocket before Medicaid will start helping him cover the cost. When John transferred the assets he started the clock ticking on what is called "the look back." This is a period of 60 months or five years in which Medicaid can assess the penalty if a transfer for less than value has occurred. After the look back has been met, Medicaid cannot assess a penalty.
It is interesting to note in this example that had John waited one more year, he would not have incurred a penalty of 8.3 years from Medicaid. It is also interesting to note that the penalty is longer than the look back. If John were anticipating Medicaid within five years, he would simply not apply for Medicaid until he had met 5 years. By applying for Medicaid before this time, John will trigger an 8.3-year penalty. John simply has to have his children pay the remainder of the 5 years out-of-pocket and then apply for Medicaid. This is a much cheaper option.
Transferring a Personal Residence
There are numerous planning strategies to transfer a personal residence in order to avoid a transfer for less than value or to avoid Medicaid recovery against the home. Medicaid planning specialists understand the rules in their particular states for doing this.
Transfers of the home may also be made under the following conditions without Medicaid penalty. Here are those exceptions.
• transfer to the applicant's spouse
• transfer to a child who is under age 21 or who is blind or disabled
• transfer 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)
• transfer to a sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
• transferred to 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's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Federal Medicaid rules require states to attempt to recover all or part of that state's Medicaid costs for a beneficiary from the beneficiary's estate. Recovery applies to beneficiaries age 55 and older. As a general rule, the only remaining assets would be the principal residence as generally all other assets had to be spent down. But certain business interests, assets used by the family to create an income and other inaccessible assets could also be excluded.
Even though many states have the enabling laws to recover assets held in any arrangement such as trusts, assets in joint tenancy or life estates, many states only attempt recovery under probate. In many states, the recovery program is underfunded and inefficient. We have observed that many states are very lax in their ability to recover funds.
The principal means of recovery is putting a lien against the home. If a surviving spouse or a dependent child is living in the home, recovery will not take place until the house is sold or death occurs. In many states, no lien is applied if the surviving spouse is living in the home. In other words, the debt under recovery is forgiven.
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