Asset Rules: MassHealth–Long Term Care, also known as Medicaid, is a joint federal-state program for long term care expenses. Unlike Medicare, Medicaid is a need-based program; applicants become eligible by demonstrating that their assets are limited to $2,000. In general, everything owned by the Medicaid applicant is counted for this $2,000 limit except “non-countable” and “inaccessible assets”.
Non-countable assets include:
(1) the applicant’s principal place of residence if it is in Massachusetts and the nursing home resident intends to return home. (As part of the Medicaid application process, a Medicaid applicant may be asked to sign a form regarding the applicant’s “intent to return home”. This form should not be signed without the advice of counsel.);
(2) household and personal belongings;
(3) business and non-business property essential to self-support;
(4) a burial plot for the applicant and family members;
(5) a separate burial/funeral savings account of up to $1,500 for each member of the filing unit;
(6) the cash surrender value of a prepaid non-cancelable burial and funeral contract (generally unlimited under $8,000, however contract must provide amounts paid over funeral costs be refundable to applicant);
(7) a car of any value if the applicant or any family member can demonstrate a need to own the vehicle; and
(8) life insurance with a face value of $1,500 or less (if the face value is more than $1,500, the cash value will be counted against the $2,000 limit).
“Inaccessible assets” are assets to which the recipient or Medicaid applicant has no legal access, such as property subject to legal proceedings, property which the Medicaid applicant cannot sell because there is no market, and “A and B” bank accounts where the co-holder refuses to consent to a withdrawal.
Jointly held bank accounts are generally presumed to belong to the applicant. This presumption can be rebutted if the non-applicant joint owner can show that he or she contributed all or part of the funds to the account. Other jointly owned assets, such as real estate, stocks, bonds and most mutual funds are presumed to be owned proportionately by the people named on the account. This presumption can also be rebutted.
Trust Rules
(a) Trusts Created On or Before August 10, 1993
If the Medicaid applicant is a beneficiary of such a trust (other than a Medicaid Qualifying Trust), the trust assets or income are deemed available to the applicant to the extent that the applicant has the right to withdraw the funds or the Trustee has an obligation to distribute the trust funds. The rules regarding deeming of assets or income from Medicaid Qualifying Trusts are much broader. A Medicaid Qualifying Trust is a trust created by the applicant or the applicant’s spouse (other than a trust created or funded by a Will) where the applicant is a beneficiary of all or part of the trust payments, and the distribution of trust payments is determined according to the Trustee’s discretion. In the case of a Medicaid Qualifying Trust, the greatest amount that the Trustee has discretion to distribute under any circumstance is the amount that is deemed available to the beneficiary when determining whether the beneficiary qualifies for Medicaid.
(b) Trusts Created After August 10, 1993
Congress made major changes to the federal Medicaid statute as part of the Omnibus Budget Reconciliation Act of 1993 (OBRA 93). The Medicaid rules are especially complicated for a variety of reasons. First, Massachusetts has yet to adopt many of the federal changes. Thus, in some cases, current Massachusetts regulations are superseded by the federal law. Second, where the language of the statute is ambiguous, it is unclear how the Division of Medical Assistance will interpret it.
OBRA 93 applies to trusts created by a Medicaid applicant or applicant’s spouse, or by anyone acting on behalf of an applicant or spouse, including a court. With two exceptions below, all trusts in which the prospective Medicaid applicant is a beneficiary, except those created by will, are considered available to the Medicaid applicant. The first is a trust for a disabled applicant under the age of 65 that is created by the applicant’s parent, grandparent, legal guardian or court, but not by the applicant. However, any trust assets remaining on the applicant’s death must first go towards reimbursing the state for Medicaid benefits paid on the applicant’s death must first go towards reimbursing the state for Medicaid benefits paid on the applicant’s behalf. The second is a pooled trust for disabled beneficiaries managed by non-profit associations. Any trust assets remaining on the applicant’s death must remain in the trust for other disabled beneficiaries.
Transfer Penalties: If an applicant or an applicant’s spouse transfers assets for less than fair market value after August 10, 1993, the applicant will be ineligible for Medicaid for a period of time from date of the transfer. The law imposes one day of ineligibility for every $214 transferred for less than fair market value within three years of the date of the applicant’s original Medicaid application. (The time period for certain trusts is five years). Thus, if someone applies for Medicaid within three years of a transfer, is denied eligibility, and reapplies after three years from the time of the transfer, the applicant will still be ineligible because the applicant made a transfer within three years of the original Medicaid application. Furthermore, an applicant’s spouse may also be subject to a period of ineligibility if the spouse applied for Medicaid within three years after the transfer (or within five years after a transfer in trust). For example, if you had a home worth $240,000, no other countable assets, and you gifted your home within three years of the date of your Medicaid application, you would be ineligible for Medicaid for a period of 1121.49 days or over 3.07 years. ($240,000 amount transferred divided by $214=1121.49 days)
For transfers made on or before August 10, 1993, there is a thirty (30) month limit for the transfer penalty.
Exceptions to the Transfer Penalties: OBRA 93 provides several exceptions to the transfer penalty rules. No period of ineligibility will apply to asset transfers to:
(1) a spouse;
(2) a blind or disabled child;
(3) a trust for the benefit of a disabled individual under age 65; and
(4) a trust for the benefit of a blind or disabled child.
No period of ineligibility will apply to transfers of the principal residence to:
(1) a spouse;
(2) a blind or disabled child;
(3) a trust for the benefit of a disabled individual under age 65;
(4) a child under age 21;
(5) a sibling who has lived in the principal residence during the year prior to the applicant’s institutionalization and who already owns part of the home; and
(6) a child of the applicant who has lived in the house for at least two years prior to the applicant’s institutionalization and who provided care during this period such that the applicant did not need nursing home care.
Additionally, OBRA 93 permits transfers to be “cured” if the recipient returns everything that was transferred in its entirety. Returning anything less than what was transferred will not cure the transfer.
Criminal Penalties: The Kennedy-Kassebaum Bill, effective as of January 1, 1997, originally made it a federal crime to transfer assets in order to qualify for Medicaid if the transfer resulted in “the imposition of a period of ineligibility.” The crime was classified as a misdemeanor that is punishable by a fine of up to $10,000 and/or imprisonment of up to one year. There were several ambiguities in the law and on August, 1997 said law was modified so that the threat of criminal liability is shifted from seniors to “anyone who, for a fee, counsels or assists a Medicaid applicant to make certain transfers for purposes of becoming eligible for Medicaid”. (The Balanced Budget Act of 1997, P.L. 105-33 (H.R. 2015)). Thus, only the counseling or assisting is a crime. The law has since been challenged again.
Income Rules: When an applicant becomes eligible for Medicaid he or she will only be allowed to keep a personal needs allowance of $60.00 per month plus any other monthly expenses for health care. If the applicant is married, the spouse living at home may be entitled to some of the applicant’s monthly income. Any monthly income greater than the personal needs allowance, any monthly health expenses, and any payments to the spouse living at home (as described below) must be paid to the nursing home. Medicaid would then pay the balance due the nursing home.
Community Spouse Protections: All spousal countable assets are pooled at the time of institutionalization and a “snapshot” of the spousal assets are taken at that time. Institutionalization occurs on the first day of a stay in a long-term care facility which lasts for at least 30 consecutive days. After this pooling, the spouse of a nursing home resident (the community spouse) will be allowed to keep a community spouse resource allowance (CSRA) equal to one-half (1/2) the total countable assets up to a maximum of $90,660 (this amount is adjusted annually for inflation). The minimum community spouse resource allowance is $18,132.00. Any excess over this amount must be spent-down within 30 days of the notice of Medicaid eligibility. The law allows couples 90 days after receipt of the notice of Medicaid eligibility in order to transfer assets between spouses. For example, if a couple owns $100,000 in countable assets on the date of institutionalization, the applicant will be eligible for Medicaid once their assets have been reduced to leave the nursing home resident with $2,000 and the community spouse with $50,000. If the couple owns $200,000 in countable assets on the date of institutionalization, the applicant would be eligible for Medicaid once their assets have been reduced to leave the spouse in need of care with $2,000 and the community spouse with $90,660.
The community spouse will not have to use his or her income to support the nursing home resident spouse receiving Medicaid. In addition, in some instances, community spouses also have the right to take enough of the nursing home spouse’s monthly income so that the community spouse’s monthly income comes up to the current floor of the Minimum Monthly Maintenance Needs Allowance (MMMNA). The MMMNA is an income floor for community spouses (adjusted annually for inflation) which is calculated based on housing costs. Thus, if the community spouse’s monthly income is less than his or her MMMNA, the shortfall may be recovered from the nursing home spouse’s monthly income. The current MMMNA is $1,493.00 (this amount changes every July). The current maximum allowance is $2,267.00 (this amount changes every January).
However, instead of receiving the shortfall from the nursing home spouse’s income, the community spouse can appeal the determination of his or her CSRA at a fair hearing by showing that he or she needs to keep more assets to generate income in order to raise his or her monthly income to the MMMNA. This procedure not only enables couples to preserve substantially more of their assets, but also maintains the community spouse’s MMMNA and standard of living.
Estate Recovery: The state has the right to recover any benefits it paid for the Medicaid recipient’s care from the recipient’s probate estate (property in the recipient’s name alone). OBRA 93 significantly expanded the state’s recovery powers.
Massachusetts must now seek recovery of all Medicaid benefits paid from the estates of those recipients who received coverage after age 55. Additionally, OBRA 93 permits the estate recovery to reach both probate and non-probate property such as joint property, life estates, trusts. The Massachusetts legislature to date has rejected the possibility of estate recovery beyond the probate estate.
Other Estate Planning Options: Conservative planning options available to an elder citizen include durable powers of attorney, a homestead declaration, and long term care insurance. Durable powers of attorney allow you to authorize someone to manage your property if you become incapacitated. A homestead declaration for your home protects your home against creditors. Generally the homestead protects the first $300,000 (for senior citizens) of equity in your home against creditors except for MassHealth. Protections against long term care expenses can be achieved through the purchase of a long term care insurance policy.
Long term care insurance helps not only to protect the MassHealth–Long Term Care applicant’s home against estate recovery but also helps to avoid problems with transfers of assets which would otherwise result in ineligibility. An individual must be covered under individual, group, or employment based group policy issued on or after March 15, 1999, which meets the individual policy minimum standards of 211 CMR 65.05 and such policy may protect the Medicaid recipient’s home from estate recovery for any Medicaid payments the state may make on his or her behalf. Furthermore, the long-term care policy should contain an inflation rider and home care coverage. Long-term care insurance policies have differing elimination periods (the period of time spent in a nursing home before which benefits will start). In many cases, the Medicaid applicant may have Medicare coverage for this period, and thus not need insurance (Medicare pays the first 20 days in full and days 21-100 less your co-payment). Furthermore, if the applicant can afford the long-term care policy, he or she may be able to pay for this period on their own. If the primary goal is to protect the Medicaid applicant’s home, a minimum benefit level of $125/day for 2 years is all that is necessary. Although this may not eliminate the need for Medicaid, it will nevertheless protect the applicant’s home from estate recovery.
Premiums for tax-qualified policies are normally fully deductible and benefits are fully excludable from gross income, but there are limits. Deductible premiums may not exceed annual caps based on the insured’s age; for 1998, these caps range from $210 per year for an individual age 40 or younger to $2,570 per year for an individual age 71 or older. (I.R.C. Sec. 213(d)(10)(A).) In addition, benefits paid may not exceed the actual costs of care unless payable in the form of a daily indemnity. (I.R.C. Sec. 7702B(d).) The benefits limit for 1998 is $180 per day or $65,700 annually. Finally, the ability to deduct premium charges will benefit only those insured who itemize their deductions and whose premium charges, together with their other medical expenses, exceed 7.5 percent of adjusted gross income.
Conclusion
Applying for Medicaid can be a lengthy and complicated process. Once eligibility is determined, it must be re-determined every six months. Given the transfer penalties, and the DMA’s lack of interpretive guidance, elder citizens should not transfer assets without consulting an experienced elder law attorney.
Given the current state budget crisis, a number of proposals are afloat to reduce Medicaid expenditures. One proposal includes changing the income-first rule, discussed in part 7 of this memo. Other proposals include, but are not limited to: requesting a federal waiver to change the transfer of asset rules; expansion of estate recovery (including requiring insurance companies to contact the Division of Medical Assistance prior to paying out the life insurance and annuity proceeds); elimination of the bedhold requirement (when a nursing home resident is hospitalized or makes a family visit, MassHealth payments continue for up to 20 consecutive days per hospital stay and 15 days per year for family visits).