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Medicaid, An Incredibly Brief Overview1
"Mom wants to give her property to her children, but she needs long-term nursing home care in a couple of weeks, after the stroke left her so disabled she can't survive at
home. Could she get Medicaid to pay for the nursing home?"
"Dad has Medicare, but they say that his coverage is about to run out. I thought Medicare covered health care needs for seniors!"
If you haven't heard those questions, you will soon. The number of Americans, including Utahns, who are entering retirement age as "baby-boomers" mature, is cause for
study.
Medicare and Medicaid2 are often confused, but they are different programs and the distinctions are crucially important.
Medicare is federally established insurance covering health care costs for persons age 65 or over and eligible for retirement benefits under the Social Security program (or who
have received disability benefits for more than two years or suffer end-stage renal disease). Medicare is available to all within those "covered" groups - regardless
of income, assets, resources, investments, retirement benefits from IRAs, 401(k)s, or anything else. Medicare is funded by contributions from workers (in the form of their
FICA taxes or "self-employment" taxes); insureds pay a premium each month ($50.00 during 2001) for a portion of the coverage. Medicare does not cover every medical
situation; suffice it to say that it does not cover the expenses of long-term care in a "nursing home."
Medicaid, on the other hand, is a joint federal- and state-funded program that provides healthcare coverage for persons of modest means. But not for all persons. Coverage is
available to persons who are blind or disabled - and for persons who are aged.
One who is age 65 or over, is "aged."
A typical 73-year old nursing home patient fits within a category of persons (aged) who are possibly covered by the Medicaid program. If the patient is poor, Medicaid can pay
her nursing home costs. Consider, then, a female patient; her spouse is alive, residing in their marital home (he is referred to in the Medicaid statute and regulations as the
"community spouse" - i.e., the spouse residing in the community).
Prior to Congress' 1998 enactment of the Medicare Catastrophic Coverage Act, (MCCA or "mecca"), the community spouse would be impoverished before the nursing home
patient could be found eligible for Medicaid coverage. Mecca changed that, and although the Medicare portions were later repealed, the "Spousal Impoverishment"
provisions remain the law. The provisions protect the community spouse, at least to some extent, from himself becoming impoverished and a charge upon the state.
The Spousal Impoverishment provisions treat the couple's assets and income as if they reside in a modified "community property" state. Assets of each are considered
assets of both; income of the wife (the institutionalized spouse) may be considered to be income of her husband - although his would not be counted as hers in determining
whether she is eligible.
Who is likely to need Medicaid's assistance to pay nursing home costs? As of the date of this writing, for each patient covered, Medicaid pays up to $3,118 for long-term care
(that's called the Medicaid reimbursement rate). A patient who enjoys an income greater than that does not "need" Medicaid coverage - but if her spouse at home has
no source of income, he might need some of hers to survive. Medicaid could be an important source of coverage of her nursing home costs.
Assuming that the patient needs Medicaid's assistance, the income of the couple is treated thus: The patient keeps $45 (allotted from her own income, if she has any) for her
personal needs ("PNA") each month (to cover such items as clothing, or having her hair done every couple of weeks). Her husband, the community spouse, will be able
to keep all of his own income, no matter how high it is. If his income is less than $1,407 per month3,
he will be able to claim some, even as much as all but that $45 PNA, of his wife's monthly income so that his income is at least $1,407. (But if both incomes combined are less
than $1,407 the community spouse can get only the combined amount.) If the community spouse has extraordinary shelter costs, he will be able to claim more of his spouse's
income. If he receives any portion of his wife's income, his total income, including what he keeps of his wife's income, cannot exceed $2,175 per month, unless a court order
mandates that he receive more, or he successfully convinces an administrative law judge to increase the amount. Whatever remains of the patient's income is paid to the nursing
home; the balance of the nursing home costs are paid by Medicaid.
Assets are more complicated. "Assets" refers to all resources owned by the couple or either of them - anything of value that could be converted to cash.
Some assets are not counted in determining eligibility: the home in which the community spouse resides, for example. (Of interest in rural Utah - the "home" includes
the land it sits on, no matter how extensive the acreage and no matter the total value, so long as the property is one contiguous lot not divided by another's property (except
if the divider is, for example, a public roadway).) A pre-paid burial plan (worth not in excess of $7,000) and a burial plot are not counted; household goods worth up to
$2,000. One motor vehicle per household, worth up to $4,500 is not counted. The value of the vehicle does not matter if it is used for employment, or at least four times per
year to get health care (visit the doctor, go to the hospital, etc.), or it is modified for a handicapped person, or the family lives in an area without public transportation
and needs the vehicle for daily activities.
Also not counted: assets necessary for employment, including self-employment; and up to $6,000 in equity value in other assets, such as rental property and livestock, if the
asset results in a 6% return per year. (Such an asset may still be exempt if the lack of a 6% return is unavoidable.)
This is only a summary of the most important rules. Not covered here: lump sum payments received from Social Security, or from the sale of a house, since lump sum payments must
be evaluated specially; special Native American assets; payments received for destroyed property. These, too, must be specially evaluated. If a home is sold on contract, both
the value of the contract itself and the monthly payments will be exempt as long as the income is used to purchase another home; to the extent income from the contract exceeds
payments for the new home, income will be counted. But if no new home (house, condo, mobile home) is to be purchased with the proceeds from the sale, the fair market value of
the contract will be counted as an asset for purposes of Medicaid eligibility. Other contracts having some fair market value that pay monthly income will be treated as assets,
as well.
Under the current rules, applicable to persons admitted (or readmitted following at least a 30-day discharge) to nursing facilities on and after October 1, 1989, the value of
all the assets of both spouses are added together, excluding only those assets not counted by Medicaid, such as the value of a residence. The timing for the valuation is the
date of the institutionalized spouse's entry into the facility, whether or not that spouse is then eligible for Medicaid.
The community spouse is presumed to own: (a) all of the assets, if the total is less than $17,400; (b) $17,400, if the total is between $17,400 and $34,800; (c) half of the
assets, if the total is between $34,800 and $174,000; and, (d) $87,000 if the total is above $174,000. It does not matter who legally owns the assets; the community spouse is
apportioned these amounts by federal law. The remainder of the combined assets are imputed to the institutionalized spouse. In other words, this federal law divides the
marital property and establishes a rebuttable presumption that some of the marital property may be available for the institutionalized spouse's health care costs. Utah has
adopted the most restrictive guidelines allowed under the federal rules; a state may permit the community spouse to keep all of the combined assets up to $87,000 instead of
requiring that lesser amounts be split. Other states have adopted varying positions between the maximum and the minimum.
Under state rules adopted in early 1991 additions to the wealth of either spouse after one spouse enters a nursing facility but before that spouse becomes eligible for Medicaid
are always considered as part of the institutionalized spouse's assets, thereby delaying that spouse's eligibility for Medicaid. Moreover, Utah's rules now explicitly
disregard prenuptial agreements when assessing the assets of the spouses.
The institutionalized spouse may not have more than $2,000 in liquid assets and still be eligible for Medicaid. (Note, however, that many non-liquid assets, like burial funds,
are counted toward the liquid asset limit.) If the assets imputed to the institutionalized spouse exceed Medicaid's limitations, she will not be eligible until the assets are
spent to below the $2,000 limit, perhaps by paying for nursing home care for some time.
Perhaps the most troubling provisions of the Medicaid program are the so-called "transfer of assets" rules. "Troubling" because these rules are beyond the
usual radar coverage of estate planners. Running afoul of the rules is easy, and can be costly for clients.4 Congress has changed the rules many times regarding uncompensated transfers of assets, that is, "gift giving."
Congress wants to stop people from giving away their life savings or their homes and then applying for Medicaid. To achieve its goal, Congress established this presumption:
Whenever someone gives away an asset for less than the asset's fair market value, the law presumes that the donor gave the asset away to deplete her net worth in order to
become eligible for Medicaid's help in paying nursing home costs. This presumption lasts for up to 36 months after the date of the gift. The presumption is invoked when a
person applies for Medicaid's help to pay nursing home costs.
The rules apply when someone gives away a valuable asset, including a home; the rules do not apply to exchanges of fair market values, such as the sale of a home, or trading in
one car on another. And gifts can be given to certain people without causing a Medicaid problem.
The current rule against uncompensated transfers calls for a 36-month look-back period, except in the case of trusts for which a 60 month (5 year) look-back period is used. All
gifts given by a Medicaid applicant or the applicant's spouse within 3 years prior to application for Medicaid coverage will cause a problem. The potential period of
ineligibility is determined by the value of the gift. The period is calculated by dividing the uncompensated value of the gift by the state's current Medicaid reimbursement
rate - the $3118 described above (an amount unchanged since October, 1999). There is no limit to the period of ineligibility; the uncompensated value of the gift controls.
Annuities are treated in a new and extensive section of the regulations - they are fraught with unseen dangers for practitioners. They may be treated as assets; there may have
been an "uncompensated transfer" to create the annuity; the income could be allocated other than as the estate planner envisioned.
The presumption of "improper motive" may not seem harmful, until it is coupled with another provision of the law: if any of the motives for the gift giving was to
make the donor eligible for Medicaid, the donor will be found to be ineligible for Medicaid's help paying nursing home costs. A $125,000 transfer made 7/1/01 would result in a
period of ineligibility lasting 40 months (7/1/01 through 10/31/2004), based upon the integral quotient found by dividing $125,000 by $3,118. A $62,500 gift made at the same
time will cease to cause a problem after 20 months, even though it must be reported for 36 months.
If a person transfers $125,000 on 7/1/01 and the same amount on 12/1/01, then waits and applies for Medicaid on 6/1/04, she would still be ineligible for a very long time
because sanctions run consecutively, not concurrently. In this example, the second 40-month sanction period would not begin to run until 11/1/2004, making the individual
ineligible until March 2008. (If the individual waits until August 2004 to file the initial application, however, the 7/01 gift would be uncountable; only the 12/01 gift would
be within the look-back period, causing ineligibility until 4/2005 - assuming the rules remain the same for that long! And if she waits until January 2005 to apply, there
would be no sanction period whatever.) There is no "whoops" factor: applicants cannot withdraw an application in order to let one or more gifts pass out of
Medicaid's memory.
Transfers between spouses are never presumed to be for the purpose of acquiring Medicaid eligibility, no matter what the gift is. And a parent can give anything, including the
home, to a handicapped ("dependent") child without running afoul these rules.
Special rules apply to homes. If a sibling of the person who needs nursing home care has been living in the home for at least a year and the sibling already has some title to
the home (e.g., joint tenancy between sisters), the person who needs nursing home care can give her share of the home (but not other gifts) to her sibling. A parent may give
her interest in the home to a child, but only if either the child is under age 21; or, if the child is 21 or older, the child has been living in the home and caring for the
parent for at least two years prior to the parent's need for nursing home care. The transferee cannot then give the transferred assets away to others, with few
exceptions. One exception: a community spouse can do whatever he likes with his retained assets and the home, once the institutionalized spouse becomes eligible for Medicaid,
i.e., Medicaid starts paying some of the nursing home costs. But the community spouse runs the risk of his own ineligibility for Medicaid if he gives away assets less than 36
months prior to needing help paying his own nursing home costs.
Medicaid and Medicare cover different portions of the health care needs of Americans. Medicaid is the only program that comprehensively covers the cost of nursing home care.
Planning an estate with a reliance on Medicaid requires foresight (can you know what a client will need in three years - but not a day sooner?) and caution. While the lawyer
may not go to jail, he or she may leave a client or the client's family in the lurch - a gift made today can be counted as an asset, within three years - and the gift's value
can cause an extended period of ineligibility for a patient, during which the patient's family must pay for nursing home care.
Footnotes
1. The Utah manual of eligibility regulations (see note 3) is more than two hundred pages long. Utah Legal Services
offers a 15-page flyer that gives more detail than this brief article. I have attempted here to highlight only some of the most important aspects of this complex program.
2. Medicare is codified at 42 U.S.C. ¤¤ 1395 et seq. (Title XVIII of the Social Security Act); Medicaid is codified
at 42 U.S.C. ¤¤ 1396 et seq. (Title XIX of the Social Security Act). Both are administered federally by the Health Care Financing Administration (HCFA). Federal regulations
are published at 42 CFR Parts 400 - 499. Utah administers Medicaid through the Utah Department of Health, Division of Health Care Financing. Eligibility determinations are
based on applications submitted to the Utah Department of Workforce Services (DWS). I have reached the state's eligibility regulations through the state's website at
http://sitedir.state.ut.us. Click on "State of Utah Available Infobases" and there locate the "manual" relevant to the material in this article: DWS's
Volume III-M - Medicaid Nursing Home. The federal Medicaid statute is extensive, complex, redundant, convoluted, arcane, and generally not the best bedtime reading. It may
have more exceptions upon exceptions upon exceptions even than the Internal Revenue Code.
3. That amount is scheduled to increase to $1451.25, effective July 1, 2001.
4. Congress enacted a punishment for the patient who tried unsuccessfully (i.e., who was found ineligible for
Medicaid coverage on account of the transfers) to give away assets (the "granny goes to jail" provision). That was revised to punish the estate planner who, for a
fee, arranged transfers, if the effort failed ("granny's lawyer goes to jail"). A federal District Court in New York invalidated the "lawyer" provision on
behalf of a nationwide class, on constitutional bases; then-Attorney General Janet Reno announced her intention not to enforce the statutory provision nor to appeal the court
decision.
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