Beginning to Understand Medicaid

Recently we began to address Medicaid eligibility and whether Medicaid is appropriate for a client’s circumstances. We choose to start our discussion of Medicaid from that perspective because the rules that govern Medicaid do not lend themselves to a simple explanation blog and frequently clients realize that coverage under Medicaid is inappropriate to their circumstance and therefore we do not explore the details of qualifying for benefits. For those for whom Medicaid coverage may be important this blog expands on Medicaid and discusses some of the rules that govern eligibility.

When discussing the complexity of qualifying for Medicaid benefits it is helpful to start with a clear definition. Medicaid is a government program implemented to ensure that essential healthcare services are available to those whose income and resources are insufficient to address the costs of the services. Medicaid is funded with a combination of Federal and State funds and subject to Federal Law and Regulation, but administered by the States according to Rules that vary from State to State. The collected rules governing Medicaid have generously been referred to as “convoluted and often incomprehensible” by institutions including a Federal Appellate Court. This complexity includes thousands of pages across multiple documents including legislation, regulations, rules, and policies. Much, but not all of, this complexity can be boiled down into three primary requirements:

1. A Medical/Functional Eligibility Test,
2. An Asset Test, and
3. An Income Test.

The first criterion for qualifying for benefits under Medicaid requires the applicant to demonstrate a medical/functional eligibility. Medicaid determines medical/functional eligibility through a seven factor test and an applicant requiring assistance with any of the seven factors meets the eligibility criteria. Most Medicaid applicants satisfy this test because they require substantial assistance with daily functions including eating, toileting, bathing, dressing, and/or ambulating. While these are the most common factors, an applicant may also qualify for Medicaid because they require assistance due to memory issues, have conditions requiring substantial physician interaction, have complex daily medical treatments, or have mental health conditions.

After an applicant meets the medical/functional eligibility for Medicaid they are then subject to an Asset Test. The Asset Test is the aspect of Medicaid most individuals believe they understand and also the aspect subject to the most misconceptions. A simple summary of the Asset Test is that an unmarried applicant may have no more than $2,000 in countable assets in order to qualify for Medicaid. Since Medicaid is not simple it is important to understand the term "countable assets" exists because Medicaid exempts certain property when determining an applicant’s assets. These exemptions include the applicant's home, one vehicle, assorted household goods and personal items, certain life insurance policies, some funeral plans and expenses, and a small number of other assorted assets. An important note, while the value of these assets is not counted when determining whether an applicant meets the Asset Test, any of these assets which pass through the Probate process following the applicant's death may be claimed at by the state as part of the "estate recovery" process, which is designed to help the states for cover part of the costs of Medicaid care provided.

The application process is further complicated for a married couple, when only one spouse requires Medicaid coverage. The rules regarding asset ownership vary from state to state and therefore it is important to understand the rules in your state. In Michigan, during an initial application, the assets of both spouses are deemed to be assets of the applicant. This means that the non-applicant spouse, or Community Spouse, will likely need to “spend down” a portion of their assets in order for the applicant to qualify for Medicaid. The rules for this spend down are as complex as any other portion of Medicaid, but in short the Community Spouse is allowed to protect one half of the countable assets, but not more than $120,900 (in 2017), unless a different amount is determined pursuant to a court order.

After successfully passing these first two tests, the Income Test is likely much less daunting as it only requires that an applicant's monthly income be no greater than their monthly medical expenses. Unlike with the Asset Test, the Income Test only includes the applicant’s income when considering eligibility. Income of a Community Spouse is not counted, nor is the Community Spouse required to contribute his or her own separate income towards the cost of the applicants nursing home care. Additionally in certain circumstances the Community Spouse is granted a portion of the applicant’s income in order to assist the community spouse in maintaining assets such as the home. While this test may appear inconsequential it is important for potential Medicaid applicants to be aware of, so they do not take steps to meet the Asset Test only to learn they are ineligible because they have too much income.

Navigating all of the rules and regulations that govern Medicaid eligibility can be extremely time-consuming and there are many potential pitfalls which can result in a denial of benefits. The most common issue that causes problems with an application is when an applicant engages in a transaction that Medicaid deems to be a Divestment. A Divestment is defined as any transaction that takes place for less than fair market value in order to assist in qualifying for benefits. This includes the obvious example of giving away assets in order to meet the Asset Test, but also less obvious pitfalls including paying loved ones for assistance prior to applying for Medicaid. When an applicant engages in a prohibited transaction, Medicaid assesses a penalty, making the applicant ineligible to receive coverage despite otherwise qualifying for Medicaid. While it may appear obvious what transactions will be deemed divestments it is again critical to know that each state treats the issue of divestment differently and understanding the rules of your state is essential to avoiding the creation of a substantial problem.

As you can see, even when summarized, the rules for Medicaid eligibility are complex. Before taking any action related to Medicaid we strongly encourage our readers to consult with specialists with substantial experience in the field in order to minimize the chances of making an error that causes significant issues.

Matt and Al

The Question of Medicaid Planning

To expand upon our previous post on Gifting, today we are addressing Medicaid. Often questions regarding gifts are tangential to questions about qualifying for Medicaid. Taking time to educate clients on the benefits, and limits, of Medicaid is the first step to deciding if Medicaid is appropriate for a client's circumstances.

With the rising cost of healthcare, especially as it applies to long-term care for elderly individuals, our clients often inquire about Medicaid and its rules and limitations. While Medicaid is the “best insurance money can’t buy,” qualifying for coverage under Medicaid comes with significant asset and income limits. In addition, the facilities which accept Medicaid as a payment over private pay options are many fewer, and may be of lesser quality. Still, a common concern for clients is that significant medical costs incurred in their later years may wipe out assets they worked for their entire lives, leaving them unable to pass on any inheritance to loved ones. Questions initiated by the client, and sometimes by children worried about an inheritance, often center around protecting assets or about giving money away during lifetime.

It is important to clarify that qualifying for Medicaid is not about keeping the government from taking a person’s money, but reaching specific limits of assets before Medicaid coverage is available. In addition it is important for clients to understand that all health care is not the same and there are significant differences between providers. This is the point in most conversations about Medicaid where we discuss the differences between private-pay facilities and facilities funded primarily by Medicaid. We remind our clients that while a private-pay facility generally has a higher cost, the quality of life in those facilities tends to be markedly better. Whether because the facilities have more staff per patient, better amenities, or even simply nicer rooms, a private-pay facility is going to provide generally better care.

This conversation provides us with a gateway to remind people that the funds they will potentially spend on their care are the funds they worked hard to earn during their life. This leads to more in depth discussions about what is motivating inquiries about Medicaid and what is more important to the client, the quality of their care or passing more wealth on to their loved ones. It also provides us with the opportunity to discuss whether the client has reason to believe that they will need the types of long-term healthcare that Medicaid covers. This is because many people believe that Medicaid is an advanced version of Medicare and covers more costs than it actually covers. Often people begin asking questions about Medicaid long before they actually have need for such care and when they may never have healthcare need that Medicaid would cover.

Medicaid planning is a complex area of law with many potential benefits, but it is not something that everyone should be doing. There are a number of things that can be done to prepare a client for a potential Medicaid need, but it is first and foremost important to make sure that clients have the information they need to determine if Medicaid is appropriate to their circumstance. Even if Medicaid is appropriate, the rules that govern eligibility create many potential pitfalls for the unwary, it is important to avoid taking steps that could actually inhibit qualification for coverage in an effort to speed up coverage. As with so many things we discuss, the advice of an experienced attorney is invaluable.

Matt and Al

Limitations of Medicaid

     Recently, a number of clients have expressed interest regarding the possibility of planning to protect their retirement assets in the event they require expensive long-term medical care. Frequently these discussions include the topic of Medicaid and whether the client should give their assets in the short term to avoid Medicaid's five-year penalty period. These clients want to make sure they receive sufficient care without consuming so much of their nest egg that their spouse or other loved ones have little to nothing after they pass away. Before engaging a client in the discussion of the legal techniques used to preserve assets for a spouse or loved ones while qualifying for Medicaid, it is important to me that the client understands the potential downsides to Medicaid.

     One of the first things I ask client who inquires about qualifying for Medicaid is whether they are comfortable with the idea of leaving their home and moving into a long-term care facility. Many clients are surprised to discover that, with some minor exceptions, Medicaid only covers expenses related to long-term care in a Medicaid approved facility. This means that the client must move from their home into such a facility. This causes some clients to rethink their desire to pass on assets at their death and instead focus on using their resources for their own comfort and well-being. Even when clients are not concerned about leaving their home, many will rethink divestment plans when faced with the limitations of facilities that accept Medicaid.

     While Medicaid is sometimes referred to as the best insurance money cannot buy, there are limitations to what that insurance provides. While many quality facilities that are primarily private pay also maintain a limited number of Medicaid qualified beds, the majority of Medicaid beneficiaries live in care facilities that lack the resources to provide the level of care clients may expect. For clients with significant resources, the revelation that maintaining their assets provides additional options is another factor that reduces the desire to divest assets in order to qualify for Medicaid. When faced with moving from their home and the limitations of Medicaid care, most clients change their mind about giving away their assets and instead prefer to take steps that make further Medicaid planning possible in the event that a change in circumstances makes such planning necessary.

     This brings us back the client’s original concern that healthcare costs will consume their assets leaving nothing for surviving spouses or other loved ones. Thankfully, even when Medicaid is not immediately necessary it is possible to take steps to prepare the clients to take advantage of Medicaid if the need arises. This planning includes drafting broader Durable Powers of Attorney to provide the Attorney in Fact with the specific authority to make transfers and gifts to assist the client in qualifying for Medicaid and discussing other steps the client can take to decrease their countable assets while improving their quality of life.

     Medicaid is a complex area of law and any actions taken to assist in qualifying for Medicaid should be taken only after a consultation with an attorney familiar with the law and the clients’ particular circumstances.

Matt Ferrara

Confusion about Medicaid Planning

    In recent years, the number of seminars regarding Medicaid planning available to senior citizens has rapidly increased. While Medicaid planning is a portion of our practice, we often find that clients who believe they need Medicaid planning lack sufficient information about both the benefits of Medicaid and the Medicaid qualification process. 

     First, proper Medicaid planning does not involve assisting the client in hiding assets from the government, nor does it include any legally or ethically questionable actions. Proper Medicaid planning does include assisting clients in the Medicaid application process and using available strategies to ensure that a greater portion of the client’s assets remain available for non-Medicaid spouses or go to family members instead of getting consumed by the costs of long-term care. 

     It is important to remember that the process of qualifying for Medicaid means reducing the client’s assets and income to a very low value. Before engaging in such reductions, it is important for the client to understand what benefits Medicaid provides, because while Medicaid is often called “the best insurance money can’t buy” Medicaid qualification does mean a substantial limitation on the client’s care choices. Often, when faced with the reality of Medicaid, clients who previously expressed concern regarding what their children will inherit realize that their hard work and responsibility should result in their own increased comfort. 

     As I stated earlier, many clients come to us with Medicaid planning questions after attending a seminar presented by an “elder law” advisor. While some of these seminars provide senior citizens with good information and encourage them to explore options, there are many operated by less scrupulous individuals that exist to take advantage of seniors. When our clients ask about Medicaid planning we first discuss the scope of care choices that their current financial situation provides. Then we discuss the health issues that the client believes may lead to the need for long-term medical care. Finally, we address the scope of Medicaid benefits. Only then, if after those discussions the client is still interested in the planning process, do we begin discussion of the assets that Medicaid planning may protect for the benefit of spouses or loved ones. 

     Medicaid qualification is a complex area of law and clients should discuss any planning, gifting, or divestment of assets done in anticipation of a need for Medicaid with their advisors and attorneys in order to avoid actions that leave the client without sufficient assets and unable to qualify for Medicaid benefits.

Matt Ferrara

An Introduction to Medicaid Planning

Based on a September 2011 poll, conducted by NPR, the Robert Wood Johnson Foundation, and the Harvard School of Public Health, less than 5% of adults considered Medicaid when asked how they would pay for long-term elder care. This stunningly low number sheds light on the fact that while people are living longer and are more aware of the potential need for long-term care as they age, they are unaware of an important method of paying for that care.

Medicaid is a federal program, administered by the states, that pays for nursing home care for individuals who meet the program’s medical, income, and asset requirements. The current average yearly cost of nursing home care in Michigan exceeds $85,000 for a private room. At that rate, even a period of two to three years will deplete the savings of the average person, leaving any surviving spouse with little money to use for their own care. If however, an individual is eligible for Medicaid benefits, the program covers the majority of that cost. The phrase "Medicaid Planning" has become a catchall for the methods used to allow an individual to qualify for Medicaid benefits, while preserving a greater portion of their assets for the well-being of their loved ones.

As a potential applicant contemplates whether to engage in Medicaid planning it is important to consider to consequences and benefits of qualifying for Medicaid. The largest benefit is the applicant’s assets are not consumed by years of expensive medical bills. For a married couple, this insures that the spouse who is not in need of nursing home care has the assets to provide for their own needs. For a single applicant, Medicaid Planning can result in more of the applicant’s assets being passed on to their loved ones.

The consequences of qualifying for Medicaid include the need to leave a home and reside in a nursing home. When faced with that reality, many potential applicants realize that staying in their own home is more important than passing assets to their children. A second often forgotten consequence is that while Medicaid pays for a great deal, if an applicant needs to spend assets in order to qualify for Medicaid, those assets are not available if they are needed for some reason in the future.

Applying for Medicaid benefits is not something to engage in lightly, especially for potential applicants who presently have significant assets, which they could use to pay for care. Proper Medicaid planning is more than spending, giving away, or attempting to protect assets to reach Medicaid’s eligibility requirements. The rules governing Medicaid eligibility consider more than a person’s present financial condition and impose a penalty period of Medicaid ineligibility if the applicant divests wealth to become eligible for Medicaid. The Department of Human Services (DHS) "looks back" 60 months from the date of a person’s application for benefits to determine if that person has given away assets that would impose a penalty on eligibility. There are however ways to spend down assets legally to reach the eligibility threshold.

The first and easiest method requires the client to own a home. DHS considers a single home an exempted asset when determining whether a person meets the asset threshold for Medicaid benefits. The personal property within that home is also exempt. Therefore, a person can pay off mortgages, make necessary repairs, make improvements to the home to increase its value, and purchase new furnishings. All of these techniques are especially useful if one spouse of a married couple needs to take advantage of Medicaid. In addition to the home and personal property, a single car is an exempt asset, this is true even if the applicant never drives the car. Another item that DHS classifies as an exempt asset when determining eligibility for Medicaid, as a pre-paid funeral contract. While many people find it difficult to even think about planning their own funeral, but by taking the time to make those decisions that will eventually become necessary, a Medicaid applicant can both ease the burden on their love ones after their death and remove assets to help qualified for Medicaid.

While spending down assets is a viable method of reaching the Medicaid eligibility threshold when an applicant has few assets, there are times when an applicant desires to qualify for Medicaid, frequently because they are aware that their condition is likely to be prolonged and expensive, leaving them with nothing to pass on to their loved ones, that require more advanced planning.

While it is possible to engage in planning that will assist a potential applicant in becoming Medicaid eligible, the scope of that planning varies greatly based upon the applicant’s present circumstances. Different methods are used when the applicant has a living spouse who is not in need of Medicaid benefits than would be used for a widowed applicant. Furthermore, in a situation where both spouses will potentially require substantial long-term care, still other methods can assist in preserving more assets to pass on to beneficiaries. The complexity of this advanced planning makes it unsuitable to discuss at length in this forum. In addition, potential applicants are cautioned not to attempt such advanced planning without consulting an attorney versed in Medicaid regulations.

 Medicaid planning is a complex area of law, but one with potentially large benefits. Whether a person needs additional care in the near future or simply is aware of the potential need for that care later in life, the proper preparations today, including a complete estate plan, a plan for regular annual gifts, and understanding the pros and cons of the Medicaid program, can insure that any long-term elder care does not leave their loved ones in dire financial straits.