New changes to Medicaid eligibility rules

by Jerrold Bartholomew

The Michigan Department of Human Services has enacted several changes to the Medicaid eligibility rules recently that impact qualification for long-term care Medicaid.

Perhaps the most important change relates to divested assets (gifts) and the calculation of penalty periods. Generally speaking, the gifting of assets results in a period of ineligibility for Medicaid long-term care. Under previous policy, returning some of the gifted assets would result in a partial cancellation of the penalty period. For example, if a long-term care Medicaid applicant had given away $61,910.00, she would ineligible for Medicaid for 10 months ($61,910.00/$6,191.00=10 months). But if that same person returned $30,955.00 ($6,191.00 x 5), the penalty would be reduced to 5 months. This former policy was known as a “partial cure” of a penalty.

Under the new policy initiated on July 1, 2008, partial cures are no longer permitted. Instead, the penalty period will only be recalculated in those instances where all gifted assets are returned to the Medicaid applicant or full value is paid for the gifted assets.

This new policy is extremely harsh to Medicaid applicants who may have transferred assets, especially if it is impossible to return the entire amount given away because the money has been spent. These issues are extremely fact-sensitive, but a smooth transition to Medicaid assistance may still be possible. This is because some of the more sophisticated gifting techniques still remain viable under the new law.

Another consideration is whether Michigan has overstepped the boundaries of Federal law with this new rule.

The Federal law on point, namely 42 USC 1396p(c)(2)(C)(iii), reads as follows:

(c) Taking into account certain transfers of assets

(2) An individual shall not be ineligible for medical assistance by reason of paragraph (1) to the extent that

(C) a satisfactory showing is made to the State (in accordance with regulations promulgated by the Secretary) that

(iii) all assets transferred for less than fair market value have been returned to the individual; or

I have clipped the appropriate sections above in order to make a complete sentence and placed the key phrases in bold. The question is whether “to the extent that” controls the phrase “all assets”. If so, the federal law requires states to allow partial cures of divestment penalties. On the other hand, if “all assets” is allowed to stand on its own, then the Michigan Department of Community Health has reasonably construed the federal statute. As a general rule of statutory construction, no interpretation that renders any phrase meaningless is a proper reading of a statute. Michigan’s interpretation of this rule that ignores the phrase “to the extent that” would generally be considered an improper reading of the law.

Michigan is in the minority of states to adopt the second, less favorable interpretation of this statute. Notes provided along with the amendment indicate that the policy change is in order to “bring the eligibility manual into compliance with the Federal regulations.” But as noted above, the federal statute on point is at least unclear and more reasonably read to require partial cures.

Medicaid applicants caught in the trap of having divested assets within the look back period that have now been spent or are otherwise unavailable will either have to find a way to cover the difference, seek a hardship waiver, which is extremely rare, or seek to challenge the state’s interpretation of the federal law. With regard to the first option, seeking a way to cover the difference, there are several planning opportunities that would, in a sense, stretch assets to cover the penalty period. But timely action and the proper timing of a Medicaid application would be necessary for these strategies to work.

For those now planning for their future needs, it is imperative to seek the advice of an elder law attorney well-versed in these issues.

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