The process is of applying for Medicaid long term care assistance can be somewhat difficult. The documentation requirements can be voluminous and the process will typically take at least 45 days. I have seen several recent cases take as long 4 months to be approved.

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An astounding thing happened during the fall of 2007. Michigan changed its Medicaid policy with respect to annuities and implemented those changes with retroactive effect.

The new policy requires annuities to have several features in order to avoid being considered a divestment. Among the requirements is a rule that the state of Michigan must be named a remainder beneficiary to the extent of Medicaid benefits received. This law applies to all annuities purchased or altered after February 8th, 2006, the day President Bush signed the Deficit Reduction Act into law.

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Under previous Medicaid policy, applicants for long term care were given the benefit of a doubt most of the time. In some cases, a demonstrated intent to complete asset conversion, which is the process of converting non-exempt assets into exempt or excluded assets and is the heart of Medicaid planning, would be enough to pass scrutiny.

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The durable power of attorney is an extremely valuable estate plan document. It allows one person to designate an agent to conduct all financial affairs. These documents are typically durable meaning that the power continues through the disability of the principal (the person naming an agent). Alternatively, there can be springing powers of attorney, which only come into effect when the principal is incapacitated. Springing powers of attorney can be attractive in many ways since the principal’s assets remain untouchable while they can still be used and enjoyed by the principal. But many financial institutions will not honor a springing power of attorney. The apparent rationale goes like this: “You didn’t trust him while you were able to watch over your own affairs. Why should we trust him now?”

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A negative inheritance is a net loss of assets arising from the cost of caring for elderly members of one’s family. The cost of care is increasing rapidly, but that is simply a measure of the time and labor intensive nature of caring for the elderly. For some families, particularly those most devoted to the care of their aging parents, the time and expense of caring for oldest generation will outstrip the assets that are passed to the caregivers.

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This post is continuation of what I expect to be a long series on protecting the homestead of long term care patients.

Before the Deficit Reduction Act was signed in February of 2006, it was relatively easy for an elder law attorney or a well-informed layperson to set aside money to pay for the upkeep of a nursing home patient’s homestead. A simple contract could be created and assets transferred to a responsible relative who would pay for the utilities, taxes, insurance and maintenance of the nursing home patient’s home. It also used to be possible to gift a significant amount of money each month. Therefore one could simply give assets to another to keep up the home. These techniques were necessary because a person in a nursing home can generally have only $2,000.00 in cash or equivalent non-exempt assets and all but a small portion of income will go to the cost of care. Since such a small amount of money is dwarfed by property taxes alone, the policy allowing money to be set aside for homestead maintenance made sense for several reasons.

First of all, some people do return home, even after long stays in a nursing home. Second, there are significant tax benefits to waiting until one’s passing to transfer a homestead to a relative. But with the possibility of tax foreclosure or dissipation through neglect, a sale or significant financial hardship is difficult to avoid with the owner in a nursing home. Moreover, Medicaid policy considers the transfer of a homestead a divestment subject to penalty in most cases. Third, the sale of home in financial distress is a loss to an effected family, particularly in today’s troubled real estate market.

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When President Bush signed the Deficit Reduction Act of 2006, the states began to implement that law through a steady patchwork of regulations. Michigan issued revisions to Medicaid qualification rules on a quarterly basis throughout 2007 and there is no reason to think that this pace will slow down in 2008. I will be posting on a regular basis on the many recent changes that have been introduced here in Michigan, including those with retroactive effect and those pertaining to estate recovery.

This article highlights the reality that more changes in Medicaid law are forthcoming.

CMS has proposed new rules that would give states more latitude in designing their Medicaid programs. The rules, which address provisions of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006, would give states the ability to build Medicaid programs that work more like their local private health plans. CMS also has issued proposed regs, based on DRA provisions that will allow states to change premiums and cost-sharing rules.

CMS (The Center for Medicare and Medicaid Services) is a federal agency that oversees the states’ implementation of Medicare and Medicaid. For instance, Michigan has submitted its recently passed estate recovery program to CMS for approval. Whether Michigan will be allowed to use the comparatively mild form of estate recovery will depend on the opinion of CMS.

Medicare and Medicaid are hugely expensive programs and with the average cost of care in a nursing home at about $6,500.00 month in Michigan, long term care Medicaid is a particularly expensive program. It is generally encouraging that CMS is allowing states to develop programs more tailored to their particular circumstances. This may allow some states to stretch their already strained budgets a bit further. But eligibility rules for long term care Medicaid will become ever more restrictive in the near future, and, I would suggest, that if the Deficit Reduction Act is not enough to limit access to Medicaid, that further reform will be coming. This highlights the need for both pre-planning and long term care insurance.