When both spouses of a married couple need nursing home care, the most immediate result is a catastrophic bill of $12,000.00 per month or more. Without the advice of an elder law attorney, the couple will continue to spend down assets until their assets reach just $4,000.00 in cash. Substantially better results can be achieved with some planning, but understanding how to proceed in these circumstances is a delicate matter. The rules are counter-intuitive.

Michigan’s Program Eligibility Manual (which is used by the Department of Human Services to determine eligibility for Medicaid) does not have any clear policies on point to help families facing this situation. The rules allowing a healthy spouse to shelter assets above $2,000.00 do not apply because both spouses are in the nursing home. There is therefore no community spouse.

If any assets are transferred, it appears that the couple will face a shared penalty. What this means is that if the couple were to divest $63,260.00, they would both face a penalty of five months each ($63,260 / $6,326.00=ten months. But divide by two because of the shared penalty). The shared penalty rules are discussed at PEM 405, p11 and read as follows:

A client can be penalized if he or his spouse divests. The penalty is

imposed on whichever spouse is in a “Penalty Situation.” If both

spouses are in a penalty situation, the penalty period (or any remaining

part) must be divided between them.

Example: Mr. Brown is in LTC and under a divestment penalty for 1/1/

04 through 12/31/05. On 9/9/04, Mrs. Brown enters LTC and applies for

MA. She is eligible for MA starting in September. There are 16 months

of penalty left (9/04 – 12/05). Each spouse must serve 8 months. Mr.

Brown’s penalty is now 1/1/04 through 4/30/05. Mrs. Brown’s penalty is

9/1/04 through 4/30/05.

At the outset, I would mention that having the spouses share the penalty makes sense on an intuitive level. But we should expect a little more from the government. The actual rules controlling this situation are not what one would expect.

When two spouses are in the nursing home, it does not follow that gifts by one will result in penalties for both. This is because two spouses in a nursing home are treated as financially separate for purposes of Medicaid eligibility.

When determining financial eligibility for Medicaid, it is important to determine whose assets and income will be counted. There are different rules for making this determination depending on the type of Medicaid for which one is applying. For SSI-related MA, it is clear that the general rule is that an adult applicant forms a fiscal and asset group of one. Fiscal group rules are generally designed to impose financial responsibility among non-traditional living arrangements. But for L/H Patients, there is a clear exception “even if he lives with his spouse.” In other words, no rule to create financial responsibility between spouses will generally be imposed, even if they live together (which is the broadest net DHS casts for capturing assets). The rules prohibit expanding the fiscal group for SSI-related Medicaid where one person who generally lives in the same household is in long term care-and an intention to return to the household is specifically mentioned as not being an exception to this policy. Here is the relevant rule (PEM 211, p5):

SSI-Related Adult SSI-Related MA

An adult’s fiscal and asset groups are:

• The adult for an L/H patient, a waiver patient (see PEM 106) and a

Freedom to Work customer even if he lives with his spouse.

Exception: When PEM 402 instructs you to determine a couple’s

countable assets for an “INITIAL ASSET ASSESSMENT” or “Initial

Eligibility,” the L/H or waiver patient and his community spouse are

considered an asset group.

In other words, when two spouses are in the nursing home, each long term care resident is a separate applicant for Medicaid. PEM 402 (the community spouse rules) are an exception to this rule. But where both spouses are in the nursing home, they are separate fiscal groups (of one).

On a practical level, this means that one spouse can qualify for Medicaid while the other spouse carries out asset protection planning. While asset protection planning for one in the nursing home generally means carefully managing a penalty period, it is nonetheless possible to protect a significant portion of a married couple’s estate from the enormous expense of two nursing home stays.

Many veterans are unaware of the Aid and Attendance Pension that is available to help them with their medical expenses, which include the cost of assisted living. Some veterans are simply unaware of this benefit. Others have been told that they do not qualify based on “having too much money.” It is important to understand the scope of the Aid and Attendance pension as a starting point. It is also important to realize that veterans who meet the service requirement and who have significant, reoccurring medical expenses can be eligible for this valuable and well-deserved benefit with proper estate planning.

The aid and attendance pension is available to veterans who served during a time of war. It is not necessary to have participated in combat, but simply to have been in the military during a time of war. In addition to the service requirement, it is also necessary to be medically eligible and to meet the income and asset test.

Medical eligibility generally means that the veteran needs assistance with activities of daily living, such as grooming or eating. This requirement is often fairly easily met.

Finally, there are the income and asset tests. The income and asset tests can be the most difficult barrier to qualification for the aid and attendance pension. Among other things, the successful applicant will need to show that reoccurring medical expenses along with standard expenses of daily living exceed monthly income. Regarding assets, there are no hard and fast rules, but having more than $80,000.00 in cash or readily available assets is likely to disqualify a married applicant.

An elder law attorney can accelerate qualification for an otherwise eligible veteran who exceeds the asset or income thresholds. The asset test can be satisfied by use of an asset protection trust. This will allow assets to be preserved for future needs without interfering with qualification for benefits. Moreover, a plan of this kind will facilitate qualification for Medicaid in the future in case nursing home care is required.

Successful applicants for the Aid and Attendance Pension can receive more than $1,800.00 per month in assistance. This money, when combined with the social security and perhaps a pension, is often enough to pay for assisted living and to prolong assets almost indefinitely.

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.

Sue Schiebel has written an excellent article on Medicaid Planning. While her article concerns MassHealth, which is the Massachusetts Medicaid program, the rules and ideas explained are the same in Michigan. She writes:

A lot of middle-aged people don’t realize Medicare, the federal health insurance program, pays for a very limited amount of skilled nursing home care. As we live longer, that means more of us will have to spend our own money for long-term care or must rely on MassHealth, the state health insurance for low income people. Many people wind up doing both — first using up many of their own assets to “spend down” to Medicaid limits so they are financially eligible for state help.

Medicaid qualification is a complex area of the law. To highlight just one counter-intuitive aspect, consider that donations to a church or charity are treated as gifts under the law. One making such a gift is technically creating a period of ineligibility for Medicaid. Strictly speaking, a person making significant donations to a church could be ineligible for Medicaid for several months after all other assets have been spent down. An elder law attorney helps families cope with these bizarre rules and avoid such unfortunate results.

Retirement assets (401ks, IRAs, etc) are considered available assets for purposes of Medicaid qualification in Michigan. In simple terms, that means that those funds have to be spent down until the threshold for asset eligibility is met. In the case of a single person, asset eligibility is generally about $2,000.00, with some additional allowances for the homestead, modest life insurance and funeral expenses. In the case of a married person, the threshold is higher, and will be between $20,880.00 and $104,400.00, depending on the couple’s assets before entering the nursing home. For more details, see The Basics of Medicaid Qualification, below.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Retirement assets present some of the most difficult problems in elder law, but there are solutions. With some intricate planning, one can use a solely for the benefit of trust, for example to preserve the tax-deferred funds and obtain qualification. This is an important alternative for families to consider so that retirement assets are not unnecessarily depleted by the cost of long-term care or restricted to minimal returns and subjected to estate recovery.

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.

Various Medicaid Applications can be found here. Even a brief glance at this page will show the breadth and complexity of the many programs and types of assistance available.

If you are looking for the application for a patient in a nursing home, it is DHS-4574. If a married person is applying on behalf of his or her institutionalized spouse, it is also necessary to file an Asset Declaration, which is form DHS-4574B.

It is important to recognize that the Asset Declaration is used by the Department of Human Services to look at assets as of the first day the institutionalized spouse entered the hospital or nursing home. This date is called the “snap shot date.” It is the baseline used to determine how much the non-institutionalized spouse will be able to keep. For example, a couple with $150,000.00 in countable assets as of the snap shot date will qualify for Medicaid when their combined assets are reduced to $75,000.00. An elder law attorney will help the couple to reduce the countable assets as quickly as possible while preserving the value of those assets. In many cases, the entire amount over the limit can be preserved for the benefit of the spouse at home with proper advice.

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.

This policy change is troubling is several respects. First, it certainly defeats a common sense understanding of justice and fair play to change the rules retroactively, particularly where the financial consequences can be so significant. The law changed in October of 2007, but it applies to all annuities purchased or changed more than a year and half before the new policy was announced. Annuities not in compliance with the new policy can be considered a divestment–just as though the money used to purchase the annuity had been given away. So, for example, a $60,000.00 annuity could result in more than 10 months of ineligibility for Medicaid and under the new law, this penalty time would not begin to run until the purchaser was otherwise out of money and in the nursing home.

Second, this policy change–with all of its harsh consequences–is not necessarily understood by those selling and recommending annuities. Even today, annuities are still being sold with the idea that they will help one to qualify for nursing home care. But for many annuities, just the opposite is true. How many annuities are likely to be sold with Michigan as a remainder beneficiary? Would you invest your money that way? Many annuities will actually prevent qualification and it may be extremely difficult or impossible to undo the transaction. With nursing home costs averaging $6,500.00 per month or more, the problem is widespread and troubling.

The lesson here is that Medicaid policy is potentially an issue for almost everyone at or approaching retirement age. It is important to consult with an elder law attorney before making any long term decisions on annuities or other financial products. The impact on Medicaid qualification may surprise you.

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.

Today, one should expect to have every aspect of a Medicaid application scrutinized and one should be prepared to provide timely and extensive documentation of all assets and recent transactions. Michigan is still fairly mild in its requirements alongside states like New York, which according to some reports requires a full five years of bank records and an explanation of all transactions over $1,000.00. But Michigan has tightened requirements considerably.

You should expect to have to provide third party documentation (statements from financial institutions and the like) for all significant assets. If asset conversion is being employed, expect to have to show what the asset was both before and after the conversion.

The trick here is that financial institutions move slowly and often with indifference to the fact that time is money–$6,500.00 a month or more in most cases. Sometimes it makes sense to cash in small insurance policies before long term care is an issue, just to avoid having a life insurance policy with a cash value of $2,400.00 put the nursing home patient over the asset limit and prevent qualification for Medicaid for a month or more.

Furthermore, an elder law attorney can often earn his keep just by knowing how to move quickly when a nursing home crisis strikes.

Pre-planning for long term care or nursing home care is always best. It is at that point that assets can be consolidated to allow for nimble reactions to changing circumstances.

But above all, gather your documents now. Birth certificates (to prove citizenship), a marriage license, discharge papers, deeds to real estate, etc. You will need all of these things for a Medicaid application and you will need them when you have many more important things to worry about. See this page for a complete list.

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?”

The durable power of attorney is clearly susceptible to abuse. When another can act with full authority on your behalf, it is entirely possible that the power will be used to make self-interested transactions or even unauthorized gifts to the agent.

But if a trustworthy agent can be found, the power of attorney can save countless hours of worry, avoid dissipation of an estate (what would happen if no one paid your heating bill over the winter?) and, most importantly, avoid the need for probate court orders to handle your affairs. The durable power of attorney is worth the modest fee charged by most attorneys but, for what it is worth, here is a blank durable power of attorney form for free.

You should understand that a free form is not a substitute for an attorneys advice. Moreover, a typical form will not allow some of the more nuanced maneuvers that are necessary for accelerated Medicaid qualification. Also, you should understand that estate recovery avoidance techniques will typically require some form of planning for after one’s death.

Nonetheless, this form will work to appoint someone to pay your electric bill when you are not able to and that is certainly worth something. You should read the warnings very carefully on the linked page and understand that reading a blog and printing out a form is no sense a substitute for consulting with an attorney. Moreover, please understand that I have posted this link to be helpful. You and I are not entering into an attorney-client relationship at this time. See the disclaimer below.