Earlier this fall, Michigan legislators considered a new proposal calling for a 3% tax on physicians’ gross revenues, a move which would allow Michigan to raise its low Medicaid re-imbursement rates by 4% across the board. The proposal, as it turns out, ignited a firestorm of opposition, with several hundred doctors and others in the medical community organizing in protest at the Capitol in Lansing. The bill was quickly killed in the Michigan Senate by a 32-4 vote following earlier passage in the House.

In the wake of that bill’s defeat came a sucker punch for those providers who accept Medicaid payments: an 8% reduction in the already-low rates.

The cut comes on the heels of a 4% rate reduction in July, making Michigan Medicaid re-imbursement rates just 55% of private insurance rates, and 50% of Medicare rates. Readers can find a synopsis of the rate changes on the AMA’s American Medical News website, as well as budget changes discussed here, here and here.

So how does this impact consumers?

Unfortunately, Michigan residents already face difficulty finding quality medical care that Medicaid will cover. Now fewer and fewer physicians will be able to serve patients receiving Medicaid coverage without going out of business. In short, this added rate reduction will further intensify the problem of access to quality care and scarcity of providers.

Those receiving long-term care Medicaid should not notice significant changes to their care, but Michigan’s 400 or so nursing homes will surely feel the sting of major revenue reductions (after all, a full 69% of nursing home residents rely on long-term care Medicaid to cover their nursing home expenses for some portion of their care). This means that placement in a quality facility will become more and more challenging as nursing homes throughout the state struggle to stay in the black. That makes working for a quality placement with an elder care team of professionals – an elder law attorney, geriatric care manager and/or social worker – more important than ever.

It also remains to be seen whether nursing homes adjust their private pay rates to help offset Medicaid losses. If they do – and it’s difficult to imagine how they can avoid doing so – planning ahead will be increasingly important as private pay rates consume family resources that much more quickly.

This week we celebrate Thanksgiving and already the end of 2009 is in sight. For many, especially in Michigan, this year will conclude with a sense of “good riddance.” And yet, particularly this week, we re-kindle that spirit of gratitude that helps to bind our families and our country. We count our blessings, look past each others’ weaknesses, and spend a brief time sharing laughter, memories and good food. We also find ourselves in stolen moments contemplating our priorities, our plans, and the future. It’s a funny thing how memories and merry-making so often turn our thoughts to the future. And so it is that the life and love of this season spur us to get our houses in order and plan for our loved ones and for our own future needs. This mindfulness is prudent and provident, and we are thankful for these gentle, natural nudges the season provides. Happy Thanksgiving to you and yours from Priority Elder Law & Estate Planning!

Many people develop and execute a tax plan between now and the end of the year. With just about seven weeks remaining in the year, it is time to move quickly.

But very few people need to plan their gifting for tax purposes anymore. With the estate tax being eliminated in 2010 and the estate tax exemption at $3.5 Million in 2009, there is very little tax planning to do anymore. The current $13,000.00 per person per year gift exclusion actually impacts very few people.

What is much more likely to be an issue is the 5 year look back period on all gifts for Medicaid purposes. What that means is that any gifts to family members can be reviewed in the event of needing long term care for up to five years. End of year planning should really be focused on protecting both an estate and gifts from the estate from the cost of long term care.

Think about the situation this way: gifts that you give now can be reviewed for up to five year in the event that you need long term care. If it is found that you have given a gift, your beneficiary could be asked to return that money in order to pay for your long term care. That is because Medicaid will not cover your expenses for a period time equal to the gifts you have given away within five years of qualifying for Medicaid divided by the average monthly cost of care. For Michigan residents, the monthly cost of care is $6,326.00 according to the state. That means that a gift of $31,810.00 will result in six months of ineligibility for Medicaid.

One way to avoid this problem is to create a family trust in advance of needing care. A properly drafted trust can help to protect assets, provide you with control of those assets, and avoid the concerns of penalties and look-back periods.

Caring for a senior gets complicated quickly. Even assuming that an ideal care regiment can be identified, financing that care, locating resources and working out the logistics of transportation, insurance and personalities can be more than a full time job. For these reasons, it is helpful to turn to a geriatric care manager. Geriatric care managers specialize full-time in the evaluation of seniors’ medical needs and the navigation of the healthcare system, and can even often provide “insider” knowledge of the options available. While a geriatric care manager’s services are generally not covered by insurance, they can certainly earn their keep by saving time that would otherwise be spent locating and evaluating resources. For busy baby-boomers with children and careers, money invested in a geriatric care manager can pay dividends in both time and peace of mind, while often, most importantly, securing better quality care for the aging loved one.

A recent New York Times article (“When Elder Care Problems Escalate, You Can Hire an Expert”) highlights several other ways a geriatric care manager can be helpful. For instance, being a trained, third party professional has its own value: “My mom doesn’t listen to us, but she listens to Audrey, [our geriatric care manager].” If the geriatric care manager can cut through the often complex emotional subtext of a family care-giving situation, she can provide tremendous value and peace of mind to families with acute elder care needs.  Indeed, in my own practice, I have often seen relationships deteriorate as family members second-guess each other and argue about care options.  Frequently it helps very much to have an objective third-party opinion that is both knowledgeable and outside of the family circle (the members of whom often stand to benefit from various courses of action).  As the Times suggests:

That is another great reason to use a care manager: they can play the bad cop, persuading the older person to stop driving or insisting that an aide move in, so you don’t have to.

That person can also be the voice of reason when a family is not seeing eye to eye. Reesa Tansey and her siblings agreed that their mother, Ruth Tansey Goldberg, should age at her home in Los Angeles. But their mother’s husband — their stepfather — did not think that was a good option for him or for her.

Mrs. Goldberg, 85, was suffering from Alzheimer’s, but her husband, 84, was going to work each day and still able to golf with his friends.

Bunni Dybnis, a care manager based in Los Angeles, helped the children navigate the complicated terrain. At first, Ms. Dybnis arranged for 24-hour home care for Mrs. Goldberg. When Mr. Goldberg concluded that his wife would be better off living elsewhere with more stimulation, Ms. Dybnis helped the family find a reliable and intimate residential home for Mrs. Goldberg to move to.

“This wasn’t our first choice,” Ms. Tansey, who lives in Berkeley, said. “But Bunni helped make it all work out. We never felt like we were drowning.”

A geriatric manager can swoop in, figure out what needs fixing and move on to the next case. Or the manager can provide continuing support for situations that cannot be resolved quickly. Because care managers charge by the hour — typically $50 to $200 — what you pay will be based on how long you choose to keep them on the case.

Ultimately, while the family is still where the buck stops and where that very important love and commitment exist for the elder family member, an elder care team that includes a geriatric care manager as well as a physician and elder law attorney, make navigating the transitions that come so quickly in the later years a manageable – and often an even joyful – task.

I would like to take a moment to address what I believe to be a huge misconception – if not deception – by some in the elder care industry: that the ranks of seniors today are on the brink of exploding due to Baby Boomers crossing the threshold to the elder world of significant physical and mental decline, limited mobility and difficulty with the tasks of daily living. Let’s be honest: There is no such boom! It is really a wonderful bit of news that Americans are living longer and longer, with life expectancies now hitting unprecedented highs of upper 70’s or even 80’s in the case of some demographic groups. But, truth be told, this means that the Boomers – allegedly on the cusp of their twilight years – are really decades away from their final days. That is a great blessing and a product of our countless advances in science – pharmaceutical advances, early screenings and therapies, and lifestyle adjustments. In my own practice I see day in and day out that the Baby Boomers who reach out to me are contacting regarding their aging parents who are now in their 70’s, 80’s and 90’s. They are the children, not the seniors!

In his insightful book, The Age Curve, Kenneth Gronbach demonstrates that the elder care world is mistaken in believing that a tidal wave of newly baptized seniors is just around the corner. In fact, he argues, the whole industry is a couple of decades ahead of schedule in scrambling to build assisted living facilities and making similar preparations for the imminent onslaught. One only need be 50 to join AARP, the American Association of Retired Persons –a rather outdated age given the climbing life expectancy and increased quality of life we are seeing for seniors well into their seventies, eighties and nineties. A 50-year-old these days might easily still be taking care of a beloved grandparent! So much for talking points on the “sandwich generation” – it’s not quite that simple!

Americans continue to age, of course; it’s simply that we are not seeing tangible declines in well-being, health and overall quality of life until much later than the common wisdom – or the industry – might suggest. In some ways, this doesn’t make anything easier for families. There may be a larger network of family members to care for the aging loved one, since grandchildren may more easily be available as adults to care for an elder. But that doesn’t make it any less stressful for the family or the elder, especially in light of the disconnectedness that characterizes so many American families in our age. Furthermore, extended lifetimes can mean extended costs, especially where debilitating diseases such as Alzheimer’s or Parkinson’s impact the extent and duration of caregiving. Critical end-of-life conversations and financial preparations still need to take place, and are perhaps more important than ever. We just need to be honest about the timetable.

Many people have heard of the annual exclusion for gift tax, but there are several points on this issue that are easily confused. In order for an estate plan to be effective, various concepts must be taken into account. First, for most people gift tax will never be a concern. While it is true that there is a limit ($13,000.00 per person per year) that can be gifted each year without technically requiring a gift tax return, you must exceed $1 million in gifts above the annual exclusion during your lifetime before you will actually have to pay any gift tax. Estate tax will only apply to estates with more than $3.5 million in 2009 and there will be no estate tax in 2010. In 2011, the estate tax exemption is scheduled to go down to $1 million per estate. So these rules apply to very few people. The problem is that many people hear about these rules and believe that they apply to the Medicaid gifting rules.

Nursing home Medicaid rules in Michigan about gifting are completely separate from the tax concerns. For Medicaid purposes, any gifts made within five years of needing nursing home care will cause the state to deny Medicaid benefits for a period of time equal to the total gifts given divided by the average monthly cost of care. For 2009, that number is $6,362.00. So for example, if someone gave away $63,620.00, they would not receive state assistance with the cost of long-term care for 10 months.

On the often related issues issues of gifting, Medicaid, and taxes, it is very important to understand that giving away appreciating assets during your lifetime can have dramatic tax consequences. When an asset that increases in value is sold, there can be capital gains tax on the difference between the purchase price and the sale price. If an asset is given away at a person’s death, the person receiving that gift only has to pay a tax on the increase in value after the original owner’s death, not on the increase in value since purchase, regardless of whether the asset passes through probate or a revocable living trust. It is therefore important to consider tax consequences when doing any Medicaid planning. Gifting to a trust can typically eliminate the negative tax consequences of gifting during life while at the same time protecting the asset from the cost of long-term care.

Many people are not aware that long-term care costs are tax deductible medical expenses. Nursing home costs, defined as “necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services” for the care of a chronically ill individual and prescribed by a licensed health care practitioner, are fully deductible. Additionally, assisted living expenses can also be deducted under many circumstances. For those who are using tax-differed assets to pay for care, the savings of this deduction can be especially substantial. Discerning which expenses are tax deductible can be tricky. You should consult with your accountant or a Detroit area elder law attorney to be sure you receive your full deduction.

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.

Dying without a will, or intestate, means that your estate will be distributed according to the default provisions of state law. For a variety of reasons, this can make the administration of your estate take longer, cost more, and create divisions within a family. Why? Without an up to date will, it is easy for arguments to arise about your true intentions. Furthermore, simply going through the probate process will require payment of an inventory fee and compliance with state law regarding the administration of your estate. State procedures can often be cumbersome and time-consuming. Creating a will is a simple step toward taking responsibility for your affairs and reducing the turmoil that can result for your survivors from an unplanned estate.

The Department of Human Services for the State of Michigan has announced new numbers for 2009. Every year the numbers concerning Medicaid eligibility for long-term care are adjusted to reflect increases in the cost of living.

The new community spouse resource allowance is a minimum of $21,912.00 and a maximum of $109,560.00. This number is important for married persons with a spouse in the nursing home. It determines how much in cash and otherwise non-exempt assets the spouse living in the community will have to spend down before qualifying for Medicaid.

The community spouse income allowance, which is the income that the community spouse can keep each month and not have to pay to the nursing home has been increased from a minimum of $1,750.00 to $2,739.00. The new utility allowance (which provides additional income protection for the community spouse above the minimum protected amount) is $550.00 per month. However, it is important to note that these numbers do not adjust until April of this year.

Initially the state of Michigan did not include a new divestment penalty divisor in the 2009 figures. After much prodding by the elder law bar, it has been announced that the new penalty divisor is $6,362.00. What that means is that for every $6,362.00 gifted by a nursing home patient within the look back period, the state will withhold nursing home care for 1 month. So if a senior has given away $63,620.00 during 2009 and needs nursing home care, the state will impose a penalty of 10 months.

For many seniors, these numbers may be discouraging: particularly those related to the community spouse. DHS will require an unadvised senior to spend down to ½ of the family’s total assets with a maximum of $109,560.00 before qualifying for Medicaid. Furthermore, the income allowance is very seldom any higher than $1,750.00 based on cost of living expenses alone. With effective advocacy, however, it is not uncommon for these figures to be increased by court order.