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Medicaid Lookback Rules and Planning: The Lookback Period and Qualifying Assets Transfer Rules

By: Stacey L. Janssen, sjanssen@dysarttaylor.com, 816-931-2700

Medicaid is a welfare program established in 1965 and financed by federal and state funds to provide medical assistance to persons who do not have sufficient income or resources to pay for medical care. The Federal Department of Health and Human Services approves individual state plans for medical assistance to families, the poor, the disabled, and the aged. Administration of these plans is delegated to the Health Care Financing Administration (HCFA). Each state then has a department or departments that implement the state’s Medicaid plan.). The source of federal law for Medicaid programs is found at Title 42 of the Code of Federal Regulations (CFR), parts 430 and 456. In addition to federal law, each state has its own operating manual which codifies its state plan.

Medicaid programs vary widely state to state. This is even more true with the proliferation of Medicaid waivers granted to states.

  • FOUR TESTS FOR MEDICAID ELIGIBILITY

Medicaid should not be confused with Medicare. Medicare is an insurance program funded through payroll deductions. Medicaid is a welfare program and, as such, persons seeking eligibility will need to meet strict eligibility requirements

  • GENERAL REQUIREMENTS
     
  • Citizenship and Residency:
    • Citizens and qualified aliens are eligible, 8 USC §1641, also see 8 USC §1612.
    • States may not impose a residency time requirement or deny eligibility to an individual who has moved into an institution in that state. 42 CFR § 435.403(j), 42 CFR § 1396a®.
       
  • Categorically Needy: 42 USC § 1396a.
    Persons receiving Supplemental Security Income, Qualified Medicare Beneficiaries (QMB), Pregnant women who receive Medicaid during their pregnancy may also receive Medicaid at the end of their pregnancy, etc. The common element is financial need.
     
  • Medically Needy: 42 USC § 1396a(a)(10)(c).
    The question of a Medicaid applicant’s medical need is rarely an issue. Any Medicaid program, however, does require an underlying medical need. A disability determination by Workers’ Compensation or the Veteran’s Administration is not sufficient.

    Social Security may not determine disability because the applicant may not have worked enough quarters for disability insurance coverage. The person may also be over assets and/or income for Supplemental Security Income. If Social Security will not make a disability determination the Medicaid agency will then make the disability determination.
     
  • INCOME TEST

The general rule for income eligibility is that the Medicaid applicant’s income is not sufficient to pay for their medical expenses. Medicaid looks to the “name on the check” to determine an applicant’s income. 42 USC § 1396r-5(b). Income from joint tenancy property is divided on a pro rata basis.

Countable income is used to determine income eligibility. 42 USC § 1382a, 42 CFR § 435.831. Both earned and unearned incomes are countable toward eligibility. This includes wages, rents, dividends, pensions, social security, retirement plans, etc.

States may exclude certain payments from income. Income which does not count toward eligibility is rare. For example: Adoption, foster care, Agent Orange, Alaska Native, Aleut, Holocaust Reparations, Crime Victims, Disaster, Educational loans or scholarship, Indian monies, etc. The most common exempt income in long term care planning is aid and attendance payments from the Veteran’s Administration. Aid and attendance is a benefit paid to disabled veterans who need assistance with medical bills. This benefit is not counted as an asset in the first month in which it is received. If not spent within the month received, then this money would be considered as a resource.

  • RESOURCE TEST

Exempt Resources 42 USC Sec. 1396a(a)(10)(C)(I), Except for spousal impoverishment rule, Medicaid resource rules are taken from the SSI eligibility laws. 20 CFR Sec. 416 et. seq.

  • Home: of any value including contiguous property. Life estate in real estate may also count has a homestead. DRA will limit the value of the home. The limit on equity in the homestead does not apply if a spouse or disabled child occupies the home.
  • Income producing property: Will vary by state.
  • Car: of any value.
  • Personal Property:
    • Burial funds of $1500
    • Irrevocable burial funds $3500
    • Burial spaces
    • Cash assets (as in cash in your pocket )
    • Household goods
    • Insurance death benefits and cash value of $1500 or less
  • Retirement Accounts of Community Spouse: (including IRA, 401K, 403b, etc.) This will vary by state.
  • Trust Assets:
    • Self Settled Trust 42 USC §1396p(d)(4)(A), 42 USC§1396p(d)(4)(B) , 42 USC §1396p(d)(4)(C)
    • Third party trusts, vary by state law. These are irrevocable trust created by a person who has no duty to support the medicaid applicant. Typically, they will use the same language as the self settled trust but require no pay back provision. Check your individual state law and case law.
       
  • TRANSFER TEST. Rules created by OBRA’93 42 U.S.C. §1396p(c)(1)(A); apply to transfers made after August 10, 1993.
     
  • Look back period: 60 months for transfers to or from trusts as indicated in), or to individuals after February 8, 2006.

Exempted Transfer:

  • Beyond the look back
  • Transfers of the home to:
    • Transfers of assets to a disabled child
    • Adult child who lived in the home 2 years before applicant’s institutionalization and who provided care in the home
    • Sibling who has equity in the home and resided there at least one year before institutionalization or HCBS
    • Child of an institutionalized individual that meets the blindness or disability criteria of
    • ​​Spouse of an institutionalized individual
  • Penalizing transfers to watch out for:
    • Annuities which do not meet the following, Section 6012 of the Deficit Reduction Act of 2005 (DRA):
      • Purchased from an insurance or commercial company which sells annuities (no private annuities)
      • Provide substantially equal payments with no balloon or graduated payments
      • Annuitized for the Medicaid applicant or their spouse
      • Returns full payment and interest within the lifetime of the annuitant, See Social Security Life Expectancy Tables, www.ssa.gov.
      • Subject to sixty (60) month look back.
    • Disclaimer of an inheritance including failure to exercise spousal elective share.
    • Transfers by a community spouse if they used Division of Assets.
    • Constructive Transfer, example is purchasing a car and allowing another person use of the car, as well as transfer of exempt assets.
  • Period of Ineligibility: VARY BY STATE - Amount of uncompensated value divided by $5,900, rounded to the nearest day at the rate of $196.39 per day or $5,891.70 equals one month of ineligibility. Period of ineligibility begins when otherwise Medicaid eligible. 

    For Example: Mrs. Smith transfers $60,000 on January 2018. $60,000/5900 = 10 months and a couple of days. She would be ineligible for 10 months after the transfer beginning in the month she is otherwise eligible for Medicaid.
     
  • Multiple transfers treated as a single transfer

    For example: If $6,000 is given away over 10 months, a total of $60,000 in transfers have been made. The penalty period is 10 months. There is no de minis amount that can be transferred.
     
  • Curing a Transfer: If property is reconveyed or the individual receives compensation for the transfer, then they may regain eligibility.
  • Hardship Provision: Ineligibility shall be waived or suspended if necessary to avoid undue hardship. Individual must establish there is no possible way to recovery the asset and that ineligibility will result in hardship, deprivation of health care, requiring documentation that the provider has initiated discharge proceedings and certification of medical need by a physician. All states are required to have a hardship provision. I would love to hear of one that actually grants a hardship.
  • Transfer Rule Changes:
    • LOOK BACK PERIOD. Change the three year look back to a five year look back for all transfers, for transfers after February 8, 2006.
    • TRANSFER PENALTY PERIOD. Impose the penalty period beginning the date the applicant is otherwise eligible for Medicaid coverage (i.e. when the individual needs long term care and is out of money).
    • ROUNDING DOWN. Under prior law, if a penalty of ineligibility resulted in a fractional month of ineligibility then the period of ineligibility was rounded down to the nearest whole month. For example, a $5,000 gift results in a period of ineligibility of 1.25 months. Under prior law, the Medicaid applicant would have incurred a penalty of only one month. Under the DRA, the penalty will be one and one-fourth months (1¼). DRA allows penalties to be applied in number of days not just weeks or months.
       
  • DIFFERENT TYPES OF MEDICAID
     
  • SINGLE PERSON-TRADITIONAL MEDICAID-NOT FACILITY BASED.
    • Medical Need: 65 or older or disability determination by Social Security.
    • Resource Test: non-exempt assets of $2,000 or less.
    • Income Test: Incurred medical expenses equal or exceed the amount of send down. An income send down works much like a deductible in any ordinary insurance plan. A Medicaid send down, however, only needs to be incurred it does not have to be paid. An individual’s send down is determined by the extent that their medical expenses exceed the amount of protected income. Protected income is the maximum benefit paid under the Supplemental Security Income program of the Social Security Administration. This amount is $750 for 2018 for an individual and $1,125 for a couple.

      For example: Opal Pearl has $835 in Social Security Retirement benefits. Her send down is $100 a month. Opal will be eligible for Medicaid when she has incurred $100 in medical expenses. A send down is usually determined for a 6-month period of time. So when Opal has incurred $600 in medical expenses, she is eligible for Medicaid to begin to pay her medical bills. The send down can be figured by using any medical bill legally due and owing by the applicant.
       
  • Transfer Test: same under this program.
     
  • HOME AND COMMUNITY BASED SERVICES-WAIVER PROGRAMS VARY WIDELY BY STATE.

Kansas Example: HCBS services are for persons who receive home care services through State approved providers in either their home or assisted living facilities.

Frail/Elderly Waiver (HCBS/FE) for persons age 65 or older, CARE assessments and care plans are arranged by the Area Agency on Aging (AAA). Physically Disabled Waiver (HCBS/PD) for persons 16 to 64 who have been determined to be disabled by the Social Security Administration. CARE assessments and care plans are determined by area Independent Living Centers.

  • Medical Need: CARE Assessment, Client Assessment, Referral and Evaluation program. CARE assessments are preformed by the local Area Agency on Aging (AAA) under rules created by the Secretary of Department for Children and Families (DCF).
  • Income Test: medical needs as determined by the care plan must exceed the individual’s income. Client will pay a patient obligation, again not unlike a co-pay as found in traditional insurance.
    • The amount of protected income is $727/month.Clients may also exclude expenses for unreimbursed medical expenses like Medicare Supplemental Insurance premiums.
    • In the assisted living facility the client obligation applies to the medical services only. The facility will negotiate for a portion of the $727 for room and board.

      For Example: Edward Ed wants to move into an assisted living facility. His AAA caseworker completed a CARE assessment and a care plan of the services he will need. He has $1,727 in Social Security Income. His non-exempt assets are less than $2,000. To determine his patient obligation Medicaid will protect the first $727 of his monthly income. He also pays $150/month for his Medicare Supplement. His remaining income, $850 is then his patient obligation. It serves as a co-pay with Medicaid paying the balance of his medical expenses.
       
  • Resource Test: $2000 or less in non-exempt income.
  • Transfer Test: Same.
     
  • NURSING FACILITY
     
  • Medical Need: CARE assessment performed by hospital discharge planner, the nursing home staff and/or AAA.
  • Income Test: Client is allowed $62 a month for personal needs and an allocation for unreimbursed medical expenses. The remainder is patient obligation or co-pay.
  • Resource Test: $2,000 or less in non-exempt assets -

Practice Tip: Although the home is still exempt, in the case of a single person retaining the home becomes problematic. Once on Medicaid, the homeowner will receive only $62 a month from their income for “personal needs”. This is not enough to cover insurance or taxes for the home. Most Medicaid recipients end up selling the home. Also, the home and any real estate is subject to a lien by Estate Recovery six (6) months after the individual has been approved by Medicaid.

  • Transfer Test: Same.
     
  • MEDICAID FOR MARRIED PERSONS

Marital Deductions and Exceptions

Division of Assets/Spousal Impoverishment Law - a program that allows married couples, where one has entered a nursing facility and one remains in the community, to divide assets and/or income so that the spouse in the nursing home qualifies for Medicaid and the spouse in the community has sufficient assets and income to live on. Division of Assets is also available for Home and Community Based Services.

  • MEDICAL NEED- CARE ASSESSMENT
  • RESOURCE TEST 42 USC Sec. 1396r- 5(c)
    • Snap Shot Theory: Medicaid looks at the amount of resources owned by the marital unit, either individually or jointly on the day the institutionalization began.
    • Community Spouse Resource Allowance (CSRA): Effective January 2018 - What the Community Spouse gets to keep:

The Institutionalized spouse’s share must be spent down until $2,000 remains. The institutionalized spouse will be eligible for Medicaid when the non- exempt assets are equal to the community spouse’s share plus $2,000 for the institutionalized spouse.

It is permissible to spend the resource on anything for the couple. This would include purchasing items for the community spouse, paying off debts of either spouse, purchasing items for the nursing home spouse, etc. The couple need only be concerned about transfers that would trigger a transfer penalty.

For Example: Alma and Bert have the following assets: Home $100,000
Car 1 $500
Car 2 $4,000 CD’s $50,000
Stock $40,000
IRA $10,000

Life Insurance $2,000

The home and one car are exempt. The $500 car may not count at all as an assets of less than $1,500. The life insurance will only count if this is the cash value. The other assets count toward eligibility. The community spouse would be allowed to keep $50,000. The remaining $50,000 is attributed to the nursing home spouse and must be spend to $2,000. What spend down would you advise? What if Bert and Alma have $300,000 in non-exempt assets?

INCOME TEST -42 USC Sec. 1396r- 5(b)

Until the couple reaches resource eligibility, the monthly income is theirs to do with as they like. After the resources have been spent down, then Medicaid will look to see if an income division would benefit the couple.

Division of Income, Minimum Monthly Maintenance Needs Allowance (MMMNA): 150% of the federal poverty level for a two-person household. 42 USC Sec. 1396r-5(d)(3).

In an income first state like Kansas, the state looks to the couple’s income to ensure that the community spouse has her needs meet. For 2018 (these amounts change July of each year), the community spouse is entitled to a MMMNA of $2,030. If her income does not equal or exceed $2,030 then she is allowed a portion of her husband’s income to bring her monthly income up to $2,030. If the couple’s income is not sufficient to give the community spouse $2,030, then she may receive an additional share of the resources to provide income of $2,030. Any remaining income for the institutionalized spouse will be used to determine his patient obligation, if any, to the nursing home.

For Example: Bert and Alma are married. They have completed the resource send down. They have the following income.

Alma Income: $692 Social Security
Bert Income: $1000 Social Security and $900 KPERS

If Bert enters the nursing home, what can Alma get under the Division of Income? If Alma enters the nursing home what will happen to the income? What if Alma is paying rent of $420 a month?

This rule is know as the income first rule, where Medicaid looks to allocating additional income to the well spouse first before awarding the well spouse additional resource to create additional income. Under the DRA, all states are income first states. If there is still not sufficient income to provide for the well spouse, you can ask Medicaid to award the spouse additional resources that will then generate additional income. This usually requires a fair hearing.

If there are additional shelter expenses, then the community spouse can qualify for more than the MMMNA. A minimum shelter expenses is built into the MMMNA. Currently in Kansas that amount is $229. To the extent that the community spouse’s total shelter expenses exceed $282, then she is entitled to an addition to the MMMNA, for a total maximum of $3,090.00.

  • Other Income Issues For Married Persons:
    • Separate Maintenance: Court ordered support to the community spouse, then income division shall not be less than court ordered support.
    • Prenuptial Agreements: Different from Court ordered support, prenuptial agreements are between the parties, unless court order, Medicaid not bound.
    • Or if you can establish a hardship you may seek a different division of the income or resources through a fair hearing.
    • Transfer Test- transfer rules are the same under Division of Assets.
    • Is Divorce ever an option?
      • ​Do Medicaid liens change anything?
      • Consider a Divorce when
        • Enforceable Prenuptial Agreement which is better than Division of Assets.
        • Inherited property which has not been co-mingled.
        • Other assets wish to protect, for example the family farm.
        • Large disparity in ages and/or health of spouses.
           
  • TRANSFERS TO ACHIEVE ELIGIBILITY
     
  • Review of Transfer Rules. Rules created by OBRA’93 42 U.S.C.§1396p(c)(1)(A), apply to transfers made after August 10, 1993.
    • Look back period: 60 months for transfers to or from trusts as indicated in or to individuals after February 8, 2006.
  • Period of Ineligibility: WILL VARY BY STATE
    Amount of uncompensated value divided by the daily rate of $183.15 per day, the resulting quotient rounded to the nearest whole number is the number of days of ineligibility. ($5,494.50 is 30 days) The period of ineligibility begins when otherwise Medicaid eligible. The Missouri daily rate is $155.96 or a monthly amount of $4,744.00.
  • Transfers of the home to:
    • Spouse of an institutionalized individual
    • Child of an institutionalized individual that meets the blindness or disability criteria of KEESM §2662
    • Sibling who has equity in the home and resided there at least one year before institutionalization or HCBS
    • Adult child who lived in the home 2 years before applicant’s institutionalization and who provided care in the home. The transfer to the caregiver child, generally requires an affidavit from the child to establish the time frame and services provided, along with a letter from a health care provider that the services of the child kept the parent out of a long term care arrangement.
  • Transfers of assets to a disabled child regardless of age.
  • ​Transfers to a trust for the sole benefit of a disabled child.
  • Transfers to a trust for the sole benefit of a person who is disabled.

Half-a-Loaf Strategy-Reverse Half a Loaf

  • PRE DRA.

    This strategy involves making a lump sum transfer of resources to a person. The key for making this type of transfer work is to carefully calculate the penalty period and the expected expenses during the period of ineligibility.

    For example Ruby Pearl is entering a nursing home. She has $30,000 in non-exempt assets. She then gifts $15,000 to her son which results in a five (5) month period of ineligibility. She uses the remaining $15,000 to pay for care until the five months passes and then she applies for Medicaid.

  • POST DRA-ANNUITY STRATEGY

    Under the DRA, the penalty period cannot be imposed until Ruby Pearl is otherwise eligible for Medicaid. This means her countable assets are spent down to $2,000 and her income is insufficient to pay for her medical care. Ruby Pearl could still gift the $15,000. With the remaining assets Ruby Pearl purchases an annuity to provide her with enough income to pay the nursing home through the five - month penalty period.

  • POST DRA HALF-REVERSE HALF A LOAF

Medicaid rules allow gifts to be returned and transfers to be cured. KEESM§5725. If Ruby Pearl transfers her $50,000 to her son, then applies for Medicaid and a period of ineligibility of ten (10) months is imposed. Ruby Pearl’s son then returns $25,000 to her, reducing the penalty period to five (5) months. The $25,000 then is used to pay for care during the five months of penalty. Then, a new Medicaid application is made showing the $20,000 cure [return] and the spend down. Medicaid does not like this strategy and can deny you the partial cure.

Medicaid will say, the return suspends the penalty period because the Medicaid applicant was over assets. There is no regulation that provides for suspension of the penalty period. Additionally if the assets are returned monthly and as long as at some point in the month the assets were under $2,000, then Medicaid eligibility will be retained.

Medicaid will say the original penalty period is revoked and starts again with the re-application. Again, there is no regulation that says this. HCFA Transmittal 64, specifically provides for a reduction in the penalty period when there is a partial return.

  • TRANSFERS TO DISABLED CHILDREN.

Medicaid allows an unlimited amount of resources to be transferred to a disabled child. This often requires an analysis of how to transfer to that child. Please consider the following:

  • What kind of benefits does the child receive?
    • Supplemental Security Income (SSI), is need based. An increase in assets or income will eliminate benefits.
    • Social Security Disability Income (SSDI) is not need based. Recipients do not have to meet income or asset qualifications.
  • Is the child a current Medicaid recipient or is it likely they will need Medicaid in the future?
  • If so, they will need to do Medicaid planning for the child. The transfer will likely need to be in the form of a trust that will protect assets from being counted toward the child’s Medicaid eligibility.
  • Is the child capable of managing these assets?
    • Transfer to a Trust may be necessary
    • Conservatorship may also be necessary
  • Transfers must be a completed gift. A trust should be irrevocable and grantor should not serve as trustee. Should there be a payback provision?
     
  • CARE CONTRACTS

In addition to the gifting discussed above, the family may enter into a care contract where the parent pays a child or siblings for the care they provide. Care Contracts are subject to the provisions of regulations in your particular state. As an example a care contract is also subject to the following limitations or the contract is treated as a resource:

  • Cannot be an advanced or lump sum payment.
  • Must be in writing, revocable and state with particularity the services provided.
  • Executed prior to paying for any service.
  • Service must be market value.
  • Contain a requirement that the provider must report all receipts to the IRS and other agencies as required by law.
  • Provide that the contract terminates on the death of the individual.
     
  • CAUTION ABOUT TRANSFERS

Clients are often eager to proceed with transfers. Transfers should be approached with caution. In difficult family situations, transfers can open up the transferee to allegations of undue influence and exploitation.

  • Gifting- Powers of Attorney.
    • Must be specifically provided for K.S.A. 58-654.
    • Do not want to limit to annual exclusion
    • Will want to state specifically that transfers to the agent are not violations of fiduciary duty
    • May want to consider if you want to limit gifting power to be consistent with estate plan. You may not want to if you are going to disinherit the nursing home spouse.
       
  • ISSUES PARTICULAR TO REAL PROPERTY
    • Exempt Transfers KEESM §5721
      • Beyond the look back
      • Transfers of the home to:
        • Spouse of an institutionalized individual
        • Child of an institutionalized individual that meets the blindness or disability criteria of KEESM §2662
        • Sibling who has equity in the home and resided there at least one year before institutionalization or HCBS
        • Adult child who lived in the home 2 years before applicant’s institutionalization and who provided care in the home
    • When Does the Home Become Countable?
      • Never if the well spouse or disabled child lives there
      • For single persons, typically after being on Medicaid for six (6) months. But how are you paying taxes, insurance, maintenance, etc. during those six (6) months.
      • The residence could become other exempt real estate, listed for sale or income producing property.
    • Titling of the Residence
      • In the name of the well spouse.
      • Transfer on Death Deed or Beneficiary Deed
    • Life Estates- Countable Resource KEESM §5333.
      • If life estate is used as a residence or income producing property then exempt KEESM §5333.1.
      • ​Value is determined by the life expectancy of the life tenant. KEESM §5333.2
      • Creation of a life estate without fair consideration is a penalizing transfer. KEESM §5722 (5)
      • Valuation of Real Property Keesm §5300.​

The state or county appraisal is considered the presumptive value. That presumption can be over come by a professional appraisal. If there is no county appraisal, the agency is authorized to pay for an appraisal from an authoritative source.