During the Medicaid look back period, you can’t give away your money (without receiving equal value in return) and go on Managed Long Term Services and Supports (MLTSS) Medicaid. If you do, a Medicaid penalty period will result. During the Medicaid penalty period, the Medicaid applicant is treated as if she still had the gifted funds. During this period, Medicaid will not pay for long-term care.
How long with the Medicaid penalty period be?
The sum of all the gifts made during the look back period is added. Then the total of those gifts is divided by the applicable Medicaid divisor. The result of this equation is the Medicaid penalty period.
Example. The Medicaid penalty divisor is $374.39 per day, or $11,387.69 per month. If I give away the sum of $11,387.69 during the look back period, the total gifts ($11,387.69) are divided by the Medicaid divisor of $374.39 per day. The resulting penalty is just over 30 days. A penalty period of about one month will apply on my Medicaid application, without an exemption.
Why can even a short Medicaid penalty period be a big problem? During the Medicaid penalty period, Medicaid will not pay for my long-term care. If I am already poor and living in a nursing home, how will I get the money to pay my nursing home bill? This can be a real challenge. No nursing home or assisted living facility will provide free care.
Increase in the Medicaid penalty divisor.
The higher the divisor, the shorter the penalty period will be. On May 24, 2022, the State of New Jersey increased the Medicaid penalty divisor to a rate of $374.39 per day. The new divisor applies to Medicaid applications filed on or after April 1, 2022. Increase_in_the_Penalty_Divisor_Effective_4-1-2022.
Medicaid Penalty Traps
Unfortunately, the Medicaid penalty period can be a trap for the unwary. A penalty period can be imposed even with no gifts during the Medicaid look back period. The recent decision of H.L. v. Division of Medical Assistance and Health Services et als. shows what can go wrong. The Final Agency Decision is available online at H.L.vDMAHS&MonmouthCty
In that case, a Medicaid application was filed on behalf of H.L. with the Monmouth County Medicaid office. The Medicaid office reviewed H.L.’s bank records. H.L. withdrew about $58,000 during the Medicaid look back period. No gifts were made. The cash was spent on everyday living expenses, including rent. Some of the withdrawals were made after H.L. moved into a nursing home.
The Medicaid office computed a 162 day Medicaid penalty period. H.L. was now in a difficult situation. Unless the Medicaid penalty period was removed, H.L. would have an unpaid long-term care bill of approximately $60,000.
Reducing the Penalty with a Medicaid Fair Hearing.
The solution in H.L.’s case was to file for a Fair Hearing. On Fair Hearing, the Medicaid penalty period was reduced by the amount of the rent. The penalty period might have been avoided with better documentation of H.L.’s expenses.
How An Elder Law Attorney Can Help You.
Applying for Medicaid may appear simple, until it’s not. Doing it yourself or using a non-attorney Medicaid advisory service) can be like wading through quicksand. You may not realize you are in trouble until it is too late. Once assessed, a. Medicaid penalty can be difficult to remove. Fortunately, a seasoned elder law legal team can help obtain Medicaid coverage with as little stress as possible.
For more information on how we can help you with your New Jersey Medicaid planning and application, contact the Law Office of Jane M. Fearn-Zimmer, at telephone number (856) 938-8578 or visit the firm’s website at https://fearnzimmerelderlaw.com.
Most people assume that they will not ever need skilled nursing care, but statistics show that that is not the case. Medicare may be available to pay for a limited period of care under limited circumstances, but if an individual does not have long-term care insurance, care in a skilled nursing facility care can cost more than $12,000 per month in New Jersey. That is an awful lot of money to pay out-of-pocket, so more often than not, the client or his or her responsible caregiver turn to the Managed Long Term Services and Supports (MLTSS) Medicaid program as a source of funding, combined with the elderly resident’s income, for long-term care.
MLTSS Medicaid is a joint federal/state means-tested welfare program. In New Jersey, for single individuals, the countable asset limit is $2,000. Countable assets are available resources, i.e., resources that are available to pay for your car. In other words, if you have an asset that can be liquidated within 30 days, you can’t simply chose to do nothing to take the cash out of the assets and simply go on Medicaid, expecting Medicaid to pay for your care. In New Jersey, this general rule applies to an individual’s (or a spouse’s) accessible retirement accounts as well as any educational savings accounts, including IRC 529 accounts, that can be converted to cash within a relatively short period of time.
It can be a shock to family members to learn that the funds on deposit in a IRC 529 educational savings plan account may have to be returned to the contributor and spend down for the contributor’s long-term care or may be subject to a Medicaid penalty period, which is a period of time during which payment for long –term care is unavailable due to assets given away for less than fair market value during the Medicaid five year lookback period. A seasoned elder lawyer can provide solutions. Depending on the circumstances, this might include purchasing a Medicaid friendly annuity to offset any Medicaid penalty period from the transfer of assets into a 529 plan or planning years in advance with an educational trust.
Finding the best long-term care, and a way to pay for that care with public benefits, is of critical importance to the elderly, the disabled and their families. The national median cost of long term care in a private room in a skilled nursing facility is over $9,000 per month, with the average statewide median cost ranging from over $10,000 to well more than $12,000 in other states, including New Jersey, New York, and as high as $24,000 monthly for a private room in Alaska.
Many seniors do not realize that Medicare will cover limited skilled care for a short period of time, and will not be an option to pay for the care they may need for the rest of their lives. Fortunately, Medicaid and the Veteran’s Administration Improved Pension (or the Dependency Indemnity Compensation benefit for a surviving spouse), combined with the applicant’s income, are means-tested public benefits programs that can often pay for a lifetime of long term care facility and other medical care costs.
Benefit through these programs are limited to applicants with low assets and low income. The rules for Medicaid eligibility are quite complex and vary somewhat from state to state based on the provisions of each state’s Medicaid plan. For instance, in my home state of New Jersey, in order for a single individual to qualify for Medicaid, that individual’s countable assets must not be even one penny over the sum of $2,000. In general, one cannot give away one’s money and receive institutional or waiver service Medicaid benefits within five years of the date of the gift without incurring a Medicaid penalty period. (A Medicaid penalty period is the period of time during which Medicaid benefits will not be available to pay for custodial care. The length of the penalty period corresponds to the value of the total uncompensated gifts made during the five year Medicaid look back period. The Medicaid penalty period will not begin to run until the last of the following events to occur: there is a filed Medicaid application for the applicant, the applicant is clinically eligible for Medicaid, and the application is either already in a long-term care facility or other care setting permitted under any Medicaid waiver program in his or her state, such as the home or an adult medical day care facility.)
Elder lawyers refer to the process of legally reducing assets to a level below the Medicaid threshold as “spend down and conversion.” Where one member of a married couple will apply for Medicaid, the spend down and conversion process must be carefully timed and for best results, should be started only after the prospective Medicaid applicant has entered into a nursing home or has a filed application for a Medicaid waiver program and has already been determined clinically eligible for Medicaid. In order to avoid a Medicaid penalty period as a result of the spend down process, all payments should be for fair market value for the Medicaid applicant or his spouse. A typical Medicaid spend down may include the repayment of debt for the Medicaid applicant or his or her spouse (but not for another adult, which would be an uncompensated transfer), the payment of legal fees for crisis Medicaid planning and a Medicaid application, payments for other services to the Medicaid applicant and his spouse, the payment of real estate taxes and other costs of home ownership, the purchase of irrevocable prepaid burial arrangements for the Medicaid applicant and his spouse, the payment of “key money” to facilitate the admission of the Medicaid applicant to the best long-term care facility available. (This can frequently require private payment for several months of long term care). Where the applicant owns a home, he may consider repairs and deferred maintenance to the home, especially where there is a healthy spouse who will remain at home or if the home needs repairs and maintenance to facilitate its sale. Many seniors may also consider buying a new car, or new household furnishing or personal goods.
The purchase of a life estate in a child’s home may be a suitable spend down strategy for an elderly parent who is presently independent but may need Medicaid in the next few years, the parent wishes to reside in the child’s home and the child is amenable. A life estate is an undivided ownership interest in the real property and gives the holder the right to reside in the home during his lifetime as well as favorable capital gains income tax consequences and responsibilities for the home’s financial upkeep. If the parent reside in the child’s home for a period of at least one year and the value of the life estate is properly computed and both parent and child execute a deed memorializing the life estate purchase, the parent’s payment to the child for the life estate will not result in a Medicaid penalty period.
One of the most powerful spend down strategies is the purchase of a Medicaid compliant annuity. This is an annuity which meets strict criteria in the federal Medicaid statute. The annuity can be funded with either non-qualified or qualified retirement funds. If the annuity is non-qualified, the annuity contract must provide for equal monthly payments (with no balloon payments), be irrevocable, non-assignable and the annuity term must be for a period longer than the actuarial life expectancy of the annuitant, as calculated according to actuarial life expectancy tables promulgated by the Social Security Administration or the state of residence of the Medicaid applicant. The annuity contract must name the state from which Medicaid benefits are sought as either the first remainder beneficiary to the extent of any Medicaid lien, or the state is named in the second position after the community spouse. If these requirements are satisfied, and assuming that the Medicaid applicant is otherwise eligible for Medicaid, the annuity contract cannot be treated as a countable asset and the annuity purchase cannot result in the imposition of any Medicaid penalty period. See 42 U.S.C. 1396p(c)(1)(G); Carlini v. Velez, 947 F.Supp.2d 842 (D.N.J. 2013).
Similar rules apply for a qualified Medicaid-compliant annuity contract.
Here is an illustration of why the Medicaid compliant annuity purchase can be a powerful strategy to retitle a couple’s assets and preserve funds for the healthy spouse to remain for years in the family home.
Example. Mary and James are ages 80 and 85, respectively. James needs nursing home care and Mary needs assisted living care. Mary’s only income is an estimated $600 monthly from her Social Security benefit. James’ income is comprised of $1,200 from Social Security, and he is not a veteran. After their home is sold, the couple has $438,000 in liquid assets and James is ineligible for Medicaid due to the couple’s excess funds. Without Medicaid planning, due to their home states’ maximum community spouse reserve allowance, Mary would have to spend down approximately $310,000, in order for James to become eligible for Medicaid. Fortunately, she can spend the sum of $310,000 on a Medicaid annuity, which will enable James to become eligible for Medicaid in the following month and will provide her with sufficient monthly income to pay for her assisted living. If the term of the annuity is for three years and for 36 equal monthly payments to Mary in the sum of over $8,600. Mary is now able to pay for at least four years of assisted living care and can remain comfortably in the community. After the annuity term expires, Mary will likely be financially eligible for Medicaid herself.
Spend down is also important for United States military veterans and their spouses who are seeking the Veteran’s improved pension or the Dependency Indemnity Compensation for a surviving spouse or child. In computing the applicant’s net worth for this means-tested benefit, federal law allows a deduction for unreimbursed medical expenses.
Medical expenses can include costs paid for services from health care providers, custodial care and must constitute a payment for an item or service that is medically necessary; improves the disabled individual’s functioning; or prevents, slows, or eases an individual’s functional decline.
Medical expenses may include care by a health care provider, i.e., someone who can only be an individual appropriately licensed by the state or country in which the service is provided to provide health care in that state or country. In-home care providers are not always subject to licensure.
The definition of “health care provider” in the final rule incorporates a licensure requirement and the term may include, but is not limited to, a doctor, physician’s assistant, psychologist, chiropractor, registered nurse, licensed vocational nurse, and a physical or occupational therapist. Other categories of deductible medical expenses (to the extent not reimbursed) include medications, medical supplies, medical equipment and medical food, vitamins, and supplements if prescribed or directed by a health care provider authorized to write prescriptions, adaptive equipment, or service animals, including the cost of any veterinary care, used to assist a person with an ongoing disability; the cost of transportation for medical purposes, i.e., to and from a health care provider’s office, health insurance premiums, smoking cessation products; and institutional forms of care and in home care, including hospitals, nursing homes, medical foster homes, and inpatient treatment centers.
Jane Fearn-Zimmer is an Elder and Disability Law, Taxation, and Trusts and Estates attorney. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.
In general, one cannot give away her assets and go on Medicaid within the next five years. If an individual who gives away assets (donor) applies for Medicaid within the sixty month period following the date of the last completed gift, the individual will usually be subject to a period of time during which Medicaid will not pay for their long-term care. The length of this period is related to the amount of the total gifts during the five year Medicaid look back period, and is referred to as a Medicaid penalty period.
An exception to the Medicaid penalty period and any Medicaid liens is the transfer of a home by an ill parent to a caregiver child. If the child moves into the home of the parent, and provides such care to the parent for a continuous, two year period as will keep the parent from entering into a nursing home, then the parent may transfer the home to the child without any penalty period. This authority for this exception comes from the federal Medicaid statute and is black letter federal law.
Since 2015, I have heard of several instances where a parent applying for Medicaid was awarded the caregiver child exemption while the parent was alive, and pursuant to the exemption, the home was transferred out of the parent’s name to the child.
After the parent’s death, the child is notified that the house is nevertheless subject to a Medicaid lien.
This should not be the case for several reasons. First, when the parent gives up any interest in the home by giving the home away to the caregiver child, the home is now beyond the parent’s future Medicaid estate and it cannot be subjected to a Medicaid lien.
In addition, any attempted claw back of the home into the deceased parent’s Medicaid estate, after the parent was previously determined eligible for Medicaid without any penalty imposed for the home transfer, denies the parent, the child and all subsequent third party bona fide purchasers of the home for value from the child, of due process without notice and an opportunity to be heard. As a policy matter, these reports are very troubling because of the loss of evidence over the passage of years and because the new “policy,” which was not enacted with public rule-making, will seriously undermine the stability of real estate transactions statewide.
Options may include challenging the new notice in the Chancery Courts. For an assessment of your options, consult an experienced and knowledgeable elder law attorney.
Jane Fearn-Zimmer is an Elder and Disability Law, Taxation, and Trusts and Estates attorney. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.
Medicaid is a joint federal and state program that provides funding for medical and long-term care to individuals with very low income and assets. Generally, a single individual cannot qualify for Medicaid unless her assets are less than $2,000 and she has gross monthly income below the sum of $2,313 (or if she does not, she uses a Miller Trust or a Qualified Income Trust correctly). Where only one member of a married couple is applying for Medicaid, the healthy spouse may be able to retain up to the sum of $126,420 in 2019. Greater savings may be feasible with Medicaid planning.
Certain strategies can help you legally avoid unnecessary tax liability, avoid Medicaid liens and protect your assets, while facilitating eligibility for Medicaid and other means-tested public benefits. Asset protection planning can preserve funds to pay for the “extras” that Medicaid cannot pay for, ensuring your loved one a measure of dignity and comfort. It can also protect the family home and even preserve a legacy for the children.
Planning strategies can include deeds, outright gifts, gifts in trust, and the purchase of Medicaid compliant annuities. If the individual is able to enter into a legal and binding contract, execute a legal document and make decisions, public benefits planning can be done by the individual. If this is no longer possible, the next option would be to plan through an existing general durable power of attorney.
But what if there is no power of attorney, or the existing power of attorney cannot be used? Suppose step-brothers Brennan and Dale cannot get along but their parents, Nancy and Robert, named them as their decision-makers on their respective general durable powers of attorney, and the documents require Brennan and Dale to act jointly? If Nancy and Robert are now incapacitated, using the power of attorney is not a viable option. Nor will it be, if both Brennan and Dale refuse to serve and there is no other agent. In this situation, Nancy and Robert could still benefit from Medicaid and tax planning through a guardianship.
The courts of New Jersey and many other states recognize that as incapacitated individuals, people like Nancy and Robert still have the right to restructure their finances through lawful tax and Medicaid planning as if they were able to act independently. Once certain factors are established, a court is authorized to approve tax and Medicaid planning in the best interests of the incapacitated individual. In these situations, asset protection planning may be accomplished through a guardianship.
An experienced and knowledgeable elder law attorney can help you determine whether your loved one needs tax or asset protection planning, and if so, when that planning can be authorized and carried out through a guardianship.
Jane Fearn-Zimmer is an Elder and Disability Law, Taxation, and Trusts and Estates attorney. She dedicates her practice to serving clients in the areas of elder and disability law, special needs planning, asset protection, tax and estate planning and estate administration. She also serves as Chair of the Elder & Disability Law section of the NJSBA.
