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| Bar Bulletin |
May,
2003 |
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Monthly Focus Articles |
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Medicaid Planning
By
Anne DeNovo
Elder law
encompasses a broad range of legal issues of importance to older
Americans: wills, estate planning, powers of attorney, health-care
decision-making, counseling about retirement communities, assisted living
facilities, housing choices, patients’ rights, long-term care insurance
and more. But often it is concern about long-term care that brings the
client or the client’s family to see an elder law attorney—specifically,
fear that nursing home care may be necessary and worry about how to pay
for it. Basic rates at Maryland nursing facilities run from $5,000 to
$7,000 per month.
Sometimes there has
been a diagnosis of a disabling disease, and the client and spouse are in
the early stages of trying to cope, exploring options and beginning to
plan. More frequently there has been a catastrophe. An elderly person has
fallen, perhaps fractured a hip, or had a stroke. The hospital is about to
discharge the patient to a nursing facility, and the spouse and children
are frantic. It’s too late for long-term care insurance - they only accept
healthy applicants. The spouse at home asks, “How will I manage? How will
I live if we have to pay $6,000 a month to the nursing home?” This is the
world of elder law practice.
Medical Assistance
(Medicaid) is the only program that provides any significant coverage for
care in a nursing facility. Medicare, available to all citizens over 65,
covers only a small percentage of nursing home care under certain
restrictive conditions and only for a maximum of 100 days. After that, the
patient and family are on their own. Once the patient has “spent down” and
become impoverished, Medicaid will cover the costs of nursing home care
and medications.
Recent articles in
the national press have criticized the part of elder law practice known as
Medicaid planning. A January 2003 opinion piece in Newsweek equated
transferring assets to qualify for Medicaid sooner with cheating or
stealing from the federal or state government and from other citizens.
Critics have painted a picture of wealthy individuals transferring large
sums of money to their children or putting valuable assets in trusts in
order to make themselves eligible for Medicaid.
That’s not the
day-to-day reality of an elder law practice. Elder law attorneys represent
clients from all walks of life, but many are middle class. After a
lifetime of hard work and savings, they own their own home and have some
modest investments, perhaps $50,000 to $200,000.
Federal and state
statutes and regulations governing the Medicaid program allow some
transfers of assets, but the rules are very complicated. Competent legal
advice is essential in this area. An elder law attorney must know which
asset transfers are permissible. The attorney’s duty is to advise the
client of all available options, including gifting and transferring assets
and the pros and cons of each option.
At the time of
filing an application for Medicaid, the applicant must disclose any gifts
or assets transferred for less than fair market value within the last 36
months. This is known as the three-year “lookback” period. For assets
transferred into trusts, the lookback period is 60 months, or five years.
Most people simply don’t give away assets just because they think they
might need nursing home care – and hence Medicaid – five years, or even
three years, in the future. Most seniors who are healthy and independent
are not in the least interested in transferring assets to their children
or grandchildren or anyone else while they are still alive, although they
would like very much to leave something to their descendants after their
deaths.
Elder law attorneys
see many people who are terrified because they think they must sell the
home once their spouse or parent is admitted to a nursing facility. Elder
law attorneys frequently hear that the nursing home has told the family
that the nursing home resident must spend down to $2,500, the asset limit
for a single person, before they can qualify for Medicaid, even when there
is a spouse at home who is entitled to keep a portion of the couple’s
assets as a community spouse resource allowance. Often elder law attorneys
must advocate to ensure that nursing home residents and their spouses
receive the basic protections to which they are entitled under federal and
state law.
Under current law,
a person can make modest gifts (currently a maximum of $4,300 per month in
Maryland), even during the three-year period, before applying for
Medicaid. This is because the penalty for gifts is one month of
ineligibility for Medicaid for every $4,300 given away. The penalty period
of ineligibility begins with the first day of the month in which the gift
is made. It is essential to make sure that all penalty periods have
expired before applying for Medicaid. And there is no penalty for certain
specified transfers or gifts, including transfers to a spouse or a blind
or disabled adult child.
It is often in the
nursing home resident’s best interests to make gifts to trusted family
members. Once the client is on Medicaid, all of the client’s income must
be paid to the nursing home each month towards the cost of care, except
for the medical insurance premium and a personal needs allowance of $40
per month (and perhaps a spousal income allowance to the community spouse
under some circumstances). The $40 per month personal needs allowance is
completely inadequate to pay for medical costs not covered by Medicaid or
Medicare, such as dental care, eyeglasses and eye examinations, hearing
aids and audiologist’s services, or extra assistance from private nurses
aides. A family member can pay for these items out of funds that have been
gifted, as well as for “extras” that may make life in the nursing home
seem worth living: books, CDs, DVDs and treats such as outings if the
resident is able to leave the nursing facility. Medicaid planning (and
specifically asset transfers) can allow nursing home residents to preserve
some measure of dignity and sense of self-worth. Sadly, some nursing home
residents are dependent on charity, or some of their needs may not be met,
if there has been no gifting and if they have no family or friends with
means to provide for them.
Opponents contend
that Medicaid planning reduces the amount of public funds available to pay
for long-term care. However, estate planners routinely use trusts for
married couples to take maximum advantage of two estate tax exemption
amounts, as well as other techniques to reduce or eliminate estate taxes
for clients who generally have a far greater net worth than the
middle-class individuals who need Medicaid to pay for nursing home care.
Estate planning clearly reduces the amount of federal estate taxes and
state death taxes that would otherwise be paid to federal and local
authorities. Yet there is no stigma attached to estate planning. Why is
Medicaid planning viewed differently?
The Medicaid
program puts the spotlight on the inequities in the U.S. health-care
system. Certain illnesses and conditions are covered in full by Medicare,
such as heart bypass surgery, at a cost of hundreds of thousands of
dollars. But people who are unlucky enough to have a long-term disabling
illness are treated differently. Those who need long-term care due to
Alzheimer’s disease or other dementias, or degenerative neurological
diseases such as MS or ALS (Lou Gehrig’s disease), find little or no
Medicare coverage available and must exhaust their own assets until they
become eligible for Medicaid. Critics of Medicaid planning and the elder
law attorneys who provide this service deflect attention from the need for
public debate about how to provide equitably and fairly for the cost of
long-term care for an aging population.
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