Medicaid long term care benefits are a primary source of payment of the cost of care for many seniors who reside in nursing homes. It also pays for frail seniors to be able to remain in their homes under programs like Pennsylvania’s Aging Waiver and Life programs.
For many of these recipients of Medicaid long term care benefits it is crucial that the equity they own in their homes is exempted in determining their eligiblity. Prior to the enactment of the Deficit Reduction Act of 2005 (DRA), Medicaid disregarded the full value of an Medicaid long term care applicant’s primary home as long as the home owner was residing there or evidenced an intent to return to the home.
Section 6014 of the DRA made a fundamental change in this treatment. This provision (which is codified at 42 U.S.C. 1396p(f)) specifies that some individuals with substantial home equity are disqualified for Medicaid long-term care assistance. The idea was to force individuals with substantial equity in their homes to tap into that equity to pay for their care before applying for Medicaid long term care benefits.
The DRA initially set an equity interest of $500,000 as the threshold for disqualification. States were given the option to increase this level to $750,000 but Pennsylvania declined to do so. The law also specified that beginning in 2011 the threshold would be adjusted for inflation based on the percentage increase in the consumer price index -Urban (CPIU).
As a result, effective January 1, 2012 the disqualification standard is increasing from $506,000 to $525,000. This means that in 2012 Medicaid will not pay for long-term care services for some individuals whose equity interest in their home exceeds $525,000. This provision applies to both institutional care and Waiver programs.
However, there are significant exceptions to the application of the home equity disqualification rule. The $525,000 limitation will not apply if the applicant has a spouse, a child under age 21, or a child who is blind or disabled, any of whom lawfully reside in the home. The limitation is also to be waived in the case of a demonstrated hardship. (See 42 U.S.C. 1396p(f)(4). In Pennsylvania see also 55 Pa.Code § 178.62a).
The home thus remains conditionally excluded as a resource regardless of the value of the equity interest of the applicant for Medicaid long term care if either one of the following conditions is met:
1. The applicant/recipient has less than a $525,000 “equity interest” in the home.
In determining the value of home equity, States should follow the basic policies of the Supplemental Security Income (SSI) program. The equity value of a resource is the current market value minus any encumbrance on it. Current market value is the going price of the home, or the amount for which it can reasonably be expected to sell on the open market in the particular geographic area involved. An encumbrance is a legally binding debt against the resource. This can be a mortgage, reverse mortgage, home equity loan, or other debt that is secured by the home. States should follow their existing policies to determine current market value. States should also apply their usual verification procedures if an encumbrance is alleged.
If the home is held in any form of shared ownership, e.g., joint tenancy, tenancy in common, or other arrangement, only the fractional interest of the applicant for medical assistance for nursing facility or other long-term care services should be considered. For example, if the home is owned in joint tenancy by an applicant and a sibling, one-half of the home’s current market value should be used in calculating the equity value of the individual, unless the individual can rebut the presumption that he or she has equal ownership interest in the property. See CMS State Medicaid Director Letter dated July 27, 2006, Enclosure to Section 6014, Section II.
A nursing home applicant with home equity under $525,000 and who has no qualified relative residing in the home must state his or her intention to return to the residence for the property to be excluded. If the applicant does not intend to return to the residence, it will be excluded for six months while the applicant makes a good faith effort to sell it. (See 55 Pa.Code 178.51(a)) Proceeds from the sale of an excluded residence are also excluded if the applicant intends to purchase another excluded residence within three months. (See 55 Pa.Code 178.77).
2. The applicant/recipient’s spouse or child who is under age 21 or is blind or permanently and totally disabled is residing in the individual’s home.
Readers should note that the home equity limitation described in this article does not change the general rule that excludes a home of any value for purposes of determining eligibility for Medicaid. The limitation applies only to Medicaid payment for nursing facility services, or other long-term care services.
The $525,000 cap may create an eligibility problem for unmarried individuals, and for married couples where neither is able to reside at the premises. Because they tend to live longer, the rule disproportionately impacts widows and other older women.
For further information see: “CMS State Medicaid Director Letter dated July 27, 2006, Enclosure to Section 6014, Section II” which is available on the Marshall, Parker and Associates website, www.paelderlaw.com, at http://www.paelderlaw.com/pdf/cms_transfer_of_assets.pdf.