Monday, March 26, 2012

What is Medicaid?

This blog frequently discusses the rules governing qualification for Medicaid payment of long-term care costs for the elderly. Medicaid is the primary source of public support for families who are struggling to meet the needs of a loved one who needs care and support services on a long term basis. But I realized that some of the readers of this blog may be unfamiliar with the Medicaid program. And many well informed people continue to confuse Medicaid with Medicare. So, I thought I should take a few moments to give readers an overview of the Medicaid program.

Medicaid is a joint federal/state program that provides medical assistance to eligible persons. The federal Medicaid statute is found in Title XIX of the Social Security Act which is codified in federal law beginning at 42 U.S.C. § 1396.  Unlike Medicare, Medicaid is not a uniform federal program. It is partially funded and administered by the states and each state has its own distinct program. “While state participation in the program is voluntary, participating states must adopt plans that comply with certain requirements imposed by federal statutes and regulations.” [1] Although they all must conform to federal requirements, individual state Medicaid programs vary widely. The Pennsylvania Medicaid program is called “Medical Assistance” (or MA for short).  

Medicaid is means-tested, with eligibility for benefits dependent upon the applicant’s income and resources. Asset transfers may also affect financial eligibility for Medicaid long-term care benefits. States are given some latitude in establishing these financial eligibility criteria.

Medicaid is our country’s largest health-care program. It is the primary way we finance health care for our most vulnerable and needy persons, including long-term care for the elderly and disabled. It is our health-care program of last resort. For most people on Medicaid, there is no other program to take its place.

First established in 1965, “Medicaid has evolved from a program providing medical assistance to the welfare population to a broad and multifaceted safety net addressing the needs of low income families, the elderly, and those with chronic, disabling health conditions. In the face of these challenges, Medicaid has achieved remarkable success in helping to close gaps in access to care and served as an essential safety net for long-term care services in the community and in institutions.”[2] Medicaid has become the nation’s fundamental source of financing health-care and long-term care services for over 58 million low-income Americans.

A significant expansion of the Medicaid rolls is set to take place in 2014 as a part of the Affordable Care Act (ACA). It is estimated that approximately 16 million low income people will be added to the program in 2014 as a primary means of extending health coverage to most Americans. Although this expansion will be financed almost entirely by the federal government, some states have objected. The legality of this Medicaid portion of the ACA is one of the issues is being debated this week (March 26, 2012) before the United States Supreme Court.  If the ACA law is allowed to take effect, the Congressional Budget office estimates that 95% of Americans will have health insurance by 2019.  

Many elder law attorneys spend a lot of their time working on Medicaid benefits for persons over age 65 (and disabled younger persons) who require long-term care services in a nursing facility or in their homes. Most, but not all, skilled nursing facilities accept Medicaid as a form of payment. Whether a particular nursing home is a participant in the program should be established by inquiring of the facility prior to admission.

Readers are cautioned that Medicaid rules are variable, complex, and ever changing. Changes may have occurred after the date of publication of anything you read online about Medicaid. States are constantly making political and administrative choices about the level of resources they are willing to devote to Medicaid funded health care and long term care. As a result program revisions are pretty much continuous.  Case and administrative rulings may also result in program modifications. Consumers who need advice about Medicaid eligibility rules should consult a Certified Elder Law Attorney or other lawyer in their state who focuses on this area of legal practice and stays current as the program requirements undergo change.

[1] Mertz v. Houstoun, 155 F.Supp.2d 415, 420 (E.D. Pa. 2001) (citing Wilder v. Virginia Hosp. Ass’n, 496 U.S. 498, 502 (1990)).
[2] Schneider, The Medicaid Resource Book, The Kaiser Commission on Medicaid and the Uninsured, July 2002,

Thursday, March 22, 2012

Should I Give My Home to My Children?

Should I give my home to my children?  Many seniors do just that. But it may turn out to be a big mistake. Giving your residence property to your children during your lifetime may not be the best planning option for you.  Don’t do it without getting expert legal advice first. 

People have many reasons for putting their homes in their children’s names. Among them is the desire to save on the taxes and legal costs that arise when the home transferred to their heirs at death. And for many seniors an even more important goal is to avoid losing the home if they ever need nursing home care. 

The transfer of a home from a parent to a child may in fact result in a savings on death taxes, assuming the parent predeceases the child. Unfortunately, these savings may be outweighed by several negative consequences that are often overlooked.   

If you are thinking about making a lifetime transfer of your home to your child or children, there are many things to consider first. Consider the following issues before you take this drastic step:

The Capital Gains Tax Trap: If you give away your home, and it has gone up in value, your child may well have to pay a capital gains tax when the home is someday sold. The capital gains tax would most likely have been avoided if you owned and sold the home yourself during your lifetime or if the home was sold after your death.

Loss of Control: If you give away your home, you may lose control over it. You may have no say in whether it is sold or mortgaged. You could be charged rent. Even if you trust your child, your child may divorce or die and your home may pass to a son or daughter in law or grandchildren. 

Creditors: If you give away your home, you may subject it to the creditors of your child. 

Public Benefits. Giving away your home may cause you to lose certain public benefits you receive like SSI and Medical Assistance (Medicaid). 

Gift Tax Return: If you give your home to your child, you may need to file a federal gift tax return. (Whether you will need to pay gift tax depends on the value of your home and the value of other assets you have given away in the past).

Property Tax: If you give away your home you may no longer qualify for annual property tax forgiveness programs. For example, the Pennsylvania property tax rebate program benefits homeowners age 65 and older; widows and widowers age 50 and older; and people with disabilities age 18 and older. The income limit is $35,000 a year for homeowners and half of Social Security income is excluded. The maximum standard rebate is $650, but supplemental rebates for qualifying homeowners can boost rebates to $975.

Creating Ineligibility for Medical Assistance Benefits for Nursing Home Care: Although many people give away their home to avoid losing it if they ever go into a nursing home, the transfer can actually raise their nursing home costs. Here is how the nursing home issue plays out. 

When you are no longer able to pay privately for needed nursing home care, you state Medicaid program (in Pennsylvania it is called Medical Assistance) helps pay for your care. A nursing home resident can generally qualify for Medical Assistance without selling their home so long as they still consider it to be their primary residence.  

Moreover, if you give your home to your children and then need to apply for Medical Assistance within 5 years of that gift, the transfer of this otherwise protected asset can make you ineligible for benefits you otherwise would have received. The ineligibility period depends on the value of the gift (your home in this instance).  Therefore, transferring your home to your children may be a terrible mistake if you are likely to need nursing facility or Medicaid funded home care in the near future. 

You should consider that, although the state does not place a lien against your home while you are receiving Medical Assistance, it may try to recover the amount it contributed towards the cost of your care after you die. This program, known in PA as the  Pennsylvania Medical Assistance Estate Recovery, is a collection program required by federal law.  It only applies to what Medical Assistance pays for nursing facility, home or community based services and any related hospital and prescription drug services for individuals who were 55 years of age or older. Estate recovery is often misunderstood and sometimes inhibits seniors from applying for much-needed services, but with proper planning and good advice, estate recovery can almost always be avoided. 

Parents and children are usually unaware of all of the potential consequences when they transfer the home. There are many planning tools and options available to help families achieve their objectives. Every situation is different.  You should never give your home away without understanding all of your options and fully considering the advantages and disadvantages of such a transaction. 

Talk with a Certified Elder Law Attorney at Marshall, Parker and Associates before, rather than after, you sign the deed.

Sunday, March 18, 2012

Lawyers: Don't Fumble When your Client Needs Long Term Care

There are currently over 2.7 million Pennsylvanians over age 60, over 21% of our state’s population. And while most of these older citizens are vigorous and in good health, many report having at least one disability that limits them in carrying out their activities of daily living.

There is an opportunity for the lawyer to fill an expanded role when representing an older client with long term care needs. It is especially critical for the lawyer to be prepared to help older clients cope with the many complicated legal and financial and health care issues that confront them when they suffer a long term disabling illness. These clients are extremely vulnerable. They need the lawyer’s help, often desperately.

To be able to respond effectively and thoroughly to the needs of these clients, we, as lawyers, must be able to move beyond the traditional legal realms of estate and tax planning, and advise our clients on Medicare, Medicaid, home care options, veterans benefits, Social Security, long-term care insurance, assisted living health care decision making, financial management, accessing the network of public and private services and programs which can be so important to families struggling to cope with a long term illness, and so on, and so on. 

And to be fully effective for their clients, lawyers also need to be willing to continue their active representation of the client after a nursing home admission. We need not limit our function to preparing legal documentation and Medicaid applications and related planning. Lawyers can benefit clients who have become nursing home residents by advocating for them, protecting their rights, and helping to ensure that they receive quality and compassionate care in the nursing home.

Sounds pretty overwhelming, doesn’t it. Working through the maze of issues can certainly overwhelm a family who hasn’t been down the nursing home road before. The lawyer is in a key position to help the client and family recognize and deal with all these issues, or to fumble the ball.

If the lawyer is consulted by a family member who has been told that “someone needs to have power of attorney for Dad” and the lawyer does nothing more in response than to prepare the legal document, a great opportunity has been lost. The need for a power of attorney was most likely just the tip of the iceberg of problems facing that family.

But, if the lawyer is alert to and able to respond to the wide range of underlying problems facing the family which is struggling with long term care it is possible to do a tremendous amount of good for that family. This is a situation where we may have the opportunity to shoulder some of our client’s burden, and empower them and help them gain access to the services and benefits they need to retain their financial security and personal autonomy and maximize the quality of their remaining lives.  

Clients who are in need of long term care and their families usually arrive at the lawyer’s office carrying a tremendous bag full of wide ranging worries and needs. And it is a really demanding challenge for the attorney to be able to respond effectively in this situation.

As lawyers, we can’t make mom or dad well again, but if we are willing and knowledgeable and committed we can guide our clients through the maze of issues confronting them, and lift a lot of burdens off of them, and do a lot of good for people who are particularly powerless and dependent. The challenges for the lawyer are great, but so are the opportunities and the potential satisfactions. 
Further Reading: 

Pennsylvania Department of Public Welfare: Long Term Living in PA

Tuesday, March 6, 2012

IRS Memo may have implications for Medicaid Trusts

On February 24, 2012 the IRS Office of Chief Counsel issued Memorandum 201208026. The memo deals, in part, with the issue of whether the retention of a testamentary power of appointment over an irrevocable trust makes a donor’s gift to the trust incomplete for purposes of the federal gift tax. The memo may have implications for lawyers who create irrevocable grantor trusts to help clients qualify for public benefits.

Memo 201208026 involves a situation where a couple (Donor A and Donor B) gratuitously transferred property to an irrevocable trust (Trust) and designated their adult child, Child A, as the sole trustee. The Trust beneficiaries are the Donors’ children, other lineal descendants, and their spouses. The Trust will terminate when both Donors have died.

The Donors did not retain any power to determine or control the beneficial enjoyment of Trust income or principal during the term of the trust. However, the Donor’s did retain testamentary limited powers of appointment. (Testamentary limited powers of appointment are exercised via will and take effect at a Donor’s death; they allow a Donor to change the way a trust is to be distributed to the beneficiaries). If the Donors do not exercise their testamentary powers, the property remaining in the Trust at termination will be distributed to Child A and Child B.

The Trust permitted the trustee, Child A, to make distributions from income and principal of the Trust at any time for any purpose to any of the beneficiaries or to a charitable organization.

If the gifts to the Trust were complete, the Donors should have filed a federal gift tax return (Form 709) and paid the gift tax, if any, due as a result of the transfer. The Donors contended that since they had retained testamentary powers of appointment over the Trust, they had not made completed gifts to it.  (Tax regulations provide that a gift is incomplete to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves. See, Treasury Regulation Section 25.2511-2(c)).  

The IRS found that the Donors had made a completed gift to the Trust despite their retention of the testamentary powers of appointment. The Service noted that the Donors did not retain any powers or rights to affect the interests of the beneficiaries during the term of the Trust (the time between funding and the death of both Donors). With respect to those interests, the Donors fully divested themselves of dominion and control of the property when they transferred the property to the Trust and the gift of those interests was complete at that time.

The Donor’s did retain some potential control over the remainder of the Trust (the portion that remains at its termination upon the death of both Donors).  However, the Service notes that, under these circumstances, it feels that the value of retained interest should be treated as zero. As a result the full value of the property transferred to the Trust was subject to gift tax at the time of the transfer.

For reasons specific to the rather untypical terms of the Trust, the service also denied the use of the annual exclusion via the “Crummy power” provisions in the trust.

Implications for Medicaid Trusts

Elder law attorneys may have a number of goals in mind when they set up irrevocable trusts for clients of modest means.  These may include eventual protection of the trust’s assets from loss to health and long term care costs, enhancing the client’s ability to qualify for Medicaid and VA pension benefits, avoiding estate recovery and providing for ongoing management of trust assets. In addition, tax goals may be sought including retention of IRC Section 121 treatment on sale of a residence held by the trust, obtaining a step-up in basis on the trust’s assets at the death of the donor, and avoiding the costs involved in filing a gift tax return.  

Memo 201208026 suggests that lawyers should not rely solely on testamentary powers of appointment to obtain the desired favorable tax treatments.  At the least, counsel should carefully consider including the Donor’s additional retention of income and/or lifetime dominion and control powers to avoid completing the gift. (Note that retention of trust income may be contraindicated depending on the particular client circumstances such as a potential need to apply for VA pension benefits).     

Sunday, March 4, 2012

Rules changing for Providers to Aging and other PA HCBS Waiver Programs

Act 22 of 2011 gives Pennsylvania’s Department of Public Welfare (DPW) the authority to issue new regulations without going through normally required administrative rule making procedures.  While there is some question as to whether this delegation of power to an administrative agency is legal under the PA Constitution, the DPW is now moving ahead to change various regulations under this new authority. 

A listing of draft “expedited regulatory changes” issued under Act 22 has recently been posted by DPW on its website.

One area of expedited regulatory change that is of particular concern to seniors are the revisions to the rules governing the qualification, participation and payment of providers to the Commonwealth’s Home and Community Based Services (HCBS) programs including the Aging Waiver.

The affected programs cost a little over a billion dollars in 2011. The Department estimates they the changes will save $7.138 million in State funds in FY 2011-2012.  A draft of the new regulations is available here.  DPW also has provided an overview of the changes in the Pennsylvania Bulletin. 
The Department is accepting comments from the public until Friday, March 9, 2012. Written comments regarding the HCBS provider qualifications and changes to the provider payment rates and methodology should be submitted to DPW by sending an e-mail to the Office of Long Term Living at, use subject header ''HCBS Regulation,'' or by sending postal mail to the Office of Long-Term Living, Bureau of Policy and Strategic Planning, Forum Place, 5th Floor, 555 Walnut Street, Attention: HCBS Regulation, Harrisburg, PA 17101-1919.

Further Reading