Thursday, September 12, 2013

How to Pay for Long Term Care without Impoverishing your Spouse

About 70 percent of people age 65 or older will someday need long term care services and supports. Unfortunately, the cost of that care is generally not covered by Medicare or other health insurance. It can easily bankrupt the care recipient and destroy his family's financial security. It often does.
The Medicaid program is the most significant source of financial assistance for families struggling to meet the cost of long term care. But, for an applicant to be eligible for Medicaid benefits, his assets must not exceed statutory limits.

Medicaid Protections for the Spouse

If the applicant is married, the resources of his spouse are considered in determining Medicaid eligibility. Fortunately, Medicaid law includes provisions intended to protect the spouse from financial ruin. These protections include a well-known standard “community spouse resource allowance” (CSRA).   
Less well recognized are protections that allow a well-advised spouse to retain financial resources in excess of the standard CSRA. Perhaps most significant are a complicated set of Medicaid provisions that allow the non-applicant spouse to protect excess resources through the purchase of a special type of so-called Medicaid annuity.     
By purchasing a Medicaid annuity, a couple can spend down to the CSRA level and qualify immediately for Medicaid payment of long term care costs. (Of course, the applicant must otherwise qualify for long term care benefits under the program’s rules – such as level of care requirements.)
Some state Medicaid agencies don’t like Medicaid annuities. The annuities allow married couples to shift the cost of care  to the state. In an effort to reduce state Medicaid expenditures state agencies will sometimes inappropriately deny benefits to an applicant whose spouse has purchased a Medicaid qualified annuity.
But the legality of purchasing a Medicaid annuity to protect excess financial resources has been approved by courts across the country. The federal rules require it, and states must follow those federal rules in this area of law.
A key case is establishing the annuity planning option was James v. Richman, 547 F.3d 214 (3d Cir. 2008), which I’m proud to say was handled by attorney Matthew Parker of my law office, Marshall, Parker and Weber. Later appeals court cases in other circuits include:  Lopesv. Starkowski (2d Cir. 2012) and Morris v. Oklahoma Department of Human Services (10th Cir. 2012).

Recently, the United States Court of Appeals for the Eighth Circuit joined these other circuit courts in approving the use of Medicaid annuities. The case is Geston v. Anderson, decided September 10, 2013. The court’s opinion illustrates how couples can use Medicaid annuities to protect the future financial security of the spouse who does not need long term care.   

Mrs Geston’s Planning

John Geston entered a nursing home on July 21, 2010. At that time the Gestons filed an “asset assessment” form with the state Medicaid agency that showed that their countable assets exceeded the statutory Medicaid limit by $586,854.80.
The Gestons then began to reduce their resources. First, they purchased certain assets that Medicaid law does not count toward an applicant’s eligibility: they sold their primary residence and purchased a more expensive home, Mrs. Geston sold her car and purchased a more expensive car, and each purchased prepaid burial services.
Second, Mrs. Geston (the “community spouse”) purchased a single-premium immediate annuity for $400,000. The annuity was scheduled to pay her income of $2,734.65 per month over 13 years for a total return of $426,605.40. The annuity contract was “irrevocable” and could not be “transferred, assigned, surrendered or commuted during Mrs. Geston’s lifetime.
Under federal Medicaid law the community spouse’s income is excluded from Medicaid eligibility determinations regarding the institutionalized spouse. 42 U.S.C. § 1396r-5(b)(1). Because resources count toward the institutionalized spouse’s eligibility while the community spouse’s income does not, an asset’s classification as a “resource” of the couple or “income” of the community spouse can determine whether an institutionalized spouse qualifies for benefits.
After these expenditures, Mr. Geston applied for Medicaid benefits. The North Dakota Department of Human Services denied his application on the grounds that the annuity constituted a countable resource under North Dakota’s Medicaid statute. It concluded that the Gestons’ assets therefore exceeded the Medicaid asset limit. (North Dakota state law provides that an annuity can be treated as a resource if its payments raise the community spouse total income over a certain threshold).

State Opposition is Common

The Gestons filed a federal lawsuit to compel North Dakota to approve Mr. Geston’s Medicaid application. The lower court held in favor of the Gestons and North Dakota appealed to the Eighth Circuit Court of Appeals. A number of other state Medicaid agencies, including Hawaii, Kansas, Maryland, New Mexico, Oklahoma, Rhode Island, Tennessee and Connecticut, filed briefs in support of North Dakota’s appeal. 
The state Medicaid agencies came up with a number of ingenious, if strained, arguments in an effort to convince the court to disallow the annuity planning option. One of the arguments was that under North Dakota state law, the agency should be permitted to count the annuity as a resource to the extent it provided the community spouse with income in excess of a protected income standard. 
The state lost. The court rejected all of the Medicaid agency arguments and found in favor of the Gestons.  It said,
“the Gestons rely principally on two provisions of federal law to establish that Mrs. Geston’s annuity is unearned income that North Dakota may not count as a resource when determining Mr. Geston’s eligibility for Medicaid benefits. Like the other circuits to address this issue, we conclude that the arguments are persuasive. See Lopes v. Dep’t of Social Servs., 696 F.3d 180 (2d Cir. 2012); James v. Richman, 547 F.3d 214 (3d Cir. 2008).”
Basically, the courts are telling the state Medicaid agencies – if you don’t like the national policy on Medicaid annuities, you should seek a policy change in Congress, not in the courts.  

Expert Guidance Needed to Use the Annuity Protections

Medicaid annuities are a wonderful planning tool for a married couple who have resources in excess of the standard Medicaid spousal allowance. It's a pity that many couples are unaware of this option. In general, planning with Medicaid annuities is most beneficial for married couples. But there are even situations where this type of annuity can be beneficial for unmarried individuals as well.
It is critically important to get expert legal advice before engaging in Medicaid planning and purchasing an annuity. An ill-advised couple who purchase the wrong kind of annuity, or buy it at the wrong time, will likely end up in a worse position than where they started. And that can easily happen if you don't have expert guidance. 
And given continued Medicaid agency hostility to the use of annuities, be sure you are represented by an attorney who is going to be able to defend your planning in the event you get an initial denial. 
Married couples who reside in Pennsylvania can get additional information how to use a Medicaid annuity and other options to protect their assets from my law firm, Marshall, Parker and Weber, which can be reached at 1-800-401-4552.  Residents of other states may wish to seek the advice of a Certified Elder Law Attorney – a national list is available at


Noah Herman said...

Do we have to transfer resources and income if one of us applies for Long term care?

Jeff Marshall said...

It depends on your situation. With married couples, the spouse who applies for benefits often has to transfer resources to the community (non-applicant) spouse in order to qualify. Medicaid rules normally allow you to make this kind of transfer without penalty.