Quarterly Newsletters

December 2011: Medicaid Managed Care

New Jersey's Medicaid program may be switching from a fee-for-service ("FFS") program to a managed care organization ("MCO") program. Should you be concerned? Yes, you should, and here's why.

Medicaid is a health insurance program for needy individuals, individuals who cannot afford healthcare. In part, my practice is dedicated to assisting clients with qualifying for Medicaid benefits and navigating the Medicaid application process. Just about every one of my clients is a person who never thought he would need to qualify for Medicaid and never wanted to qualify for Medicaid benefits.

The problem is long-term care costs. Long-term care, such as care in a nursing home or assisted living residence, can cost anywhere from $9,000 to $12,000 a month. When faced with costs such as those, it is no wonder that a person would seek to qualify for Medicaid benefits.

Currently, Medicaid is a fee-for-service ("FFS") program, much like Medicare. With Medicare, you choose the doctor you wish to see. You choose the hospital in which you want to be admitted. (Unless you participate in Medicare's managed care program, or Medicare Part C, which is optional. Traditional Medicare coverage that is available to all Medicare recipients is a FFS program.)

So, too, with Medicaid. You must find a doctor who accepts Medicaid benefits, not all do, but you do not have to find a doctor who is in a managed care network. Moreover, just about every nursing home in New Jersey accepts Medicaid. Many people believe that there are designated Medicaid nursing homes and most people who think this way think the Medicaid nursing homes are hell holes that you wouldn't want to stick your worst enemy.

But these are falsehoods. So many nursing homes accept Medicaid that you could probably count on your two hands the number of nursing homes in New Jersey that do not accept Medicaid. And nursing homes cannot discriminate against residents who are qualified for Medicaid, and believe it or not, nursing facilities don't discriminate. The resident on Medicaid receives the exact same care as the resident who is paying privately.

As Medicaid currently exists, it is up to the beneficiary to find a nursing home he likes and arrange for his placement in the nursing home. Commonly, the placement in a nursing home is accomplished by discharge planners from hospitals who arrange for a person's placement in a nursing/rehabilitation facility after a short hospital stay.

The state of New Jersey wants to change Medicaid's program from a FFS program to a managed care organization ("MCO") program. Currently, the State has an application pending with the federal government, specifically, the Centers for Medicare and Medicaid Services ("CMS"), to change New Jersey's Medicaid program.

While there are some very good aspects of the State's proposal to CMS, there are some very troubling aspects to the proposal. Other states, such as Florida, have tried pilot programs in select counties to test how MCO's would function and the results of that test have been less than stellar.

Essentially, with MCO's, the beneficiary will have to find an MCO's in his area that provides the services he requires. The MCO will make the determination as to what care the beneficiary requires. The MCO will place the individual in the facility or arrange for the services that it believes the beneficiaries requires.

But what if there is no MCO in the beneficiary's area? What if the MCO places the beneficiary in a nursing facility that is difficult for his family to visit? Or a facility that the beneficiary does not like? There is the real possibility for different treatment being provided to Medicaid beneficiaries since more Medicaid beneficiaries may be placed in less desirable facilities.

GIVING YOUR SPOUSE HIS DUE

I frequently meet with people who want to exclude certain individuals from their estate. The client may have four children and may be estranged from one of the children. She may want to leave the estranged child less of her estate or none of it at all.

I always tell a client that it is her money, and she can leave it anyway she likes. I also tell the client that there is a lot of estate litigation today, so if she leaves her estate in an uneven manner, the disfavored child may sue.

The one exception to this statement involves a client's spouse. A surviving spouse is the only person who, potentially, has a claim against the estate of a deceased spouse if the deceased spouse fails to leave the surviving spouse a sufficient amount of her estate. This claim is called the "elective share."

The right to claim an elective share of the deceased spouse's estate is merely a right, not an absolute entitlement. For instance, there is a time limit on making the claim for an elective share. So, even if the surviving spouse is dead broke and the deceased spouse was a millionaire, if the surviving spouse fails to file his claim for an elective share in a timely manner, he is barred from making the claim.

Most Wills nominate someone to be the executor of the estate. For instance, "I appoint my son to be the executor of my estate." This statement is merely a nomination preference. The son still has to go to the appropriate county surrogate's office and officially be appointed the executor of his mother's estate. Only when he qualifies before the surrogate is he truly the executor of his mother's estate.

An elective share claim must be filed within six months of the surrogate officially appointing the executor of the estate. Another major issue with the elective share claim is that the surviving spouse may not be entitled to anything from the deceased spouse's estate even if he timely files a claim for the elective share.

People who have heard the concept of the elective share tend to think that the surviving spouse is entitled to one-third of the deceased spouse's estate no matter what. This frequently arises in the context of an application for Medicaid benefits.

The workers at the Medicaid office will tell you that if one spouse dies the surviving spouse is entitled to one-third of her estate. But this is a misconception.

The elective share is a claim for one-third of the "augmented estate," but the augmented estate is a rather complex formula, not an absolute right to one-third of the deceased spouse's estate.

The augmented estate is the property that the surviving spouse died owning plus certain gifts that she may have made in the years prior to her death. Excluded from the augmented estate are life insurance, certain annuities, and certain pensions. So, for instance, if the surviving spouse had a $100,000 life insurance policy on which she named her son as beneficiary, not her husband, the proceeds of that life insurance policy are not included in the augmented estate and, therefore, are not included in the calculation of the elective share amount.

Assume that a wife dies owning a house worth $200,000, a brokerage account worth $100,000, and a life insurance policy worth $100,000 naming her son as the beneficiary. In this instance, the augmented estate would be $300,000, which includes the house and the brokerage account, not the life insurance. Theoretically, her surviving spouse is entitled to one-third of that amount or $100,000.

Many people who calculate the elective share fail to take into consideration the assets that the surviving spouse owns. His assets must be added into the augmented estate. So, if the husband owns $300,000 of assets in his name, the augmented estate would actually be $600,000-his $300,000 plus her $300,000. His claim is then first satisfied from the assets that he holds in his name.

So, he is entitled to $200,000 from the $600,000 augmented estate, but he already owns assets worth $300,000, which is greater than his claim, so in this example, the surviving spouse is entitled to nothing from his deceased spouse's estate.

A ZEBRA ISN'T AN ELEPHANT

I am a big believer in specialization. For instance, if a person has a problem with his heart, I'd recommend that he go see a cardiologist. When a client asks me questions about bankruptcy, I recommend that he go see a lawyer who specializes in bankruptcy law. If someone told me that were feeling depressed, I would recommend a psychologist.

If someone has questions about Medicaid or estate planning, I would recommend that he see an elder law attorney. The laws governing Medicaid are extremely complex. I probably know most every elder law attorney in the state and frequently communicate with many of them, and I can tell you that even experienced elder law attorneys regularly have questions about Medicaid.

When an elderly family member requires assistance, it places a lot of stress on a family. The person who took care of the family, for instance, the mother, now needs assistance herself. The mother is typically resistant to the assistance, and the children who now have family of their own do not know how they will find the time to care for or arrange for care for mom. In addition, it is depressing for mom and her family to see her decline.

There is a growing business area for those who arrange care for elderly individuals or oversee that care. Some of these businesses are simply placement agencies. The agency will recommend a long-term care facility (such as an assisted living residence or a nursing home) for mom and will receive a fee from the facility for the placement.

Some of these businesses are run by social workers who assess the elderly individual and recommend the type of care services the elderly individual requires. These businesses typically charge on an hourly basis for their services. After they arrange for the long-term care services, they will continue to oversee the care for an hourly fee.

In my opinion, these businesses can be a good resource for family members. Family members are often confused and require assistance. With a placement agency, an agency that simply recommends a long-term facility to the family, as long as the family is aware that the agency is to receive a finder's fee from the facility, I think the services these agencies provide are somewhat helpful.

Social work agencies, sometimes call "geriatric care managers," can help a family, including mom, realize that mom needs care and ensure that mom obtains the care she needs. These agencies can be quite expensive over time. Initially, $100 an hour might not seem like a lot of money, but I have regularly seen their fees in the range of $1,000 to $3,000 a month.

These fees often go on long after mom has entered an assisted living residence or nursing home. What the agency is doing for mom after she has been placed in a facility, I don't know, and I certainly cannot figure out what they are doing for a fee of $1,000 a month or more.

But the thing that I think is the most dangerous is when these "elder agencies" engage in Medicaid planning for family members. As I said, Medicaid is a very complex law. Having studied law for a number of years, I would liken the Medicaid Act to the Internal Revenue Code. Both areas of the law are very complex and frequently modified.

I do not think I am being overly dramatic in saying that a non-lawyer cannot fully understand the Medicaid Act. Someone who is not a lawyer may obtain a working knowledge of the program, but frequently questions arise that require the individual to trace down specific sections of the laws, regulations, or legal policies governing the Medicaid program. Most anyone who is not a lawyer could not do this.

Yet, I have seen social workers who set up business doing traditional social work business and Medicaid planning. In my opinion, this is a disservice to the family. The family is still paying high-end prices, but getting basement legal advice.

HERE'S MOM'S BILL

In New Jersey, there is no obligation for an adult child to provide financial support to his parent. But in Pennsylvania, our neighbor to the west, there is such a law and that law is being enforced with great regularity. A law that requires an adult child to support his parent is called a "filial obligation" law.

Filial obligation laws have existed in one form or another for hundreds of years. Typically, a state statute creates the obligation, as opposed to case law.

A filial obligation imposed upon an adult child can be financially devastating if the child's parent requires healthcare, particularly long-term care, such as in a nursing home, which is typically not covered by private insurance.

Imagine that your mother is in a nursing home and the nursing home costs $10,000 a month. Then imagine the nursing home sends you a bill, and it is not a joke. Now, I think you can understand the horror of a filial obligation law.

Frequently, the parent will pay for her long-term care, and when she expends all of her assets, she will qualify for Medicaid benefits; however, in the past five years, I can tell you that obtaining Medicaid benefits has become a significant challenge. As the difficulty of the application process increases, I can assure you that the number of applications being denied has also increased.

The laws governing the Medicaid program are extremely complicated and complex, so there is plenty of room for individuals to become confused when dealing with the law. Confusion leads to mistakes, and mistakes lead to denials of benefits.

Another issue is with gifts that the parent may have made. When people get older, they tend to realize that life is finite and that someday they won't be here. They realize that they don't necessarily need their money, and they want to see family and friends benefit from the money.

So, mom might gift $5,000 to this child and $2,000 to this grandchild to pay for college. When mom enters a nursing home and applies for Medicaid, all the small gifts that she made over the course of the five-year period leading up to the application for Medicaid come back to haunt her and cause her to be ineligible for benefits for days, weeks, months, or, sometimes, years.

Who is going to pay for mom's care while she is ineligible for Medicaid benefits? In Pennsylvania, her adult children may very well have to pay for her care.

And while New Jersey does not have a filial obligation law, I can tell you that in the past several years, I have seen more and more nursing homes act as if New Jersey did have such a law.

Nursing homes have gotten very aggressive and attempt to sue the adult children of the resident-parent to pay for her stay in the nursing home.

The nursing homes typically bootstrap their filial obligation argument with documents that a family member may have signed. When a resident enters a nursing home, the nursing home typically gives the client an admission agreement to sign. That admission agreement typically contains a section for a third-party to sign called the "responsible party" section.

In my opinion, the "responsible party" section may as well be called the "your-somebody-we'd-like-to-sue-too" section, because that's the purpose of it. When the son signs as responsible party, the nursing home has yet another theory to sue the son under when mom cannot pay for her care. Nursing homes are making hybrid arguments saying that since the son signed the contract he is responsible to pay for mom's care while she is ineligible for Medicaid benefits.

Be careful and seek representation. Long-term care is incredibly expensive. If a nursing homes costs $10,000 a month, it is well worth the money you will pay for legal advice to ensure that things are handled correctly.

DRAFTING A TRUST

A trust can be an excellent vehicle for passing your assets onto future generations. There are various reasons that a person might wish to create a trust. For instance, the person might have a disabled child, a minor child, or a child who has a problem with drugs or alcohol. All of these situations call out for the creation of a trust for the benefit of the family member/beneficiary.

Yet, it is equally true that not all estate plans call out for a trust, and in fact, a trust can be a rather cumbersome tool for passing an individual's assets onto beneficiaries. Care must be taken in the consideration of whether or not a trust is needed in a given situation, and if so, how that trust is drafted.

In my law practice, I am frequently asked questions about trusts. To most people, a trust is a thing of mystery. People tend to confuse the concept of a "trust" with whom or what is serving as the "trustee" of the trust. Then they tend to think that a trustee must be a big bank that charges big fees.

The fact of the matter is, a trust is simple an agreement. It is an agreement amongst the parties to the trust-the grantor, the trustee, and the beneficiary. The "grantor" is the person who establishes the trust. The grantor contacts the attorney to draft the trust. The grantor places his money or other assets into the trust.

The "trustee" is the person who manages the assets of the trust and makes distributions of the assets of the trust to the beneficiary. The "beneficiary" is the person whom the trust was designed to benefit.

For instance, mom establishes a trust in her last will and testament for her minor child, naming her brother as the trustee of the trust. Mom is the grantor, the brother is the trustee, and the child is the beneficiary.

A couple with minor children is a common circumstance for the creation of a trust. If you have a child who is four years old and you are planning for your death, you aren't going to leave the money directly to the minor child. A minor cannot manage money because any contract that a minor enters is voidable. Plus, the vast majority of minors do not have the skill set to manage money. Let's face it, many adults don't have the skill set to manage money.

At dinner the other night, my family was discussing the estate of a friend who had died. The friend was very wealthy, and at the time of his death, he had two children who were minors.

In his Will, the friend had created trusts for the minor children and specified that the children would not receive any of the assets of the trust unless they attended and graduated from college. The child received a specified amount of money upon graduating from college and additional money if the child attained a post-graduate degree.

My wife thought this was a great idea. At first blush, I thought it sounded good too, but being a lawyer, I began to contemplate the ramifications.

Apparently one of the friend's children is attending college, but the other child is not. So, under the terms of his Will, as I understand those terms, the one child may receive her entire share of the estate (assuming she continues with her education) and the other child may receive nothing. Obviously, this puts the one child at an economic disadvantage. It also could serve as a wedge between the children. Rightly or wrongly, how do you think the child who did not receive any money will view the child who did receive money?

Furthermore, attending college is not a guarantee of success. Steve Jobs and Bill Gates did not graduate from college. Steve Jobs dropped out in his first semester and, I believe, Bill Gates only completed one secmester.

My point is, when you draft a trust, you must think through the possibilities and the complications. Not giving money to a minor child is a good thing. Never giving money to a child could be a very bad thing.