Supreme Court Limits Medicaid Estate Recovery

Recently, the Supreme Court of the United States ruled on a case involving Medicaid estate recovery.  Medicaid is a health insurance program for needy individuals.  Unlike most policies of health insurance, Medicaid will pay for the costs of long-term care, such as care in a nursing home or an assisted living residence.

In order to qualify for Medicaid benefits, an individual must have insufficient income to pay for his care and he must have very limited assets.  For instance, if Mr. Smith resides in a nursing home that costs $10,000 a month but has monthly income of only $2,000, then his income is insufficient to pay for his care.  In most states, a Medicaid beneficiary must have assets of no more than $2,000 or some very low figure.

Because Medicaid is designed to pay for the care of needy individuals, the Medicaid programs compels states to seek estate recovery from a Medicaid beneficiary’s estate after he dies.  Most Medicaid beneficiaries do not have an estate, because as discussed above, most Medicaid beneficiaries have very limited assets; however, some Medicaid beneficiaries reside at home and a home is a non-countable asset for purposes of Medicaid eligibility.

Mr. Smith could, for instance, reside in his home worth $300,000 and still qualify for Medicaid benefits.  Mr. Smith may receive home health aide services paid for by the Medicaid program.  When Mr. Smith dies, he will die owning a home worth $300,000, so the state that paid Medicaid benefits to Mr. Smith would be compelled to seek estate recovery from Mr. Smith’s estate after his death.

As the phrase indicates, “estate recovery” only occurs after Mr. Smith dies.  Medicaid does not seek reimbursement from a beneficiary’s estate until the Medicaid beneficiary dies, unless the Medicaid beneficiary received benefits incorrectly.  If a Medicaid beneficiary committed fraud, for instance, and lied about his asset, then Medicaid would seek recovery from the fraudulent beneficiary during his life.

The other instance in which Medicaid seeks recovery from a beneficiary’s estate involves people who receive Medicaid benefits as the result of an injury and who later recover a judgment as a result of the events that caused the injury.  For example, assume that Mr. Smith is on his way to work and is involved in a horrific car accident.  Mr. Smith is seriously injured.  He has no health insurance, and as a result of his injuries, he can no longer work.

In a short period of time, Mr. Smith depletes his assets, and he becomes a Medicaid beneficiary.  Medicaid pays a substantial amount of money for Mr. Smith’s care, which he requires as a result of the car accident.  In total, Medicaid pays $800,000 for the care, rehabilitation, and custodial care of Mr. Smith.

Mr. Smith sues the other driver who caused the car accident that injured him.  After several years, Mr. Smith obtains a judgment against the other driver for $1,000,000.  Of that award, the jury indicates that $300,000 is for the medical expenses that Mr. Smith incurred and $700,000 is for his pain and suffering and lost wages.

In Wos v. E.M.A., the Supreme Court of the United States decided whether or not a North Carolina statute that required up to one-third of any personal injury award be paid to the state to reimburse the state for Medicaid benefits paid was constitutional.  Specifically, the Court was considering whether the North Carolina statues was pre-empted by the federal Medicaid Act.

The Court held that the North Carolina statute conflicted with the federal Medicaid Act, because the North Carolina statute arbitrarily permitted the state to receive up to one-third of any personal injury award whereas the federal Medicaid Act only permit recovery against that portion of a personal injury award that is specified as reimbursement for medical expenses.  In so doing, the Court affirmed its holding in a prior case that it decided several years ago.

Oklahoma Case May Have Impact in New Jersey

Last week, a federal district court in Oklahoma decided a case that I found very interesting.  For several years, I litigated a case in federal court involving the use of promissory notes as a Medicaid planning technique.  Ultimately, I did not prevail in my case.  I can’t say that I lost, because my case was never resolved one way or the other after a trial, but I certainly didn’t prevail either.

Medicaid is a federal and state cooperative health insurance program for needy individuals.  In order to qualify for Medicaid, an individual must have insufficient income with which to pay for his care and he must have a very limited amount of assets.  Unlike most health insurance programs, Medicaid will pay for long-term care costs, such as care in a nursing home or assisted living residence.

Many people consult with me in order to qualify themselves or a family member for Medicaid sooner than the individual would qualify for Medicaid without planning.  This type of service is known as Medicaid planning.  Through Medicaid planning, a lawyer is assisting an individual with preserving a portion of his estate for himself or his family by qualifying him for Medicaid benefits sooner than he would qualify without planning.

Since long-term care can cost anywhere from $5,000 to $12,000 a month, many individual who never thought they would need to qualify for Medicaid find themselves eager to qualify.  Most of my Medicaid-planning clients are people who worked their entire lives, lived frugal lives, and never thought they would need Medicaid benefits.  Of course, they never counted on spending $12,000 a month for a nursing home.

In 2006, the federal government changed the laws governing the Medicaid program.  Part of those changes involved promissory notes.  A promissory note is simply an I-owe-you, a document through which one person, the borrower, promise to pay to another individual, the lender, a certain sum of money.  For instance, “Mom, I owe you $50,000” is a promissory note.

Before the federal government changed the Medicaid Act, I had never used promissory notes as a Medicaid planning technique.  After the federal government changed the Medicaid program, I began to use promissory notes extensively as a Medicaid planning technique.

In short, and without confusing you too much, this is how I used promissory notes:  Mrs. Smith is in a nursing home costing her $10,000 a month.  Mrs. Smith has total assets of $100,000, consisting of a checking account.  She has monthly income of $3,000 a month, consisting of Social Security and a pension.  Her monthly deficit is, therefore, $7,000 ($10,000 – $3,000 = $7,000).  Mrs. Smith has one son, Joe Smith.

Mrs. Smith gifts $50,000 to her son, Joe.  Mrs. Smith lends Joe $50,000.  Joe agrees to pay Mrs. Smith the $50,000 back over a period of seven months at the rate of approximately $7,000 a month.

The gift of $50,000 causes Mrs. Smith to be ineligible for Medicaid benefits for a period of seven months.  During that seven-month period of time, Mrs. Smith uses her income ($3,000) and the $7,000 monthly payment from the promissory note to pay her $10,000 a month nursing home bill.  At the end of the seven-month period, Mrs. Smith is eligible for Medicaid benefits and Joe Smith retains the $50,000 that was gifted to him.  Joe can now use the $50,000 to supplement Mrs. Smith’s care.

Now, there is a good deal of federal court case law that says planning is not illegal and is, in fact, something that many people engage in doing.  For instance, few people in this country would begrudge someone who plans to pay less in income tax.  Similarly, courts do not look down on people simply because they plan to qualify for Medicaid benefits.  Or, at least, courts shouldn’t.

In my case, I initially received a good decision from three federal judges sitting on a federal appeals court panel, which supported my position.  Later, that same court, with three different judges, rendered a decision that contradicted the court’s first decision.  If that’s confusing to you, you’re not alone because it was/is confusing to me.

But a recent decision of a federal district court in Oklahoma supports the use of promissory notes as a Medicaid planning technique.  Looking at the law, not at the goodness or badness of Medicaid planning, the court held that the promissory note was valid, meaning that the technique discussed above would work.  I colleague of mine is currently litigating a promissory note case in federal court in New Jersey.  Time will tell if the Oklahoma case will have any power to persuade a New Jersey federal judge.

Are Veterans Benefits Income?

Last week, I wrote about a Veterans benefit commonly known as aid and attendance.  Aid and attendance is a cash-assistance Veterans Benefit that will pay anywhere from $1,100 to $2,100 a month to a veteran or his surviving spouse.

While aid and attendance sounds like a terrific program, it can have a big drawback, namely the manner in which it may negatively impact an individual’s eligibility for certain programs of Medicaid.  As I wrote, aid and attendance could put a Medicaid applicant over the income limit for the Medicaid program that will pay for care at home or in an assisted living residence.

Aid and attendance is actually comprised of two parts—aid and attendance and a pension.  After an individual qualifies for Medicaid, the aid and attendance benefit is eliminated and the veteran’s pension is reduced to $90 a month.

In order to qualify for Medicaid at home or in an assisted living residence, the Medicaid applicant must have gross, monthly income of $2,130 a month.  So, if the applicant has $2,000 a month in Social Security income he will qualify for Medicaid in these settings; however, if the applicant has $2,000 a month in Social Security income and $2,000 a month in aid and attendance, he will not qualify for Medicaid because his gross, monthly income is $4,000.

His aid and attendance will not be reduced to $90 a month until after he qualified for Medicaid, which causes a chicken-or-the-egg situation.  The Medicaid applicant’s income will be reduced to $2,090 a month once he qualifies for Medicaid but he cannot qualify for Medicaid because his income is too high to qualify for Medicaid.

There is a section of the Veterans Benefit Manual that instructs Veterans Administration workers to inform state Medicaid agencies that the entire monthly payment is to be treated as aid and attendance, and not aid and attendance and a pension, if the person would not be receiving the pension but for the fact that he is receiving aid and attendance.  This section of the VA manual is very helpful, because most of the veterans (or spouses of veterans) with whom I deal are only receiving the pension as a result of receiving aid and attendance; accordingly, the entire payment the veteran receives should be treated as aid and attendance by the VA and the state Medicaid agency, which means the entire payment should be disregarded for purposes of the Medicaid income cap.

So, if Mr. Smith is receiving $2,000 a month from Social Security and $2,000 from aid and attendance and a veterans pension but would not be receiving the veterans pension but for his receipt of aid and attendance, then for purposes of determining his eligibility for Medicaid, Mr. Smith only receives $2,000 a month.  Since $2,000 a month is less than $2,130 a month, Mr. Smith would qualify for Medicaid at home or in an assisted living residence.

The problem is, even though the VA manual specifically instructs the workers at the Veterans Administration to write a letter to the state Medicaid agency stating that the entire aid and attendance/pension payment is to be treated as aid and attendance, I have been informed that the VA has informally changed its policy and will not write such a letter.  Instead the VA has instructed its workers to write letters to state Medicaid agencies breaking out the aid and attendance and pension portion of the payment.  In other words, the letter might state:  Mr. Smith receives $1,500 as aid and attendance and $500 as a Veterans pension.

Why the VA has chosen to ignore its own manual is unknown to me, but for now, this informal and improper change could impact a person’s eligibility for Medicaid benefits in certain circumstances.  In the near future, New Jersey’s Medicaid Only program is changing, eliminating the income cap, but until that happens, some applicants could be in big trouble.  Such an applicant’s solution may be a federal lawsuit against the VA to force them to comply with their own manual.

Veterans Benefit or Bane?

If you are a veteran who served during war time, or the surviving spouse of such a deceased veteran, you may be entitled to a veteran’s benefit commonly known as aid and attendance.  Aid and attendance is a cash-assistance benefit designed to help the veteran or his spouse pay for long-term care.  Under the aid and attendance program, the veteran can receive up to $2,054 monthly; his spouse can receive up to $1,113 monthly.

For obvious reasons, this benefit appeals to many people.  For instance, if you are living at home but require the assistance of a home health aide, an extra $2,000 can go a long way.  A live-in aide might cost you $5,500 a month so effectively cutting that amount down to $3,500 a month can permit you to stretch your savings out and stay at home longer.

Similarly, a veteran living in an assisted living residence can also receive aid and attendance.  If the assisted living residence costs $6,500 a month, receiving the extra $2,000 can be very helpful.

The issue that I wanted to point out with aid and attendance is the programs effect on the Medicaid program.  Medicaid is a federal and state cooperative health insurance program for needy individuals.  Unlike most health insurance programs, Medicaid will pay for long-term care in the home (such as a home health aide), in an assisted living residence, or in a nursing home.

There are actually many different programs of Medicaid in the state of New Jersey.  For long-term care services (known as “institutional Medicaid”) there are two programs of Medicaid:  Medicaid Only Medicaid and Medically Needy Medicaid.  Medicaid Only Medicaid will pay for care at home, in an assisted living residence, or in a nursing home.  Medically Needy Medicaid will only pay for care in a nursing home.

The primary defining factor between the two programs is the applicant’s income level.  If the applicant’s gross monthly income is less than $2,130, he can qualify for Medicaid Only.  If his income is one penny above $2,130 on a gross, monthly basis, he can only qualify for Medically Needy Medicaid.

So, if the applicant’s income were, for instance, $2,500 a month, he would only qualify for Medicaid in a nursing home, even if he were residing at home or in an assisted living residence.  He would have to move to a nursing home if he wanted to qualify for Medicaid.  And, if he can no longer afford to pay for his care at home or in the assisted living residence because he has depleted all of his assets, then he has to move to the nursing home.

Effectively being forced to move to a nursing home is not a good thing, particularly when you want to stay at home or in the assisted living residence where, perhaps, you have lived for the past several years.  But situations such as this actually do occur, every day.

Assume the following facts:  Mr. Smith has been residing in an assisted living residence for three years.  He enjoys the assisted living residence and has established many, friendly relationships.  When he first entered the facility, he had a decedent amount of savings.  His Social Security income is $2,000 a month, and he applied for and received aid and attendance from the Veterans Administration of $2,054 a monthly.  With the $4,000 a month he has been receiving, he has been able to stretch his savings out for the past three years.  The facility he resides in currently costs him $7,500 a month.

Now that his savings are depleted, he has to apply for Medicaid benefits.  Mr. Smith’s aid and attendance is actually composed of two parts—a pension and aid and attendance.   Medicaid treats the pension portion as income but disregards the aid and attendance for purposes of the $2,130 a month income cap.

The problem is, if the pension portion of Mr. Smith’s aid and attendance places him over the income cap for Medicaid eligibility when added to his Social Security income, Mr. Smith won’t be able to qualify for Medicaid.   What seems like a boon could become a bane for Mr. Smith.

Getting Mom Rehab

As I indicated in a recent article, my mother currently requires long-term care.  Like the vast majority of my clients, my mother was first admitted a hospital and was then discharged to a skilled nursing facility for rehabilitative care.

A skilled nursing facility is commonly known as a nursing home.  Nursing homes typically have a section of the facility that is dedicated to rehabilitative, short-term services and a section that is dedicated to long-term, custodial care services.  People who are currently in a nursing home receiving rehabilitative services don’t think of the facility as being a nursing home, but it is.

Medicare, which is a federal health insurance program available to many elderly and disabled individuals, will pay for some rehabilitative services.  Medicare will typically pay for a maximum of 100 days of rehab.  The 100 days is a maximum.  A Medicare beneficiary could receive anywhere from 0 days of rehab to 100 days, but it is guaranteed that he won’t receive more than the 100 day maximum.

Many nursing home residents who are receiving rehab in a nursing home are having that rehab paid for by the Medicare program.  After Medicare ceases to pay for their care, most of these people will leave the nursing home and will go home, if they are at all capable of leaving.  Some may never go back to the nursing home, other may be in-and-out of the hospital and the rehab center for the remainder of their lives until one day they simply cannot go home.

If a person stays in a nursing home long-term, then she must either pay for that care herself, that is, private pay, or qualify for Medicaid benefits.  Medicaid is a federal-state cooperative health insurance program for needy individuals.

My mom’s current situation has, once again, brought an issue to the forefront for me that I know a great number of my clients experience.  When a nursing home resident is receiving rehab, Medicare is paying for the rehab, and the patient’s family is probably happy because not only is that care being paid for by Medicare but the family believes that their loved one is getting better or on her way to getting better.

Those good feelings can come to an abrupt end.  The facility is obligated to inform the family when the facility believes that Medicare will no longer pay for the rehab.  The facility is not saying that Medicare will not pay for the care.  The facility is merely stating that in its opinion, it believes that Medicare will not pay for the care any longer.  The facility must give the patient or the family representative one day’s notice of when it believes Medicare will no longer pay for the rehab.

The patient has the right to appeal the facility’s decision to terminate Medicare services.  The appeal is called a “demand bill.”  In most cases, the demand bill is submitted to a Quality Improvement Organization (“QIO”), a third-party company that is contracted to handle this type of appeal.

The patient has the right to request an expedited appeal.  In many cases, the patient will be informed of a decision in a matter of days.  There is no formal hearing.  Very little “evidence” is presented to the QIO.  From what I can tell, the QIO simply takes a second look at the decision to terminate Medicare rehabilitative services and either agrees with that decision or overturns that decision.

If the QIO rules in favor of the patient, she will receive more Medicare-covered rehabilitative services, but never more than the 100 day maximum.

I have read that most demand bill appeals are successful.  In my mother’s case, hers was successful, and I obtained more Medicare-covered rehabilitative services for her.  I’d like to say it was because I’m a terrific elder law attorney (because I am … at least my mom thinks so), but the fact of the matter is, I found the entire process confusing.

One thing I can tell you is, the process happens quickly.  The nursing home is required to give you only one day’s notice, and you only have two calendar days to file the appeal.  My mother was notified Saturday afternoon and by the time I called the QIO on Monday afternoon, they were telling me I was late.  I had to jump through a few additional hoops to get things done.