Big Medicaid Win … in Michigan

The benefit of practicing one area of the law—in my case elder law—is that during your entire workday, you work on a narrow area of the law and confront various issues within that area.  Because of this, you become familiar with issues that affect your clients.

You also get to know other attorneys who practice your area of the law and interact with those attorneys. During those interactions, you learn from your fellow attorneys.  Practicing law in this manner is similar to practicing medicine in that you learn from fellow attorneys who might have more experience than you with a given issue.

I am a member of the National Academy of Elder Law Attorneys (NAELA), which is the largest organization of elder law attorneys in the country. For many years, I have been a member of the Litigation Committee of NAELA.  As a member of the Litigation Committee, I am able to assist other attorneys with their litigation issues, providing my advice on the best way to approach a legal issue.  But I can’t deny learning a lot from the discussions my fellow members and I have about legal issues facing other attorneys.

Recently, a fellow member of the committee won a very interesting case in the state of Michigan. The case is entitled Hegadorn v. Department of Human Services.  The decision is from the Supreme Court of Michigan.

The issue in the Hegadorn case involved an irrevocable trust established for the benefit of the community spouse in the context of the Medicaid program.  What is interesting about the Hegadorn case to me is that when I first started practicing elder law, a similar issue was litigated in New Jersey.  In New Jersey, the elder law attorneys lost their case, but in Michigan, my colleagues were able to prevail.

Medicaid is a health payment plan for needy individuals. If an individual qualifies for Medicaid benefits, Medicaid will pay for most of the costs of the individual’s care.  Typically, a Medicaid beneficiary must have less than $2,000 in assets.

If a Medicaid beneficiary is married, his spouse can retain a certain amount of assets. The spouse, called the “community spouse,” can retain all of the non-countable assets, which includes the house, a car, and her personal goods and household effects.  She can also retain a certain amount of the countable assets (the cash, stocks, bonds, etc.).  She can retain a maximum of $126,100 in countable assets.

Most people who know anything about Medicaid have heard of the five-year lookback rule. The five-year lookback rule essentially says that if the Medicaid beneficiary or his spouse gave away any assets during the five-year period of time leading up to Medicaid eligibility, then the Medicaid beneficiary is ineligible for Medicaid benefits for a period of time.

Assets owned by the Medicaid beneficiary, his spouse, or both of them countable against the eligibility of the Medicaid beneficiary, with the exception of the non-countable assets and the $126,100 that the community spouse can retain; however, once the Medicaid beneficiary qualifies for Medicaid, the assets of the community spouse no longer affect the eligibility of the Medicaid beneficiary. For instance, the community spouse could win the lottery and her winnings would not affect the continuing eligibility of the Medicaid beneficiary to whom she is married.

The issue in Hegadorn involved the transfer of the couples’ assets to an irrevocable trust for the sole benefit of the community spouse.  The Michigan Supreme County in Hegadorn held that since the community spouse no longer owned the assets in the trust (she was only the beneficiary of the trust) and since transfers to such a trust were exempt from the five-year lookback rule under the Medicaid Act, the transfer to the trust could not be punished and the assets in the trust were not available to the community spouse.

In the New Jersey case, which is now about 20 years old, the court said that the community spouse could have given the assets she received from the trust to the Medicaid beneficiary once the assets were distributed from the trust to her. This reasoning was silly, and I am happy to see another court hold that the logic of that case was faulty.  The community spouse could always give her assets to the Medicaid beneficiary; that fact doesn’t affect the beneficiary’s eligibility for Medicaid.

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