Is Medicaid Really Biased?
January 31, 2011
So often, when families call in the midst of a long term care crisis, their primary concern, they tell us, is to care for their loved one at home. For some that will be impossible, as their medical needs require nursing home care. But, for others, home care is possible. The problem is Medicaid’s bias towards institutional care.
What do we mean by that? First of all, when we talk about Medicaid, we aren’t talking about one single program. Medicaid actually consists of a number of different programs under the “Medicaid umbrella”. All are needs based programs, meaning there are strict financial tests, but there are some significant differences in the rules from one to the next. An important difference is that when one meets all the eligibility requirements for institutional Medicaid (care administered in a nursing home or state institution) the state must cover the applicants care costs.
That is not true for home based and other community Medicaid programs. Most states limit the number of residents for whom those benefits will be provided, resulting in lengthy waiting lists. If you have spent all your money down to qualify for Medicaid at home you could wind up on a waiting list. And if you can’t wait because your health is at risk then your only alternative is to go to a nursing home. That is how the system “drives people to institutional care”.
In recent years there has been increasing discussion about whether this “bias” is what the government really wants. Isn’t it less expensive to administer care at home, which would then cost the state less money ? That is a debate that you’ll hear more of as the federal and state governments struggle with budget deficits and trying to keep costs down. We are already seeing, in the past 5 to 10 years, an increase in state spending on home and community based programs. But some lawmakers fear what they call the “woodwork effect”. If they expand these programs, giving people what they want, more will be encouraged to apply and thus, the costs will rise. People will be “coming out of the woodworks”, so to speak. (Makes you wonder how much the government really cares.)
That premise is debatable. A 2009 University of California study found that expanding home based care programs saved states money in the long run. There were additional “start up” costs but over time the additional expense paid for itself because, the study found, the cost of home care is cheaper than institutional care.
As we see 77 million baby boomers starting to turn 65 the discussion will only intensify. The long term care problem isn’t going away. For more discussion on the issue check out a recent story on National Public Radio which you can find at http://www.npr.org/2010/12/10/131755491/home-care-might-be-cheaper-but-states-still-fear-it
“But We Did Exactly What the Medicaid Caseworker Said”
January 24, 2011
So many ways to get tripped up by the Medicaid system. Here’s yet another one. John was agent under power of attorney for his mom who was in a nursing facility. Over the past 3 years he had spent Mom’s money down for her care and then applied for Medicaid. He met with the caseworker, muddled through the process of providing all the documentation necessary and answering all the follow up inquiries over the next 6 months and finally received approval. All sounds good. What John did – or didn’t do – with Mom’s income, however, is where he ran into a real problem.
Medicaid rules require that the Medicaid recipient give his/her income to the nursing facility and Medicaid will then pay the rest up to the Medicaid reimbursement rate, that rate at which the State pays the nursing home. If I apply for Medicaid in January but don’t receive approval until July, I must give the nursing home my income each and every month starting in January. John didn’t do that. But it’s his reason why that is a lesson in why you don’t want to do it yourself.
Mom was living in an apartment, paying rent. When John met with the Medicaid caseworker, he says she suggested that he keep paying the rent on the apartment in case Mom wasn’t accepted on Medicaid and needed to go back home. John understood that to mean that he should use Mom’s Social Security income to pay the rent, which is what he did. Of course, he then didn’t have that income to give to the nursing home. So when he received word of Medicaid’s approval he thought it was smooth sailing. Except that Mom now owed the nursing home close to $15,000, her Social Security income for the past 6 months.
He tried to explain to the nursing home that he followed exactly what Medicaid told him to do but the facility is demanding payment and is ready to file suit against his Mom and possibly John as the agent under the power of attorney. His mistake is in relying on the state employee to guide him. The employee either flat out gave him incorrect information or, in trying to be helpful and offering him advice outside the scope of her job, didn’t make it crystal clear. In other words, while it might be a good idea to keep the apartment for a few months, the caseworker should have made it clear that payment of the rent cannot come from Mom’s income which absolutely had to go to the nursing home. Either way, he took some bad advice and ended up in a whole lot of hot water that could have easily been avoided if he had just sought out the proper guidance.
How to Avoid Committing Medicaid Fraud
January 17, 2011
When it comes to long term care planning, the earlier the better. One of the primary reasons is the Medicaid 5 year look back. Medicaid will look back through 5 years of your financial records to determine if you have done anything with your money that would cause you to be ineligible for benefits. Now, you might ask, “how am I supposed to know if I violate a Medicaid rule when I don’t even know what the rules are?” And that is precisely why planning well in advance is so important. Trying to go back and change what you did after the fact can get you in some real hot water. Allow me to explain.
When we meet with clients who are well on their way to needing nursing home care or are already in a nursing facility Medicaid is starting to really come into focus for these folks. When we then look through their finances we so often find transactions that, if carried out with an understanding of the Medicaid rules, would have put them in a much better position.
For example, I have written in this blog about the right way and the wrong way to pay for aides. In the case of family members serving as home aides, typically there is no written agreement as to the amount of compensation or the scope of the work. Without that agreement Medicaid views the transfers as gifts subject to a Medicaid penalty. In some cases real estate or bank accounts have been transferred, or so the family thought. Without a proper understanding of the Medicaid rules those transfers of assets out of the senior’s name actually are not transfers and, to the dismay of the family, are still subject to be spent down.
When I tell clients this sometimes their response is, “can we create a written agreement memorializing all the care I provided to Mom for all these years?” This typically involves “backdating” documents. My answer is always an unequivocal “no”. Back dating documents involves creating a document, such as a deed or a caregiver contract, and then making it appear that it was written and/or signed on an earlier date.
Not only is it dishonest, it is also a federal criminal offense to falsify an application or documents in order to obtain Medicaid benefits. This is known as Medicaid fraud and it caused an Ohio attorney to lose her license and be brought up on felony charges. In her case, she back dated a deed 3 years to start the clock running on the Medicaid penalty.
That’s why it is so critical to understand the rules before you take a course of action. And the only way to do that is to engage in planning with a qualified professional who understands the rules and can guide you accordingly.
When Might a Gift of $13,000 Per Year Still Be Subject to Tax?
January 10, 2011
Mary‘s dad lived a long life, passing away at 80. He left a 1.5 million dollar estate. In an effort to minimize estate taxes he had started a gifting program amongst his 3 children and 9 grandchildren, which had reduced his estate by almost $500,000 in the last 3 years of his life. Because he died in 2010 there was no federal estate tax. Mary understood, however, that there was New Jersey estate tax to pay. When I told her we might have to add back Dad’s lifetime gifts, however, she was perplexed.
That’s because New Jersey, like many states, doesn’t have a gift tax. Now you might think that’s a good thing, but we need to be careful. To recognize why, it helps to understand how federal gift tax works. Most people know that they can make gifts of $13,000 per person per year (the amount was $10,000 but is now indexed for inflation) without paying gift tax. They can additionally make $5,000,000 in gifts during their lifetime. (The new federal estate tax law passed by Congress for 2011 and 2012 upped both the estate and gift tax exclusions.)
New Jersey provides two methods to calculate its estate tax. One way requires gifts to be added back to the estate for purposes of determining the estate subject to tax. The other way does not. So, depending on which method is used her dad’s estate could have to pay more or less in taxes.
Mary had a hard time understanding that at first. “But Dad gave no more than $13,000 to each of his children and grandchildren,” she exclaimed. “He didn’t owe any tax”. “All true,” I replied, “depending on what way you figure out the tax”. It’s a good thing Mary sought our guidance. The potential additional tax that she was unaware of amounted to over $50,000. Although Mary was confused as to why two different tax amounts for the same estate could exist she was appreciative that we were able to steer her away from a costly mistake.
Dad Gets German Reparations Money – Can Mom Keep it All?
January 3, 2011
Jerry’s dad receives a monthly check from the German government, compensation as a result of his suffering at the hands of the Nazis in World War II. Dad has dementia and will soon need nursing home care. Jerry is trying to preserve as much as he can for his mom, who is 10 years younger than Dad and still in pretty good health. His question to me was, “is the German reparations money countable for Medicaid purposes”?
An interesting question, and one that could have a real impact on Mom’s financial well being. That’s because, under community spouse resource allowance rules, Mom will be able to keep a maximum of $110,000 but has to spend down the balance of their $200,000 in assets before Medicaid will cover Dad’s care. That’s not much to live on, especially if Mom lives another 10 years or more.
Medicaid does exempt the German reparations money from income rules, meaning it isn’t counted as income for purposes of determining eligibility. But, Dad has received over $200,000 from Germany over the course of his lifetime. Can that money be treated as an exempt or non-countable asset under Medicaid rules? If so, then Mom can keep the extra $200,000, which would go a long way towards easing her money worries.
The problem for most recipients is that it isn’t easy to identify which assets are from the German pension because the reparations money wasn’t segregated. After all, the average person isn’t thinking about needing Medicaid years into the future, nor does he/she know the intricacies and specifics of the Medicaid regulations. And there isn’t a specific regulation in New Jersey that talks about German reparations anyway, just a federal regulation. (The Medicaid program is governed by a hybrid of federal and state regulations.)
What I did tell Jerry, however, is that if the money can be segregated and traced, there is a very good chance that the entire amount can be exempted. That means we must document how much Dad received over his life, place that dollar amount in a separate account and when we apply for Medicaid explain that this is the “German reparations” account. It might require some negotiation with the State but it is well worth the effort. Mom was relieved when I told her this and we have begun to take steps to make it all happen. Stay tuned.
