Al, Betty and Carl were, in many respects, like a typical married couple living under one household.  They combined their income to pay many of the bills, holding a joint checking account from which they paid those expenses.  They also combined much of their investments and savings in joint accounts.  This included the home which was titled in all 3 of their names.  Everything worked out fine until Al’s health deteriorated to the point where he needed nursing home care.  That’s when Denise called.

 Al had spent down his retirement accounts in his name alone and some of the money in joint accounts but when Denise went to apply for Medicaid they asked for 5 years of financial records so the caseworker could determine where all of Al’s money went.  And that’s where she ran into a problem because, for so many years, Al, Betty and Carl had combined much of their assets.  So who’s to say what was Al’s, what was Betty’s and what was Carl’s?  Denise thought she could just divide by 3 but the caseworker questioned the transfers into and out of those accounts, suggesting that Al  owned more than 1/3 of these accounts.

 Therein lies the problem we see so often.  By combining their assets the 3 siblings had muddied the paper trail necessary to establish that Al had spent down all his assets. Why is this so important?  Because if Al is spending his money for Betty or Carl’s benefit, that is a transfer for less than fair value and Medicaid will impose a penalty – a period of ineligibility – for benefits.  This applies equally to Betty and Carl should they need Medicaid in the future.  We need to separate their assets and clearly establish that each is paying their expenses from their own assets.

 We were able to help Denise navigate through the Medicaid process and explain all transfers into and out of Al’s accounts – with some difficulty.  We also helped her separate Betty’s and Carl’s assets, so things will go a lot smoother if Betty or Carl needs nursing home care and Medicaid.  

 Oh, and what about Al’s ownership interest in the home, you may ask?  There is an exception in the Medicaid rules that permits the transfer of the home to a sibling who has an equitable interest.  That was no problem here since both Betty and Carl had owned and lived in the home as long as Al.

The answer is “absolutely not”.  As the cost of long term care increases and the population continues to age, two things become increasingly clear.  It is usually less expensive to receive long term care at home and most people prefer to receive their care at home.  Yet, when 24/7 care is necessary and you’ve run out of money, getting Medicaid to cover care at home has always been much harder than in a nursing home.   But that is starting to change.

In New Jersey we have several community waiver programs.  That’s what Medicaid calls programs that pay for long term care outside of a nursing home, in the community. It could be in a person’s own home or in an assisted living facility.  In 2006 then Governor Corzine signed a bill to enable Medicaid nursing home residents to return to the community  provided they are medically able to do so.  In 2009 what came to be known as the Global Options program was expanded to include several waiver programs.

So, what does this mean in plain English?  That if my spouse is in a nursing home on Medicaid he or she doesn’t have to stay there.  We must contact the nursing home social worker who will then assemble a team of nursing home staff and the resident’s family who will discuss whether and how that can be done while preserving the health and safety of the resident.

The financial eligibility requirements for Global Options are similar to those for institutional (nursing home) Medicaid although there is no option of coverage for those whose income exceeds the $2022 per month income cap.  However, Global Options can be a great option for many families struggling with the need for nursing home care now but who don’t want to give up on the possibility of bringing their loved one home at some point down the road.

 A big problem with this contract was the fact that it was a lump sum payment.  Daughter was paid $56,000 before she even performed a single hour of services.  Now, this was necessary in order to spend down to below $2000 for Mom to be under the asset limit.  And, every attempt was made to calculate an amount that was based on fair market rates.  In fact, the rate was at the low end of that scale. 

 However, there were other parts of the contract that the court found objectionable.  For example, the contract stated that the caregiver was not obligated to devote full time to care since Daughter had a career and family to attend to.  She would devote as much time as she could to providing care.  The contract anticipated the average amount of time would be 15 hours or more.  The contract also stated that the $56,000 due under the contract was not dependent on the exact amount of time Daughter worked and that if Mom canceled the contract Daughter would be paid under the assumption she had worked 15 hours per week.

 The court found the contract to be one-sided.  Daughter was not obligated to perform any minimum amount of services.  Her compensation was not tied to actual performance.  In the normal commercial transaction would anyone pay for something without being sure what they were going to receive?   And, although the court didn’t specifically mention it, I think the fact that Mom was in a nursing home and not at home receiving care may have also had something to do with it’s decision.  The nursing home was providing 24/7 care so what Daughter would provide in the way of services was even less certain.

 So, does this mean that a child can’t be paid for providing care to a parent?  Absolutely not.  But, the line between what works and what doesn’t isn’t a black and white one.  That’s why cases like this help us define it with a bit more clarity so that we, as elder law attorneys, can help our clients decide what the best course of action is in their particular situation, as we guide them through what we call the elder care journey.

Mom was 97 years old and in a nursing home.  Daughter entered into a caregiver contract with Mom to provide care and was paid the sum of $56,000.  This amount was based on daughter performing 15 hours a week at a rate of $25 per hour for 2.9 years, the life expectancy of a 97 year old.  The payment was made and within 5 years of that payment Mom applied for Medicaid.  The State denied her application, counting the $56,000 as a transfer for less than fair value, not a payment for fair value received.

We use life care contracts often in the cases in our office.  But, we also know that the State will scrutinize those contracts very closely because when the payments are going to family members the State assumes that these transfers are “for less than fair value”, what most people would call gifts.  They will then impose a penalty period, or period of ineligibility.

For example, the contract can’t be retroactive.  If I have been caring for Mom for the last 2 years and now we decide that it would be a good idea for her to pay me for that care, Medicaid will flag that transfer.  I had no expectation that I would be paid when I performed the services so I can’t change that now.  There must be a contract in place going forward.  I also can’t be paid an outrageous sum of money.  Mom can pay me no more than what are fair market rates for the services I will perform. 

So why didn’t our 97 year old Mom get Medicaid?  We’ll explain that in next week’s post.

Some states define it narrowly to mean the probate estate, that is property that passes by way of the estate administration process.  But other states (New Jersey is one) have expanded that definition to include any property that belonged to the Medicaid recipient at the time of death, including jointly held property and assets held in trust.  Life insurance proceeds would not be included where there is a specific named beneficiary.  On the other hand they would be included if the estate is the beneficiary.

What if there aren’t enough assets in the estate to pay the lien and other expenses?  Medicaid gets a priority right after reasonable funeral expenses and costs of estate administration, along with taxes and ahead of other creditors and heirs.  The law requires the executor or administrator to contact the state to find out if any money is owed.

But, as with many laws and regulations, the estate recovery laws may not work so smoothly in practice.  Let’s say Dad is on Medicaid and Mom owns the home.  Dad dies but Mom is still alive.  No estate recovery yet.  The State must wait till she dies.  But, what if Mom lives another 5, 10 or 20 years?  The home may no longer be in Mom’s name.  If she sold it and spent the money on her own care then, no problem.  That’s what the State wants.  However, what if she transfers the home out of her name?  Can the State enforce a lien in that case?  And, how would they even know when to file a lien?  Maybe they would know if there is a will probated or an estate administration action.  But, if that’s not the case then most likely, the State won’t be aware of Mom’s death.  And there doesn’t appear to be any requirement to notify Medicaid of Mom’s death unless she too received Medicaid.

So, what would happen in that case?  Many of these questions may take time to answer as these different scenarios play out over a number of years.  Just another example of why it is so difficult to navigate the long term care system.

 The process by which this is done is called estate recovery, and as with most things Medicaid, that process differs greatly state to state.  First, let’s review the basics.  Estate recovery applies only to Medicaid benefits provided for services received after age 55.  The State will not seek immediate recovery as long as there is a surviving spouse or child under age 21, blind or permanently and totally disabled.  The key word is “immediate’.   After the spouse and/or child dies, reaches age 21 or is no longer disabled, as the case may be, the State will then attempt to recover assets from the deceased Medicaid beneficiary’s estate. 

 A common misconception is that the State has a lien when Medicaid starts to pay benefits.  In fact, Medicaid doesn’t place a lien on the home until after death.  It often can take months, or in the case above where there is a surviving spouse or qualifying child, that lien might not be filed for years.

 There are also other scenarios where the State may not seek estate recovery.  Under what is known as a hardship exception, if property in the estate is the sole source of income for one or more survivors and pursuing recovery would likely result in those individuals needing public assistance themselves, then the State may not go after assets.  Also, if a family member was living in the home before the Medicaid beneficiary died, and continues to make it his/her primary residence then the State will record a lien but wait until the property is either sold or the family member dies or moves out, before seeking repayment.

 Those are the basics.  But, you’ve probably got a whole bunch of questions about how the whole process works.  For example, what exactly is counted as part of the ‘estate”?  We’ll tackle that one next week.

            Julie called us regarding her dad, who was in the hospital, ready to be transferred to a nursing home.  She had picked out a nursing home, applied for Medicaid and thought she had a plan in place.  Dad would move to the nursing home, private pay for a few months and then move over to Medicaid.  Then she got a letter from Medicaid stating that Dad had made a number of asset transfers which would result in his being ineligible for benefits.  The caseworker requested copies of checks and documents explaining deposits and withdrawals before he could tell Julie how long her dad’s penalty would be.  Julie called us in desperation.

            Now, I have to tell you, that some of the most challenging cases we get are those where we haven’t done the planning for families or even  filed the Medicaid application but, rather, are called in to finish a process that has suddenly been derailed.  And that, unfortunately, was what happened to Julie.  The nursing home she lined up for Dad learned of the Medicaid problems and said she needed to get them straightened out before they could admit him.  We took a look at the details and here is what we discovered.

            Dad had transferred his home to his children 10 years earlier.  That wasn’t the problem.  However, Dad was still living there and paying much of the expenses of the home, but doing so by way of reimbursing Julie who was actually paying the taxes, insurance, etc.  Additionally, Dad had been giving money to his children over the past several years, hardly unusual, but, transfers subject to a penalty, nonetheless.  Finally, Julie had been using Dad’s bank account to deposit some of her own funds.  She did this out of convenience but didn’t realize what a problem it would cause when Medicaid counted it as Dad’s.

            The questionable transfers totaled almost $75,000, a 10 month Medicaid penalty if we couldn’t prove otherwise.  So, we rolled up our sleeves and got to work.  We learned that Julie’s brother Bill was disabled.  Transfers to a disabled child are exempt from the transfer rules (something Julie didn’t know and which never came up at the Medicaid interview).  That reduced the questionable transfers to $50,000. 

            We then painstakingly went through the nearly four years of account statements  and had Julie provide us with as much information as possible to piece together the entire picture of money going in and money going out of Dad’s account.  We separated what was actually Julie’s and proved it to Medicaid.  Most of the payments that Dad made relating to the home he no longer owned we also were able to get Medicaid to treat as reasonable home expenses. 

            All this helped to reduce the $75,000 down to $20,000, resulting in a 3 month penalty.  Dad entered the nursing home, the family private paid for 3 months and then Medicaid kicked in.  The net savings to the family by knocking 7 months off the penalty was $70,000. Not knowing the Medicaid ins and outs, Julie would have never been able to do it on her own.  Yes, she filled out the application.  But, it was the rest of the complicated process she needed our help with.

             While Medicare, for example, is a federal program governed by rules established by Congress, Medicaid, on the other hand, is a mix of federal and state law.  It is that attempted blend of two governmental systems and sets of laws and regulations that makes the Medicaid system so uncertain for those trying to tap into it.  The issue of civil unions is a perfect example.

             New Jersey’s law states that civil union couples are entitled to the same benefits (as well as held to the same set of responsibilities) as heterosexual spouses, including Medicaid.  But, it’s not that simple.  Of course, with the government it never is.  That’s because there is a certain federal law known as the Defense of Marriage Act which says that, in interpreting any act of Congress the term marriage means only a legal union between a man and a woman.  This presents a problem for states recognizing civil unions because they get federal money to support their Medicaid programs.  So, they may be violating federal law and possibly lose federal funding by treating civil union partners as married for Medicaid purposes.  At least that’s what the federal agency overseeing Medicare and Medicaid has indicated on at least one occasion.  On the other hand, the New Jersey’s civil union law seems quite clear that civil union couples are to be treated as married for purposes of Medicaid.

             Where does that leave things?  We’ll probably have to battle this one out in court.  And, by the way, it isn’t necessarily the case that treating civil union partners as married is best when it comes to Medicaid.  As readers of this blog are aware each case must be examined individually.  In some instances it would be advantageous to be married, in others it wouldn’t.  But, the question does raise some interesting issues and is just another example of why the long term care system is so impossibly confusing to navigate alone.

 Certainly, Mom is getting a benefit.  She is helping others in need, but that is not exactly something we can put a monetary value on.  The same answer would seem to be the case for contributions to Mary’s favorite religious our civic charities.  But what if she makes a small gift of, say, $100?  Will that cause a penalty?

 Applying the letter of the Medicaid rule as written, any transfer for less than fair value, no matter how small, will trigger a penalty.  And think about it.  If the State goes through 5 years of your financial records (that’s the 5 year lookback), how many of these charitable contributions and other transfers might it find?  If we total them up it might turn out to be a pretty big number, causing a few months of ineligibility or more.  And, don’t you think, if the State can delay paying for Mom’s nursing home care, at a time when our incoming New Jersey governor, Chris Christie, has declared the State to be nearly bankrupt, it would do so?

 On the other hand, if Mom’s charitable contributions are small, infrequent and far enough in advance of her application for Medicaid, they most likely won’t cause a problem.  But, that’s what makes the whole long term care system so frustrating.  It’s the uncertainty, not knowing what you can or can’t do.  That’s why it is so important to seek advice from a trusted advisor first  You just don’t want to take the wrong step.  In Mary’s case I told her a small gift would be OK.  It didn’t make me feel good having to tell her that the government laws and rules in this case discourage charitable giving.  But that’s a whole separate discussion for another time.

 First of all, you need to understand some basics about how Medicaid works.  In order to qualify, one must spend down assets first.  When essentially all your money is gone, (in the case of a married couple the healthy spouse gets to keep a small amount) then Medicaid will kick in.  However, if you have made transfers for less than fair value, what most people would call gifts, then you won’t be eligible for Medicaid.  The greater those transfers the longer your ineligibility period.

 And before the government will step in and pay for your care it will insist that you show it how you spent your money.  And by “show”, I mean on paper, by producing each and every financial statement dating back what will soon be 5 years from the date you apply for benefits.  So, this is where my reference to the criminal system comes in.  Everyone knows from grade school the concept of “innocent until proven guilty”.  With Medicaid, however, that concept is turned around.  You are “guilty” until proven “innocent” when it comes to transfers for less than fair value.  By that, I mean to say, that if you can’t prove what you have spent your money on, then Medicaid will consider it a transfer for less than fair value, a “gift” in essence, causing a denial of benefits.

 Let’s then, go back to John’s parents.  As we know, cash is hard to trace.  Think about it.  If Mom and Dad have been withdrawing cash for their spending needs how hard is it going to be to prove, going back as many as 5 years, what they spent that money on.   All we’ll see on their bank statements are cash withdrawals.  No explanations.   Who keeps all those receipts?  Hardly anyone.   But that’s what Mom and Dad need to do in order to preserve their eligibility for government benefits.

 So how do they avoid this potentially catastrophic result?  They need to better prepare themselves for the possibility of needing long term care, well before they need it time and consult with a knowledgeable elder law attorney who can tell them how to spend down their assets and establish a clear paper trail, while preserving their ability to qualify for government benefits.

 In the case of a married couple, Medicaid considers the assets of both the healthy and ill spouse in determining eligibility.  The questions then becomes “what point in time do we value their assets?”  That is what is called the “snapshot date”.  Medicaid values the assets as of the first day of the first month of continuous institutionalization.  Bill told me that he was close to settling Mary’s case and asked whether pushing the case to settle would be helpful. 

I explained that if Mary receives the settlement proceeds before John is approved for Medicaid  it would count as part of the spend down and she would only be able to keep, at most, one-half of the money.   We don’t want the case to settle until after John gets Medicaid because at that point there is a “division of assets”.  Mary keeps the $50,000 of assets that they have left after the spend down and whatever other assets she receives after that date.

 Once Bill understood the best sequence of events he recommended that Mary contact us to guide her on how to spend down and to handle the Medicaid application.  And that’s what we did.  In a few months time, John received Medicaid, Mary kept $50,000 of their savings and then Bill settled the case, providing Mary with $150,000 of additional funds to support her, money she especially needs since she most of John’s income must be paid to the nursing home.  So when we talk about timing being everything, in Mary’s case it meant, an extra $90,000 in her pocket.

 Jane definitely had a problem.  While Medicaid doesn’t “take” the home, when Dad starts to receive Medicaid benefits the State runs a tab, so to speak.  That tab comes due when he dies, under what is called “estate recovery”, and the State will get paid first when the home is sold because Jane didn’t have a mortgage to protect her $240,000 loan to Dad.  So each month that Dad receives Medicaid benefits is money that Jane will lose, because the house is only worth $250,000.  I told Jane not to worry.  I had a solution, but we had to work quickly before we filed a Medicaid application.  Here’s what we did.

 Jane had no problem documenting the payments on Dad’s behalf.  The nursing facility provided us with a payment history as well.  We first had Jane and Dad enter into a loan agreement backed by a mortgage which we recorded on Dad’s home.  A realtor provided us with documentation showing that Jane had listed Dad’s home for sale for about a year and had to continually lower the asking price which was now $250,000.  We needed this to establish the fair market value.

 Jane then entered into a contract to purchase Dad’s home for $250,000.  We represented Dad and Jane hired her own attorney.  It had to be, what attorneys refer to as an “arm’s length transaction” with all the usual realty transfer fees and recording costs.  Jane’s payment for the home was the $240,000 she paid to the nursing home plus Dad’s closing costs (which she paid).

 Finally, we applied for Medicaid, disclosing all the above transactions.  Medicaid definitely examined it closely.  But we had the documentation to back everything up.  This was not a case of Dad gifting Jane $250,000.  Jane had paid full value for the home and Dad had used the money to pay for his care.  In the end, however, I am proud to say that Medicaid approved our application and Jane did get back her $240,000.  And the State can’t be unhappy either, since Dad used every last dollar for his care before reaching out for government benefits.

 Jane was lucky but I don’t recommend waiting until she did to reach out for help.  Had she handled the Medicaid application herself, she likely would have lost tens of thousands of dollars, and possibly all of the money she spent.  And since Jane, herself, is 65, that’s money she’ll need for her own care needs in the not too distant future.

A federal court last week finally weighed in on a particular exception to the Medicaid transfer rules that the State of New Jersey has, for some time, misinterpreted.  A transfer of assets from parent to child, if made within 5 years of the date of application for Medicaid benefits, carries a Medicaid penalty, but there are some exceptions to that general rule.  If the transfer is made to a child, or to a trust for the benefit of the disabled child, then that transfer is not subject to a Medicaid penalty.  The State has for as long as I can remember, insisted that this exception applies only if the transfer is to a trust for the sole benefit of the disabled child.

Now, if you are not familiar with the ins and outs of the Medicaid laws, and were told that your mother is ineligible for this reason, what would you do?  Probably go home and wait till the Medicaid penalty expires, not knowing any better.  My staff has reported back to me on some of our cases the same thing.  I then have to go back to the federal law and state regulations interpreting that law to find the exact sections that support our claim.  Sometimes that is enough to resolve the issue, but other times, such as in the case of Sorber v. Velez, the case decided last week, the State doesn’t budge and we, as elder law attorneys, have to resort to the court system to settle the dispute.  In the Sorber case, the issue came down, in part, to the type of grammar lesson you might remember from elementary school about the proper placement of a comma. The State’s interpretation didn’t seem logical and the court agreed.

One of my staff asked me the other day why the State would take a position that seems so farfetched.  The answer, I think, can be found by looking at the bigger picture of what is playing out in this country.  The government doesn’t have enough money to fund the programs and services it currently has.  Looking at what’s coming, the number of people facing a long term care crisis will continue to increase in the next 20 years as 77 million baby boomers reach senior status.  So, you can expect the State to continue to interpret eligibility standards very strictly.  And sometimes they’ll get it completely wrong.  That’s why the ‘do it yourself’ approach is dangerous.  You could be losing valuable benefits and without the assistance of someone with knowledge of the laws you wouldn’t even know it.   The government wants to push you to the back of the line.   Make sure you protect yourself and fight to maintain your spot at the front .

            If you’re a sports fan, by now you know all about seat licenses.  Both the Giants and Jets are selling season tickets in a new way.  Before you can have the privilege of buying a game ticket you must pay a fee, called a seat license.  The better the seat, the higher the fee.  Joe told me that the license for his family’s seats cost Dad $60,000.  So, what do you think will happen if Dad just transfers his seats and later applies for Medicaid?

            Certainly there is no mention of NFL seat licenses in any state Medicaid regulations.  But, doesn’t the license have a value?  Teams are telling their fans that they can resell the license, that it’s really an investment.  It isn’t a stretch, then, for the State to treat the transfer of the license from one generation to another as a transfer for less than fair value subject to a Medicaid penalty.  Especially since the State is facing huge budget deficits and can ill afford to pay out benefits to huge numbers of its residents.  So, do I think that the State will let it go?  Not likely.

            Back to Joe and his parents.  I told him that any transfer of the seat license had to be for fair value.  But, that’s easier said than done.  No one really knows what resale value they have since the licenses are brand new and can’t even be resold yet.  There is a lesson to be learned though.  Families with season ticket plans may want to consider transferring them to the next generation while healthy.  Just another reason it’s a good idea to plan for long term care, and if you’re a Jet fan like me, you don’t want to miss out on the possibility of a Super Bowl trip.  It’s gotta happen one of these years ‘ right?

In New Jersey, Medicaid says that adding someone else’s name to a bank account or mutual fund does not transfer the ownership on that account. In other words, if Mrs. Jones had a bank account with $50,000 and she added her daughter Mary’s name to the account, the State would say that she did so for convenience purposes. The entire account still belongs to Mrs. Jones. So even though Mary’s name has been added, the practical effect, from a Medicaid standpoint, is that there has been no gift and the entire account still belongs to Mrs. Jones.

This is true whether we are talking about bank accounts, certificates of deposit, savings bonds, mutual funds or any other liquid asset. The law says there is no gift until, and unless, the child actually takes the money out of the account. Using this same example, if Mrs. Jones added Mary’s name to the account three years ago, there has been no gift made, even if Mary’s Social Security number is used for the account and she pays the taxes on all income. If Mary later takes some money out of the account, and moves it into her own name, then the gift is made at that point in time.

This general rule is not true where real estate is concerned. That’s because if someone’s name is added to real estate, at the time the deed is signed and recorded, then a completed gift has been made.  For instance, let’s say that Mrs. Thompson is a widow and she owns a house valued at $200,000. If she adds her son’s name to the house and then has the deed recorded, at that time she has made a completed gift. A gift in the amount of $100,000 would cause her to be ineligible for Medicaid for 13 months. At the end of that time, however, the Medicaid ineligibility would cease… and one-half of the house’s value would be protected.

Whether or not it makes sense to add someone’s name to real estate or financial assets depends upon the facts and circumstances of each particular case.  Be sure to seek the advice of a competent elder law attorney before proceeding.

 What Joe has done is make a very common mistake by confusing the annual gift tax exclusion with the Medicaid rules.  So let’s run through the basics and clear it up.  Gift tax is paid when you make a sizable gift to someone who isn’t your spouse.  One of the purposes of the gift tax law is to protect the estate tax.  For example, if I know that my estate of $2,000,000 will be taxed when I die, then why don’t I just transfer all my assets to my loved ones shortly before I die.  The gift tax eliminates this estate tax avoidance strategy.

A certain amount, however, is exempt from the gift tax.  There is a lifetime exclusion of $1,000,000, meaning I can transfer up to that amount, in one lump sum or in smaller increments, over my lifetime.  In addition, I can gift up to $13,000 per person per year (everyone remembers it as $10,000, but several years back an inflation adjustment was added so the number now is $13,000).  Yes, there is no gift tax owed when you make that gift but it does carry a Medicaid transfer penalty.

 How so?  Because the gift tax rules have nothing to do with the Medicaid rules.  On  the one hand, the government is telling us its OK to gift some amount of money without paying tax, but only up to a point.  On the other hand, if we need nursing home care the government doesn’t want to pay for that care unless we spend all of our own money on that care first.

 Every $13,000 gift, therefore, carries a Medicaid transfer penalty, a period during which you are not eligible for  Medicaid.  That penalty, expressed in months, is calculated by taking the transfer for less than fair value (the gift, as we have been discussing) and dividing by the average monthly cost of nursing home care.  This number is set by each state and in some states it varies by region.  Here in New Jersey that number right now is $7282.  This means every $13,000 tax free gift carries a Medicaid penalty of almost 2 months.

 Now, does that mean that you should never make gifts?  No, not necessarily.  It just means that in today’s increasingly complicated world, you have to understand that making those gifts can result in long term consequences, which you may not recognize until it’s too late.  That’s why a carefully thought out long term care plan is critical and getting the proper advice and guidance well before that care is needed is always the best approach.

Jane hires a home health aide at $700 per week cash, or $3000 per month.  She keeps the aide 3 years until her funds run out and now needs round the clock care.  A nursing home becomes the only option. 

She applies for Medicaid but is told, ‘Sorry, you’re not eligible for 15 months.  You’ll have to private pay until then.’   Of course, Jane has no more money.  She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible.  How did Jane get into this mess?  Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty.

Qualifying for Medicaid requires spending down assets below $2000.  Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back.  Medicaid calls this a ‘penalty’.  However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty.   

If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty.  The penalty is calculated by dividing the transferred amount by the average cost of nursing home care.  When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers.  They will add together all the transfers made during that time.  The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid. 

Of course, that is exactly the time when you have no more money.  The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care.  But, you didn’t gift the money so you can’t get it back.

So,how can you avoid Jane’s problem?  By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace.  It is also a good idea to generate detailed invoices of the services which you purchased.    Another, perhaps better, solution is to hire a home health agency that will supply the aide.  It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts.  And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.

A common scenario that I am seeing with increasing frequency is the following fact pattern.  Dad owns a home but not much else.  He needs nursing home care but can’t get a mortgage to tap into the equity to pay for the care.  The home is listed for sale but in today’s market, homes aren’t moving quickly.  So the children pay the nursing home bill and the cost to maintain the home, with the expectation that when they sell the home they will repay themselves.  The family doesn’t have any written documentation to reflect this arrangement and that’s where the problem starts.

 So, the children pay for Dad’s care and expenses.  Maybe they pay by credit card,  sometimes, by check.  Some expenses, such as lawn care, they pay cash.  Often times they don’t keep records to back up the expenses and if more than one child is helping out no one is keeping a running tally of who is paying what.  ‘We’ll figure it all out later’, they say.  Finally, the house is sold.  Dad gets $200,000 from the sale.  The kids estimate that they have spent $150,000 on Dad’s behalf and take that amount to repay themselves.  Dad then spends down the rest for his care.

 Now, it’s time to file a Medicaid application.  As part of the application Dad must produce financial records for each account he had in existence, going back to February, 2006 (soon to be a 5 year lookback).  The State will examine the home sale and discover the transfer from Dad to children.  It will treat the transfer as subject to a Medicaid penalty, unless the children can prove the money was repayment for goods or services that Dad received.  And that proof must be by documentary evidence.   Dad won’t be eligible for benefits for a year or more, depending on the state he lives in.  ‘Bring the money back and spend it down’, the State will say.  So what can this family do?

 There are a few options.  Some involve applying for Medicaid immediately.  Others involve family members paying for Dad’s care and then getting reimbursed later.  However, the one common element to each option is that there is a written agreement in the form of a note and a mortgage on Dad’s home to secure the loan. The paper trail is the key.  Without it the children will never be able to prove that the transfer was for value, and won’t be able to recoup the money, in some cases hundreds of thousands of dollars, advanced for their parent’s care.

 And if you have been a frequent reader of this blog you know that the earlier in the process you seek proper advice and guidance the better off you are.  You don’t want to wait until filing the application to find all this out because, of course, by then it is too late.

 John had been in an assisted living facility for several years. His wife, Mary was living at home and private paying for his care.  She had numerous conversations with the assisted living facility about Medicaid and was told that qualifying wouldn’t be a problem and that John could remain in the facility on Medicaid.  Pretty simple, or so it seemed.

 Mary began the long winding journey that we have come to know as the Medicaid application process.  Similar to the couple I wrote about in March, Mary did not understand the timing aspect of Medicaid, that she had to reach a target level of assets before John could qualify and that each month she missed that target was a lost month, never to be recaptured.  This was of paramount importance to her, since she is several years younger than John and will need to preserve as much as she can to live on after he is gone.

 The Medicaid application process dragged on as the caseworker asked for each follow up piece of documentation, all very confusing to Mary.  She finally sought assistance and we were able to help her finally achieve financial eligibility.  At that point Medicaid sent a nurse out to the facility to evaluate John medically, to determine that he needed nursing home care.  Mission accomplished.  John received the go ahead.  Now, all that remained was for the facility to complete its required form, indicating that it would OK John for a Medicaid slot.  Imagine the surprise when we received word of Medicaid’s denial.

 When we followed up, we learned that the facility refused to make a Medicaid slot available, resulting in the denial, despite the promises made to John and Mary.  We were told, however, by Medicaid that John could still be approved if the facility simply changes its stance and agrees to make a slot available.

 John and Mary’s experience is a cautionary tale for families.  Qualifying for Medicaid is anything but simple, especially so when it comes to assisted living.  It requires the cooperation of families and the facilities caring for their loved one.  It is confusing and time consuming and best not handled without the guidance of a qualified professional, such as an elder law attorney.  And keep in mind that much of this is state specific.  While the long term care options are complicated no matter where you live, each state has its own system and set of laws so make sure you consult with someone familiar with the process in the state where your loved one lives.

 The ins and outs of Medicaid are complex and confusing.  Another example which we recently addressed in our office highlights that point.  Mr. Jones was in a nursing home and we were applying for institutional Medicaid.  Under Medicaid rules the applicant needs to be below $2000 in assets as of the first moment of the first day of the month in order to qualify for Medicaid for that month.  We tell clients that they must be below this number as of the last day of the preceding month.

 Spending down means making transfers for value, that is to say, a purchase of goods or services for fair or equal value.  Very often this spend down occurs right up until the last day of the month.  So, what happens if I write a check to pay a bill on the 31st of the month but the person or business I give it to doesn’t cash it until the next month?  As long as it is dated the 31st (or earlier) and you give it to that person or business no later than the 31st, then it is counted as being spent even though it will not clear your checking account until the next month.

 Now, this all sounds very trivial, and I would agree with you, but don’t think for a minute that the State will overlook these transactions.  They won’t.  They scrutinize them very carefully.  If you’re over the Medicaid limit by a dollar, you’re over for that month and have to wait until the next month.  (See above)

 Let’s go back to Mr. Jones.  His son was spending down Dad’s assets.  He had credit card, rent and utility bills to pay.  We spoke on the 31st and Son confirmed that Dad’s 3 accounts totaled $1200 after accounting for payments.  Now, we didn’t have statements yet for one of the accounts so we had to rely on Son’s statement.  We filed the application and several weeks went by before we heard from the Medicaid office.  They wanted missing statements from one of the accounts at an out of state bank.  With some difficulty (because the bank at first balked at accepting the power of attorney Dad had executed in Son’s favor) we obtained the statements but were surprised to learn that some of the bills were not paid by check, but rather by electronic transfer on the first of the month.  So, while Son kept telling us that Dad’s accounts totaled $1200 that was not, in fact, true.  He was counting these electronic debits which Medicaid would not.

 As it turned out, we still were under $2000 in Mr. Jones’ case, but not by much.  (We tell clients we want them to be well below $2000 to leave room for just these types of surprises.)  The next case may not work out so favorably.  Just another example of how tricky the Medicaid rules really are and why you don’t want to go it alone.

Two years ago Mary contacted me concerning her mom who was living in an assisted living facility with an aide that she and her sisters were paying cash.  Mom had transferred her assets to her 3 daughters.  They had begun to spend some of the money on Mom’s care but had also opened and closed accounts, moving, combining and commingling assets.  Over time it would have been very difficult to follow the paper trail and establish with Medicaid that Mom’s money had been spent for her care, and not gifted to the children.  Unlike last week’s family, however, Mary reached out to me within a few months after the initial transfers and, as it turns out, almost 2 years before we applied for Medicaid.

We quickly counseled Mary that the assets had to be returned, and, thankfully, although some had been spent on Mom’s care, she and her sisters still had possession of the balance.  We then guided Mary on the records that she needed to obtain in preparation for the anticipated Medicaid application.  While she still employed the aides we were able to prepare invoices and documentation showing that the cash withdrawals were not gifts, but payment for services, including a statement from the facility.  Mary had been paying the facility bill on her credit card and then taking money from Mom’s account (which was titled in Mary’s name).  We had her go back through her records and copy the credit card bills with those charges and match up payments back to her from ‘Mom’s account’.  We also counseled her on a better way to make those payments.

Finally, Mary and her sisters had moved money from one account to another, for convenience, a better interest rate or to keep FDIC insurance coverage.  Without recognizing it, however, they were muddying the paper trail.  You see, Medicaid requires as many as 5 years of financial records to show how money has been spent.  Mary and her sisters didn’t realize the problems they were creating. We painstakingly had to document all the transfers from one account to another and transfers in and out of each account.

As I said, this was a success story.  2 months ago we applied for Medicaid.  We provided Medicaid with details of each transaction, backed by supporting documentation.  Last week the family received Medicaid approval without a hitch.  Every dollar had been accounted for and we achieved a smooth transition to Medicaid with no ineligibility period.  Financially, the family can rest easy that Mom’s care is paid for and the nursing facility, which receives those Medicaid benefits, is happy that their resident went from private pay to Medicaid without interruption of payment.  An example of the way things can work if you have someone with knowledge guiding you through the process.

Last week I received a call with an all too common story. Mom had recently died. Dad moved in with Daughter, Jane and the plan was for him to live there the rest of his life. At the same time, Dad gifted $150,000 to Jane and her brother, Joe. "It’s Dad’s money. He can do what he wants with it", she told me.

Well, I think you can guess what happened. Jane was unprepared for the reality of long term care. I could hear the stress in her voice as she described the deterioration of Dad’s mental and physical state, from the mood swings and erratic behavior to the declining personal hygiene and the inability to walk without assistance. His care needs were increasing and Jane was unable to handle the increased demands on her time while caring for her own young children.

"I just never expected this", she exclaimed."  I can’t do this anymore. I need to get Dad into a nursing home and he has $50,000 left.  What do I do?", she pleaded. I explained to her that once his money was spent down he could qualify for Medicaid, but she and Joe would need to return the $150,000. But here was the problem. Jane and Joe had already spent the money and, therefore, couldn’t return it. "Well’, I told her, "when Dad’s remaining $50,000 is spent down he still won’t be Medicaid eligible for another 4 years. That’s because the Medicaid penalty doesn’t start until he has less than $2000 to his name and he needs nursing home care.

"It’s so unfair," she cried. "The government is forcing me into poverty to pay for Dad’s care." I had to patiently explain to her that she and her brother did receive a substantial sum from Dad, money that should be spent for his own care before public funds could be tapped.  The sad truth, however, is that had the family consulted with an elder law attorney before the gifts were made, Dad could have transferred some assets but enough would have been preserved to cover the possibility that he would need long term care before Medicaid eligiblity.  Unfortunately, in Jane’s case I didn’t have any solution to her problem.  She would have to figure out how to care for her Dad or pay out of her own pocket until the Medicaid ineligibility period expired.  It didn’t have to turn out this way.  A cautionary tale for all.

Jane and John needed to spend their assets down to $77,000 before qualifying John for benefits. Jane was distraught at the idea of having to spend her life savings ‘ what about her own health care costs?  A social worker at the hospital recommended that Jane contact an elder law attorney to see if there were ways they could preserve more of their assets. When we met Jane we explained that there was a way she would be able to increase the amount of assets she is entitled to keep. Here is how.

Jane and John owned their home free and clear, with  no mortgage. It was no problem for them to take a home equity line of credit in the amount of $100,000, since their home was worth approximately $400,000. Jane immediately borrowed $70,000 against the line, before John entered the nursing home. By doing so, she increased the amount of assets at the snapshot date from $170,000 to $220,000.  This meant that Jane could keep $109,540 and the couple would need to spend the remaining assets down to $2000.  In other words, the couple would have to spend $110,460 before John could qualify for nursing home benefits.

 After John entered the nursing home we instructed Jane to repay the line of credit leaving another $40,440 to spend down.  Paying the nursing home and other bills quickly accomplished that and we were able to get John Medicaid.  The end result was that Jane kept nearly $110,000 of their combined $150,000, much needed money considering she was also going to lose some of John’s income and could very well outlive John by 5 years or more.

 A word of caution.  This scenario is fact specific to Jane and John and should not be considered without proper counseling. The bottom line, however, is that before you start spending down, you should seek advice from someone who knows the Medicaid laws.

Actually, yes.   While she will have to spend down there are ways to spend that will be more beneficial for Mary.  Let’s go through a list of some of them.  At the top of the list is setting up an irrevocable burial fund to pay for both of their funerals.  Better to do that now.  Otherwise she’ll have to take that expense out of what Medicaid says she can keep.  Other strategies focus on exempt assets, the house and a car.  Mary will keep the house and one car.  Of the $75,000 that she has to spend down she could fix up the house.  That might include replacing an old cooling or heating system, installing new windows and/or siding and remodeling the interior.  If she makes improvements that enhance the value of the home should she decide to sell that will result in more money for her to live on.

How about her car?  Mary has a 10 year old car.  It is better for her to purchase a new car as part of the spend down.  Or perhaps she has a car loan that she is paying off over time.  Paying it off before applying for Medicaid may be the better alternative.  That applies for other debt, such as credit cards or other installment loans.  Finally, Mary ought to look at anticipated expenses.  For example, if she or Joe needs dental work now may be the time to do it.

Some of the spend down will need to go to the nursing home to pay for the cost of care at its private pay rate so it is important to determine what amount will be necessary to get Joe into a quality facility.  Knowing that, they can then work backwards to determine what they have left to spend on the other items.  Additionally, if Joe is not yet in the hospital or nursing home it may be possible for Mary to keep more than $75,000 by taking a home equity line of credit (more on that in next week’s post).

A word of caution, however.  One size does not fit all.  What is best for one person may not be right for another.  Medicaid rules are very complicated and quite technical.  Before taking any action it is best to consult with an elder law attorney well versed in Medicaid law.  But, if done properly, Mary can preserve more than the 50% of assets that Medicaid laws say she can keep.  This is especially important, given the possibility that Mary may outlive Joe by 5 or 10 years or more.

 John called concerning his father.  Dad owns a home in which he lives.  Home health aides come into the home to assist Dad but as his health deteriorates and he needs increased care John believes that Dad will very soon need to move to a nursing facility.  Now, here is where it gets interesting.

 Dad took a reverse mortgage for $300,000 and he took it in a lump sum.  John’s plan was to invest the money in the market, get a decent rate of return that would help meet Dad’s expenses.  Well, we know what has happened in the past year.  The stock market has headed south.  Dad’s investment headed south too.  He lost roughly half of his investment.  That’s bad enough.  But here is the problem.  John transferred the money to an account in his name.  Not because he intended to keep it, but because it was just easier to manage the funds that way.

 When he did that, however, he caused a Medicaid transfer penalty.  In New Jersey that penalty is approximately 3 and  years.  So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care?  He will be ineligible for Medicaid unless John transfers back the money.  Except that he doesn’t have all of it.

 I know.  You’re thinking, ‘Will Medicaid really deny Dad’s application if John can show that the loss in value occurred in the market, and that he didn’t take the money?’  I don’t know.  Maybe, maybe not.  You see, we are living in unusual times.  Many states are struggling with budget deficits.  Medicaid is one of the biggest, if not the biggest, program for most states.  If they don’t have the money to fund these programs I can certainly see them applying the Medicaid rules as written and impose a penalty.  If Dad is ineligible for 3 and  years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.

 And just another reason why you can’t afford to be unprepared when it comes to long term care.

The application process for Medicaid can take several months or longer.  If, for example, Dad becomes eligible and applies for Medicaid beginning in February, it might take until April, or longer in some cases, for him to receive approval.  In the case of nursing home Medicaid whenever Dad is approved payments will be made on his behalf retroactive to when he first applied (assuming of course that he was eligible in that month).  Not so for assisted living Medicaid.  Approval is not retroactive.

 As an elder law attorney, our focus with clients is on the financial requirements of Medicaid.  I always, however, remind clients that we can’t forget about the medical requirement.  The applicant must meet the test of medical necessity for nursing home level care as determined by a Medicaid nurse who visits the applicant.  In New Jersey, this is true even in the case of assisted living.  It bears repeating.  The assisted living Medicaid applicant must be certified as needing nursing home level care.  Fail that test and the asset and income levels are irrelevant.

 So, if Dad can’t get Medicaid, what then?  If he can’t pay the bill he generally won’t be able to stay in the assisted living facility unless the family pays for his care.  Not a great result but one the family could have avoided.  Before he entered the facility a plan should have been put in place to cover the possibility that he could run out of money.  In some cases that may involve moving assets to a trust, determining what public benefits he can or cannot receive and when, (such as VA Aid and Attendance benefits) or negotiating a contractual modification with the facility before initial entry.  It may mean choosing a different, less expensive, facility or living arrangement.  It all depends on one’s particular situation. 

 The mistake that Dad and his family made is in not looking far enough down the road and failing to sit down with someone knowledgeable about the various issues and pitfalls, such as an elder law attorney.  The lesson to be learned is that you can’t wait until the money runs out to then answer the question "What do I do now?"

 Jane tells me that Mom and Dad have been separated for years, never divorced, just living separate lives under separate roofs, with separate assets.  ‘Dad was never easy to live with’, she tells me, ‘but Mom wasn’t the type to file for divorce.  It wasn’t acceptable.’  ‘So’, she asks me, ‘we can spend down Dad’s assets and then qualify him for Medicaid, right?’

 ’Well’, I tell her, ‘it is a bit more complicated than that’.  Under Medicaid rules, because they are still married, all their assets are combined for purposes of calculating how much to spend down.  Medicaid rules do provide that if the applicant is separated from a spouse for at least one month then he will be treated as a single person and only his assets will count towards the asset spend down.  However, there is no definition of what constitutes a separation and you can be sure that the State will scrutinize it very closely.  Mom may still have to spend some of her assets for Dad’s care even though they have been living single lives for years.  ‘Is there anything we can do,’ Jane asks, as I hear the desperation in her voice.

 Divorce is still an option, although it could be considerably more difficult if Dad doesn’t have the mental capacity to understand the legal process and consent to a divorce settlement.  There is also the matter of the State, again, scrutinizing the divorce, especially if Mom has accumulated and wants to keep more than 50% of the combined assets.  You see, the State assumes the divorce was obtained for the purpose of qualifying for Medicaid.  If Mom keeps more than half of the assets Dad would probably be turned down for benefits.  There may also be other strategies that we have discussed for married couples that could be employed to preserve assets for Mom but, although they are married under the law, they are not really ‘together’.    So preserving Dad’s assets for Mom and vice versa is not the goal.

As Jane puts it, ‘Mom and Dad have lived separate lives for many years.  Mom has struggled to accumulate her own assets and become self sufficient.  How can I tell her that she may lose some of her hard earned money?’.  I didn’t have an answer for Jane.  I do, however, have one for others who may one day be in that situation.  If any of Jane’s story sounds familiar to you, don’t wait till long term care is staring you in the face.  Plan ahead and solve the problem before it reaches crisis proportions or you’ll be faced with the dilemma that Jane and her family face.

Now we work on getting Mom into a nursing home and then apply for Medicaid for her.  The home will have to be sold (unless there is a family member living there but we’ll address that exception in another issue)  but it won’t hold up Mom’s Medicaid, which is important, since it not so easy these days to sell in a what is a down market.  Once the home is sold Mom will lose her eligibility for Medicaid and will need to private pay from the proceeds of the sale.  She also could keep her Medicaid eligibility and pay the proceeds to the State to reimburse it for benefits paid up till that point.  Which option is better depends on how much is realized from the sale and how much is owed to the State.  But, keep in mind that the State pays the nursing home at a lower rate than you or I would pay (approximately 50% less).

And, what about the money that the children paid out of their own pocket for Mom and Dad’s care?  They can be reimbursed from the proceeds once they sell the house.  However, everything must be documented because Medicaid presumes that transfers between family members are gifts, not loans.  If it is a loan then there must be a written agreement.  The best practice is for there to be a recorded mortgage.  At the closing the mortgage is paid off and a discharge is recorded by the Buyer’s attorney.  The children are reimbursed directly and there is a record as far as Medicaid is concerned.

In the end, the parents are paying for their care from their own assets, the children are paid back (money which they will need for their own retirement and long term care needs) and depending on how much long term care is needed and what the home sells for, there may even be some amount left to transfer to the next generation in the form of an inheritance, after the State is reimbursed for benefits they paid out on Mom and Dad’s behalf.

            Actually, there is.  There is a way to move both parents into a nursing home, get them on Medicaid and reimburse the children for monies they paid for their parents’ care.  Medicaid rules are very complex and the timing of each step in the process is critical but it can be done.  Here’s how it works.

The first step is to get one of the parents into a nursing home.  Let’s say it is Dad.  If he is in the hospital already (often the case when we get the call)  then he should be transferred from there to the nursing home.  We then apply for Medicaid.  The house is an exempt asset (ie. not a countable asset for Medicaid eligibility purposes)  since Mom is still living there.  Once we get Dad approved for Medicaid there is what is called a ‘division of assets’.  Whatever is Mom’s is now hers, to be spent on her care but not on Dad’s.  This is the key.  In next week’s blog I’ll discuss the next step, getting Mom on Medicaid.

A recent case in Connecticut highlights how the new Medicaid laws passed as part of the Deficit Reduction Act of 2005 are really hurting residents and nursing homes alike and now potentially also affecting other family members.  In that court case, the nursing home resident’s son signed the admission agreement on behalf of his mother.  As in most nursing home agreements Son was asked to sign as responsible party, which he did not do.  Nevertheless, Nursing Home advised him verbally that he was the responsible party.

            Son then applied for Medicaid benefits on behalf of Mom.  Son did not, however, follow through on the application process in a timely manner.  He failed to provide all the information and documentation that the State needed and he did not spend down Mom’s assets quickly enough, delaying the application’s approval.  As a result, months of benefits were lost, never to be regained, benefits that Nursing Home would have received.

            Nursing Home sued Son on a breach of contract claim.  It claimed that Son undertook an obligation on Mom’s behalf, when he signed the admission agreement, to promptly pursue Medicaid benefits.  Son, in response, argued that he never signed the agreement so there was no contractual obligation on his part.  The court sided with Nursing Home, finding that an oral contract was created between the two parties and that Son violated it by not conscientiously following through.

            A good result for the nursing home, right?  Well, not really, when you account for the time and money it took Nursing Home to get the judgment.  It then has to collect on that judgment, assuming Son doesn’t appeal the decision, which will cause the matter to drag on even further.  And it certainly wasn’t a good result for son, who lost and now is responsible for paying Mom’s bill.   

So how could this have turned out better? If Nursing Home had encouraged Son to retain an elder law attorney to represent Mom in the Medicaid application process.  Sure, there is an expense involved in hiring someone.  But in the end Nursing Home would have received Medicaid benefits when it should have and Son would not be responsible for paying nursing home.  A winning result for all.

 The pitfalls of going it alone are many and varied, especially since the latest round of Medicaid changes effective February, 2006 made the laws and regulations in this area much more complicated.  Timing is critical.  By that, I mean to say, that when you spend down assets and what assets you have at a certain point in time will have an impact on qualifying for benefits.  Let me illustrate by way of example.

 John and Mary were in their 80′s and living in their home, which they owned.  They had other countable assets of approximately $50,000.  John and Mary had done no planning for their long term care needs.  John became ill in October, was admitted to the hospital and then to a nursing home for rehabilitative services.  His condition was such, that he could not go home and needed to remain in the nursing home on a long term basis, at a private pay cost of $10,000 per month.

 Mary was told by various personnel at the hospital and the nursing home that based on their level of assets ‘John would qualify for Medicaid’ in January and they arranged for her to meet with a Medicaid caseworker to make an application for benefits.  Being stressed out by the reality that John would not go home and uncomfortable with the complicated process she did not understand that for John to qualify she would have to spend down a portion of their assets to get below a certain dollar amount.  In her case that number was $27,000.  The caseworker explained this to her at the interview but, quite frankly, she was receiving so much information that she really didn’t fully understand how important that was.

 She waited for medical and nursing home bills to come in.  She figured she owed the money so it was as good as spent.  In other words, in her mind she didn’t have $50,000.  They owed $28,000 so she had $22,000 left.  Not true under Medicaid rules.  Until she wrote those checks, John and Mary were ‘overresourced’, Medicaid’s term for having too much money to qualify for benefits.  If you are overresourced by even $1.00 you won’t get Medicaid for that month.  You will never get Medicaid for that month.

 Had she paid those bills right away John would have qualified for benefits in January.  Instead, she didn’t write those checks until June, meaning John didn’t qualify for Medicaid until July.  Great, so Medicaid picked up the nursing home bill in July.  There was one small problem.  Who was going to pay the nursing home bill for January through June?  The answer was John and Mary, and at the private pay rate of $10,000 per month that was $60,000.  The shame is that this didn’t need to happen.

 This example illustrates the pitfalls of going it alone.  The rules are quite complicated and timing is critical.  You don’t want to be left with a huge nursing home bill which you can’t pay.  The nursing home doesn’t really want to be in the position of suing their residents.  Having a knowledgeable elder law attorney representing you can save huge dollars and huge amounts of stress.

 So how did John and Mary’s problem get resolved?  She hired us to negotiate with the nursing home.  We were able to reduce the bill a little bit and since she only had $22,000 in liquid assets and could not afford to pay the bill  now, the home agreed to take a mortgage against her home.  They’ll get paid when the home is sold.  Not the best end result but as good as could be expected.

Mary (names have been changed) called us because she had been sued for $80,000 by the nursing home caring for her mother, Jane.  Jane had entered Nursing Home on private pay and after spending down her assets qualified for Medicaid.  Under Medicaid rules Jane’s Social Security check went to Nursing Home and Medicaid paid the rest of the bill.  Mary and Nursing Home arranged for the check to go directly to Nursing Home and everything was fine for 8 years or so.

Mary then moved out of state.  Apparently, Social Security assumed that Jane moved too and started sending her checks to her bank account.  Mary did not take notice of this and neither, at least for several months, did Nursing Home.  After 8 years, Jane lost her Medicaid eligibility.

How could this happen?  While Mary does not yet have all the facts (she’ll find out more as the lawsuit winds through the court system), here’s what probably occurred. Because Jane’s income was accumulating in her account, once the balance exceeded $2000 she lost Medicaid eligibility.  Jane’s Social Security is treated as income in the month received but if still in her possession the next month then it is treated as an asset. And each month her balance remained over $2000 she was Medicaid ineligible ‘ and those lost months can never be recovered.  So every month Jane was running up a bill at the nursing home’s private pay rate.

It is not clear why Nursing Home didn’t notice the change or why it took them several months to write to Mary.  They did send Mary a new Medicaid application to complete and file but she either didn’t receive it or didn’t act on it.  It appears that nobody on either side was following up on it so Medicaid was never reinstated for the last year of Jane’s life. Now Nursing Home is looking to recoup a year’s worth of lost payments and Mary is trying to avoid a judgment that she can’t afford to pay.

The sad thing is that this all could have been avoided.  Medicaid rules are quite complex.  Jane’s family and the nursing home needed to keep in contact and stay on top of any changes that could affect Medicaid eligibility.  It is easy to miss something that can very quickly result in the loss of benefits. 

What you would think is the most insignificant change can cause a chain of events that will lead to losing benefits.  You can’t just go on autopilot.  That’s when things fall through the cracks.  That is exactly what happened here.  And now both sides are pointing fingers at each other.  Had Mary retained an elder law attorney to file the Medicaid application, both resident and nursing home would have benefited and perhaps this unfortunate result could have been avoided.  An important lesson to be learned.

Yale also explains why long term care planning must be done well before entry to a nursing home becomes necessary. Congress passed significant changes to the Medicaid laws 2 years ago, known as the Deficit Reduction Act of 2005, changes that the average American is unaware of. Learn why even if you spend down your assets to the Medicaid levels you still may face a Medicaid transfer penalty.

In the second segment, Yale interviews Barbra London of Freedom Eldercare, a licensed home health care agency. Listen to Barbra and Yale talk about the types of services a home health care agency provides and common misconceptions people have about this important resource. They also discuss why, under the new Medicaid laws, hiring an aide directly, rather than through an agency, can trap the unwary and cause a Medicaid ineligibility period.

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To contact Barbra London  201-883-1200 or toll free  866-7 Freedom

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Dad’s health deteriorated to the point where he needed nursing home care.  The couple then spent down their assets and applied for nursing home care for Dad.  Meanwhile Son placed the New Jersey home up for sale.

Much to their surprise, the family was informed that the state Medicaid office denied Dad’s application.  Why? Because the transfer of the home to Son caused a Medicaid ineligibility period.  Dad cannot receive Medicaid for 4 and 1/2 years.  In other words, Son must give the money back to Mom and Dad and they must spend it down before Dad will receive Medicaid.

Son said that he was prepared to pay for Dad’s care.  I advised him to seek the advice of an elder law attorney in his state familiar with the Medicaid laws there before he does that.  It may make more sense for Mom to take some of the money and buy a new home which would be exempt from Medicaid.  There are other strategies that may be beneficial as well and should be explored in greater detail.

The lesson to be learned is to consult with a professional before making any decisions.  There is a maze of laws and services in this country that affect seniors.  It is easy to get tripped up by them and the cost to your family could be enormous.