Tuesday February 26, 2002
Seattle--
***
Last chance to register for the Center's LTC Graduate Seminar in Chicago, March
4 or 5. Sorry, no walk-ins.
For details on time, location, and reservations, email or call Steve
Moses directly at smoses@centerltc.org or 206-283-7036 (between 9AM and 7PM
Chicago time) as soon as possible. For
details on seminar content, please go to http://www.centerltc.com/bullets/current/339.htm.)
This will be an exceptional event. ***
LTC
Comment: Various judges have called
Medicaid nursing home eligibility rules "Byzantine," "a Serbonian
bog," and "an aggravated
assault on the English language, resistant to attempts to understand it."
Hence, Medicaid planning, which burrows through loopholes in Medicaid
eligibility rules, is also extremely complicated and convoluted.
That's one reason Medicaid planning often escapes appropriate scrutiny
and criticism. Many of our readers
may not plough through the brain-numbing details that follow, so here's what it
means in a nutshell. The Supreme
Court of the United States has eliminated any right people would otherwise have
had, independent of state Medicaid policy, to use a popular and lucrative
Medicaid planning technique. That
technique allowed married couples to keep as much as a quarter million dollars
or more, over and above what Congress intended to permit them to retain, while
they qualify for welfare-financed nursing home care. By allowing state Medicaid programs to prohibit the popular
"transfer assets before income" planning gimmick, the Supreme Court
sent a strong message that Medicaid is a safety net for the poor, not a
substitute for private financing of long-term care. Now, read on, for a little glimpse of the twilight-zone maze
that is Medicaid nursing home eligibility and Medicaid planning.
Supremes Sing Sour Note for Medicaid Planning
In
a 6-3 decision last week (“Wisconsin Department of Health and Family Services
v. Blumer,” No. 00-952, available at http://www.supremecourtus.gov),
the U.S. Supreme Court dealt a blow to Medicaid planners by resolving a thorny
Medicaid eligibility question. In
finding permissible the “income-first” approach to raising the level of a
community spouse’s income to a minimum threshold level, the Court has denied
Medicaid planners a powerful asset-sheltering technique in states already
utilizing the “income-first” approach and in those states now likely to
follow suit.
As
we often explain, Medicaid planning (the practice of transferring or sheltering
a client’s assets in order to qualify him or her for welfare-financed
long-term care) severely limits a client’s access to quality care at the
appropriate level and has a corrosive effect on the long-term care service
delivery system. It should be noted
that the National Academy of Elder Law Attorneys, the trade association of the
Medicaid planning bar, submitted an Amicus Curiae (friend of the court) brief in
support of the losing side in this case.
Here’s
a much-simplified version of the story. The
Medicare Catastrophic Coverage Act of 1988 (MCCA) established the current
statutory framework used to determine Medicaid nursing home eligibility.
In addition to dealing with the “institutionalized” spouse who is
seeking Medicaid-funded care, this framework addresses permissible asset and
income levels for the “community spouse” living at home.
With respect to assets, a community spouse is entitled to keep half of
the couple’s assets (notwithstanding several assets which are exempt from
consideration such as the family home) not to exceed a Community Spouse Resource
Allowance (CSRA) which is set by each state within a range prescribed by the
federal government. On the income
side, the community spouse is permitted to keep all of his/her own income and,
at a minimum, is entitled to a Minimum Monthly Maintenance Needs Allowance or
MMMNA (set by states, but at least 150% of the federal poverty level) to meet
basic needs. When a community
spouse’s monthly income is determined to be below the MMMNA, the law permits
the institutionalized spouse to supplement the community spouse’s income with
a Community Spouse Monthly Income Allowance (CSMIA) in order to raise the
community spouse’s income to the minimum level.
The central question resolved by the Supreme Court in this case is how
this transfer of income may occur.
States
have been using either of two methods. The
“income-first” approach used by Wisconsin and a majority of states requires
the institutionalized spouse to transfer a portion of his or her income first
before being allowed to transfer income-producing assets (“resources”) to
raise the community spouse’s income level.
The other “resource-first” approach allows just the opposite.
The institutionalized spouse first transfers income-producing assets
capable of filling the income gap. Only
if the institutionalized spouse has insufficient income-producing assets to fill
the gap would a straightforward transfer of income be required.
In this case, the Wisconsin Court of Appeals had ruled earlier that the
“income-first” approach as codified in a Wisconsin state statute
impermissibly conflicts with federal law (which the court understood as
mandating the “resource-first” approach).
However, courts in other states as well as several federal courts have
ruled the “income-first” approach is not inconsistent with federal law.
The Supreme Court granted certiorari to resolve the conflict.
Why
do Medicaid planners care about which method states utilize?
This is the easy part of the analysis.
The “resource-first” approach allows Medicaid planning clients to
shelter more assets and qualify for Medicaid more quickly than under the
“income-first” approach. Here’s a simple example:
Let’s say a community spouse’s monthly income is $500 below the MMMNA.
Under the “income-first” approach, the institutionalized spouse would
have to transfer as much of the $500 as possible to the community spouse before
being allowed to transfer any income-producing assets.
If the institutionalized spouse has $500 per month or a sizeable part of
it to transfer, there may be little or no opportunity to transfer assets over
and above the prescribed CSRA. Under
the “resource-first” approach, however, the institutionalized spouse may
begin by transferring assets sufficient to generate the entire $500 monthly
income if possible. How much in
assets can be transferred? As much
as a hearing examiner can be convinced is necessary to fill the income gap.
Of course, a Medicaid planner will do his or her best to argue for the
highest asset transfer possible. Every
dollar that goes to increase the community spouse’s CSRA is a dollar that
doesn’t have to be “spent-down” to achieve Medicaid eligibility for the
institutionalized spouse. A
significant amount of assets can be sheltered in this way and through other
tactics to increase the CSRA.
We
note that the transfer-resources-first approach leads to some otherwise
upside-down financial planning choices. For
example, to maximize the amount of assets that the institutionalized spouse may
transfer to the community spouse, Medicaid planners recommend investment
vehicles that pay the lowest possible interest.
Why? Because the less income
the assets generate, the more assets can be transferred away from the Medicaid
recipient and to the healthy spouse. In
the example above, to generate the extra $500 per month allowed, the Medicaid
recipient could transfer $120,000 to the healthy spouse if the assets generated
a five percent return, but could transfer only $60,000 if the assets generated a
ten percent return. We're not
making this up. Here are two
examples from legal periodicals that recommend the transfer-resources-first
gambit.
"A
potential planning technique would be for the community spouse to reallocate his
or her assets into forms that pay less income.
For example, money market funds could be used to buy zero coupon bonds,
gold, or growth stocks, all of which pay no income at all.
The community spouse could then legitimately argue that he or she
requires a larger allocation of income up to the Monthly Maintenance Needs
Allowance." (Gregory Wilcox, "Another Strategy to Increase the CSRA,"
The ElderLaw Report, Vol. II, No. 8, March 1991, p. 12.)
"The
Other Spouse Can Petition for an Increased Asset Allowance.
The other spouse can argue that additional assets are needed to generate
income...[thereby sheltering in one example an additional] $200,000."
(Lawyers Weekly, 9/27/93)
The above is a very simplified summary analysis of how
Medicaid eligibility works in this area. The
Court’s opinion in this case and any number of legal treatises provide
detailed examinations of Medicaid eligibility with even more confusing acronyms.
The point of bringing this decision to your attention is not based on the
specific facts of the case (wherein a very small amount of assets was in
question). Nor is this case
important to us because of the particular reasoning behind the majority’s
holding that the “income-first” approach is valid.
(The majority gives considerable deference to the Secretary of Heath and
Human Services’ position that both the “income-first” and
“resource-first” methods are acceptable and to the flexibility given states
generally in implementing related MCCA provisions.).
Rather, the importance of the case rests on the impact of the decision.
States are now free to choose a method to supplement a community
spouse’s income that does not promote potentially egregious Medicaid planning.
Moreover, states which do not already use the “income-first” approach
will now be tempted to do so. With
tax receipts down and welfare rolls up, states will not likely ignore the fact that
the “income-first” approach has the practical effect of minimizing the
likelihood of interspousal asset transfers which hasten Medicaid eligibility and
associated costs.
On
a final note, the majority opinion begins its discussion of Medicaid eligibility
rules by stating, “The federal Medicaid program provides funding to States
that reimburse NEEDY persons for the cost of medical care.” (p. 2, emphasis
added). Although the Court does not
address the implications of its decision on the practice of Medicaid planning,
its decision brings us one--albeit small--step closer to the Court’s
description of Medicaid’s intended purpose.
Who knows? Maybe this
decision from the highest court in the land will prompt a bit of
self-examination on the part of Medicaid planners and their clients who could
have planned ahead to avoid welfare dependency and additional strain on the
Medicaid program. Not likely.
But one less arrow in the Medicaid planning quiver (at least in states
using the “income-first” approach) is a victory for responsible long-term
care planning nonetheless.