The Brave New Medicaid World? An example of Medicaid Rules Changeability by Jim Schuster Certified Elder Law Attorney

Major change is infrequent with the Medicaid rules, but when they do - Look Out! Word out of Lansing is that the Michigan Medicaid program will be changed, to the detriment of applicants, on April 1, 2011. For example, unless a joint property owner can prove hardship to the department's satisfaction, the co-owner may have to sell the property even if it is their home! Changes are hardly ever in favor of applicants or families. A couple years ago we had proof of that. On July 1, 2007st the Department of Human Services announced the first major change since 1993. These were the result of the changes signed into law by President Bush on February 8, 2006 in the law called “the Deficit Reduction Act of 2005.” As with any major change uncertainty abounded. There were reports from different parts of the state that some offices were challenging actions under the unchanged portion of the rules. For example, we’ve heard of challenges to expenditures for modification or improvement of a home, over and above repair; and, claims that adjacent lots are not part of a homestead just because they have a separate tax bill. Care contracts are now divestment unless they comply with rules that are not founded in Michigan law, but administrative fiat. That leads any person to wonder, what will they do next and how can I know if I am engaged in a safe course of action? As always, Medicaid eligibility is not a certainty. Here we go with a summary of those changes to Medicaid.

Rental Property – $6,000 Cap

The rule became effective April 1, 2007 is that only $6,000 of equity in income-producing real estate is exempt. The old rule was that income-producing real estate producing a 6% net return was 100% exempt. While it makes little sense to exempt income producing business property but not income producing rental property, the rule is consistent with existing SSI law and has been used in other states. There were varying reports of grandfathering previously exempt income-producing real estate. This was a problem on annual redetermination of Medicaid eligibility for some clients and not for others where the office continued to recognize the exemption. The change made it difficult, but still possible for the experienced elder law attorney, to secure Medicaid assistance for a person who has any rental properties. It may be possible to qualify the property as an “employment asset.” However this rule requires active management of the business that means being on the job during working hours. That is hard to do from a nursing home.

Elimination of Retro-Active Funeral Planning

Michigan had a rule of mercy that allowed over asset applicants to qualify by using the excess assets to purchase funeral arrangements. Those funds would not be counted for the application including up to three months prior to the application for retroactive eligibility. The new rule is that excess assets spent on funeral arrangements are treated as any other asset, i.e., available until actually spent.

$500,000 Cap on Equity Value of Homestead

The old rule was that the Homestead (and adjoining property) was exempt – no limit. The new rule is that equity in homestead (and adjoining property) is not exempt to the extent it exceeds $500,000.The limit does not apply if a spouse, child under age 21, blind or permanently disabled resides in the home.

Divestment

Five Year Look-Back: The three year look-back is gone. The rule is a five year lookback after February 8, 2006. That means as of February 8, 2011 the full five year lookback will be phased in. Until then the lookback is to February 8, 2006.Aggregation of Divestment: All divestment of assets, by gifts, transfers or otherwise, made during the look-back period are combined and the penalty period is calculated based on aggregated amount. For example if Mr. Smith made $8,000 in gifts for weddings, graduations and birthdays, during the five years before he applied for Medicaid those would be considered the same as one gift of $8000.

Penalty Period Enlarged: Under the old rule, small amounts of divestment did not count. Penalty periods were not calculated in periods smaller than a month. Transfers of less than $5,900 did not matter. Now periods are calculated to the day and that means amounts small as $220 will cause a penalty period of one day.

Annuities

DRA 2005 authorized the state to contact the issuing company and make the state the beneficiary after any spouse or disabled child. The July 1st changes did not address this issue. The DHS announced it would implement this provision by the October 1st rule clarification.

Estate Recovery

We have reported before that Michigan enacted a Medicaid Estate Recovery law In September 2007. That law required the Michigan Medicaid department to present an estate recovery plan to CMS.  They did so and it was rejected.   That was in 2009.

As of July 1, 2011 the Michigan government began taking homes. The process proceeds only through probate. Avoid probate and avoid the government grab. In probate Michigan's collection agency (HMS) presents a claim for repayment. This claim will be paid after the funeral bill, estate administration expenses, a "family allowance" and an allowance -if the personal representative knows about it - for 50% of the average value of a home in the county. There are exemptions from the government claim. The personal representative will absolutely need legal advice of an elder law attorney. Now, whether or not a nursing home is anticipated, Medicaid will be at the center of elders estate planning.