I MEDICAID: THE BASICS A. ELIGIBILITY

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1 I MEDICAID: THE BASICS A. ELIGIBILITY Medicaid is a joint federal and state program implemented under Title XIX of the Social Security Act. [42 U.S.C.A. 1396, et seq.]. The applicable federal regulations are found at 42 C.F.R. 430, et seq. The program is administered through the Centers for Medicare and Medicaid Services (CMS). The Medicaid program in Pennsylvania is managed through the Department of Public Welfare (DPW). Individuals who are 65 years of age and over, blind, disabled, or a parent of a disabled child, who are U.S. citizens, or certain qualified aliens, who meet financial guidelines may be entitled to Medicaid, which is also known as Medical Assistance. There are two classes of persons eligible for Medicaid (Medical Assistance): Categorically needy these include individuals 65 years of age and over, blind or disabled, and who are eligible to receive Supplemental Security Income (SSI). In order to receive SSI benefits, the individual must have limited income and resources. Medically needy these are individuals with significant or substantial medical and health care bills who would otherwise be receiving SSI benefits except for their excess income or resources. Income and resource eligibility requirements to receive SSI benefits are found at the Social Security Administration website [ssa.gov] and specifically in the Program Operation Manual System (POMS). In determining available resources for Medicaid eligibility, the assets of both the 1 P a g e

2 applicant for benefits and his or her spouse are considered. [42 U.S.C.A. 1396r- 5(c)(1)(A); 55 Pa. Code 178.2]. During any month in which an institutionalized spouse is in the institution, the income of the community spouse is generally not deemed available to the institutionalized spouse. [42 U.S.C.A. 1396r-5(b)]. Although no income limitation test currently exists in Pennsylvania, a person nevertheless will be disqualified for Medicaid benefits if his or her income is sufficient to pay for the cost of nursing home care. With the average statewide private pay rate of nursing home care as of January 1, 2012 being $8, per month or $ per day, it is unlikely that any individuals will be disqualified from receiving Medicaid benefits based on income. In determining resource eligibility, it is important to distinguish between countable and non-countable resources. The list of non-countable or exempt resources are set forth in 55 Pa. Code through and 42 USCA 1382b(1) through (17). These include the following: The personal residence to the extent that the equity does not exceed $500, unless the applicant's spouse, a child under 21 years of age, or disabled child is residing in the home; Real or personal property used in a trade or business essential to self - support; Non-business property which is essential to self -support; Household goods and personal effects, including, but not limited to, clothing, jewelry, recreational equipment, musical instruments, hobby 2 P a g e

3 items and equipment needed on account of the person's physical condition or disability; One motor vehicle regardless of value; Life insurance policies of the applicant up to a maximum face value of $1, for each insured person. If the policy has a total face value in excess of $1,500.00, only the cash surrender value in excess of $1, is excluded; Term life insurance regardless of the death benefit amount; Burial spaces for the applicant and immediate family members and spouses; Irrevocable burial reserve not to exceed an amount established by the County Assistance Office (CAO). The amount currently allowable for an irrevocable burial reserve in Luzerne County is approximately $10, and varies from county to county; Revocable burial reserve which does not exceed $1,500.00; Community spouse's qualified retirement plan and/or IRA; Community spouse's community spouse resource allowance (CSRA). If resources such as checking and savings accounts are jointly owned, each person is considered to own a share of the account in proportion to his or her net contribution. If there is no evidence of net contribution, each person is presumed to own an equal share of the account. [55 Pa. Code ]. For purposes of Medicaid, the "institutionalized spouse" is the person residing in a nursing home or similar institution and who is married to an individual who is not in a nursing facility or similar institution. In addition, a person must in all likelihood be expected to be institutionalized for at least thirty (30) consecutive days in order 3 P a g e

4 to be considered an institutionalized spouse. [42 USCA 1396r-5(h)(1)] A community spouse is the spouse who resides at home (i.e. in the community) whose spouse is an institutionalized spouse. [42 USCA 1396r-5(h)(2)] B. THE COMMUNITY SPOUSE RESOURCE ALLOWANCE (CSRA) Pursuant to the Medicare Catastrophic Coverage Act of 1988 (MCCA), in particular 42 U.S.C.A. 1396r-5, the community spouse is entitled to retain a certain amount of assets known as the community spouse resource allowance (CSRA). [42 U.S.C.A. 1396r-5 (2)]. The amount which a community spouse is allowed to retain as the CSRA is adjusted periodically. In 2012, the minimum CSRA is $22, and the maximum is $113, If a couple has resources of $100,000.00, the amount is divided in half with the community spouse being entitled to $50, as the CSRA and the remaining $50, designated for spend down by the institutionalized spouse. If a couple has $300, in assets, only 113,640.00, i.e. the current maximum CSRA, can be allocated to the community spouse and the balance is required to be "spent down" before the institutionalized spouse qualifies for Medicaid. If the joint or deemed assets of the institutionalized and community spouses are $22, or less, the community spouse may retain the entire resources as his or her minimum CSRA. The resources that are allocated to the institutionalized spouse and which are subject to "spend down" can be (1) used for the medical and nursing home expenses of the institutionalized spouse; (2) used to purchase exempt resources, including separate irrevocable burial reserves for both spouses; (3) used for home improvements to benefit the community spouse; (4) used to fund a special needs trust for disabled person [42 U.S.C.A. 1382b(c)(C)(ii)(1II) and (IV), 4 P a g e

5 1396p(c)(2)(B)(iii) and (iv) and 3257 B.6 of the State Medicaid Manual]; and (5) used to purchase an annuity which complies with the statutory provisions of the Deficit Reduction Act of 2005, namely 42 USCA 1396p and 1396r-5. C. THE MINIMUM MONTHLY MAINTENANCE NEEDS ALLOWANCE (MMMNA) Federal law provides that during any month in which an institutionalized spouse is in the institution, the income of the community spouse shall not be deemed available to the institutionalized spouse. [42 U.S.C.A. 1396r-5(b)(1) and (A)(i)]. The federal statute further provides the community spouse with a minimum monthly maintenance income allowance, commonly known as the MMMNA, [42 U.S.C.A. 1396r-5(d)(2)], which is adjusted annually. The MMMNA is $1, effective July I, In addition, the community spouse is entitled to an excess shelter allowance which is equal to 30 percent of the MMMNA. [42 U.S.C.A. 1396r-5(d)(4)]. The standard shelter allowance is currently $ per month, which is adjusted annually. The community spouse is entitled to utility monthly allowances, including heat, nonheating utilities, and telephone. Currently these monthly figures are currently fixed at $536.00, $ and $33.00, respectively. Depending on the excess shelter expenses of the community spouse, he or she may receive additions to the MMMNA up to a maximum allowance of $2,841.00, which is also adjusted annually. The MMMNA may also be increased above the maximum amount through a fair hearing before an administrative law judge if the proponent can establish exceptional circumstances. [42 USCA 1396r-5(e)(2)] In general, the income of the institutionalized spouse must be applied to the nursing home expenses except for the following deductions: A personal needs allowance, which is currently $45.00 per month [42 USCA 5 P a g e

6 1396a(q)(2) and 62 P.S ]; The income diverted or allocated to the community spouse in order to achieve the MMMNA or in the case of excess shelter expenses, the maximum MMNA ; Family allowance for each family member, equal to at least one-third of the amount by which that family member's income exceeds 150 percent of the monthly official poverty guidelines for a family unit of two members; Amounts for incurred expenses for medical or remedial care for the institutionalized spouse. [42 U.S.C.A. 1395r-5(d)(1)(A) through (D)]. In addition, an institutionalized person with monthly income not exceeding 300 percent of the Federal Benefit Rate, which is in 2012 is $2,094.00, is entitled to a resource allowance of $8,000.00, i.e. a $2, resource allowance plus a $6, disregard. If the person has monthly income in excess of $2,094.00, the resource allowance is $2, The resource allowance is the amount which a person is entitled to maintain and still be eligible for Medicaid. In applying for Medicaid for a married individual, it is important to obtain and complete a resource assessment form. A person who is married and is likely to be institutionalized for at least thirty (30) consecutive days qualifies as an "institutionalized spouse" [42 U.S.C.A. 1396r-5(h)]. A resource assessment form should be filed in order to provide the Department of Public Welfare with a "snapshot" of the couple's joint and deemed available resources. [42 U.S.C.A. 1396r-5(c)(1)(B)]. By filing the resource assessment form, the government will issue a determination concerning the CSRA and the excess 6 P a g e

7 resources which must be "spent down" in order to qualify the institutionalized spouse for Medicaid. As stated previously, the amount available for "spend down" may be used for various purposes and not entirely for the nursing home expenses of the institutionalized individual. [55 Pa. Code ]. If the resource assessment form is filed at or near the date of admission of the institutionalized spouse to the nursing home, and the person is in all likelihood going to be institutionalized for a period of at least thirty (30) consecutive days, the CSRA will be maximized. For example, if a couple has countable resources of $250, and the Resource Assessment form is timely filed, the community spouse will be able to retain his or her CSRA in the amount of $113, and spend down the remaining resources on allowable expenditures and/or exempt resources. This process is extremely helpful especially in those situations where the institutionalized spouse is receiving skilled nursing home care which is being paid by Medicare. If the spouse in the same example does not file the resource assessment form and spends $100, of their resources for various expenditures and then applies for Medicaid benefits, the total of resources will then be $100, and the community spouse's CSRA will be $50, instead of the $113, maximum amount. It is, therefore, important to file the Resource Assessment form at or near the date of admission to the nursing home with supporting documentation establishing the value of the resources and request the State to issue an assessment of the resources. D. THE MEDICAID APPLICATION The medical assistance application is known as PA Form 600 L. When submitting an 7 P a g e

8 application for Medicaid, it is important to answer each of the questions on the application thoroughly and to attach the required supporting documentation. Upon filing the application, the Area Agency on Aging (AAA) must complete an options determination report to determine whether the applicant is medically eligible for Medicaid. Eligibility is determined when the applicant's physician completes a medical evaluation form called MA-51 listing the level of care required by the applicant. The supporting documentation submitted with the medical assistance application will be reviewed by the County Assistance Office (CAO) who will generally authorize or reject the application within thirty (30) days of receipt. In most situations, the CAO requires additional information or documentation to render a decision. If the application is approved, the earliest possible date for retroactive commencement of benefits is the first day of the third month preceding the month of application [55 Pa Code Section ]. For example, if a person files an application for Medicaid on or before November 30th, benefits may commence on or after August 1 st, and not before. It is important therefore that the application and all supporting documentation be filed in order to avoid any lapse in coverage or payment of nursing home expenses. If an application is not timely filed, and there exists unpaid nursing home or other medical expenses incurred prior to the retroactive date, the applicant's income in certain situations may be deducted or diverted to pay for these expenses subject to a lifetime maximum amount of ten thousand ($10,000.00) Dollars unless this limit would result in undue hardship. [62 P.S. Section 441.4(a)]. The State then pays the full amount of the nursing home expenses until the past due bills are paid. As stated previously, spouses should file the Resource Assessment form (PA 8 P a g e

9 1572) as soon as possible on or after the date of admission of the institutionalized person to the nursing home. The purpose of filing the Resource Assessment form is to maximize the community spouse resource allowance (CSRA) and the "spend down" on legitimate and proper expenses and not necessarily on the nursing home expenses being incurred by the institutionalized spouse. III. THE DEFICIT REDUCTION ACT In order to understand the changes that have occurred pursuant to the Deficit Reduction Act of 2005 (DRA), it is first necessary to review those provisions of the applicable Federal law that were not changed by the DRA. It is important to be familiar with the provisions of the DRA as codified in 42 USCA sections 1396p and 1396r-5. The DRA was signed into law on February 8, 2006, but not fully implemented in Pennsylvania until March 5, Therefore, any transfer of resources for less than fair consideration after February 8, 2006 were considered under pre-dra law if the Medicaid application was filed before March 5, 2007, but treated under the DRA for those applications filed on or after March 5, The DRA makes no changes concerning the imposition of liens against the property of an individual receiving medical assistance prior to his death or to the estate recovery process after the person's death. There are major changes, however, regarding "a qualified State long-term care insurance partnership plan", which when prepared and submitted by the State and approved by the Federal government [Centers for Medicare and Medicaid Services (CMS)], provides for the disregard of any assets or resources in an amount equal to the insurance benefit payments that are made to or on behalf of an individual who is a beneficiary under a long-term care insurance policy if certain conditions and requirements are satisfied. [42 USCA 9 P a g e

10 Section 1396p (a) through (b)]. The look-back periods for transfers made prior to the enactment of the DRA and the penalty period imposed are unchanged. The look-back period for outright transfers is three years and five years for transfers to irrevocable trusts. The penalty period is calculated by dividing the amount or value of the resource transferred for less than fair consideration or fair market value by the average monthly cost to a private patient of nursing facility services in the State at the time of application. [42 USCA section 1396p(c)(1)(A) through (E)(i)-(iii)]. The applicable per diem divisor effective January 1, 2012 is currently $ or $8, per month. The DRA imposes a five year look-back period on any transfers for less than fair consideration and establishes the penalty commencement date as the later of "...the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the individual is eligible for medical assistance under the State plan and would otherwise be receiving institutional level of care described in subparagraph (C) based on an approved application for such care but for the application of the penalty period..." [42 USCA 1396p(c)(1)(B)(i) and (D)(i),(ii)]. In determining the commencement of the penalty period, it is interesting to note the DRA refers to services consisting of the following: N u r s i n g f a c i l i t y s e r v i c e s ; A level of care in any institution equivalent to that of nursing facility services; and Home or community-based services furnished under a waiver. 10 P a g e

11 [42 USCA section 1396p(c)(1)(C)(i)(1)(11)(III) and (D)(i),(ii).] Based on the foregoing language, it is this author's interpretation that an individual does not have to be institutionalized in a nursing home to be eligible for medical assistance (Medicaid) benefits, but must be eligible for the services listed in 42 USCA section 1396p(c)(1)(C) and financially eligible for benefits, except for the imposition of the penalty period. Unfortunately, the CMS and Pennsylvania Department of Public Welfare (DPW) do not share this interpretation. The DRA does not change the provisions concerning the transfer of a home to any of the following: t h e s p o u s e o f s u c h i n d i v i d u a l ; A child of such individual who is under age 21 or is blind or permanently and totally disabled; A sibling of such individual who has an equity interest in such home and who was residing in such individual's home for a period of at least one year immediately before the date the individual becomes an institutionalized individual; or A son or daughter of such individual who was residing in such individual's home for a period of at least two years immediately before the date the individual becomes an institutionalized individual, and who provided care to such individual which permitted such individual to reside at home rather than in such an institution or facility. [42 USCA 1396p(c)(2)(A)(i) through (iv)]. The DRA does not change the statutory provisions regarding the following: 11 P a g e

12 the transfer of assets to or from an individual's spouse for the sole benefit of the individual's spouse; the transfer of assets to, or to a trust including a subsection (d)(4) trust, established solely for the benefit of an individual's child who is blind or permanently and totally disabled; or The transfer of assets to a trust, including a subsection (d)(4) trust, establish solely for the benefit of an individual under 65 years of age who is disabled as defined under Federal law. [42 USCA 1396p(c)(2)(B)(i) through (iv) 42 U.S.C.A. 1382b(c)(C)(ii)(III)]. A special needs trust written pursuant to these statutory provisions which is for the sole benefit [See 3257 B.6 of the State Medicaid Manual] of a disabled person, not necessarily a child of the Settlor, qualifies as a transfer that will not be penalized under the DRA to qualify a person for Medicaid benefits. In addition, the trust does not have to include a pay-back provision pursuant to 42 USCA 1396p(d)(4)(A) since the funds establishing the trust are not those of the disabled beneficiary, but rather a third party. Nor would the trust have to comply with the requirements of 62 P.S. 1414, including the "reasonable relationship" language, since it is a third party, common law trust. The most significant change in the law as a result of the DRA concerns annuities. [42 USCA 1396p(c)(1)(F) and (G) and 42 USCA 1396p(e)(1) through (4)]. The statute requires the State, as a condition for providing medical assistance to an individual, to require the individual to disclose on the application for assistance a description of any interest the individual or community spouse has in an annuity or similar financial instrument regardless of whether it is irrevocable or treated as an 12 P a g e

13 asset. It further requires that the application or recertification form include a statement that the State becomes a remainder beneficiary under such an annuity or similar financial instrument in the first position for at least the total amount of medical assistance paid on behalf of the individual or in the second position after the community spouse or minor or disabled child. It further requires the State to be named in the first position if the spouse or a representative of a minor or disabled child disposes of any such remainder for less than fair market value. The State must further notify the issuer of the annuity of its interest in the annuity as a preferred remainder beneficiary to the extent of medical assistance furnished to the annuitant. The State may also require the issuer of the annuity to notify the State when there is a change in the amount of income or principal being withdrawn at the time of the most recent disclosure. Perhaps the most disturbing change concerning annuities is the language found in section 6012 (e)(4) of the DRA. [42 USCA Section (e)(4)], which states the following: "Nothing in this subsection shall be construed as preventing a State from denying eligibility for medical is assistance for the individual based on the income or resources derived from an annuity described in paragraph (1)." This provision coupled with section (c) of Act 42 of 2005 [62 PS (c)] which states that "in determining eligibility for medical assistance, there shall be a rebuttable presumption that any annuity or contract to receive money is marketable without undue hardship" could very well have had an adverse effect on annuities purchased for or on behalf of a community spouse especially if the funds used to purchase the annuity exceeded the applicable community spouse resource allowance (CSRA) and the applicable MMMNA. 13 P a g e

14 The DRA in addressing the purchase of an annuity deems such a purchase to be a transfer of an asset for less than fair market value unless the State is named as a remainder beneficiary in either the first or second position for at least the total amount of medical assistance paid on behalf of the annuitant. [42 USCA 1396p(c)(1)(F)] The DRA further includes as assets annuities purchased by or on behalf of an annuitant who has applied for medical assistance benefits with respect to nursing facility services or other long-term care services unless the following requirements are met: it is an annuity described in subsection (b) or (q) of section 408 of the Internal Revenue Code of 1986 ("Code'); or is purchased with proceeds from an account or trust described in certain subsections of section 408 of the Code; or it is a simplified employee pension and the meaning of section 408(k) of the Code or it is a Roth IRA described in section 408 A of the Code; or the annuity is irrevocable and nonassignable; is actuarially sound; and provides for payments in equal amounts during the term of the annuity, with no deferral or balloon payments. [42 USCA 1396p(c)(I) (G) and DRA section 6012(c)(G)(i)(1)(II) and (ii)(i)(11)(iii)]. If an annuity is purchased meeting these requirements and names the State as remainder beneficiary to the extent required by 42 USCA 1396p(c)(1)(F), the purchase is not considered a transfer that would start a penalty period for benefits. However, unless the annuity meets the requirements of 42 USCA 1396p(c)(1) (G), it will still be considered an available asset that must be spent down in order to qualify an individual for Medicaid. In order to be an be an effective tool in 14 P a g e

15 conjunction with Medicaid planning, an annuity must (I) name the State as a remainder beneficiary in either the first or second position and (2) comply with the provisions specified in 42 USCA 1396p(c)(1) (G) (i) (ii)]. Otherwise, it will be construed as an available asset for medical assistance purposes. When the DRA was first enacted, there was a lingering issue as to whether the transfer of assets for the sole benefit of an individual's spouse, while not creating a transfer penalty period, nevertheless required that such assets, or the payments generated therefrom, be considered available resources to the individual applying for medical assistance benefits if the total value of the resources transferred exceed the applicable community spouse resource allowance (CSRA) and/or the income generated exceeds the monthly maintenance needs allowance (MMNA). In addition, Pennsylvania had enacted section (c) of Act 42 of 2005 [62 PS (c)] which stated that "in determining eligibility for medical assistance, there shall be a rebuttable presumption that any annuity or contract to receive money is marketable without undue hardship". These provisions could have had a crippling effect on annuities purchased for or on behalf of a community spouse especially if the funds used to purchase the annuity exceeded the applicable community spouse resource allowance (CSRA) and generated monthly income in excess of the applicable MMMNA. In the pre-dra case of James v. Richman, 574 F.3d 214 (3 Cir. 2008), which involved the purchase of an annuity for a community spouse with excess countable resources, it was held that neither the annuity nor the income it generated could be considered available to the institutionalized spouse, regardless of the amount used to purchase the annuity or the monthly income it generated. The reasoning in the James case was extended to post DRA annuities purchased in conformity with the 15 P a g e

16 statute. [Weatherbee v. Richman, 595 F.Supp.2d 607, 2009] The holdings in both James and Weatherbee rejected the position advanced by the Commonwealth of Pennsylvania, Department of Public Welfare that the annuities purchased were marketable without undue hardship as dictated in 62 PS (c). As a result, DRA compliant annuities provide a viable Medicaid planning option for protecting otherwise countable excess resources for the benefit of a community spouse. In addition, DRA compliant annuities have been utilized for single elderly individuals to generate funds to pay for nursing home expenses during the transfer penalty period incurred when gifts are made within the applicable look back period. Although the State may require that an annuity or similar instrument name it as the first or secondary payee to the extent of the benefits provided, it can only seek reimbursement for benefits provided to the annuitant or institutionalized spouse. If the community spouse outlives the annuity without applying for medical assistance benefits for himself or herself, there will be no funds from the annuity from which the State may seek recovery after the deaths of either spouse. Even though an annuity was purchased prior to filing the application for medical assistance benefits, it appears that the State can nevertheless require that the annuity be annuitized in accordance with the provisions of the DRA and name the State as remainder beneficiary in the first or second position. [42 USCA 1396p(e)(1), (2)(A)(B); DRA section 6012(e)(1), (2)(A)(B)]. The pre-dra law regarding other transfers remains in effect. These include the following if a satisfactory showing is made to the State: the individual intended to dispose of the assets either at fair market value, or for other valuable consideration; 16 P a g e

17 the assets were transferred exclusively for purposes other than to qualify for medical assistance; or All assets transferred for less than fair market value have been returned to the individual. [42 USCA I396p(c)(2)(C)(i) through (iii)]. The DRA includes additional language concerning hardship waivers and the conditions which must exist for such waivers to be granted. [42 USCA 1396p(c)(2)(D) and 42 USCA 1396p(d)(1) and (2) and DRA sections 6011(d) and (e)]. The DRA hardship provisions allow the State to provide for payments for nursing facility services in order to hold the bed for the individual at the facility for a period not to exceed 30 days. Unfortunately, the DRA does not impose a time limit as to when a determination must be made regarding the hardship waiver application. [42 USCA 1396p(d)(1) and (2)]. Since nursing homes pursuant to Federal law cannot discharge an individual without providing an appropriate discharge plan to ensure safe and orderly transfer discharge from the facility [42 USCA 1396r(c)(2)(C)], nursing homes could face severe financial difficulties while the hardship applications are pending. The DRA does not change the statutory provision that prohibits a State from imposing "...any period of ineligibility due to a transfer of resources for less than fair market value except in accordance with this subsection." [42 USCA 1396p(c)(3)]. This language may be extremely useful in those situations in which the state law is more restrictive than the Federal law. Furthermore, the DRA does not change the prior law regarding what are commonly known as "payback" trusts. [42 USCA 1396 p(d)(4)(a),(b) and (C)]. 17 P a g e

18 There are certain assets that continue to be excluded as resources. These include, among other items, a home, household goods, personal effects, jewelry, an automobile, burial spaces and property essential to self-support. [42 USCA I382b and 55 Pennsylvania Code sections through ]. In addition, Pennsylvania excludes as an available resource the pension funds, individual retirement account or Keogh account of the community spouse. [55 Pennsylvania Code section ]. However, excluded resources of the individual receiving medical assistance benefits may nevertheless be subject to estate recovery upon the person's death if they are still titled to or owned by the Medicaid recipient at the time of his death. The DRA continues to treat the income of the community spouse and institutionalized spouse as separate payments so that the income of the community spouse is not available to the institutionalized spouse. [42 USCA I396r-5 (b)(1)], except as otherwise authorized under 42 USCA 1396r-5 (b)(2)(a) through (D). The DRA continues to allow the community spouse to maintain a community spouse resource allowance (CSRA) which is generally one half (1/2) of the total joint or deemed joint countable resources at the time of institutionalization with a maximum community spouse resource allowance of $113, and a minimum amount of $22,728.00, which are adjusted annually. It is also important to note that if the applicant for medical assistance is the joint owner of certain resources, such as a checking or savings account, each person is considered to own a share of the account in proportion to their respective net contributions, if any. [55 Pennsylvania Code ]. The DRA continues to allow the community spouse monthly minimum/maximum maintenance needs allowance (MMMNA) which can vary from $1, to 18 P a g e

19 $2, depending on excess shelter expenses. These figures are adjusted annually. [42 USCA 1396r-5(f)1]. The DRA did not change the statutory provision that prevents a State from denying eligibility for benefits to an institutionalized spouse in those situations where he has assigned to the State any rights to support from the community spouse and the community spouse has refused to support the institutionalized spouse or otherwise cooperate with respect to the medical assistance application. [42 USCA 1396r-5 (c)(3)]. The same reasoning applies to a promissory note, loan or mortgage. The DRA considers these types of instruments to be exempt from the transfer penalties if certain conditions are met. These include (I) a repayment term that is actuarially sound; (2) payments in equal amounts during the term of the loan, with no deferral and no balloon payments; and (3) a provision that prohibits the cancellation of the balance upon the death of the lender. [42 USCA 1396p(c)(1)(I)] However, the DRA does not address whether these types of instruments are considered assets. Therefore, if a person who has transferred funds (1) to purchase a promissory note; (2) to make loan; and/or (3) who takes back a mortgage and thereafter applies for Medicaid, the balance due will most likely be construed an available asset that must be spent down even though the actual transfer of funds will not result in the imposition of a penalty period. Nevertheless, there was a time when promissory notes were utilized to cover short term transfer penalties imposed by gifts made during the applicable look back period. The advisability of using promissory notes became somewhat risky when the decision in Sable v. Velez, 388 Fed Appx.235, 2010 WL (C.A.3 N.J.) was announced. The U.S. Court of Appeals remanded the case to the District court to determine whether the promissory notes in question were in fact countable resources for medical assistance eligibility purposes. The District Court initially found the notes were trust-like devices and 19 P a g e

20 therefore countable resources. The Appellate Court found that the District Court erred when it analyzed the notes as trust-like devices without first determining whether they would be counted as resources under the regular resource-counting rules and remanded. The use of promissory notes again came under attack in the case of Gragert v. Hendrick, (U.S. District Court, W.D. Oklahoma, No. CIV C, decided May 24, 2012). In Gragert, a mother transferred to her son rental property in exchange for a promissory note to be paid in 96 monthly installments. The court concluded that the promissory note rendered the mother ineligible for medical assistance benefits since the note was a countable resource. In view of the Sable and Gragert cases, the use of promissory notes as a Medicaid planning strategy is strongly discouraged. Although there is a valid concern that the rationale in Sable and Gragert could apply to private annuities, there is a general consensus that commercial annuities like those addressed in James and Weatherbee are, at least for now, safe from such scrutiny and analysis. The DRA exempts such a purchase as an asset if the purchaser resides in the home for a period of at least one year after the date of the purchase, it does not specify the tables to be used in calculating the value of the life estate nor does it address whether the purchaser must reside at the home for a consecutive term of one year. [42 USCA 1396p(c)(1)(J)]. The DRA limits the equity a person may have in his home in order to qualify for Medicaid to $500,000.00, with a State option to increase the amount to $750, Pennsylvania has not opted to increase the home equity limit. For those States that have increased the equity limit, the dollar amounts may be increased annually 20 P a g e

21 beginning in 2011, based on the percentage of increase in the consumer price index for all urban consumers. [42 USCA 1396p(e)(I)(f)(1)(A) and (B)]. The DRA provisions regarding the equity limitations in a residence do not apply if the following individuals are residing in the home: the spouse of such individual; or such individual's child who is under age 21 or who is blind or permanently and totally disabled or, in certain States, is blind or disabled. [42 USCA 1396p(e)(1)(f)(1) and (2)]. In addition, the statute seems to encourage the purchase of a reverse mortgage to reduce the equity in the home to the statutory limit of $500,000.00, or if the State so elects, to $750, Reverse mortgages, however, normally require the mortgagor to reside in the premises and further mandate that the loan be paid if the mortgagor is unable to reside therein for a certain period time which is normally one year. Care must also be taken in advising a client who obtains a reverse mortgage to limit the funds paid to him pursuant to the mortgage in order to avoid making the person ineligible for other types of government benefits on account of excess income and/or assets. For example, if a person is receiving Supplemental Security Income (SSI) and/or Medicaid and/or financial assistance concerning payment for prescription drugs and/or premiums under the Medicare Part D plan, excess funds received from the reverse mortgage may terminate eligibility. It may therefore be appropriate to advise a client not to accept a lump sum payment from the lender pursuant to a reverse mortgage, but rather receive monthly payments in an amount that will not jeopardize other types of income or resource based government benefits. The same reasoning is applicable to payments received on a promissory note, loan 21 P a g e

22 or mortgage payable to such a recipient. The provision in the DRA, 42 USCA 1396r, requiring that a contract for admission to a State licensed, registered, certified, or equivalent continuing care retirement community or life care community, including services in a nursing facility that is part of such community, include a provision mandating the residents to spend on their care those resources declared for the purpose of admission before applying for medical assistance is contrary to provisions in the Nursing Home Reform Act. Both 42 USCA 1396r(c)(5)(A)(i) and 42 USCA I395i-3(c)(5)(A)(i) prohibit a nursing facility that is State licensed, registered, certified, or the like, from requiring any individual applying to reside therein or actually residing in the facility to waive his right to Medicaid benefits. 22 P a g e