|Joshua S. England is a member of the MBA New Lawyers Section Council and practices as an associate with MacLean Holloway Doherty Ardiff & Morse, P.C. in Peabody.
Medicaid expenditures currently account for roughly 20 percent of the Massachusetts budget.1 Three out of every five people in America today will require long-term care at some point in their lives.2 According to the 2000 census, 12.4 percent of the United States population is age 65 or older.3 Long-term care is clearly a pressing concern.
There are three means for paying the cost of long-term care: long-term care insurance; Medicaid; or private payment. The private pay option often is not viable.4 For those individuals who cannot afford or qualify for insurance, Medicaid is the only answer.
This article will give a basic overview of the current Medicaid eligibility rules, discuss the changes made to Medicaid in 2003 and review the anticipated changes under Massachusetts recent request to the federal government for a waiver from federal Medicaid requirements.5
Overview of Massachusetts Medicaid
For an individual to qualify for Medicaid in Massachusetts there are certain asset limitations that must first be met. A single applicant cannot have greater than $2,000 in "countable" assets.6 In cases where the Medicaid applicant (the "applicant") is married, the spouse not applying for Medicaid (the "community spouse") is entitled to keep what is called the Community Spouse Resource Allowance (the "CSRA"), which is equal to the lesser of $90,660 or one-half of the couples total countable assets.7
Only countable assets are considered in determining applicant eligibility. The best way to define countable assets is in the negative. Countable assets include everything that are not "non-countable." Non-countable assets are as follows:
1. The home and related personal property if located in Massachusetts and used as the principal place of residence.
2. Business and non-business property essential to self-support.
3. Loans or grants the terms of which preclude their use for self-support (scholarships).
4. Funeral or burial arrangements for the applicant and the community spouse.
5. Special needs trusts and pooled trusts as defined by regulation.
6. One vehicle per household is non-countable regardless of value if it is for the use of the community spouse. An unmarried applicant's vehicle is non-countable if it meets certain requirements as outlined in 130 CMR 520.008.
7. Medicaid Qualified Annuities.8
Countable assets are all the other assets that the applicant or the community spouse own or to which they would be entitled, whether or not actually received when failure to receive the asset is due to the action or inaction of the applicant or community spouse.9 Essentially, the DMA will take a "snapshot" of the couple's countable assets on the date of the applicant's entrance into the nursing home. If the couple has $150,000 in countable assets at the time of the snapshot, the applicant will be allowed to keep $2,000 and the community spouse will be allowed to keep $74,000. The remaining $74,000 will have to be "spent down" before the applicant will qualify for Medicaid.
Income is not a factor in determining eligibility.10 However, income does become a factor in determining the level of benefits the applicant will receive. The DMA will calculate the Minimum Monthly Maintenance Needs Allowance ("MMMNA") for the community spouse; this is the amount of income that the Medicaid regulations deem the community spouse needs to survive.11 If the community spouse's income does not meet this amount, the shortfall will be made up from the applicant's income with the applicant's remaining income paid to the nursing home.12 If the income of both the community spouse and the applicant do not meet the MMMNA, the community spouse can request a hearing to keep additional countable assets over the CSRA under the theory that these assets will be used to generate enough income to meet the MMMNA.13
Transfers of assets by the applicant for less than fair market value can result in disqualifying the applicant from receiving Medicaid benefits for a certain period.14 The disqualification period is determined by dividing the amount transferred by the average monthly cost to a private patient receiving nursing home care in Massachusetts.15 The DMA currently sets the average rate at $7,320 a month, or $244 a day. The disqualification period begins on the date of the transfer.16 If an applicant were to give $110,313 to his children (or a charity) on Jan. 30, 2003, under current rules the applicant would be disqualified from receiving Medicaid benefits until April 1, 2004.17
The DMA looks back for any transfers made during the 36-month period before the date the applicant both applies for Medicaid benefits and is in a nursing home.18 There is an extended look-back period of 60 months for transfers from a revocable trust to someone other than the applicant and transfers to an irrevocable trust of which the applicant is not a beneficiary.19 Essentially, at the time of application, the DMA will look back over the 36- and 60-month periods and, if they find any disqualifying transfers for which the disqualification period has not already run, they will impose a disqualification period during which the applicant will be ineligible for Medicaid benefits.
In certain circumstances, the regulations permit transfers for less than fair market value.20 See 130 CMR 520.019(D). One often-used example is the transfer of the applicant's principal residence to a child who resided in the home and cared for the applicant for at least two years prior to the applicant's admission to the nursing home and whose care delayed the applicant's admission to the nursing home (the "caretaker child").21
This is clearly a brief overview of the Medicaid eligibility rules and is intended to give the reader a general understanding so that he or she may follow the implications of the recent changes and the proposed changes made by the legislature.
Immediate changes to Massachusetts Medicaid
The foregoing overview reflects several changes to the Medicaid rules made by Massachusetts this year. Effective Jan. 1, 2003, Massachusetts changed the way that the CSRA was calculated. Previously, the community spouse could keep $90,660 in countable assets rather than the lesser of $90,660 or one-half of the couple's countable assets, as discussed above.22
Massachusetts also changed the method by which the MMMNA was funded. As described above, currently the regulations apply the applicant's income to make up any shortfall in the MMMNA after considering the community spouse's income.23 Under the prior rule, the community spouse could seek to retain countable assets over the CSRA in order to generate the necessary income to meet the MMMNA, instead of receiving income from the applicant. The import of this change appears readily by way of example. Consider a couple with $150,000 in countable assets; the community spouse has $500 in monthly income, while the applicant receives $1,500 in monthly income. The DMA calculates the MMMNA for the community spouse to be $1,515.24 The CSRA would be $74,000 with the remainder "spent-down." The community spouse would have his or her $500 monthly income and $1,015 of the applicant's income would be paid to the community spouse to make up the shortfall in the MMMNA. The applicant would receive $60 a month and the remaining $425 would go to the nursing home. If the applicant dies, thereby stopping the applicant's income, under the 2003 rules changes, the community spouse would be left only with his or her $500 monthly income and the $74,000 CSRA. The community spouse no longer can seek to increase the CSRA rather then receive the applicant's income, which would keep those assets available even after the applicant dies and the applicant's income ceases.
Another revision, effective July 1, 2003, changes the rules regarding bed holds. Previously, Medicaid would pay for, and the nursing home was required to hold, a bed for a Medicaid recipient for up to 20 days if the Medicaid recipient was not using the bed due to medical or personal reasons.25 The new rule requires the nursing home to hold the bed for only 10 days, and then only if the Medicaid recipient is absent in order to receive critical medical care.26 While the rules now require the nursing home to hold the bed, Medicaid will no longer pay for the bed in the Medicaid recipient's absence.27
The most publicized of the recent changes has to do with the Medicaid recovery rules. Once Medicaid pays benefits on behalf of a Medicaid recipient, it obtains the right to recover the benefits paid from the estate of the recipient.28 However, under the prior rule, the DMA could only recover for benefits paid against the probate estate of the recipient.29 The new rule allows the DMA to recover the benefits paid from "any interest in real and personal property and other assets in which the individual immediately prior to death had any legal title or interest, to the extent of such interest."30 The change in the recovery provisions applies to the estate of anyone dying on or after July 1, 2003.31 The most widespread impact of this change is on the use of life estates. For both Medicaid and probate planning purposes individuals will often be advised to transfer their personal residence to their child or children and reserve a life estate for themselves. For Medicaid purposes, such a transfer would protect the applicant's home because the property would pass to the remainder holders free of probate and would have avoided the Medicaid recovery rules. Now the DMA can recover those Medicaid benefits expended on behalf of the applicant against the value of the life estate at the death of the life tenant.
Clearly, the DMA has been paying attention to the asset protection strategies employed by Medicaid applicants and have taken steps to abolish those strategies. These changes are just the beginning.
Anticipated changes to Massachusetts Medicaid
The state budget passed in July 2003 authorized the DMA to apply to the federal government for a waiver of federal Medicaid rules.32 Federal Medicaid typically provides 50-60 percent of a state's Medicaid costs, if the state's Medicaid requirements are no more restrictive than the federal requirements.33 States can be less restrictive and still receive federal monies. Federal legislation also allows for a state to apply for a waiver from the federal Medicaid requirements.34 Connecticut and Minnesota have such waiver requests currently pending. The budget passed in July 2003 required the DMA to apply for a waiver as well.35 The DMA submitted its waiver request on Aug. 28, 2003.36
The Massachusetts waiver has several proposed changes. The first extends the look-back period.37 The DMA would like to extend the look-back period for transfer of real property to 60 months from 36 months.38 Additionally, the DMA seeks to increase the look-back period for transfers to an irrevocable trust to 120 months.39
The second proposed change seeks to reset the start date of disqualification periods due to disqualifying transfers. The DMA proposes to change the "start-date for the penalty period to the later of the date of entry into a nursing home, the date the person would have been eligible for Medicaid coverage of long-term institutionalized care had the transfer not occurred, or the date of transfer."40 The generally accepted reading of the waiver language would place the start date of the disqualification period at the time the applicant actually reached the asset limitation, regardless of the transfer. For example, if an applicant transferred $110,313 on Jan. 30, 2003, creating a 15-month disqualification period, entered the nursing home on Feb. 1, 2004, and reached the $2,000 asset limitation on April 1, 2004, the start date for the 15-month disqualification period would be April 1, 2004, the date the applicant met the asset limitation requirements. Of course this does not answer the question of who is going to pay for the applicant's nursing home care during this 15-month disqualification period when the applicant only has $2,000.
The third waiver request seeks to change certain rules regarding annuities. For an annuity to remain a "non-countable" asset, the commonwealth must be named as the remainder beneficiary, at least to the extent of the Medicaid benefits expended on behalf of the applicant.41
The fourth waiver request would change the rules by which an applicant and the community spouse can spend down assets in order to reach the CSRA asset limitations. The current rule allows assets to be spent on a number of items, including improvement to non-countable assets such as the personal residence and other personal needs.42 The DMA feels that applicants have taken advantage of this by installing swimming pools, making elaborate additions to their homes and purchasing expensive automobiles for the community spouse.43 The waiver requests that asset spend-down be limited to medical care, necessary living expenses, necessary home maintenance, the purchase of qualifying annuities and to purchase long-term care insurance for the applicant or the community spouse.44
The fifth waiver request pertains to the transfer of non-countable assets. Current rules count the transfer of non-countable assets, such as the applicant's home and other resources, such as cash and real estate for less than fair market value, as disqualifying transfers in calculating the disqualification period.45 The transfer of other non-countable assets such as personal property, household goods and automobiles are not considered. The DMA would like to include the transfer of any non-countable asset whose value is in excess of $20,000 in the disqualification calculation.46
The sixth waiver request pertains to sequential transfers of property from permissible parties to non-permissible parties. As outlined above, current rules allow for certain permissible transfers by an applicant for less than fair market value. For example, an applicant may transfer his or her principal residence to the applicant's caretaker child without incurring a disqualification period.47 The DMA, concerned that applicants unfairly use this exception to transfer the personal residence to the caretaker child who in turn distributes the property equally among the caretaker child's siblings,48 proposes to characterize such "suspicious" successive transfers as transfers made for less than fair market value and impose a disqualification period on the applicant.49
The final waiver request addresses the use of equity loans by applicants and their spouses. In calculating the MMMNA for the community spouse, equity loans can be used to increase the MMMNA through the use of an excess shelter allowance.50 The DMA fears that, under the current rules, the equity loan does not need to be related to the home. For example, the community spouse could take out an equity loan to pay for the wedding of a child or grandchild and then apply for and receive the right to keep more income in order to make the payments on the equity loan.51 The DMA proposes that, to the extent that an equity loan was not used for necessary home maintenance, medically necessary health care, or necessary living expenses, the portion of the equity loan payment attributable to such non-qualifying expenditures will be treated as a disqualifying transfer.52 For example, the applicant takes out a home equity loan for $50,000 with a repayment period of 10 years at 6 percent interest. The payment would be $555 a month. The applicant made the mistake of using those funds to pay off high interest credit cards, or to put an addition on his home. Eight years later the applicant needs to apply for Medicaid. Every one of those payments during the three years before the applicant applied for Medicaid would be treated as a disqualifying transfer.
Once again the DMA has been paying attention to the methods by which Medicaid applicants have sought to protect or transfer assets and is now seeking to eradicate those methods. It is unclear whether the waiver request will ever be allowed by the federal government and, if allowed, whether it will stand up to scrutiny.53
The changes to Massachusetts Medicaid have placed many restrictions on planning strategies that traditionally have been used by Medicaid planners. While planners devise new strategies, given this year's changes, rest assured that the DMA will revise Medicaid again to deal with them.
1. Massachusetts Budget and Policy Center, The Massachusetts Budget Crisis: Who Hurts? Who Pays? (March 2003).[back]
2. http://www.fool.com/retirement/retireeport/2000/retireeport000131.htm, visited Dec. 3, 2003.[back]
3. The 65 Years and Over Population: 2000 http://www.census.gov/prod/2001pubs/c2kbr01-10.pdf, visited Dec. 3, 2003.[back]
4. According to the Department of Medical Assistance ("DMA") the average cost of an annual stay in a nursing home in Massachusetts is $87,840. This figure is based on the DMA's projection that the average daily cost of a private pay nursing home resident in Massachusetts is $244. 130 CMR 520.019(G)(1).[back]
5. Pursuant to Section 1115(a) of the Social Security Act a waiver from the federal Medicaid requirements was filed by Douglas S. Brown, acting commissioner of the Commonwealth of Massachusetts Executive Office of Health and Human Services, Division of Medical Assistance, with the Center for Medicaid and State Operations on Aug. 28, 2003 (hereinafter Waiver).[back]
6. Massachusetts Medicaid regulations may be found at 130 CMR 520.00 et seq..[back]
7. 130 CMR 520.016(B).[back]
8. 130 CMR 520.008.[back]
9. 130 CMR 520.007.[back]
10. Except to the extent that if the applicant's income is great enough to entirely private pay for the nursing home care.[back]
11. 130 CMR 520.026.[back]
12. 130 CMR 520.026. Known as the patient paid amount.[back]
13. 130 CMR 520.017(D).[back]
14. 130 CMR 520.019(C).[back]
15. 130 CMR 520.019(G)(1).[back]
16. 130 CMR 520.019(C) & (G).[back]
17. $110,313/$7,320 =15-month disqualification period; assuming the divisor or disqualification beginning date does not change during the disqualification period. [back]
18. 130 CMR 520.019(B).[back]
19. 130 CMR 520.019(B).[back]
20. 130 CMR 520.019(F).[back]
21. 130 CMR 520.019(D).[back]
22. 130 CMR 520.016(B)(2).[back]
23. 130 CMR 520.017(C).[back]
24. The $1,515 is the base allowance under the MMMNA calculation and could be raised based on real estate taxes, property insurance and utility expenses.[back]
25. 130 CMR 456.426[back]
26. 2003 Mass. Acts 42 ß 4.[back]
27. Mass. 2004 Fiscal Year Budget ß 533. [back]
28. Mass. Gen. Laws ch. 118E, ß 31.[back]
29. Mass. Gen. Laws ch. 118E, ß 31(c). This limitation gave Medicaid recipients several planning opportunities to avoid the recovery rules.[back]
30. Mass. Gen. Laws ch. 118E, ß 31(c).[back]
31. Mass. Gen. Laws ch. 118E, ß 31(c). Apparently, there is currently movement in the legislature to postpone implementation of the expanded estate recovery until July 1, 2004.[back]
32. Mass. Gen. Laws ch. 118E, ß 9E.[back]
33. 42 U.S.C. 1396.[back]
34. 42 U.S.C. 1315(a).[back]
35. Center for Advance Legal Studies, Alice in Medicaid land: How to Plan for a Changing environment 6, 25 (2003).[back]
36. Waiver at 1.[back]
37. Waiver at 8.[back]
38. Waiver at 8.[back]
39. Waiver at 8. The statute does grant an exception from all of the waiver provisions for transfers of the applicant's principal residence for fair market value of up to $300,000. Mass. Gen. Laws ch. 118E, ß 9E.[back]
40. Waiver at 10.[back]
41. Waiver at 12.[back]
42. 130 CMR 520.019.[back]
43. Waiver at 14.[back]
44. Waiver at 14. It is not clear how an applicant would be able to purchase long-term care insurance, however.[back]
45. Waiver at 16.[back]
46. Waiver at 16.[back]
47. 130 CMR 520.019(D).[back]
48. Waiver at 17.[back]
49. Waiver at 17.[back]
50. Waiver at 18.[back]
51. Waiver at 18.[back]
52. Waiver at 18.[back]
53. Minnesota has had two waiver requests denied and Connecticut's waiver request has been pending for over two years. Additionally, many experts have suggested that the waiver request cannot be allowed under the federal enabling statute. The enabling statute is intended to allow waivers that would broaden the scope of Medicaid coverage and it is questionable at best whether this waiver has that effect.[back]