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Update on New Legislation

Written By: Jeff Marshall

Originally Published August 2, 2002

Over the past few months Pennsylvania has enacted a number of new laws and regulations affecting the elderly. In addition, the Department of Public Welfare has proposed a number of revisions to the rules regarding eligibility for Medicaid payment of long term care costs.

Here is a summary of some of these recent changes and proposals.

Act 24 of 2002, the Telemarketing Do-Not-Call Law .
Pennsylvania consumers can now enroll in a telemarketing do-not-call list to be maintained by an administrator hired by the state. Every telemarketer that calls consumers in Pennsylvania must purchase the list and then remove every name on the list from their calling lists within 30 days.
A violation of the law carries a civil penalty of up to $1,000, or $3,000 if the person is age 60 or over. This law took effect on May 31, 2002. Consumers may sign up for the do-not-call list by calling 1-888-777-3406 or online at the Attorney General’s website http://www.attorneygeneral.gov/.

Act 13, The Medical Care Availability and Reduction of Error Act .
Among other things, this Act requires hospitals to designate a patient safety officer, establish a patient safety committee, and to provide written notification of serious events to patients and/or family members within 7 days of their occurrence or discovery.

On June 29th, the Governor signed Act 100, The Right to Know Law .
This may turn out to be the most important of all the recent enactments for those of us who are advocates for the elderly. We have all been frustrated by the State Department of Public Welfare’s (DPWs) tendency to change the rules governing qualification without disclosing the changes to the public. DPW often establishes or modifies its policies through training sessions conducted for County Assistance Offices, or through policy clarifications or Operations Memoranda that are not made public.

The Right To Know Law requires state Agencies to open public records for inspection by the public. A public record is defined as “any ... order or decision by an agency fixing the personal or property rights, privileges, immunities, duties or obligations of any person or group of persons.” This certainly sounds like it should apply to fair hearing decisions, as well as policy clarifications and operations memoranda.

The Right to Know Law becomes effective in 180 days (late December 2002).

ACT 50 Uniform Principal and Income Act. Act 50 was signed by the Governor on May 16th and is now fully effective.
Act 50 makes a number of significant changes in the Probate Estates and Fiduciaries Code.

A. Using the Uniform Principal and Income Act as a model, Act 50 rewrites Pennsylvania’s rules regarding how trusts and estates may allocate their receipts and disbursements between principal and income.

B. It authorizes a Trustee to convert an existing trust to a total return unitrust or, in the alternative, to make adjustments in the amounts allocated to principal and income based upon what the Trustee determines to be fair and reasonable to all of the beneficiaries.

C. Act 50 also clears up some of the messy overkill contained in Act 39 of 1999.
Act 39 is the law which requires that every power of attorney contain a standard form Notice signed by the principal and an Acknowledgment of fiduciary responsibilities by the Agent.

The mandatory Notice which states that the purpose of the Power of Attorney is “to give the agent broad powers to handle your property ” is wholly inappropriate for a health care power of attorney, and both the Notice and Acknowledgment requirements are inappropriate for powers of attorney used in commercial transactions.
Act 50 cures these problems retroactively.

D. Act 50 also authorizes the creation of custodial accounts in Wills, Trusts, and Insurance policies under the Pennsylvania Uniform Transfers to Minors Act which can continue until the “minor” reaches age 25. This provides an alternative to the creation of a trust for parents who feel that at 21 their children may still not be ready to handle an inheritance.

Act 89, Miscellaneous tax amendments. Pennsylvania, like many states, imposes an “estate” tax on large estates. This is in addition to the “inheritance” tax that is imposed on even small estates. The Pennsylvania estate tax is based upon a state death tax credit that the Federal Government has traditionally given large estates. As part of the Tax Act of 2001 (EGTRRA), Congress is eliminating the state death tax credit. In order not to lose its estate tax revenues, Pennsylvania has to amend its laws.
To do so, Pennsylvania’s new law preserves the tax code that was in effect on June 1, 2001.
This means that the size of exempt estates is now $700,000 and will gradually rise to $1 million by 2006, as provided under the old federal law, prior to the passage of EGTRRA.

As a result, Pennsylvania’s estate tax will now apply to estates that are too small to be subject to Federal Estate taxes.
This is a trap for unwary executors and their legal and accounting professionals. Until this change, only federally taxable estates would be potentially subject to Pennsylvania death taxes.

In another trap for the unwary, Act 89 also legislatively overturns a Court ruling in the Goldman case. Bypass trusts are common estate planning devices used by married couples to limit federal estate taxes. With a bypass (or “credit shelter”) trust a portion of the estate of the first spouse to die is left to a trust rather than given outright to the surviving spouse. Pennsylvania death tax laws allow the payment of death taxes to be deferred until the death of the surviving spouse.

Bypass trusts sometimes allow the surviving spouse to make changes in the ultimate distribution of the trust through the use of a tool called a “power of appointment.” Act 89 states that this opportunity to defer taxation until the death of the surviving spouse will be lost if the trust gives the surviving spouse a power of appointment.

DPW Nursing Home Eligibility Budget Proposals

Turning to Medicaid financing of long term care, the Department of Public Welfare (DPW) is requesting that four changes be made to existing nursing home eligibility rules.

The first is a proposal to eliminate the Home Maintenance Deduction.
Currently a nursing facility resident who is certified as able to return home within six months can have a monthly home maintenance deduction diverted from the nursing facility payment to cover the costs of maintaining the person’s home for the six month period.
Under this proposal, this deduction, which is optional under Federal requirements, would be removed.

DPW’s second proposal is to change to using an Income First methodology to determine the protected resource allowance of Community Spouses.
This proposal would do away with the ability of low income community spouses to retain extra assets under the Hurly rules. DPW estimates that each year approximately 840 low income community spouses will be negatively impacted by this change.

The Elder Law Section of the Pennsylvania Bar Association, AARP, The Alzheimer’s Association, and other advocates for the elderly have voiced strong objections to DPW’s proposal to change Pennsylvania to an income first state.
Thanks to all of you who helped spread the alert about this dangerous proposal. As a result of these advocacy efforts, it appears that any action on the proposed change will be postponed until after the November elections.
Hopefully, whoever is the new Governor will determine that DPW’s proposal to take funds from low income Pennsylvania seniors to pass along to federal government is not good policy, and the income first change will be withdrawn.

The third proposal is to Limit the Unpaid Medical Expense Deduction when Calculating a nursing facility resident’s cost of care contribution. If an MA eligible nursing home resident has pre-existing medical expenses, current rules provide that MA will cover the full cost of long term care while the resident’s contribution toward the cost of care is diverted to pay the previously incurred medical expenses. Under this proposal, Pennsylvania will set a $10,000 limit on the unpaid medical expense deductions when calculating the resident’s cost of care contribution.

DPW’s fourth proposed revision is one that is going to complicate the lives of planners, AAA caseworkers, CAOs, and anyone else who is involved in the process of determining eligibility for Medical Assistance (MA).
DPW wants to impose Partial-Month Ineligibility for Asset Transfers Without Fair Consideration.
As you may know, when an individual transfers assets without fair consideration or exemption, a period of ineligibility is determined by dividing the fair market value of the transferred assets by the average monthly cost of nursing facility care at the private pay rate. In determining the number of months of ineligibility in Pennsylvania, we currently “round down” - partial months are dropped and not counted.
Under this proposal, both full and partial months would be included in the period of ineligibility.
Thus a $1,000 transfer (which currently creates no penalty) would create 18/100 months (or 5.6 days) of ineligibility.

Medical Assistance Estate Recovery Implemented (55 PA. Code, Chapter 258).

Pennsylvania’s Final Medical Assistance Estate Recovery regulations became effective on February 1st . There are lots of gray areas in these Regulations. This is an area where knowledgeable advocacy in regard to issues like undue hardship waivers, can really make a difference for the family and heirs of deceased Medicaid recipients. For more information on the new Regulations, readers may consult an article I wrote on the subject which is published in the current issue of the Pennsylvania Bar Association Quarterly or check out the Marshall & Associates website at
http://www.paelederlaw.com/assistancerecovery.html.

Protective Services For Older Adults [6 PA. CODE CH. 15]

On May 18th, final amendments to the regulations for the Older Adult Protective Services Act were published in the Pennsylvania Bulletin. The Amendments add sections requiring specified care-providing facilities to obtain criminal history record information reports on applicants and certain employees and requiring administrators and employees at these facilities to report suspected abuse. The regulations can be found on the web at
http://www.pabulletin.com/secure/data/vol32/32-20/887.html .

Recent DPW Operations Memoranda. DPW changes its interpretation of various Medicaid qualification rules and policies through the issuance of non-public Operations Memoranda & Policy Clarifications.
Fortunately, elder law practitioners are sometimes able to obtain copies of DPW policy statements.
Here are a few DPW policy statements that I have been able to obtain over the past few months.

A. In an Operations Memorandum issued in April (OPS020407) DPW provided County Assistance Offices (CAOs) with revised policy and procedures on two topics related to MA eligibility for nursing home and waiver care.
The Memorandum states that it takes precedence over any previous policy clarifications and any policies and procedures that are listed in the Nursing Care Handbook.

The first topic covered in the April Operations Memorandum was annuities. The Memorandum attempts to answer the question: When should a CAO submit an annuity to the Office of Legal Counsel for review? The answer given is that, “All annuities owned by an applicant or the applicant’s spouse that were purchased or funded during the look-back period (36 months or 60 months for an annuity-funded trust) should be forwarded to Office of Legal Counsel for review.
Office of Legal Counsel will review the circumstances of each individual situation and advise CAO staff on what recommended action to take, if any. Do not send annuities if the period of ineligibility has expired prior to the requested date of application for Medicaid.”

The Memorandum then notes that information that is important to the review includes, the date the annuity was purchased or funded, the amount of the annuity, whose funds were used to purchase the annuity, who purchased the annuity, who is the beneficiary, and the age and status of beneficiaries.

The Memorandum seems to be suggesting to CAOs that the purchase or funding (annuitization) of an actuarially sound annuity by a community spouse can create a transfer penalty (contrary to the Federal Court opinion in the recent Mertz case), but it does not describe any rules for determining when a penalty will be applied. CAOs are being told not to make decisions on annuities unless the annuity was annuitized prior to any conceivable transfer penalty period.
They are to send the annuity to the Office of Legal Counsel for review, and a determination, based upon who knows what criteria, as to whether there will be a penalty applied.
One problem with this approach to annuities is that DPW’s Office of Legal Counsel is likely to receive more annuities to review than it can handle in a timely fashion.
Another problem, is that eligibility for MA really ought to be determined by established rules, rather than by the subjective judgment of a lawyer at DPW’s Office of Legal Counsel.
Overall, it appears that DPW really doesn’t know what to do about annuities.

B. On the other hand, the next portion of this April Operations Memorandum is both clear and helpful.
It discusses when guardian fees will be allowed as a deduction in determining a Medicaid recipient’s contribution towards the cost of care. The policy, as set forth in the Memorandum, is that Guardian fees paid to individuals (including family members) or to agencies are an allowable deduction if court-established. The deduction for the guardian fee may not exceed $100 per month, even if the court order has established a higher amount. A fee paid to a representative payee is NOT deductible.

C. Recently, DPW also issued an Operations Memorandum on the subject of LERPS - Life Estate Deeds with Revocation Powers. With a LERP, the Grantor deeds away a remainder interest in real estate but retains the right to revoke the conveyance. (A remainder interest is an interest that takes effect automatically upon the death of the Grantor).
It is similar, I think, to naming a beneficiary on an account, or holding assets in a revocable trust.
Common sense tells us that nothing of value has been transferred when this type of deed is executed.
Certainly, the interest of the remainderman would not seem to have any fair market value.
And the Federal Medicaid authorities in Transmittal 64 tell us that creation of a LERP is not a penalty creating transfer for fair consideration purposes. The reality is, the Grantor has retained ownership of the full value of the property

Nevertheless, DPWs position, as expressed in this Memorandum is that CAOs are to ignore the fact that the Grantor has retained the power to revoke the conveyance of the remainder interest.
LERPs are to be treated, for transfer penalty purposes, just like a standard deed with retained life estate where the Grantor retains no power to divest the interest of the remaindermen

If we can rely on this policy statement by DPW, LERPs are a really valuable planning tool for clients who are not in immediate need of Medical Assistance. Healthy individuals, who are interested in planning to protect their homes in the event they ever become ill, can execute this type of deed. The penalty period will start to run.
If they don’t need MA during the penalty period, the home will thereafter be exempt during their lifetimes, and should pass outside of probate, and any Estate Recovery claims after their deaths.
And since the client can revoke the LERP at any time, if the situation changes, this appears to be a planning tool with little downside.

The problem is, DPWs position makes no sense.
Should you rely on a policy position that makes no logical sense? And since this policy isn’t contained in a regulation, I don’t see any reason why DPW can’t just change its mind at any time in the future.

D. Here is one final bit of information on the subject of Medicaid qualification - The average monthly private pay rate (the so-called penalty divisor) was raised to $5,313.18 effective July 1st.

I hope this information is helpful to you as we work together to help our elderly retain their dignity, security and independence.

Jeff Marshall, JD, CELA*
The Elder Law Firm of Marshall & Associates
Williamsport, Jersey Shore, and Wilkes-Barre
August 9, 2002

* Certified as an Elder Law Attorney by the National Elder Law Foundation under authorization by the Pennsylvania Supreme Court

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