I am a board certified
elder law attorney, and past Chair of the Pennsylvania Bar Association's
Elder Law Committee. As an elder law specialist in private practice, I
meet each month with many seniors who are struggling with the difficult
issues that arise when they or their spouses are confronted with long term
illness. This letter is written to express some of my concerns and to make
some suggestions regarding the Department of Public Welfare's (the
"Department's") proposed revision of the Medical Assistance
(MA) eligibility requirements for long term care (LTC) services as
published at 32 Pa.B. 4584.
Everyone understands that
Pennsylvania is now faced with serious fiscal pressures. These financial
constraints arise in part from the weakened economy which both limits
revenue growth and expands the number of citizens who lack adequate health
care coverage.
In this difficult
financial environment, I agree that it is appropriate for the Department
to consider ways to contain costs through cutting optional programs and
services. The Department is charged with the difficult and complicated
task of rationally and fairly expending Pennsylvania's limited Medicaid
financial resources in a manner which will best promote the health and
welfare of our citizens. It is critical that cuts such as those specified
in these proposed regulations, if required, be implemented in a fashion
that is well considered, fair, and even handed. It is equally important
that the Department's authority to make the changes it proposes be clear
and unequivocal.
My primary goal in making
these comments is to provide the Department, the IRRC, and the Legislative
standing committees with the practical viewpoint of a lawyer who
specializes in elder law and who deals, on a daily basis, with the issues
addressed in the proposed regulations. While I am admittedly an advocate
for the elderly, my comments are intended to improve the regulations, so
that each citizen of Pennsylvania will receive fair and equal treatment
whether or not they are being represented by an elder law specialist.
My comments, objections,
and suggestions to the proposed regulations fall into four general
categories:
(1) Lack of Clarity:
In many respects, the proposed regulations lack clarity. This is a
particular problem because these regulations will need to be
interpreted and implemented by county assistance caseworkers across
Pennsylvania. Ambiguity will lead to disparate treatment of similarly
situated applicants depending upon the county and the caseworker. Thus
it is of great significance that the regulations be as unambiguous as
possible. Regrettably, some sections of the proposed regulations are
so unclear as to almost guarantee wide variations in interpretation by
local county assistance offices that will lead to uneven and therefore
unfair application of these rules.
(2)Statutory
Conflict: In several respects, the proposed regulations seem to
conflict with mandatory federal Medicaid statutes and regulations.
(3)Unreasonable
intrusiveness and paperwork burdens: The costs, paperwork, and
other burdens that will result from the implementation of fractional
month transfer penalties will far outweigh any potential cost savings.
The paperwork burden will be felt by both the public and private
sector. As individuals bounce into and out of temporary Medicaid
eligibility due to fractional month penalties on small transfers of
assets, the need to file new PA 600s and other eligibility related
paperwork will increase dramatically. Better alternatives exist which
can save Medicaid dollars for the Department without creating the
paperwork nightmare that will result from the regulations as stated in
their current form. These less complicated alternatives are lawful,
feasible, and more desirable than the Department's proposal.
(4)Costs to be
borne by the regulated community. The proposed regulations will
place new costs on Pennsylvania individuals and businesses who can
least afford them. The regulated community that will bear the costs of
these proposed regulations includes low-income community spouses,
health care providers, especially nursing homes and local taxing
authorities. Because Pennsylvania only provides 46% of Medicaid
funding, Pennsylvania will realize only 46 cents of savings for $1.00
of cost borne by the regulated community. The harsh reality is that
the costs of these regulatory changes to the regulated community will
be more than double the savings realized by the Commonwealth.
(5)Policy: The
change to an income-first methodology to limit spousal impoverishment
is a policy decision of such import that should be left to the
Legislature.
While I disagree with the
wisdom of the cuts being proposed by the Department, I recognize the
Department is acting responsibly in re-evaluating the rules governing
eligibility for long term care services. I hope the Department will review
my comments from the perspective of wanting to work together with the
regulated community to achieve regulations which will be understandable
and unambiguous enough to facilitate fair and even-handed treatment of
applicants throughout Pennsylvania and which are in keeping with the
intent of Executive Order 1996-1.
In the remainder of this
letter I present my specific comments. Please note that the terms
Medicaid, Medical Assistance, and MA are sometimes used interchangeably in
this letter to refer to the Commonwealth's Medicaid program. In
addition, the abbreviation "CS" is sometimes used in this letter
to mean "community spouse," the abbreviation "IS" is
sometimes used to mean "institutionalized spouse," and the
abbreviation "CSRA" is sometimes used to mean "Community
Spouse Resource Allowance."
Comments Regarding
Proposed Section 178.124 (b)
The Change from
Resource-First to Income-First
A. Background.
In 1988 Congress passed
OBRA 88 (The "Medicare Catastrophic Act") in an attempt to limit
the problem of "spousal impoverishment." While much of OBRA 88
was later repealed before its effective date, the spousal impoverishment
provisions were retained. (Title XIX of the Social Security Act, 42 U.S.C.
§ 1396 et seq.)
Prior to OBRA 88, when one
spouse needed nursing home care, Medicaid was available to help pay for
the cost of the care if qualification requirements were met. However, in
order to qualify for Medicaid, virtually all of the institutionalized
spouse's income and assets were required to be spent on the cost of the
care. This could have a devastating financial effect on the healthy
spouse, especially if most of the income was received by the ill spouse.
For example, consider a couple living on the husband's Social Security
income of $800 per month and the wife's of $400 per month. They can get
by on $1,200 a month income. But, if the husband needed nursing home care,
the wife would have to live on only $400 per month. Congress recognized
that no one should be forced to live at a poverty level just because their
spouse fell prey to the wrong "uncovered" illness. In OBRA 88
Congress addressed the spousal impoverishment problem by mandating that
state Medicaid rules must allow the non-institutionalized "community
spouse" to retain a minimum income and asset allowance.
Currently, in 2002, these
protected allowances are as follows: the community (non-institutionalized)
spouse of a Medicaid eligible nursing facility resident is entitled to
retain income of at least $1452 per month (the "minimum monthly
maintenance needs allowance" or MMMNA). In addition, each state is
required to set a minimum resource allowance for the community spouse
(currently between $17,856 and $89,280 or one-half the value of the
combined available resources of both spouses, whichever is higher, up to a
maximum of $89,280, in 2002). Pennsylvania has chosen to set this minimum
resource allowance for community spouses at the lowest possible figure -
$17,856. In some cases, a greater amount can be protected through a fair
hearing, 42 U.S.C § 1396r-5(e)(2), or by court order, 42 U.S.C §
1396r-5(f)(3). This community spouse resource allowance (CSRA) is in
addition to $2,400 of resources allowed to the institutionalized spouse.
The question addressed in
§178.124 is how the spousal resource allowance is to be calculated for
low-income community spouses whose incomes fall below the minimum income
allowance.
With the resource-first
approach (which is currently used in Pennsylvania), the community spouse
is allowed to retain and invest additional resources sufficient to bring
her income up to the mandated minimum. Then, upon the death of the
institutionalized spouse, the community spouse will be able to rely on
those resources to continue to provide her with needed income.
With the income-first
approach, potential income transfers from the institutionalized spouse are
considered to be part of the community spouse's income for purposes of
determining whether a higher CSRA is needed to provide the community
spouse with the required income allowance. Indeed, the additional income
needed can, in fact, be transferred from the institutionalized spouse to
the community spouse to bring her up to the minimum income, provided the
institutionalized spouse consents to the transfer. Through a change to the
income-first approach, Pennsylvania will require the community spouse to
spend down additional resources. Unfortunately, upon the death of the
institutionalized spouse, the community spouse will be deprived of any
further income transfers from the institutionalized spouse and will have
insufficient remaining assets to produce the minimum income allowance.
With income-first, after the death of the institutionalized spouse, the
community spouse will virtually always have to get by with significantly
less income and resources than under resource-first.
In §178.124 the
Department proposes to change Pennsylvania from a resource-first
methodology of protecting community spouses from impoverishment to an
income-first approach.
Both the resource-first
rule and the income-first rule apply only where there is a low-income
community spouse - whose income is below the mandated minimum allowance.
However, the income-first rule helps no community spouse who would not
also be helped by the resource-first rule. The sole purpose of the
income-first rule is to deny eligibility - thereby requiring the community
spouse to spend additional assets on the institutionalized spouse's
nursing home care. Although the institutionalized spouse's income will
support the community spouse during the institutionalized spouse's
lifetime, at his death, the community spouse's income will drop. The
result is that the income-first approach may leave the community spouse
destitute, but only after the death of the institutionalized spouse. The
community spouse will always be better off, over the long run, with the
resource-first approach since it will allow her to retain additional
assets sufficient to generate the minimum required income, even at the
cost of receiving less of the community spouse's income in the short
run.
While the Department's
proposed switch to this income-first approach may be a dubious policy
decision, a United States Supreme Court decision in February of 2002 made
it clear that a state could adopt either a resource-first or an
income-first methodology. Wisc. Dep't of Health and Family Services v.
Blumer, 525 U.S. ____, 122 S.CT. 962; 151 L.Ed.2d 395 (2002). However, as
noted below, while Pennsylvania may adopt income-first, the specific
methodology which the Department proposes to utilize raises serious legal
issues.
B. Issues
Raised by Proposed Income-First Regulation (§178.124).
While Pennsylvania is now
free to choose to utilize either an income-first or resource-first
methodology, the specific income-first regulation proposed by the
Department raises a number of significant issues:
1. The Proposed
Regulation Appears to Conflict with Federal Statutory Law. The
specific income-first methodology proposed by the Department, which
includes the attributing of the Social Security income of the
Institutionalized Spouse to the Community Spouse, appears to conflict
with the anti-alienation provisions of the Social Security Act.
2. The Proposed
Regulation is Unclear in Regard to the Treatment of Spousal Refusal.
In rewriting the regulations regarding spousal impoverishment, the
Department needs to clarify its treatment of the refusal of a spouse
to make resources available.
3. The Proposed
Regulation Conflicts with Federal Law and Needs Clarification in
Regard to the Treatment of Actuarially Sound Immediate Annuities Owned
by Community Spouses. In rewriting the regulations regarding
spousal impoverishment, the Department needs to clarify the treatment
of the purchase by the spouse of an actuarially sound immediate
annuity and bring the regulation into conformity with Federal law.
4. Other Aspects
of the Regulation are in Need of Clarity. The proposed
income-first regulation is unclear and ambiguous to such a degree that
implementation will be confusing, unreasonably difficult, and unfair
to applicants for benefits.
5. "Effective
Date" Confusion. The regulation is unclear regarding the
persons who will be affected and the rules that will apply on the
"effective date" of implementation.
6. Policy Issues.
Is the proposed regulatory change to income-first a policy decision of
such a substantial nature that it should be left to the legislative
process?
I will address these
issues in turn.
1. The
Methodology Used by the Department in §178.124(b) of the Proposed
Regulations Appears to Conflict with Mandatory Federal Anti-Alienation
Requirements Regarding Social Security Payments.
(a)
§178.124(b)(2)(viii) defines the institutionalized spouse's
income as being the IS's total gross monthly income as described
in §181.452(a). §181.452(a) (by incorporation of §181.101)
specifically includes "social security benefits including
Part B Medicare premiums" in the definition of the IS's
total gross monthly income. Thus, under §178.124(b) of the
proposed regulations the IS's Social Security income is included
in the income which will be allocated to the CS.
(b)§178.124(b)(2)(viii)
requires that the income of the institutionalized spouse,
including Social Security income, be attributed to the community
spouse for the purpose of determining the community spouse's
Minimum Monthly Maintenance Needs Allowance (MMMNA).
(c) The Social
Security Act at 42 U.S.C. §407 provides:
"(a) The
right of any person to any future payment under this
subchapter shall not be transferable or assignable, at law or
in equity, and none of the moneys paid or payable or rights
existing under this subchapter shall be subject to execution,
levy, attachment, garnishment, or other legal process, or to
the operation of any bankruptcy of insolvency law."
(d) Recently the
Federal 2nd Circuit Court of Appeals held that when using an
income-first approach, a state (in that case, New York) may not
allocate the Social Security income of the IS to the CS without
violating the anti-alienation provisions of the Social Security
Act. Robbins v. DeBuono, 218 F.3d 197 (2nd Cir. 2000). The
Court held that attributing (or deeming) the Social Security
income of an IS to a CS (as proposed by the Department in
§178.124(b)(2)(viii)) effectively alienates that income from the
IS in violation of 42 U.S.C. §407.
(e) New York
state, while in many regards providing substantially more generous
protections to community spouses than Pennsylvania,1
did employ the income-first methodology which the Department
proposes; that is, New York did impose an income-first methodology
in the determination of the CSRA to determine whether the CS is
entitled to retain additional resources. In so doing, New York
State attributed the Social Security income of the IS to the CS.
In regard to income-first, the New York's regulatory scheme was
the same as Pennsylvania will implement with §178.124(b).
(f) The 2nd
Circuit Court of Appeals in Robbins v. DeBuono held
that this attribution of the Social Security income violates 42
U.S.C. §407. Robbins v. DeBuono is thus precisely on point in
regard to the Department's proposed §178.124(b)(2)(viii). The
Department cannot legally allocate the Social Security income of
the IS to the CS, as the Department proposes to do.
(g)The question in
Robbins was whether the state can deem the IS Social
Security income to the CS in calculating the income of the CS for
MMMNA and CSRA purposes. This is exactly the question that will
arise when the proposed §178.124(b) is implemented. The Court in Robbins
found that such deeming of the IS Social Security income to the CS
constitutes an assignment of the IS income by "legal
process" in violation of 42 U.S.C. §407(a).
"Because
New York's income-first policy, which is implemented both
during the fair hearing process and through the express threat
of a lawsuit, constitutes an explicit threat to use
"legal process" against a community spouse who
refuses to expend her husband's Social Security benefits on
her own needs, and because threats - implicit or explicit -
fall within our definition of "legal process," we
hold that the income-first policy as applied to Social
Security benefits violates Section 407." Robbins v.
DeBuono, 218 F.3d 197, 202
(h)The conclusion
is that, while Pennsylvania may employ the income-first rule, it
may not include the IS Social Security income in the income that
is attributed to the CS in determining the CSRA. Pension and other
income of the IS may be allocated to the CS, but not Social
Security income.
Recommendation: Because of
the conflict with the Social Security Act, §178.124 should be revised to
provide that the Social Security income of the IS is excluded from the
calculation of the IS total gross monthly income for purposes of
determining the MMMNA under §178.124(b). The Regulation can continue to
provide that pension and other income of the IS will be attributed to the
CS in determining the CSRA.
2. The Proposed
Regulation is Unclear in regard to the Treatment of Spousal Refusal.
(a) Proposed
§178.124 is a significant change in Pennsylvania's existing
rules regarding the protection of community spouses from
"spousal impoverishment." In rewriting the regulations
regarding spousal impoverishment the Department needs to address
the effects of the refusal of a community spouse to make resources
available to an institutionalized spouse.
(b)Federal law
requires that states provide that the resources owned by the
community spouse in excess of the CSRA do not make the
institutionalized spouse ineligible if the community spouse
refuses to make assets above the CSRA available, provided the
institutionalized spouse assigns his support rights to the state.
This has become to be known as "Spousal Refusal, and is
mandated by 42 U.S.C. §1396r-5(c)(3). Pennsylvania's
regulations are silent of spousal refusal, even though the
provisions of 42 U.S.C. §1396r-5(c)(3) are mandatory and
specifically supersede any other provisions of Medicaid law to the
contrary.
Recommendation: Since the
change to income-first will require community spouses to spend down their
limited assets, potentially to as little as $17,856, it is likely that
there will be a significant increase in the number of refusals by
Community Spouses to make these assets available. As noted in the
discussion above, the Department has failed to date to provide rules as to
the implementation procedures for these spousal refusal situations, and
the proposed regulations conflict with a mandatory federal Medicaid
statute by failing to provide for eligibility of the institutionalized
spouse when the conditions of 42 U.S.C. §1396r-5(c)(3) are met. For
examples of regulations governing spousal refusal Pennsylvania could
review and adopt regulations similar to those being used by other states
such as New York or Florida.
3. Conflict with
Mandatory Federal Law and Need for Clarity in the Regulations. The
Department Should Clarify that Transfer Penalties Under §178.174(d)
do not Apply to the Purchase of an Actuarially Sound Immediate Annuity
by the Community Spouse.
(a) As noted
above, in 1988, Congress passed the "Medicare Catastrophic
Act" (OBRA 98) which attempted to limit the problem of
"spousal impoverishment." OBRA 88 also established
mandatory rules prescribing the penalties that states are required
to impose on transfers of assets for less than fair value for
purposes of qualifying for Medicaid. Transfers of assets to a
spouse or for the benefit of a spouse are specifically exempted
from transfer penalties. 42 U.S.C. § 1396p(c)(2)(A).
(b)OBRA 88 did not
specifically address the treatment of annuities. But it is clear
that an immediate annuity2 can be purchased with
payments that are likely to extend beyond the life expectancy of
the purchaser/annuitant. The purchase of such an annuity can
effectively amount to a transfer of assets to the extent that the
annuity payments will likely exceed the life of the
purchaser/annuitant/primary beneficiary. If the contingent
beneficiary of such an annuity is someone other than the spouse of
the purchaser or other exempt transferee, the purchase of such an
non-actuarial annuity can amount to a non-exempt transfer of
assets which will result in a Medicaid eligibility penalty for the
purchaser. On the other hand, immediate annuities are a
legitimate, secure, and a steady source of reliable retirement
income particularly of value to the elderly, and, if all payments
from the annuity are likely to be received by the purchaser during
the life expectancy of the purchaser, it is common sense that no
transfer of assets has taken place.
(c) In 1991
Christine Nye, Director of the Health Care Financing
Administration, made the first published federal pronouncement
regarding the issue of transfer penalties on the purchase of
immediate annuities. Ms. Nye stated, "If the annuity is
actuarially equal in value to the transferred resource, the
transfer would be one in which fair market value is received and
no penalty would be imposed. If not equal, the penalty under
Section 1917 for failure to receive fair market value would be
applied, that is, to deny payment for institutional services for a
prescribed period of time." Letter to Regional Administrator,
Region 4, Atlanta, January 24, 1991. The Nye letter continued,
"While this is a big policy loophole, we see no way to close
it absent legislation." Despite the Nye letter, in
Pennsylvania, the Department's policy regarding immediate
annuities remained unclear.
(d) Congress had
the opportunity to close the annuity "loophole" in 1993
(with OBRA 93) when it revisited the issue of transfer penalties.
Instead however, Congress, while concentrating its efforts on
transfer penalties, in general, and trusts, in particular,
delegated the issue of the proper treatment of immediate annuity
purchases to the Secretary of Health and Human Services. 42 U.S.C.
§1396p(d)(6). The Secretary responded in 1994 with the issuance
of Transmittal 64, which specifically authorized the purchase of
immediate annuities without transfer penalty if the requirements
of the Transmittal are met. 42 U.S.C. § 1396r-5(c)(1)(A) and 42
U.S.C. § 1396r-5(d)(1)(B).
(e) Transmittal 64
only deals with the transfer penalty aspect of the annuity. It
notes that annuities are usually purchased in order to provide a
source of income for retirement but "are occasionally used to
shelter assets so that individuals purchasing them can become
eligible for Medicaid." The Transmittal then sets up a
standard for states to use to distinguish between (1) those
"annuities validly purchased as part of a retirement
plan," and (2) "those annuities which abusively shelter
assets." The purchase of the former carries no transfer
penalty; while the latter can be penalized as transfers of assets
for less than fair market value, if the transfer is not otherwise
exempt. To assign annuities to the two categories the Transmittal
notes that "a determination must be made with regard to the
ultimate purpose of the annuity."
(f) The
Transmittal then provides a test for states to apply to determine
the ultimate purpose of the annuity. "If the expected return
on the annuity is commensurate with a reasonable estimate of the
life expectancy of the beneficiary, the annuity can be deemed
actuarially sound." The Transmittal then gives states
specific directions which states are to follow in making this
"actuarial soundness" test: "To make this
determination, use the following life expectancy tables..."
(g) The
Transmittal requires states to use Social Security tables rather
than the more commonly used IRS actuarial tables. "The
average number of years of expected life remaining for the
individual must coincide with the life of the annuity. If the
individual is not reasonably expected to live longer than the
guarantee period of the annuity, the individual will not receive
fair market value for the annuity based on the projected return.
In this case the annuity is not actuarially sound and a transfer
of assets for less than fair market value has taken place,
subjecting the individual to a penalty. The penalty is assessed
based on a transfer of assets for less than fair market value that
is considered to have occurred at the time the annuity was
purchased." Transmittal 64 to the State Medicaid Manual
§3258.9 B.
(h) Thus, Congress
has mandated that states follow its transfer penalty rules and has
specifically delegated the authority to create the transfer
penalty rules applicable to annuities to the Federal regulators.
Acting pursuant to this Congressional authority, the Federal
regulators have developed the rules that states are required to
follow and transmitted those rules to Pennsylvania. The use of
these rules is mandatory on the states. However, in violation of
the federal requirements, the Department has been imposing
transfer penalties on some purchases of actuarially sound
annuities. While the rules the Department is using in making its
determination of when an annuity creates a transfer penalty are
unclear and apparently subjective, it is without question that the
Department has even imposed transfer penalties in regard to the
purchase of actuarially sound immediate annuities purchased by a
community spouse.
(i) There is no
question that the purchase of an actuarially sound immediate
annuity by a community spouse can be used to enhance the income
and thus the ultimate financial security of the community spouse.
In a manner similar to the use of the resource-first methodology,
the purchase of a single premium immediate annuity by a community
spouse can lower the amount of resources that a community spouse
will be required to spend down on the institutionalized spouse's
cost of care. No doubt, this is why the Department views the
purchase of at least some immediate annuities by a community
spouse as a "loophole" whose use the Department wants to
discourage.
(j) The purchase
of a single premium immediate annuity by a community spouse
involves two fundamental provisions of Medicaid law.
C First, at the
time of application for benefits, the assets of the
community spouse are deemed available to the institutionalized
spouse, but the income of the community spouse is not. 42
U.S.C. § 1396r-5(c)(1)(A) and 42 U.S.C. § 1396r-5(d)(1)(B). When
an immediate annuity is purchased, available resources that would
be deemed available to the institutional spouse are converted into
an income stream for the community spouse that is not deemed
available.
C Second, after
the institutionalized spouse becomes eligible for Medicaid, there
is no further deeming of the assets of the community spouse to the
institutionalized spouse. 42 U.S.C. § 1396r-5(4) Assets that the
community spouse receives after the institutionalized spouse has
qualified for Medicaid do not affect the eligibility of the
institutionalized spouse for continued benefits.
The result of
these two provisions is that a community spouse can purchase an
immediate annuity and thereby convert otherwise available
resources to an income stream for the sole benefit of the
community spouse. This spend down of the couple's assets on the
annuity can reduce the assets of the couple to the level needed
for the institutionalized spouse to qualify for Medicaid.
(k) While
community spouses in most states can avail themselves of the
option to purchase an actuarially sound annuity as a means of
limiting spousal impoverishment, in Pennsylvania, the Department
has been hostile to this use of annuities. However, in a recent
opinion issued by the Federal District Court for the Eastern
District of Pennsylvania, the Court determined that the plaintiff
community spouse was likely to prevail on her argument that the
Department's position on her purchase of an annuity was in
violation of Federal law. (The Department thereupon settled the
case and granted the application for Medicaid benefits). See Mertz
v. Houstoun, 155 F.Supp.2d 415 (E.D. Pa. 2001).
(l) In the Mertz
case, DPW had penalized the purchase by a community spouse of an
actuarially sound commercial immediate annuity in the same manner
as would have occurred if the funds had been gifted. (Actually,
the application for MA was initially approved by an understandably
confused Lehigh County Assistance Office, but it later rescinded
the approval). In support of its denial of benefits, the
Department took the position that none of the resources in excess
of the community spouse's CSRA could be used to purchase an
actuarially sound commercial annuity if the spouse's income
already exceeded the MMMNA.
(m) In handing
down his memorandum opinion, Federal District Court Judge Waldman
made the finding that it was likely that Mertz would prevail on
her claim against the Department. The Court concluded that "a
couple may effectively convert countable resources into income of
the community spouse which is not countable in determining
Medicaid eligibility for the institutionalized spouse by
purchasing an irrevocable actuarially sound commercial annuity for
the sole benefit fo the community spouse." Mertz v.
Houston, 155 F.Supp.2d 415 (July 30, 2001), p. 22.
(n) The Court in Mertz
went on to note: "It is not the role of the Court to
compensate for an apparent legislative oversight by effectively
re-writing a law to comport with one of the perceived or presumed
purposes motivating its enactment. It is for the Congress to
determine if and how this loophole should be closed." Mertz
v. Houston, 155 F.Supp.2d 415 (July 30, 2001), p. 24.
(o) It is
respectfully submitted that it is also not the Department's role
to re-write the law, either by its Office of Legal Counsel on a
case by case basis, nor in the proposed §178.174(d).
(p) The
Department's current post-Mertz policy on the purchase of
annuities by community spouses is, at best, unclear. To the best
of this writer's knowledge, the Department currently requires
County Assistance Offices to submit information regarding
annuities owned by community spouses to the Office of Legal
Counsel where a decision is made as to whether or not to deny
benefits to the institutionalized spouse due to the annuity. The
criteria employed by the Office of Legal Counsel in making this
determination is unpublished and apparently somewhat subjective.
This approach may be effective in discouraging the purchase of
annuities by older, conservative, community spouses, especially
those who are not represented by competent counsel, but is
patently inappropriate and, as noted in Mertz, illegal.
(q) With the
change to income-first and the accompanying reduction in the
protections against spousal impoverishment, the use of annuity
purchases by community spouses is likely to increase. (Since
community spouses can legally purchase an annuity to protect the
assets that would otherwise be protected if the Commonwealth
retained the resource-first rule, the Department's cost saving
projections are called into serious question). Litigation is
certain to continue until the Department sets forth clear,
understandable, rules that comply with Federal Medicaid
requirements regarding the treatment of annuities.
Recommendation: These
Proposed Regulations should articulate clear standards for the treatment
of actuarially sound immediate annuities that are consistent with Federal
law. These standards should be in keeping with the requirements of Federal
law as set out in Transmittal 64 and the Mertz case.
4. Other Ambiguous
Areas in Need of Clarity. Proposed §178.124 lacks clarity in a
number of other respects which will create confusion, difficulty, and
unfair and inequitable treatment to applicants for benefits.
a. The Terminology
Employed in §178.2 in Creating the Income-First Calculation Methodology
in §178.124(b) is Very Confusing, and is Likely to Foster Incorrect
Application of the Rules.
The definition section
of the regulations, §178.2, uses an array of similar sounding acronyms
that are almost certain to confuse applicants and their family members,
as well as their professional advisors and County Assistance Office
caseworkers. The entire methodology is mind crunching to work through.
The difficulty is magnified by the use of similar sounding acronyms:
MAMMNA
MIMMNA
MMNA
CSMMNA
Recommendation: One can
sympathize with the difficulty of creating an easily understood method of
expressing the income-first methodology in the regulations. This is a
difficult set of concepts for the public, and even professionals, to
understand. Still, the intrinsic complexity of the concepts underlying the
income-first makes it all the more important that the regulations be
"written in clear, concise and, when possible, nontechnical
language" as required by Executive Order 1996-1. Since the rules
still allow for the potential of an enhanced CSRA for the community spouse
(if the deemed income from the IS is still insufficient to provide the
MMNA), the public needs to be able to understand when they qualify for and
should apply for MA. The Department should rewrite §178.2 and §178.124
in a less technical, more understandable, more easily applied fashion.
b. The
Consequences of the "Effective Date" are Unclear.
The Department, in the
preamble, states that "This proposed rulemaking will be effective
upon publication in the Pennsylvania Bulletin as final-form
rulemaking." But the consequences of this "effective
date" are unclear. For example:
1. What individuals
will be affected by the change to income-first? The
"snapshot" date for determining the CSRA of the CS is the
date of institutionalization of the IS. If the IS is institutionalized
before the "effective date", but applies for MA after the
"effective date", will the resource-first rules or the
income-first rules be applied? Since the required CSRA snapshot date
is the date of institutionalization, it appears that this date should
be the date for determining whether the CSRA will be expanded for a
low income community spouse. But the regulation is silent on this
issue.
2. In implementing the
resource-first methodology, the Department has entered into stipulated
agreements with applicants specifying the enhanced CSRA. The
regulations should clarify that all CRSAs established by stipulated
agreement are grand-fathered and these individuals and spouses will
continue to be governed by the resource- first rules under the Hurly
settlement.
Recommendation: The
Department should clarify the implications of the effective date of the
regulations.
c. The
Regulation is Unclear Regarding How the Community Spouse's Income is
Determined.
a. The proposed
regulation provides that the income of the community spouse
considered in determining the minimum monthly maintenance needs
allowance and CSRA to which the community spouse is entitled is to
include "interest and other income generated by the community
spouse resource determined under § 178.123." Yet there are no
standards and no methodology provided regarding how this
"income" that will be attributed to the community spouse
will be determined by the Department. In the past, the Department
has seemingly arbitrarily set an "interest rate" to be
applied to these spousal resources without any rationale being
provided. For a long time, the assumed "interest rate" was
5% at a time when the average one year certificate of deposit was
yielding less than 3%.
b. The proposed
regulation is unclear as to what assets included in the CSRA are to
be deemed to be income/interest producing for the community spouse.
For example, how is life insurance with a cash value to be treated?
This is a very common asset owned by a community spouse. It may or
may not be an available asset depending upon the value of the
policies. Are dividends on life insurance policies included as
income? If so, to what extent? What are the rules regarding a second
car or a vacation cabin or Timeshares and other non-income producing
assets that are included in the CSRA? What other assets are included
or excluded and to what extent when calculating the income/interest
produced for the community spouse?
Recommendation: The
Department should provide an objective method of calculating the
income/interest rate to be applied to the community spouse resource
allowance; it should define clearly exactly what assets are deemed to earn
income for the community spouse for this purpose.
5. Policy Issues.
In making the proposed regulatory
change to income-first, is the Department making a policy decision of such
a substantial nature that it should be left to the legislative process?
a. Except for
situations involving low income community spouses who request to
retain additional resources under the resource-first approach,
Pennsylvania provides Community Spouses with only the very minimum
resource allowance (CSRA). Only a community spouse with both low
income and limited assets can raise the CSRA a little, to provide
herself with a little additional income upon the death of the
institutionalize spouse. By comparison, our neighboring New York State
does follow an income-first approach - but it also provides community
spouses with a minimum protected asset allowance of $74,820 versus the
Pennsylvania's minimum of $17,856. Wisconsin, the source of the Blumer
decision, legislatively established a $50,000 minimum community spouse
resource allowance.
b. The change involves
a significant cut in benefits to Pennsylvania's neediest low- income
seniors. The proposed change is, in effect, a shifting of tax dollars
with an increased asset based tax being placed on low income elderly
community spouses. Unfortunately, most of the additional dollars paid
by the low income community spouses of Pennsylvania will not remain in
Pennsylvania but will be passed along to the federal government. This
is an inefficient source of savings for the Commonwealth.
c. The savings to
Pennsylvania's share of Medicaid spending (46%) are murky at best.
Delaying Medicaid eligibility will, to some extent, shift the cost of
care not only to the low income spouse, but also to the Commonwealth.
For example, the change may actually raise the Commonwealth's cost
for prescription drugs. [Once the institutionalized spouse qualifies
for Medicaid, prescription drug costs are shifted to Medicaid (46%
financed by Pennsylvania) and off of PACE (100% financed by
Pennsylvania)]. This type of "cost" shifting, which will
result from the change in methodology, was apparently not addressed by
the Department in its analysis of costs and savings.
d. The change means
spousal impoverishment will no longer be prevented in Pennsylvania,
but only delayed until the death of the institutionalized spouse. The
change to income-first means that the community spouse will not be
permitted to keep additional resources to provide her with the minimum
income allowance. Instead, she will have to depend upon the
institutionalized spouse's fixed income to raise her up to the level
needed to avoid spousal impoverishment. However, when the
institutionalized spouse dies, the institutionalized spouse's fixed
income is, more often than not, gone. The community spouse then must
live on her fixed income plus whatever income can be generated by the
reduced level of resources she was permitted to retain. In short, once
the institutionalized spouse dies, under the income-first rule, a
community spouse will be left impoverished, without either the assets
or the income necessary to assure independence. The result is that the
switch to an income-first methodology means that, in Pennsylvania, the
impoverishment of the community spouse will not be avoided - it will
only be delayed.
e. The negative impact
on the poor elderly in Pennsylvania will be out of proportion to the
resulting savings. As noted above, most of the additional money taken
from Pennsylvania's low income elderly will be passed on to the
Federal Government. 54% of the "savings" achieved by
draining the limited assets of Pennsylvania's low income elderly
will be "saved" by the Federal Government, not Pennsylvania.
f. Resource -first
protects only low income community spouses whose incomes are well
below the minimum monthly standard established by Federal law. In
addition to having low income, the community spouse will not qualify
for the protection of resources under resource-first unless her
resources are also so low that they cannot generate enough additional
income, when combined with her fixed income, to raise her to the
minimum allowance level. Only if she meets both the low income and low
asset requirements will the community spouse be permitted to keep any
additional resources under the current rules.
g. The Department
could have proposed accompanying the switch to income-first with an
increase in the community spouse's minimum CSRA beyond the bare
minimum our state currently provides. This is the approach taken by
many other states, like New York and Wisconsin that employ
income-first. The community spouse can be protected from
impoverishment either by using resource-first, or by raising the
minimum CSRA. However, the Department suggests Pennsylvania do
neither. It appears that the Department is satisfied to prevent
spousal impoverishment only during the life of the institutional
spouse. It ignores the significant effects on the public health and
welfare that will result from the impoverishment of the community
spouse AFTER the death of the institutionalized spouse. If we accept
the goal of preventing spousal impoverishment, the Department should
either retain the resource-first rule, or raise the minimum CSRA.
h. Taking more of the
community spouse's limited assets to pay for the institutionalized
spouse's nursing home care is short-sighted since the community spouse
will need to turn to other public assistance programs to survive once
the institutionalized spouse died. The Department has not factored
these future costs of supporting the impoverished spouse into its
financial analysis.
i. The change will
encourage the elderly to get divorced, when one spouse becomes ill, as
one of the few means available to avoid community spouse
impoverishment.
j. The change will
encourage the elderly to employ the risky strategy of giving their
assets away in order to protect them from long term care costs. In
addition to the negative effects the increase in this planning
strategy will have on the elderly, it will negatively impact both the
state's Medicaid expenditures and inheritance tax revenues. The
Department has not mentioned these future costs in its analysis.
k. Legislation has
already been introduced on the subject (H.B. 2829). Other states,
including Wisconsin and New York, as noted above, have decided this
critical issue by means of legislation, not regulation. Legislation on
this issue is so important that the issues of what states can do has
gone all the way to the United States Supreme Court. Wisc. Dep't of
Health and Family Services v. Blumer, 525 U.S. ____, 122 S.CT. 962;
151 L.Ed.2d 395 (2002).
l. As a policy matter,
permitting the low income community spouse to retain assets will
reduce the pauperization of the community spouse after the death of
the institutionalized spouse. In most cases, the wife survives the
husband, and her Social Security and pension income decreases after
the death of the husband. If we accept the goal of protecting the
community spouse, especially the low income widows of Pennsylvania,
from severe impoverishment after their husbands' deaths due not to
fault but just to circumstance, we need to retain the "resources
first" rule.
Recommendation. The
proposed change to income-first is a policy decision of such substantial
nature that the Department should defer to the Legislature on this issue.
The Legislature can best address how Pennsylvania should protect community
spouses from impoverishment. The proposed regulatory change will have such
a dramatic effect on the health, welfare, and financial security of
Pennsylvania's low income elderly that this decision should be made only
by the Legislature, not by Administrative action. The Department should
withdraw proposed §178.124(b).
Comments
Regarding Proposed Section 178.174 (d)
Proposed Changes
in the Calculation of Transfer Penalties
A. Background.
When an individual, or the
individual's spouse, transfers assets without adequate consideration,
and that transfer it not exempt, 42 U.S.C. § 1396p(c)(1) requires that a
penalty be imposed. In §178.174(d) the Department proposes to change the
way in which these transfer penalties are calculated in Pennsylvania.
B. Issues
Raised by Proposed Regulation (§178.174(d)).
Proposed §178.174(d)
raises a number of questions and issues, including the following:
(1) §178.174(d)
conflicts with mandatory federal requirements because the Regulation
seems to impose a penalty on post-eligibility transfers by the
community spouse.
(2) §178.174(d)
conflicts with mandatory federal requirements and existing Department
Regulations by imposing transfer penalties on transfers made
exclusively for a purpose other than to qualify for Medical
Assistance.
(3)The methodologies
proposed in making the transfer penalty calculations are unclear; in
particular, the Department should specify the methodology and
standards it will employ in determining the penalty divisor.
(4) In revising the
transfer penalty provisions, the Department should clarify the
treatment of LERPs (Life Estates with Revocation Powers).
(5) §178.174(d) is
likely to greatly increase the number and complexity of required
reports and other paperwork both for the private sector and the public
sector; the burdens and costs of §178.174(d) outweigh the benefits.
(6) §178.174(d) needs
clarification as to implications and consequences of the
"effective date."
(7) §178.174(d) needs
clarification regarding the treatment of actuarially sound annuities.
I will address these
issues in turn.
1. §178.174(d)
Conflicts with Mandatory Federal Requirements by Imposing Transfer
Penalties on Post-Eligibility Transfers by a Community Spouse.
a. Proposed
§178.174(d) provides that "The period of ineligibility for an
individual who is applying for, or receiving MA for NFC as defined in
§178.2, including services in an ICF/MR facility, or a level of care
in an institution equivalent to NFC, or home or community-based waiver
services furnished under a Title XIX waiver and who disposes of assets
for less than FMV begins in the month of the transfer provided that
the date does not occur during an existing period of
ineligibility."
b. Under §178.174(d),
an individual is penalized for transfers made by the spouse of the
individual. The result is mandated both by §178.174(d)(1) and
§178.174(d)(2) and by §178.104(b) which provides that, "A
transfer of assets by the community spouse to a person other than the
institutionalized spouse is treated and affects the eligibility of the
institutionalized spouse the same as a transfer by the
institutionalized spouse."
c. By its terms
§178.174(d) appears to apply evenly to transfers made after the
institutionalized spouse has become eligible for Medical Assistance.
The Section specifically states that it applies to an individual who
is "applying for, or receiving MA for NFC" (emphasis
added).
d. Thus it appears
that the Department intends transfer penalties calculated pursuant to
§178.174(d) to apply to "post-eligibility" transfers made
by either the recipient of MA or the spouse of the recipient.
e. §178.174(d)
provides that any transfer (however small) made by a person receiving
MA for NFC or the spouse of such person will result in a period of
ineligibility for continued MA.
f. Under §178.174(d),
a transfer penalty must be applied in the following situation. At the
time the husband enters the nursing home, the husband and wife have
total available assets of $50,000. The wife's CSRA is $25,000 and
the husband's allowance is $2,400. Thereafter they spend down so
that the wife has less than $25,000 in available assets and the
husband has less than $2,400. The husband thereupon qualifies for MA.
Three months later, the wife gives her grandchildren $600 in Christmas
presents. Under the proposed regulations, this transfer by the wife
will make her husband ineligible for Medical Assistance for a period
somewhat in excess of one day. This result, however unreasonable and
intrusive, appears to be unequivocally mandated by §178.174(d).
g. The application of
a transfer penalty to the gift from the wife to her grandchildren in
the above situation is not only unreasonable, it appears to be in
direct conflict with Federal statutory requirements, including Section
1924(c)(4) of the Social Security Act (42 U.S.C.A. § 1396r-5(c)(4))
which states:
(4)
Separate treatment of resources after eligibility for benefits
established.
During the
continuous period in which an institutionalized spouse is in an
institution and after the month in which an institutionalized spouse
is determined to be eligible for benefits under this subchapter, no
resources of the community spouse shall be deemed available to the
institutionalized spouse.
42 U.S.C.A. §
1396r-5(a) provides that the provisions of this section supersede any
other provisions of the law relating to determining transfer
penalties.
h. Since the enactment
of 42 U.S.C.A. § 1396r-5 there have been several letters issued from
the Health Care Financing Administration (formerly called HCFA, now
called the Centers for Medicare and Medicare Services or CMS) to the
states and to private individuals advising that this section means
that no penalties are to be imposed on transfers made by the community
spouse after the institutionalized spouse has attained eligibility for
Medical Assistance.
(1) For example,
in February of 1995, Gary Wilks, then Associate Regional
Administrator, Division of Medicaid for HCFA Region VIII,
responded to an inquiry on this question as follows:
"[W}e
agree that after eligibility is determined for an
institutional spouse (IS), the resources of the community
spouse (CS) have no bearing on the institutionalized
spouse's eligibility. Therefore, a CS who transfers a
resource which is in his/her own name, after the eligibility
for the IS has been established, does so without danger of
affecting the IS's eligibility. This is clearly spelled our
in Section 1924(c)(4) of the Social Security Act."
(Letter from Gary Wilk, dated February 1995).
(2) Similarly, a
letter from HCFA Region 1 Associate Regional Administrator Ronald
Preston to Massachusetts attorney Susan H. Levin reiterated that a
community spouse's transfer of assets does not affect her
institutionalized spouse's eligibility if he is already
receiving benefits. Preston wrote in part:
"Your
understanding of Federal statutory requirements is basically
correct. Section 1924(c)(4) of the Social Security Act (42
U.S.C. § 1396r-5(c)(4)) concerns the separate treatment of
resources after eligibility for benefits is established. This
section provides that during the continuous period in which an
institutionalized spouse is in an institution and after the
month an institutionalized spouse is determined eligible for
Medicaid, no resources of the community spouse are deemed
available to the institutionalized spouse.
Therefore,
transfers of assets for less than fair market value made by a
community spouse will have no effect on an institutionalized
spouse if accomplished during the continuous period of
institutionalization of the institutionalized spouse and after
the month in which an institutionalized spouse's Medicaid
eligibility is determined". (Quoted in The Elder Law
Report, 2/97, Page 10).
i. The inapplicability
of transfer penalties to post-eligibility transfers by the community
spouse is not only required by Section 1924(c)(4) of the Social
Security Act, it is also required by 42 U.S.C. § 1396p(c)(2)(C)(ii)
which provides that transfers made "exclusively for a purpose
other than to qualify for Medical Assistance" are not subject to
transfer penalties. This federal exclusion requirement is included in
the existing Pennsylvania regulations at §178.104(e)(3)(ii). It is
common sense that if the institutionalized spouse is already receiving
Medical Assistance, a transfer by the community spouse of her assets
could not have been made for the purpose of qualifying him for Medical
Assistance.
Recommendation:
Clarification should be added to §178.174(d) to make it clear that
transfer penalties do not apply to post-eligibility transfers by community
spouses. This clarification is required to bring the section into
compliance with mandatory federal Medicaid statutes and the Department's
own regulations.
2. §178.174(d)
Conflicts with Mandatory Federal Requirements and Existing Department
Regulations by Imposing Transfer Penalties on Transfers Made Exclusively
for a Purpose Other Than to Qualify for Medical Assistance.
a. In the scenario
discussed above, assume that the $600 gift to the grandchildren was
made by the individual who had already qualified for MA, out of his
$2,400 allowance. This transfer is obviously made for a purpose other
than to qualify for Medical Assistance, and thus may not be subject to
penalty. Only relatively large transfers by an institutionalized
individual on MA (e.g. of inherited funds which raise the resources of
the MA recipient above the $2,400 limit) should be subject to the
transfer penalties mandated by §178.174(d)
3. The Methodologies
the Department Will Utilize in Making the Transfer Penalty Calculations
are Unclear; For Example, the Department Should Specify the Methodology
and Standards it will Employ in Determining the Penalty Divisor.
a. §178.174(d)(1)
provides that the number of months of penalty is computed based upon
the "average monthly cost to a private patient of NFC in effect
in this Commonwealth at the time of application." The regulations
should clarify:
(1) How does the
Department determine this average monthly cost figure? What
methodology is used?
(2) How frequently
is this average monthly cost figure re-calculated and revised? It
should be on some reasonable regular schedule, at least annually.
4. In Revising the
Transfer Penalty Provisions the Department Should Clarify the Treatment of
LERPs.
a. A LERP (Life Estate
with Revocation Powers) deed is a deed where the grantor reserves a
traditional life estate and also retains the power to sell the
property and terminate the remainder interest (i.e. a life estate with
power to sell and consume with a vested remainder subject to complete
defeasance). If the life tenant does not consume the property or
revokes the remainder, then upon the death of the life tenant, the
property passes to the remainderman by operation of law. LERPs have
been used for many years, in a number of states including
Pennsylvania, mainly to avoid probate upon the death of the grantor.
It is somewhat similar to naming a beneficiary on a asset, or creating
an account that is payable on death.
b. Because Medical
Assistance Estate Recovery in Pennsylvania is currently limited to the
recovery against the probate estate of the recipient of benefits,
assets that do not pass through probate are not subject to Estate
Recovery.
c. Since the
grantor/life tenant reserves the power to revoke the LERP, common
sense says that no transfer of assets occurs when a LERP is created.
This is the position that the federal Medicaid authority takes. See
State Medicaid Manual, HCFA Transmittal 64 §3258.9. See also, the
Department's Pennsylvania Nursing Care Handbook §440.97.
d. There are no
Pennsylvania court decisions on the effects of a LERP in the context
of whether a LERP creates a transfer penalty in the Medicaid context.
However, a LERP case was docketed with the Commonwealth Court, but was
settled. Estate of James Grimes v. Department of Public Welfare,
Docket No 2062 CD 2001. In Grimes, the Department held that the
creation of the LERP was a transfer of a remainder interest and
imposed a transfer penalty. The amount of the transfer was calculated
as if the grantor did not retain any power to revoke the remainder
interest.
e. At present, it is
unclear whether the Department will impose a transfer penalty if a
LERP is created. This is a difficult issue, and the Department's
desire to limit the use of LERPs to avoid probate, and thus to avoid
Estate Recovery, is understandable. However, the Department should
establish a rule regarding the effect of LERPs for purposes of
transfer penalties under §178.104 and proposed §178.174(d) rather
than to continue to decide LERP cases on an ad hoc basis without
regulatory standards.
5. There Will Be an
Unreasonable Paperwork and Record Keeping Burdens Resulting from the
Imposition of Fractional Month Penalties Under Proposed §178.174(d)(2).
a. Under
§178.174(d)(2) a penalty will be imposed on any pre or
post-eligibility transfer of assets by either the MA recipient or his
or her spouse. Thus, if the community spouse gives $200 in presents to
each of her three grandchildren for Christmas, she and her husband are
made ineligible for continued MA for 1.129 days ($600/$5313= 1.129).
The couple will have to report this transfer. If her husband is
already receiving MA, either for a nursing facility or for home care,
he will be knocked off the program for 1.129 days, and then will have
to reapply. If the applicant is receiving home care services under the
Waiver or Bridge programs, home care providers will have to be
notified to cease providing the services pursuant to the care plan for
the requisite penalty period. Care managers for the Area Agency on
Aging will have to revise their care plans accordingly. If the MA
recipient is institutionalized, the facility will have to revise its
billings after it receives appropriate notice from the County
Assistance Office. For example, prescription drugs provided to the
nursing facility resident will not be covered by MA for that day. MA
limits on the costs of those drugs will not apply. Since the
institutionalized individual with have limited or no assets, the
facility will need to seek payment from the community spouse for
services and supplies provided during any short period of
ineligibility. The community spouse may or may not be under any
obligation to pay the facility. Is "paperwork nightmare" too
strong a phrase to use to describe the Department's proposal to
apply fractional penalties for any transfer proposal as set forth in
§178.174(d)(2)? I don't think it goes far enough.
b. Under the
regulations, a penalty is to be imposed on any transfer of any value.
Thus a gift of an item valued at even $50 will have to be reported and
will create a transfer penalty of .282324 days = 6.775 hours (if it is
a 30 day month - will the number of hours of penalty vary if it is a
31 day month?). This is the result mandated by the proposed
§178.174(d)(2).
c. The intrusiveness
of requiring the spouses of MA recipients to report even small gifts
to church or family members is even more offensive given that much of
this reporting and paperwork burden is placed on our already
financially and emotionally overwhelmed elderly nursing home resident
or home care recipient and his or her spouse. Significant burdens are
also placed on others involved in the care of the MA recipient. It is
hard to imagine that any savings to the Commonwealth are not far
outweighed by the costs and burdens that will be placed on the
regulated community.
d. As noted above,
§178.174(d)(2) will penalize post-eligibility transfers by community
spouses in violation of Federal law. At a minimum, §178.174(d) must
be revised to make it clear that post eligibility transfers by the
community spouse create no penalty for the MA recipient spouse.
e. The Regulations
should clarify how the proposed fractional penalty will be applied.
For example, will there be partial days of ineligibility? Will the
penalty be different in a 28 day month vs. a 31 day month? When will
the penalty be imposed? What transfers must be reported?
Recommendation: The
Department should consider more reasonable alternatives that will save the
state Medicaid dollars while avoiding the paperwork nightmare which is
sure to result from the imposition of partial months of ineligibility for
any small transfer of assets. My recommendation is that the Department
stay with the simplicity of the current calculation of penalties in whole
months. If the Department is convinced that fractional month penalties
must be implemented, here are several suggestions as to how it might be
achieved while minimizing, to some extent, the burdens and costs involved.
a. One alternative would
be to keep the penalty for fractional months as specified in proposed
section §178.104(d)(1), but only if the total transfer is large enough to
impose a penalty in excess of one month. This would mean, for example,
that a $6,000 transfer would create a penalty period of 1.129 months. To
accomplish this change, proposed § §178.104(d)(2) which imposes
penalties on small transfers of less than the penalty divisor (currently
$5,313) would be deleted. This change, while retaining fractional month
penalties for significant transfers, would avoid the paperwork and other
costs and complications involved with imposing penalties of very small
gifts. It would achieve most of the Department's goals without the
problems.
b. Another alternative
would be for the Department to impose penalties only if the total
transfers in one month amount to 50% or more of the monthly penalty
divisor. The current penalty divisor is $5,313. If this 50% or more
methodology were utilized, small gifts would be ignored. But large gifts,
in excess of $2,606 (½ of the penalty divisor) would result in a penalty.
This would avoid the complexities and burdens of imposing penalties on the
kinds of very small transfers that occur at Christmas and otherwise in
normal life. To keep things simple, the penalty imposed on a non-exempt
transfers of between $2,606 and $5,312 could be ½ month.
c. Another alternative
would be for the Department to impose penalties only if the total
transfers in a one month exceed a certain value. For example, transfers of
$3,000 or under could be exempted meaning that small gifts would be
ignored. This also would avoid many of the complexities and burdens of
imposing penalties on very small transfers. Language similar to the
following could be utilized:
A person who
is not in a pre-existing penalty period may transfer $3,000
per month without the transfer affecting the person's
eligibility for MA or status as an MA recipient. However,
persons who are in a penalty period are not permitted to make
transfers and will have the amount of any transfers added into
their penalty period calculation.
6. The
Regulations Need Clarity as to Implications and Consequences of the
"Effective Date."
a. The Department
should clarify the effect of the "effective date" of these
regulations in regard to transfers occurring prior to the effective
date. §178.174(d) should make it clear that fractional month
penalties apply only to transfers occurring after the effective date.
7. §178.174(d)
Needs Clarification Regarding the Treatment of Actuarially Sound
Annuities.
a. As presented above
in my comments regarding Proposed § 178.124 (b) - the change to
income-first - the Department needs to address its treatment of
actuarially sound annuities. In addition to providing for the
treatment of such annuities when purchased by a community spouse, the
Regulations should specify under what specific conditions the purchase
or ownership of an annuity by the married or unmarried applicant for
Medical Assistance will create a transfer penalty under § 178.174 (d)
and how the penalty is calculated. The standards should conform to the
requirements of Federal law as discussed in the opinion in the
Mertz case, cited above.
Comments Regarding
Proposed Section 181.452(d)
Proposed Changes
in the Deductibility of Medical Expenses and Home
Maintenance
Expenses
While I don't contest
the Department's authority to make the changes set forth in Proposed
§181.452(d)(5)(iii) and by deletion of §181.452(d)(6), I do question the
wisdom of these changes given the adverse effects they will surely have on
the public interest in Pennsylvania.
a. The Department
proposes to limit the income deductibility of unpaid medical expenses.
If the MA recipient is not allowed to pay unpaid medical expenses in
excess of $10,000, then the medical providers (mainly nursing homes)
will have to write-off many charges. Is it good policy to take dollars
from our Pennsylvania health care providers and pass along 54% of
those funds to the federal government?
b.
§181.452(d)(5)(iii) should make it clear that this change applies
only to unpaid medical expenses incurred after the effective date of
the regulatory change.
c. The Department
proposes to eliminate the home maintenance deduction for short nursing
home stays through deletion of §181.452(d)(6). This change will apply
mainly to individuals who own their own homes, but have virtually no
other assets. All but $30 a month of the institutionalized MA
recipients income must be contributed towards the cost of his care,
leaving neither income nor assets with which to pay expenses such as
local real estate taxes and insurance. The proposed change means that
these individuals will no longer be able to keep enough of their
income to pay school and other local taxes, or to insure their homes.
Under this proposed change, 54% of the money that would have gone to
local tax authorities or to insure the home, will instead be passed on
to the federal government. Is this good policy for Pennsylvania?
Thank you for your
attention to the complicated issues raised in this letter. I hope that
these comments will assist the Department, the IRRC, and other reviewers
in evaluating the proposed regulations and hopefully creating a more
reasonable, rationale, legal, equitable, and workable system.
I appreciate the
opportunity to comment on the proposed regulations, and your consideration
of my concerns. If there are questions regarding these comments, or if I
may be of assistance in any way, please do not hesitate to call on me.
Sincerely,
Jeffrey A. Marshall
This article was written
on October 3, 2002. Check with your elder law attorney to see if the
law has changed since this was written.
-Return
to Ways To Pay for Long Term Care Page-
© 2000-2005
Marshall & Associates www.paelderlaw.com
|
