Elder Law Firm of Marshall & Associates

This year (2003), the cost of nursing home care in the United States is expected to exceed $100 billion dollars. The biggest source of payment for nursing home care is the government Medicaid program (also known as Medical Assistance in Pennsylvania). Approximately ½ of all the costs of nursing home care is paid for by Medicaid. Private payment (from the income and assets of the nursing home resident and his family) is the next biggest source of payment at 27%.

For most families, paying for nursing home care means paying privately until the resident qualifies for Medicaid. In Pennsylvania, the average private pay cost of a month in a nursing home is over $5,300. When the resident qualifies for Medicaid, this cost drops dramatically. Most of the resident's fixed income must normally be paid towards the cost of care, but Medicaid will pay the majority of the cost. Once Medicaid qualification is achieved, the monthly savings to the family is typically in excess of $4,000 a month.

This means that families should be very concerned about obtaining Medicaid benefits as soon as possible. Each month of delay costs more than $4,000. Despite these costs and potential savings, few nursing home residents obtain Medicaid coverage as soon as they could. Families lose tens of thousands and sometimes hundreds of thousands of dollars paying for care that would have been covered by Medicaid with proper planning.

The main reason people miss out on benefits is that Medicaid is an immensely complicated government program, and few people understand the rules. The staff at the nursing home probably doesn't understand them, and most lawyers don't understand them either. And the rules change all the time. So, the rules that applied when Aunt Betty entered a nursing home two years ago are different from the rules today.

Because Medicaid is so confusing, many well-meaning people pass along incorrect information. We call these "Medicaid Misconceptions." In this and future issues of this Elder Care Law Alert we are going to do our best to identify some of the most common misconceptions that get people into trouble.

Because this is such a complicated area of law, we can't go into too much detail. And remember - everyone's situation is different. The planning that is best for your family may not be best for your neighbor. Before you act on anything, get the help of an attorney who is knowledgeable about the Medicaid rules. Given the potential cost of delays and mistakes, you need expert help when your family faces a nursing home crisis.

Families need to recognize that most lawyers do not understand this area of law. Your best bet is to consult law firms that include an attorney who is board certified as an Elder Law Attorney by the National Elder Law Foundation. The Foundation is the only organization authorized to test and certify elder law attorneys. Its certification process is approved by the Pennsylvania Supreme Court and the American Bar Association.

If I give anything away, I have to wait 3 years before I can qualify for Medicaid.

The Truth: It is true that giving something away can disqualify you for Medicaid for a period of time. But there are many exceptions to this rule. Some gifts, like gifts to your spouse or to a disabled child, can be exempt from any penalties. And, even if the gift is not exempt, you would have to give away more than $190,000 for the penalty period to be as long as 3 years (in Pennsylvania). If you give away less, the penalty period will be shorter. It is true that there is a 3-year "look back" period for some asset transfers. This means that the County Assistance Office will want to know about gifts you made, including sales for less than full value, within 3 years of your application for Medicaid. For some transfers, the look back period is 5 years.

If I am in a nursing home I must sell my home in order to qualify for Medicaid.

The Truth: You do not have to turn your home over to the Nursing Home or the State in order to qualify for Medicaid. The County Assistance Office only requires that you spend "available" assets on the cost of your care. As long as you intend to return home if you get out of the nursing home, your residence is "unavailable." It doesn't matter if it is unlikely that you will ever return home. Your home is protected so long as you are alive. Medicaid could have a claim against your home if it is part of your estate when you die. With careful planning, you can prevent this.

A recent Pennsylvania court decision shows why people who bought long term care insurance more than 10 years ago should beware. In 1989, Jean Yoder purchased a nursing home and home care policy from American Travelers Life Insurance Company. Ms. Yoder paid the premiums for nearly ten years. Then, in 1998 she entered a nursing home without having a prior three-day stay in a hospital.

When Ms. Yoder applied for benefits from her nursing home insurance policy, the company refused to pay. It cited a provision in the policy that said it was not required to pay for nursing home expenses unless the policyholder had spent at least three days in a hospital.

Mrs. Yoder took the insurance company to court. She pointed out that Pennsylvania passed a law in 1992 that prohibited long term care insurance policies from requiring a prior hospital stay. Her lawyer argued that this law should mean that Ms Yoder's insurance company should not be able to use the banned provision to deny her payments for care in 1998.

The Pennsylvania Superior Court sided with the Insurance Company. It said that the 1992 law did not apply to Ms. Yoder's policy since it was purchased in 1988 before the new law was passed. It didn't matter that she continued to pay the premiums and renew the policy each year after the new law took effect.

Long term care insurance policies have improved greatly since their early days in the 1980s. If you purchased a long term care insurance policy prior to the December 15, 1992 enactment of the Pennsylvania law, you should check your policy to see if it has harsh provisions like the American Travelers hospital stay requirement. (American Travelers is now known as Conseco Senior Health Insurance Company). If you have such a policy, it may be impossible to change it, especially if your health has declined. But, some companies will allow policyholders to "trade up" to a newer, better policy without asking medical questions. So check with your insurer.

Gift of Home Disqualifies Parent for Medicaid

In March 2000, Albert Godown and his wife transferred their residence to their children. After the transfer, the Godowns resided in an apartment on the property and the children resided in the main residence. At the time of the gift, Mr. Godown was 77 and both he and his wife were in somewhat poor health. They said they wanted to give the property to their children to keep it in the family.

Fifteen months later, Mr. Godown had a stroke and applied for Medicaid benefits. The County Assistance Office denied the application as a result of the property transfer. On appeal, Mr. Godown's lawyer argued that there should be no penalty because the property was not given away in order to qualify for Medicaid benefits. The lawyer cited a provision in federal law that says that a transfer of assets does not make you ineligible for Medicaid if the transfer was made exclusively for purposes other than to qualify for medical assistance.

The court rejected Mr. Godown's appeal. It noted that, in Pennsylvania, it is presumed that any gifts made by a Medicaid applicant were made in order to qualify for Medicaid benefits; thus a transfer penalty will be imposed unless the applicant can prove that the transfer was made exclusively for other reasons. To overcome the presumption, the applicant must submit sufficient evidence to show that the transfer was made exclusively for non-Medicaid related reasons.

The evidence presented by Mr. Godown's lawyer showed that when Mr. Godown transferred the property he was still able to travel around his home and tend to items in his greenhouse. At that time, he was not in need of medical assistance. The court, however, was unpersuaded by these arguments. It noted that the only explanation given for the Godowns' transfer of their home was their "desire to keep it in the family." The court interpreted this explanation to mean that the Godowns wanted to protect the property from possible medical expenses. Under the circumstances, based on the evidence submitted, the court found that Mr. Godown had failed to prove that his transfer was covered by the exception.

In some cases, property can be transferred to children without any penalty. It is important that people who anticipate that a family member will need to apply for Medicaid benefits seek expert advice before transferring their home or other assets. Little known exceptions in federal law, such as the exemption for transfers that are exclusively for purposes other than Medicaid qualification, must always be considered, along with state laws and regulations. Missing an exception in the law, or not presenting it correctly to the County Assistance Office, can result in a denial of much needed benefits.

On December 23rd, the IRS issued final rules about when homeowners qualify to avoid capital gains taxes when they sell their primary residences.

As a result of a 1997 law, a homeowner can now avoid capital gains taxes of up to $250,000 ($500,000 for couples) when a primary residence is sold. The new IRS regulations answer many questions about how homeowners qualify for this exclusion, including:

- when the sale of vacant land that adjoins the residence qualifies for exclusion;

- the circumstances under which sales of fractional interests (such as a joint ownership interest) qualify;

- exceptions to the requirement that the taxpayer own and occupy the home for two of the five years before the sale.

In addition, the regulations state that a residence held in a "grantor trust" qualifies for the capital gains exclusion when sold by the trust. Many clients of Marshall and Associates have set up special Medicaid asset protection trusts to protect their homes from nursing home and other long term care costs. These are written as grantor trusts so that a residence transferred to the trust will continue to qualify for the capital gains exclusion. The regulations assure our trust clients that they will continue to receive this tax break, while protecting their homes from nursing home costs.

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The Staff of The Elder Law Firm of Marshall & Associates

Gift of Home Disqualifies Parent for Medicaid

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