Medicaid Estate Recovery

Trust or Bust!

At age 55, your Assets Secretly Collateralize Medicaid and the Medicaid Estate Recovery Program will Collect...possibly from your Children.


Are you unwittingly entering into a “self-executing” collateral loan by entering Medicaid at 55 years of age or older, putting your estate at risk and exposing your children to potential liability? YES!

Will your revocable trust protect you? NO!

The Deficit Reduction Act of 2005 includes punitive new restrictions on the ability of the elderly to transfer assets before qualifying for Medicaid coverage of nursing home care. Essentially, the law attempts to save the Medicaid program money by shifting more of the cost of long-term care to families and nursing homes.

Enter the Affordable Care Act of 2010. Estate recovery will be forced on millions of people who might have otherwise gone without insurance. Why? Because the plan is that millions more Americans have health insurance. That would be accomplished by expanding Medicaid and implementing premium assistance (subsidies). When a person is found to be eligible for Medicaid, they will be automatically enrolled into their state's Medicaid program. Those forced into Medicaid will, due to the federal law, also be forced into estate recovery. Their estates will be partly or fully taken over by the federal or state government when they die.

But now we have the Affordable Care Act, and its expectation that everyone in the lower tier of income will end up in the Medicaid system. To accomplish this, they have dropped the asset test. So now we will have lots of people ages 55-64, who have assets but not a lot of income right now, for whatever reason, on Medicaid.

The kicker of it is, if you make the right amount to qualify for a subsidized health insurance plan, your costs are going to be shared and subsidized by the government. But if you go on Medicaid, you owe the entire amount that Medicaid spends on you from the day you turn 55.

And that amount is not just what is spent on your doctor visits and your treatments, whatever they may be. No, there is also something called a "capitation charge." For each enrollee, a base cost is assigned to the entity that administers the program. How much will that charge be? It varies by state.

Why is it that Medicaid is pretty much cost free to use up to age 54 if you qualify, and suddenly becomes a collateral loan at age 55, for which a state agency will do its best to collect payment in full for every cost assigned? It seems clear that the Estate Recovery law did not anticipate the current circumstance with the ACA, and that putting the two laws together makes for a terribly unfair situation for some.

The estate recovery program is required for the states by federal law (42 United States Code section 1396[p]). There are some exceptions but relying on those exceptions is akin to "Buyer Beware" but with your entire estate at risk.

Surprise... It's Starting to Happen Under The States 'Filial Responsibility' Laws!

Myree Sparks, a 72-year-old retiree who lives in Richmond, Va., got an $89,000 bill from the state of Tennessee for her late mother’s nursing-home care. To pay off the debt, Mrs. Sparks sold the 80-year-old farmhouse and surrounding land that she inherited from her mother, along with all the contents of the house.  “I wanted to keep it in the family,” she says. “I was born there in that house.”

This brought in $96,000, which after costs was about enough to pay the state’s bill. Mrs. Sparks spent $900 to buy two family heirlooms at the auction, a Hoosier kitchen cabinet and a cupboard for storing pies. Other than that, the state “got everything,” she says.

In May 2012, a Pennsylvania appeals court found a son liable for his mother's $93,000 nursing home bill under the state's filial responsibility law. Health Care & Retirement Corporation of America v. Pittas (Pa. Super. Ct., No. 536 EDA 2011, May 7, 2012).  In March 2013 the state's Supreme Court declined to hear the case, meaning that the ruling is final.

Facts of the Case John Pittas' mother entered a nursing home for rehabilitation following a car crash. She later left the nursing home and moved to Greece, and a large portion of her bill at the nursing home went unpaid. Mr. Pittas' mother applied to Medicaid to cover her care, but that application is still pending.

Meanwhile, the nursing home sued Mr. Pittas for nearly $93,000 under the state's filial responsibility law, which requires a child to provide support for an indigent parent. The trial court ruled in favor of the nursing home, and Mr. Pittas appealed. Mr. Pittas argued in part that the court should have considered alternate forms of payment, such as Medicaid or going after his mother's husband and her two other adult children.

The Pennsylvania Superior Court, an appeals court, agreed with the trial court that Mr. Pittas is liable for his mother's nursing home debt.  The court held that the law does not require it to consider other sources of income or to wait until Mrs. Pittas’s Medicaid claim is resolved.  It also said that the nursing home had every right to choose which family members to pursue for the money owed.

States must recover money spent on behalf of the following individuals:
  • individuals who were age 55 or older when they received Medicaid. A state must recover payments made for nursing facility services, home- and community-based services provided under a Medicaid waiver, and related hospital and prescription drug services; and
  • individuals in nursing facilities, intermediate care facilities for the mentally retarded, or other medical institutions who pay a share of cost as a condition of receiving Medicaid and who cannot reasonably be expected to be discharged and return home. this provision requires that the state determine, after notice and an opportunity for a hearing, that the individual cannot reasonably be expected to return home.
Can states go beyond these requirements? Yes.

States have the option to recovery payments for all other Medicaid services provided under their state Medicaid plan for individuals age 55 and older. These may include services such as home- and community-based care for functionally disabled persons, community-supported living arrangements, optional personal care, and mandatory home health care.

What does it all mean?

It means that the state can get your home.  Here’s how it works: those who are out of money and qualify for Medicaid long-term care will generally have their home as their only significant remaining asset.  The state will have a claim for any amount of money it spent on that person’s care.  When the person dies, the state will file a claim against the probate estate of that individual and can file a lien against the home.  The home will have to be sold (or mortgaged) to pay the debt.

What items will be subject to the state’s claims?

The new law definitely applies to items that are in the probate estate of the Medicaid recipient.  In many states, like Michigan, it would also apply to assets in a revocable living trust because state laws permit claims against a decedent’s revocable trust estate and  require that a revocable living trust have a notice to creditors published when the maker of the trust dies.

What can be done to protect the home and other assets from this Wealth-Grab law? Trust Yourself!  Plan and Prepare for the worst.

One way to divest yourself of assets for Medicaid Planning is to gift or transfer assets to an Irrevocable Wyoming Qualified Spendthrift Trust. The five year look-back penalty period will apply to this gift/transfer. Use of the trust helps avoid probate because the trust rather than the Settlor’s will directs where the property is to go. The trustee of the trust will manage the Settlor’s assets, and the trust may be kept in place after the death of the Settlor to help manage the assets for the spouse or children. Perhaps most importantly, the trust avoids the drawbacks of transfers of assets to children.

  • The trust can be left in place if the settlor dies, to withhold outright inheritance of the assets to the children.
  • The trust can protect nonexempt assets from depletion for payment of nursing home care.
  • The Medicaid Trust can hold any type of asset. Income can be distributable to the Medicaid applicant, his or her spouse, or the children. Principal can never be distributable to the applicant or his or her spouse. Principal distributions, if allowed at all, can be made only to the children.
The use of a trust may cause Medicaid to scrutinize all transfers more closely. For example, transfer of a residence into a trust with the Medicaid applicant retaining the right to live in the house may cause the department or agency who manages the Medicaid program to argue that the person has retained an interest in the home sufficient to disqualify him from Medicaid benefits.

To remedy this possible outcome, the transfer of a residence into a Medicaid Trust should be accompanied by a formal written lease with actual lease payments at fair rental value if the settlor or spouse remain in the home.

Reference:


If a Medicaid recipient dies and is subject to repayment of benefits, only higher priority expenses of court costs and administration fees, most funeral and burial expense, federal debt and state taxes, and last-illness medical expense take precedence over the medical assistance debt. Inheritance comes last, and if heirs improperly acquire a presumed inheritance, they must repay it to Medicaid. The estate’s executor may be held personally liable, and interest begins accruing six months after the death. http://thegazette.com/2013/09/13/estates-could-owe-medicaid/#ixzz2s0wJl15Q
Son Liable for Mom's $93,000 Nursing Home Bill Under 'Filial Responsibility' Law

Some 29 states currently have laws making adult children responsible for their parents if their parents can't afford to take care of themselves.  These “filial responsibility” laws have rarely been enforced, but six years ago when federal rules made it more difficult to qualify for Medicaid long-term care coverage, nursing homes started using the laws as a way to get care paid for.

It looks like this is starting to happen.  In May 2012, a Pennsylvania appeals court found a son liable for his mother's $93,000 nursing home bill under the state's filial responsibility law. Health Care & Retirement Corporation of America v. Pittas (Pa. Super. Ct., No. 536 EDA 2011, May 7, 2012).  In March 2013 the state's Supreme Court declined to hear the case, meaning that the ruling is final.

Facts of the Case John Pittas' mother entered a nursing home for rehabilitation following a car crash. She later left the nursing home and moved to Greece, and a large portion of her bill at the nursing home went unpaid. Mr. Pittas' mother applied to Medicaid to cover her care, but that application is still pending.

Meanwhile, the nursing home sued Mr. Pittas for nearly $93,000 under the state's filial responsibility law, which requires a child to provide support for an indigent parent. The trial court ruled in favor of the nursing home, and Mr. Pittas appealed. Mr. Pittas argued in part that the court should have considered alternate forms of payment, such as Medicaid or going after his mother's husband and her two other adult children.

The Pennsylvania Superior Court, an appeals court, agreed with the trial court that Mr. Pittas is liable for his mother's nursing home debt.  The court held that the law does not require it to consider other sources of income or to wait until Mrs. Pittas’s Medicaid claim is resolved.  It also said that the nursing home had every right to choose which family members to pursue for the money owed.
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