The average cost of a year in a nursing home in Michigan is approximately $64,404 (2005), equating to $177 per day. Further, according to the State of Michigan web site, http://www.Michigan.gov, roughly fifty percent of those age 65 or older will spend some time in a nursing home. The average nursing home stay is nineteen months, with about thirty three percent of residents spending three months or more, about twenty five percent spending an average of a year, and a little less than ten percent spending five or more years. The high cost of skilled nursing care is of special concern to community spouses, that is, the non-institutionalized spouse of a skilled nursing care patient. This Chapter Five focuses on the sources of funding for the payment of long term care: Medicare, private pay, and Medicaid.

MEDICARE ELIGIBILITY

Medicare is the federal government health insurance program for seniors (age 65 and older), the disabled (under age 65), and individuals (any age) who have permanent kidney failure. With respect to long term care, Medicare covers medical needs, but not custodial care such as assistance with ADLs. Medicare is not need based, and therefore pays for all necessary medical treatment regardless of your financial status.

Medicare covers only the first 100 days of a nursing home stay; paying 100% percent of the cost of the first 20 days, and the cost of the remaining 80 days only to the extent that it exceeds $114 per day. To be eligible for Medicare coverage, the stay must be in an approved skilled nursing facility that immediately follows a hospital stay of at least three days. Further, to be eligible, you must enter the skilled nursing facility within 30 days of your discharge from the hospital, and the skilled nursing facility stay must be for the same reason as the hospitalization. Slightly augmented coverage may be provided under private medigap coverage during the 100-day period, but medigap coverage does not otherwise cover long term care. Medicare covers the full cost of in-home skilled nursing home care, and 80% of durable medical equipment if the requirements outlined in Chapter Three are met, namely that it be prescribed by a physician, is part time and intermittent, and the patient is homebound.

Medicare consists of two parts: Part A covers inpatient hospital care as well as a portion of the first 100 days of a patient’s stay in a skilled nursing facility, home health care following a hospital stay, and hospice care. Part B of Medicare covers doctor’s services, medical services, supplies, and other services not covered by Part A. While Part A is free to eligible workers (Part A is financed during your working years by the 1.45% Medicare tax on all earned income), Part B coverage requires that you pay a monthly premium (for 2005, the basic Part B premium is $78.20 per month), which is automatically deducted from your monthly Social Security check if you receive benefits. If you elect to defer receipt of Social Security retirement benefits beyond age 65, you may make quarterly Part B premium payments directly to the Social Security Administration. Part B should not be viewed as optional. Although participation is elective (you must pay premiums), Part B coverage is an essential part of your personal medical plan.

The coverage offered under Medicare Part A and B leaves coverage gaps in the form of limitations on prescription coverage, deductibles, and co-pays. The private sector has responded to fill the gaps in Medicare coverage by offering private health insurance that covers medical costs not covered by Medicare. Not surprisingly, these policies have come to be known as Medigap policies.

Medicare’s coverage of long term care can be summarized as follows:

SUMMARY OF MEDICARE SKILLED NURSING FACILITY COVERAGE

SUMMARY OF MEDICARE IN-HOME COVERAGE

PRIVATE PAY

The cost of long term care falls to the individual after Medicare benefits are exhausted (if eligible at all). You must continue to pay privately until you have sufficiently exhausted your assets to become eligible for Medicaid. Individuals with adequate means who enjoy good health may insure against the possibility of an extended nursing home stay by purchasing long term care insurance (see Chapter Eight).

MEDICAID ELIGIBILITY

Medicaid is a federally funded, state-administered welfare program restricted to the financially indigent. The Medicaid program is need based, providing benefits only to those who demonstrate financial need (determined by federal guidelines modified to a certain extent by the state). To qualify, all of your income must be applied to your care and you cannot have more than a limited amount of cash or other available assets. If you have excess assets, you’ll be required to use them up before coverage begins.

The Medicaid program is implemented by each state individually. The federal government is involved because it reimburses the state for a substantial portion of Medicaid benefits paid to its citizens, provided the state’s Medicaid program meets the prescribed federal guidelines. Hence, the states tend to follow the dictates of the federal government.

Even though Medicaid is need based, in Chapter Six we will demonstrate how you can restructure your assets to qualify for benefits without going broke. To qualify for Medicaid you must have exhausted substantially all of your non-exempt assets. You may be tempted to simply gift your assets to family members. This process, called “divestment,” can be perilous when done without the counsel of a qualified elder law attorney.

ELIGIBILITY

You are eligible for Medicaid if you are at least age 65, demonstrate financial need, pass through one of the seven medical eligibility doors, and follow the procedures for applying for Medicaid. Financial need is broken into two parts: income and assets.

Income Test
If medical expenses exceed income, then the income test is met. Income is defined as both earned and unearned income including interest, dividends, rents, Social Security benefits and retirement benefits. You are not eligible for Medicaid if your income exceeds the monthly private pay rate for the nursing home ($5,367 in 2005). It is important to note that income of the community spouse is not counted as available to the institutionalized spouse. If the income test is met, you then look at the asset test.

Asset Test
An unmarried applicant may have no more than $2,000 of countable
(as opposed to excluded or exempt) assets. Counted assets include all assets including IRAs, the cash value of life insurance, stocks, and savings bonds. If you have countable assets in excess of $2,000, your Medicaid application will be denied. If you are married, your spouse (community spouse) may keep all exempt assets plus an extra amount, known as the community spouse resource allowance (CSRA).

Married Applicant
When determining eligibility for Medicaid, all assets owned in your own name, in your spouse’s name, or together with your spouse are counted as your assets. However, special relief is granted to the community spouse to prevent spousal impoverishment. The community spouse is entitled to a community spouse resource allowance (CSRA), which is the greater of $19,032 (2005) or one-half (1/2) of the countable assets (as reported on the Asset Declaration Form as of the snapshot date) not to exceed $95,160 (2005). If both spouses are in a nursing home, you are each treated as a single person and your counted assets may not exceed $3,000. For example: Dee Mensha and her husband Bob own a home valued at $200,000 and have $100,000 in liquid assets. Their countable assets are only $100,000 since their home is exempt. Bob’s community spouse resource allowance is $50,000. Dee will not be eligible for Medicaid until she spends down $48,000 (remember she gets to keep $2,000).

Jointly Held Assets
The treatment of jointly held assets under Medicaid is confusing. Assets held jointly between a husband and wife are considered to be totally available to the applicant spouse and are therefore fully included in his assets. In those cases where assets are jointly owned with someone other than a spouse (including assets held as tenants in common), the rules differentiate between cash assets (bank accounts, certificates of deposit and annuities) and all other joint assets.

You are deemed to own one hundred percent of the cash assets unless it can be proven that the other joint tenants actually contributed to the account from their separate funds. Non-cash joint accounts (including real estate, stocks, promissory notes, and mutual funds) are deemed owned proportionately by the joint tenants.

For example, if there are three people on the account or a parcel of real estate, you are deemed to own one-third of the account. A divestment occurs when a non-cash joint account is created with a non-spouse within the look-back period. In other words, it is treated as a gift. Once created, the non-cash joint account would be considered unavailable to you and therefore not part of your assets if the other joint tenants refuse to release or liquidate the joint asset. However, you could later face a period of disqualification if the joint tenants agree to liquidate the asset, making your proportional share of the asset available to you.

SNAPSHOT DATE

This snapshot date is the first day of a 30 consecutive day continuous period of institutionalization. If you are hospitalized and then go into a nursing home, the snapshot day is the first day of your admission to the hospital. If there is a break of at least thirty days between your release from the hospital and admission to the nursing home, the snapshot date will be your admission to the nursing home. Adult foster care homes, homes for the aged and home health care do not qualify as long-term care for this purpose. An Asset Declaration form (Form FIA-4574-B, reproduced at the end of this Chapter Five) must be filed reporting all property owned by either spouse individually, jointly, or jointly with other persons as of the snapshot date. The Department of Human Resources (DHS), formerly known as Family Independence Agency (FIA), is required to issue its calculation of the community spouse resource allowance within 45 days of the date of the filing of the Asset Declaration form. The Asset Declaration form is separate from and must be filed prior to or at the same time as submission of the Medicaid application. Verification of all assets listed on the Declaration Form is required, so it is important to gather all such supporting documentation (bank and brokerage account statements, etc.) reporting values as of the snapshot date. For example, if the snapshot date is six months prior to submission of the Asset Declaration form, supporting documentation should be as of the snapshot date and not the date of submission of the Asset Declaration form. After the Asset Declaration form has been submitted, it is necessary to keep meticulous records and documentation showing how assets are spent. Criminal penalties may apply to Medicaid fraud, so all answers must be full and truthful. Also, any new asset information must be reported within 10 days.

Couples with countable assets of less than two times the maximum CSRA [two times $95,160 (2005) or $190,320] can use the fact that the CSRA is calculated as of the snapshot date (and not the date you apply for Medicaid) to maximize their CSRA. By increasing the amount of countable assets on the snapshot date the couple can increase their CSRA.

FOR EXAMPLE: As noted in the above example, Bob Mensha’s CSRA was $50,000 (one half of he and Dee’s countable assets). If, instead, Dee and Bob transferred their $200,000 residence from their joint names into Dee’s trust (thereby making it countable) prior to the snapshot date, their countable assets would be $300,000 rather than $100,000 and their CSRA would be $95,160 rather than $50,000. The home would then be transferred to the community spouse (not the applicant) after the snapshot date and prior to the filing of the Medicaid application to effectively return the residence to exempt status.

The planning technique described above requires advance planning. A hospital stay is often not anticipated. If an unexpected hospital admission is followed by a permanent transfer to a nursing home, which is not uncommon, the opportunity for a couple to gross up their countable assets by the snapshot date may be lost. However, if you have not had an opportunity to plan prior to the snapshot date, you may (if physically possible) leave the nursing home for a period of at least thirty days to acquire a new snapshot date, thereby creating a new opportunity to plan.

The CSRA is determined only once during any period of continuous institutionalization. Therefore, once you are determined to be Medicaid eligible (actually the first day of the month following the determination), the community spouse’s assets are no longer relevant. The community spouse can acquire assets of any value (even win the lottery) without affecting the resident spouse’s benefits.

If you believe that the CSRA is not adequate for your needs, you may request a fair hearing with the DHS to seek an increase. The request should be made at the time of the initial Medicaid application. You may also obtain a court order directing assets to be transferred to the community spouse.

Once determined, the spousal resource allowance must be transferred to the community spouse within the one year presumed eligibility period (see Follow Up for Married Applicants in Chapter Six). If the spousal allowance is not so transferred, it will become an asset of the nursing home spouse, thus causing disqualification.

FOR EXAMPLE: Percy Veer enters a nursing home in February of 2005, and his wife, Sue, is allowed $50,000 (one-half of their countable assets of $100,000) as her CSRA. Seven months later, on September 7, Percy is determined to be eligible for Medicaid, and Sue still has her $50,000 allowance. On October 1, Sue inherits $200,000 from the estate of her deceased sister, increasing Sue’s total assets to $250,000. Sue’s CSRA and inheritance will have no effect on Percy’s Medicaid benefits as long as they are transferred into Sue’s name alone.

Your principal residence remains exempt even if you go into a nursing home. Fearing that their home may be vandalized while they are in the nursing home, many families would prefer to rent the home rather than have it sit vacant. If rented, the net rental proceeds are considered income that is counted toward the patient pay amount.

The following two-step strategy keeps the rental income in the family: first, rent the home for a minimal amount to a family member, who in turn rents the home to a third party for fair market value.

Only the minimal rent charged to the family member becomes part of the patient pay amount. Your family member, who is working hard on your behalf overseeing your cherished family home, can keep the balance of the rent. This strategy works for two reasons: the Medicaid rules do not require you to charge fair market rent, and the 6% income rule for rental property doesn’t apply to homesteads. If your principal residence is in another state, let’s say Florida, and you decide to enter a nursing home in Michigan, you may nonetheless qualify your Florida residence as your principal residence for Medicaid purposes.

EXEMPT ASSETS

Medicaid distinguishes between countable and excluded (exempt) assets. The following assets (sometimes referred to as excluded assets) are not considered for purposes of the $2,000 limit:

1. An automobile of any value. If you own more than one automobile, you may choose the one you want to exempt (presumably the most expensive one). You may own an exempt auto even if you cannot drive, as long as it is used primarily for family transportation purposes (thus excluding RVs). Although an automobile of any value is technically exempt, the DHS can attack the purchase if it believes that the vehicle was purchased solely for the purpose of qualifying for Medicaid (don’t buy a Ferrari).
2. One principal residence of any value (“homestead”) including all contiguous land
3. Household goods, furniture and personal effects, including clothing and jewelry;
4. A prepaid irrevocable funeral contract not to exceed $10,257 (2005);
5. Cemetery plot;
6. Cash value of life insurance up to $1,500;
7. Income producing real property where the net income derived from rents is at least 6% of your equity (fair market value less mortgages) in the rented property; and
8. Miscellaneous other exemptions not relevant here.

PRINCIPLE RESIDENCE

A princpal residence loses its exempt status if it is owned in trust. However, a residence not in trust would be subject to probate. A ladybird deed will allow you to qualify for Medicaid and at the same time avoid probate. A ladybird deed allows you to transfer your principal residence to your trust but retain the right to live in the home and the power to sell it without the consent of any other party. Having retained a life interest, the home is considered your personal residence for Medicaid purposes, and will continue to qualify as your homestead for valuable property and income tax exemptions. However, at death the home is - by the terms of the ladybird deed - owned by your trust and thereby avoids probate.

Your principal residence remains exempt even if you go into a nursing home. Fearing that their home may be vandalized while they are in the nursing home, many families would prefer to rent the home rather than have it sit vacant. If rented, the net rental proceeds are considered income that is counted toward the patient pay amount.

The following two-step strategy keeps the rental income in the family: first, rent the home for a minimal amount to a family member, who in turn rents the home to a third party for fair market value.

Only the minimal rent charged to the family member becomes part of the patient pay amount. Your family member, who is working hard on your behalf overseeing your cherished family home, can keep the balance of the rent.

This strategy works for two reasons: the Medicaid rules do not require you to charge fair market rent, and the 6% income rule for rental property doesn’t apply to homesteads.

If your principal residence is in another state, let’s say Florida, and you decide to enter a nursing home in Michigan, you may nonetheless qualify your Florida residence as your principal residence for Medicaid purposes.

INCOME AND PATIENT PAY AMOUNT

To qualify for Medicaid, your income cannot exceed the average cost of a nursing home stay as calculated by the state. If your monthly income exceeds the cost of your nursing home stay, all of your income must be used for such purpose. If your income is less than the monthly cost of the nursing home, the amount you must pay toward your nursing home care (the patient pay amount) must be calculated. Basically, all of your income, including Social Security, pension payments, and IRA age 70 ½ minimum distributions is counted toward your patient pay amount reduced by a personal needs allowance of $60, and further reduced by the cost of health insurance (including vision and dental insurance).

Spousal Income Allowance
Remember, no part of your community spouse’s income is required to be used to pay your nursing home costs. In fact, the community spouse is assured of a minimum allowance that will be diverted from the resident spouse’s income. If necessary, the resident spouse’s income will be diverted to the community spouse to bring the community spouse’s income to a minimum of $1,610 per month (July 2005) but not to exceed $2,379 when the community spouse’s shelter allowance is added. The community spouse’s minimum income allowance is reduced by the community spouse’s income (including pension, Social Security, interest, dividends, etc.), and increased by the amount that her rent, mortgage property taxes and utilities exceed $468 (2005).

For Example: Guy Zerr is in a nursing home. He receives monthly Social Security of $1,500 and a pension of $500. Vi, his wife, receives Social Security of $500. Guy and Vi’s annual property taxes are $2,400. They pay homeowners insurance of $600 annually, and monthly utilities of $300. Guy and Vi pay $250 for Medigap health insurance. Review this PDF document for example which illustrates Vi’s income allowance and Guy’s patient pay amount.

DIVESTMENT TO QUALIFY FOR MEDICAID BENEFITS

To qualify for Medicaid you must have exhausted all but $2,000 of your counted assets. To prevent people from simply giving away all of their assets just before entering the nursing home, the law provides that certain transfers of assets for less than fair market value will be counted as part of the Medicaid applicant’s assets if transferred within the look back period.

Divestment is the transfer of countable (i.e., non-excluded) assets for less than fair market value within the look back period. The look back period is thirty six months for outright transfers, and sixty months for transfers to trust. Divestment does not occur if countable assets are converted to exempt assets of equal value. For example, paying off the mortgage on your home, buying a new car or purchasing an irrevocable funeral arrangement does not constitute divestment.

Divestment within the look back period does not cause permanent disqualification from Medicaid, nor does the state of Michigan or the nursing home confiscate the transferred funds. Instead, you are disqualified from Medicaid for a period of time measured by dividing the uncompensated value of the transferred assets by the average monthly private pay nursing home costs published by the state. For example, if on the eve of entering a nursing home and applying for Medicaid, Greg Arius gives his son $134,175, Greg will be ineligible for Medicaid for twenty-five (25) months [$134,175 divided by the average monthly cost of long term care in Michigan ($5,367 in 2005)]. There is no limit on the length of disqualification resulting from divestment within the look back period.

Generally, the transfer of an exempt asset during the look back period is not considered a divestment. For example, a gift of your car immediately before entering the nursing home would not cause a period of disqualification. However, the transfer of your homestead within the look back period, unless the transfer is to your spouse or a disabled child, is considered a divestment. A transfer of your homestead to a revocable living trust, while not a divestment, does make the home a countable asset.

Failure to disclose gifted assets on the Medicaid application can result in disqualification, fines, and even criminal penalties. It’s not worth it, especially when the transfer can be done legally, as we will see in Chapter Six.

For outright gifts made more than thirty-six months prior to application, and gifts in trust made more than sixty months prior to application, there is no penalty or disqualification period, regardless of the value of the gift. However, gifts made within the look back period can create a disqualification period greater than the thirty-six or sixty month look back.

For Example: Helen Bakk, a single woman, gives her only asset, her $536,700 home, to her son Ty. The average private pay rate in Michigan at the time of the gift is $5,367, causing a potential disqualification period of 100 months ($536,700 divided by $5,367). If Helen waits at least 36 months (the look back period for outright gifts) to apply for Medicaid, she will be immediately eligible. If, on the other hand, she applies for Medicaid 35 months after the gift, she is disqualified for one hundred months from the date of the original transfer!

LOOK BACK FOR TRANSFERS TO TRUST

You may have grave reservations about simply giving away your assets. In that case, you may choose to transfer your assets into trust in order to prevent your beneficiaries from wasting the transfer. As noted earlier, the general rule is that a longer sixty-month look back applies to transfers in trust. How the sixty-month rule works depends on the type and terms of the trust.

A transfer to a revocable living trust is simply ignored because you retain the right to get the transferred asset back at any time you choose. Therefore, no disqualification period occurs upon the creation or funding of a revocable living trust. However, a subsequent transfer from a revocable trust to a third party (other than you or your spouse) is a disqualifying transfer and subject to a look-back period of sixty months.

A transfer to an irrevocable trust is not a divestment if you retain the use or enjoyment of any portion of trust principal or income (whether or not actually so used for your benefit) but the transferred assets remain countable. As with revocable trusts, no divestment occurs on the establishment or funding of the trust.

Interestingly, transfers out of such an irrevocable trust to a third party (other than you or your spouse) results in only a thirty-six-month look-back. Finally, if the trust is irrevocable and you do not retain an interest in any portion of trust principal and income, then the transfer of assets to the trust is a divestment subject to a sixty-month look back period. When the sixty-month look-back applies, transfers out of the trust to third parties are not subject to any look-back. The trust rules can be summarized as follows: