by Dorothy M. Bickford

Statistics indicate that a good percentage of seniors will require a stay in a nursing home for some period of time, the average stay being about two years. Many seniors afflicted with such conditions as Alzheimer's may require nursing home care for many years beyond that. The costs of providing such care for a family member can be devastating. Many nursing homes cost in excess of $7,000.00 per month and there is a great deal of misinformation regarding how that cost can or will be handled. Many people say that they want to "save their home from the nursing home," but the nursing home itself will not and can not "take" a home or force it to be sold. Rather, it is the Commonwealth that may place a lien on a home for purposes of repaying the Commonwealth for the nursing home costs it has paid for that person. So, it is important to understand exactly how nursing home care may be paid for, as much in advance of any potential nursing home admission as possible, so that no mistakes are made in planning for that possibility.

Medicaid is a "needs based" health care system that is administered by the states but funded jointly by the federal and state governments. At present, it is one of the largest and fastest growing costs of many state governments, in part because of the growing numbers of people who have no health insurance at all and in part because of the increasing costs of medical care and drugs. Being a "needs based" program means that in order to qualify for Medicaid, an individual or family must have an annual income below a certain amount and own assets having a total value below a certain amount. These amounts vary from state to state.

In Massachusetts, Medicaid is known as MassHealth. This is the only government health plan available for payment for long-term nursing home care. If a person does not qualify for Medicaid, then the options for paying for nursing home costs are limited. A person or the family may pay for nursing home care themselves, called "private pay," or they may pay for such care through private long-term care insurance purchased before incapacity. There is some misunderstanding regarding whether Medicare will pay for nursing home care. It does not and a nursing home stay is also not covered by most private health insurance plans. Medicare will pay for skilled nursing care and hospital stays, but not for the nursing home care most seniors may eventually need.

Qualifying for MassHealth for nursing home care: asset limits.

Under current Medicaid regulations (130 Code of Massachusetts Regulations 501. et. seq.), for a married couple, the person who is not in the nursing home (the "community spouse") may keep one-half of the married couple's countable assets, but not more than $95,100.00 nor less than $19,020 (effective January 1, 2005) when the other spouse becomes institutionalized in a nursing home ("the institutionalized spouse"). The institutionalized spouse is allowed to keep an additional $2,000.00. Also, the home of the institutionalized spouse, and any land attached to the home located in Massachusetts and used as the principal place of residence, certain other assets such as a car and a few other assets are considered non-countable and may be kept for the benefit of the community spouse. If both spouses are institutionalized, each may keep only $2,000.00 in liquid assets. For a single person, liquid assets of $2,000.00 may be kept, and any house must be sold.

For example, if a married couple has $100,000 in countable assets (which does not include the value of the home or certain other assets), in order to qualify the institutionalized spouse for MassHealth assistance for nursing home costs, the community spouse would be able to keep only $50,000 of the countable assets. The institutionalized spouse could retain $2,000. The remaining $48,000 would have to be spent in a qualifying way, either to purchase certain goods or services (such as a prepaid funeral, improvements to the home and the like) or spent on the nursing home care of the institutionalized spouse before Medicaid assistance would be available. If the couple had $200,000 in countable assets, then the community spouse could keep $95,100, the institutionalized spouse could keep $2,000, and the remaining $102,900 would have to be spent before Medicaid would begin to pay.

Qualifying for MassHealth for nursing home care: gifts & penalties.

There are ways to plan to qualify an institutionalized person for Medicaid eligibility when assets exceed these amounts. First, there are certain actions that can be taken just before admission to a nursing home that might be able to save some of the assets for the family. One example is so-called "half-a-loaf" transfers or gifts. In this plan, some assets are given away and other assets are retained to pay for the nursing home care for a period of time. Any gift of assets during the three years before applying for Medicaid assistance will incur a penalty. Under current law, this penalty is approximately $6960 per month ($232/day). This means that a gift of $69,600 would cause a penalty period of 10 months. The penalty period is the time during which MassHealth will not pay for care and some other means of payment must be found.

Therefore, the family would need to pay the cost of keeping the institutionalized person in the nursing home for those 10 months in our example. At the end of that penalty period, a Medicaid application should result in Medicaid paying for the remainder of the institutionalized person's nursing home stay. The maximum penalty period, if a Medicaid application is filed properly and at the right time, is three years. If a Medicaid application is not properly filed or is filed at the wrong time, the penalty period can be much longer, depending on the values and the timing of the gifts.

Annuities.

Another option, if there is a community spouse, is to purchase a single-premium immediate annuity. This can be done with an IRA account, as well as with other assets and results in converting an otherwise "countable" asset into a "non-countable" income stream. (Yes, IRAs, 401(k)s and other tax-favored retirement savings are counted for Medicaid purposes) There are strict requirements as to the kind of annuity which will work in this situation so, unless a person has the advice of legal counsel familiar with those requirements, an annuity purchase could have no positive effect on the situation and may make it worse. A third option is to seek to increase the community spouse's resource allowance (the assets the community spouse can keep) if the community spouse's allowable expenses are high and income is low, but this involves a hearing and possibly an appeal.

Gifts.

With advance planning, using outright gifts or gifts to trusts, it is possible to save more of a person's assets for the family and still qualify for Medicaid assistance. These gifts will also result in transfer penalty periods, but these periods can be planned for. The down-side is that the only way it works is to give up control over the asset. Moreover, this relinquishment of control needs to occur at least three years before applying for Medicaid assistance (for any outright gift) or five years beforehand for any gift to a trust. For example, a couple could create an irrevocable trust and keep the right to get the income from the trust. But they would have to give up control of the principal and, regardless of the purpose for which one of them might need that principal (the assets given to the trust), they could not get any part of it back from the trust.

There are other less drastic kinds of gifts, however. The gift of a remainder interest in a home, keeping a "life estate" is one that is commonly used. To do this, a person or couple would sign a deed conveying their home to their children or other heirs ("the remaindermen"), but by keeping a "life-estate," they keep the right to live in the home without paying rent and the right to receive any income from the home. At the death of both spouses, which ends their life estate, the home automatically becomes the property of the remaindermen. For Medicaid penalty period calculations, the value of the gift of the home made in this way is less than the value of the home itself, since the gift is only the right to inherit the home upon death.

The down-side of this plan is that the house could not be sold without the permission of both the persons owning the life estate and the remaindermen. Upon the sale, the remaindermen may be entitled to receive a portion of the sales proceeds as well. There are other similar planning tools that could be used, but each requires that a person give up some measure of control over the property being transferred in order to become eligible for Medicaid at some point in the future. The techniques available for advance planning depend on the kinds and values of the assets to be protected as well as the comfort level of the family.

If the family has the income and can afford it, long-term care insurance can also be used to protect assets and pay for nursing home care. With long-term care insurance, the insurance will pay for the nursing home cost and, if the insurance period is exhausted, then Medicaid will be available to pay the balance. However, there are requirements imposed by the state on the kind of insurance that will qualify for this treatment. It is very important to make sure that the insurance purchased meets the Massachusetts requirements.

Exempt Gifts.

There are several exemptions from the Medicaid rules that apply only in particular circumstances, such as when disabled children are involved, or a home is owned by siblings. An important exemption from transfer penalty rules applies when a child lives in a parent's home and cares for that parent for at least two years before the parent enters a nursing home. In that case, the home could be deeded to the child without incurring any Medicaid penalty. There may be other exemptions that would apply to a particular person's situation, so that all of the facts and circumstances about all assets must be disclosed to the attorney who is helping a family plan for this most of difficult of times.

Estate Recovery.

Each Medicaid applicant must also be aware that the state has the right to file a lien against the Medicaid recipient's probate estate to recover whatever benefits the state has paid. The state's right to file a claim against an estate is not limited to benefits paid for nursing home care but may include benefits paid many years previously for any kind of MassHealth coverage, provided that the benefits were paid for a person age 55 or older.

Planning at Death.

If it is clear that one spouse will eventually need nursing home care, the healthy spouse should have a will that creates a trust for the benefit of the other spouse. That trust would be a "supplemental needs trust" and would be administered under the auspices of the probate court. At the death of the well spouse, the assets he or she owned in his or her own name would go through the probate process and into the trust. A trustee named in the will would invest and manage those assets and would be given the discretion in the will to provide those goods and services for the nursing home spouse that are not provided by Medicare, Medicaid or any other insurance or government program. These could be such things as special wheelchairs, companions, special nursing care, books, magazines, clothing, TVs and radios, rehabilitation programs and the like. At the death of the institutionalized spouse, whatever remained in the trust would then pass to the couple's heirs without the imposition of any liens or claims by the Commonwealth for repayment for Medicaid. This is a provision in the federal law and should be used as frequently as possible.

Future Changes.

In 2003, at the request of Governor Romney, the Legislature passed certain laws that allowed the Commonwealth to file a claim not only against the Medicaid recipient's probate estate, but also against the remaindermen to whom the house passed using a life estate, against any property that was jointly owned and against assets held in trusts. The Governor also proposed that the penalty period for any gift made by a Medicaid applicant would not begin to run until that person was placed in a nursing home. This would make advance gifting to prepare for an expected nursing home stay impossible. For example, in our prior example of a 10 month penalty period, under the Governor's proposal, the clock on that 10 months would not begin to tick until the person was actually in a nursing home, rather than beginning to tick at the time the gift was made as at present.

Due to the effective lobbying of elder law attorneys and their clients, the Legislature was persuaded to repeal the law, a repeal which the Governor vetoed. Fortunately, there were enough votes in the Legislature to override his veto. However, the Governor has not given up and has authorized the application to the federal government for a waiver to exempt Massachusetts from the federal rules. These rules protect the three year penalty period, among other things.

With the increasing numbers of Massachusetts residents without health insurance and with the continuing increase in medical costs, including nursing home costs, we can only expect further changes in MassHealth. None of those changes will be for the benefit of those who need this kind of program most. At a time when federal taxes continue to be cut and the present administration in Washington, both in the White House and in Congress, continues to cut its contribution to Medicaid because of the budget deficit, funds for MassHealth will become more limited. New Hampshire has already taken steps to make life estates, life insurance, and other techniques currently allowed in Massachusetts subject to a state lien.

However, until the laws are actually changed, it is important to take future nursing home admissions into account in planning your wills and trusts.