Tag Archives | Medicaid

Illinois shifts course on long-term care Medicaid rules again

We were all set to deliver part II of our series on the January 1, 2012 Illinois Medicaid rules changes for nursing homes.  But the Illinois legislature apparently wasn’t done overhauling the Medicaid system.  Last week, Governor Quinn signed Senate bill 2840, which became Public Act 97-0689. It’s been given a friendly name:  the Save Medicaid Access and Resources Together (SMART) Act.  But its impact is anything but friendly to Illinois seniors.

Unlike the January 1st rules changes, which were driven by federal laws, these new rules changes are almost entirely due to the well-known Illinois budget problems.  The new law cuts $1.6 billion from the Medicaid budget, primarily by modifying eligibility requirements and benefits.

The biggest change made by SMART is the elimination of Pooled Payback trusts (also called OBRA d(4)(c) special needs trusts) in Medicaid planning for those over the age of 65 (in other words, almost everyone who needs it).

Previously, a senior could place their assets into a pooled payback trust and qualify for Medicaid immediately.  In exchange, when the senior passed away, their trust would be required to reimburse the State of Illinois for whatever Medicaid had spent on the senior (the “payback” part of the trust name).

One significant benefit of the pooled payback trusts to seniors was that payback happened at the Medicaid rates (what the State of Illinois pays nursing homes), which usually offered a substantial discount over the nursing home’s private pay rates.

While we still have many tools in the Medicaid planning toolbox, the loss of the pooled payback trust is a major blow to Illinois seniors.

The law pinches the finances of seniors in other ways too:

  • Retroactive Eligibility.  A Medicaid application can request long term care coverage for the three months prior to the month of application. For example, an application file in June can request coverage for expenses in March, April, and May.  Previously, an applicant could get coverage for the entire month simply by meeting eligibility requirements at any time during the month (usually the last day of the month).  Under those rules, Medicaid would cover all expenses in March as long as the requirements were met by March 31st.  Under the new rules, the applicant will have to meet eligibility requirements at the time of receiving services.  This change makes it even more critical to consult with an elder law attorney as soon as you believe that a nursing home stay is likely.
  • Community Spouse Resource Allowance (CSRA).  The amount of a couple’s assets that the community spouse (the spouse not in the nursing home) can keep is reduced from $113,640 to $109,560.  The CSRA had risen automatically this year, but SMART rolled it back and fixed it permanently at the 2011 level.  Please note that certain assets are exempt and not included in the $109,560 limit.
  • Monthly Maintenance Allowance (MMA).  The amount of a couple’s income that the community spouse can keep is reduced from $2,841 to $2,739 per month (although that figure is subject to federal approval of the change).  If a couple earns more than $2,739 per month, most (or in many cases all) of the excess must be paid toward the nursing home spouse’s care.
  • Homestead in Trust.  The primary residence of a couple is normally an exempt asset, meaning the value of the home doesn’t count against the $109,560 CSRA limit.  SMART eliminates that exemption for homes owned in a trust (either a revocable living trust or a bank land trust). Traditionally, the State of Illinois has placed a lien on homes owned by a Medicaid recipient.  But having the house in trust complicates that. While this change does make planning the estate of a community spouse a little more complicated, it’s more of an administrative change than one that directly hurts Illinois seniors.
  • Spousal Refusal.  The law means that spouses will have to pool their resources to pay for one spouse’s care, regardless of whether they have been keeping their finances separate previously.

We’re still digesting the full impact of the SMART Act.  It weighs in at 450 pages (you can read it on the Illinois General Assembly website if you’re interested) and revamps the requirements for many of the Medicaid programs.

One thing SMART doesn’t change is that planning for possible long term care needs to be done early to be the most effective.  So if you, or someone you love, are concerned about the possibility of long term care (even if many years in the future), it is crucial to get educated and begin planning.

Many asset protection options take years to mature.  And it is essential to learn how to avoid the common mistakes in handling the finances of a spouse, sibling, or parent — mistakes that could cost them thousands of dollars in Medicaid penalties and countless sleepless nights.

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Long-Term Care Medicaid Changes for 2012 (Part I)

Most seniors who spend significant time (months or years) in a long-term care facility end up relying on Medicaid at some point during their stay. Nursing home costs can be a crushing burden, one that most seniors can’t shoulder alone for long.

Medicaid qualification has always been tough.  But seniors have usually been able to protect a few assets for their spouse or children, or to supplement their own care, on their way to getting Medicaid assistance.

Now, though, Illinois has implemented harsh new rules required by the Deficit Reduction Act of 2005 (DRA), a federal law that governs the state Medicaid programs.  These new rules apply to any Medicaid long-term care applications filed in Illinois after January 1, 2012.

If you’re close to retirement age, or have a parent or loved-one close to retirement age, knowing how these new rules work is critically important.

The changes are so big that we’ll need to cover them in several parts.  This first part deals with two concepts that our clients usually encounter first when researching Medicaid — “look back” and “penalty periods“.  The rules for both have changed dramatically.  And the changes could cost unprepared Illinois seniors tens of thousands of dollars in lost Medicaid long-term care benefits.

5-Year Disclosure Period (“Look Back”)

The old Medicaid rules required applications to be filed with three years of the applicant’s financial history, including bank records, tax returns, and information about sales or gifts of assets.  Anything that occurred more than three years prior to filing did not have to be disclosed for the most part.

Applications filed on January 1, 2012 or later must include five years of financial history.  That’s a big change (66% more), and when combined with the penalty period changes below, it makes planning for Medicaid much more complicated than under the old rules.

Penalty Periods

The primary purpose behind reviewing five years of financial history is to determine whether the applicant made any disallowed transfers.   Gifts, of course, are considered transfers.  But so are many other things that people often do, such as reimbursing family members for groceries or paying them for helping around the house.

When disallowed transfers are found, a penalty period is imposed.  While under a penalty, a senior is denied Medicaid benefits — even though they might otherwise qualify.  The senior must find another way to pay for the care until the penalty is over.  That can be difficult when the assets gifted or transfered can’t be recovered.

The new Medicaid rules made significant changes to the way penalty periods are calculated and applied.

Transfers Accumulated

The old rules treated every month with a disallowed transfer independently.  So the penalty for a $6,000 transfer in January was separate from the penalty for a $500 transfer in February.  This generally worked out in favor of the senior because of how the other penalty rules worked.  Small transfers spread among many months often didn’t even create a penalty at all.

Under the new rules, all disallowed transfers from the past five years are added together to calculate the penalty.  So very small transfers (even just a few hundred dollars) — if they are made regularly — can result in a huge penalty when added together.

No Rounding of Penalties

The length of the penalty period for a disallowed transfer is equal to the value of the transfer divided by the monthly private pay rate for the nursing home the senior resides in at the time of the application.  For example, a $9,000 transfer with a private pay rate of $5,000 results in a 1.8 month penalty.

The one month penalty is pretty easy to understand.  But happens to that fractional 0.8 months?

Penalties under the old Medicaid rules were calculated in whole months.  And fractional months weren’t rounded using the rules we were all taught in grammar school (round up 0.5 and above and round down anything lower).  Instead, fractions were simply dropped.  So a 1.8 month (or 1.9 month) penalty was applied as a 1.0 month penalty.

This obviously left open up all sorts of doors for creative asset protection.  But those doors have now been closed.

Fractions are no longer rounded down.  Penalties are calculated and applied to the half of a day.  A penalty of 1.8 months will be applied as a 1 month and 24 day penalty.

Penalty Periods Applied After Qualification

Applications under the old rules were often simplified by the fact that penalties were applied in the month of the transfer.

Imagine that a $15,000 transfer was made 24 months before applying and that the nursing home private pay rate is $5,000 per month.

  • Under the old rules, a three month penalty would have been applied beginning in the month of the transfer.  That means the penalty ended 21 months ago — in other words, long before Medicaid coverage was actually needed!
  • Under the new rules, the penalty starts only after the senior applies for Medicaid and meets all of the other qualification requirements.

As you can see, even fairly large transfers made many months (or years) before applying weren’t likely to cause problems under the old Medicaid rules.

Combining the Penalty Period Rules — An Example

Taken individually, the changes to penalty periods sound quite harsh.  But you really need to see an example to fully understand just how much the new rules will affect seniors.

Mary has been in good health and financially secure for years.  And she has been generous with her money.  Every year at Christmas, Mary gives $100 to each of her seven grandchildren.  A couple of years ago, Mary also gave $4,500 to her daughter, Susan, to help Susan through a period of prolonged unemployment.

Recently, though, Mary’s health has declined and she is now residing in a nursing home that costs $5,000 per month.  The rest of Mary’s assets have been spent, and she is now looking to Medicaid for her long-term care needs.

Everything Mary did is what many other grandparents would do — and have done — in the same situations.  But the Department of Healthcare and Family Services won’t look at what Mary did in the same light.

Under the new Medicaid rules, Mary made $700 worth of disallowed transfers each year (the Christmas gifts) plus a single disallowed transfer of $4,500 (the gift to Susan).  Adding up five years worth of transfers (remember, there is now a five year look back period) brings the total to $8,000.

The Department of Healthcare and Family Services will apply a 1.6 month penalty to Mary ($8,000 in transfers divided by the $5,000 private pay rate).  Mary’s nursing home will be looking to someone else to pay for Mary’s care during the penalty period.

What it All Means for Your Family

The new Medicaid rules have been described by some as “harsh”.  But that may be an understatement.  Completely ordinary behavior will now be penalized.  As a result, it is imperative that Illinois seniors suffering from declining health get counsel from an elder law attorney to make sure that they aren’t damaging their Medicaid eligibility.

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Help for those BIG long-term care bills is about to get harder

Three weeks ago (on Friday the 13th no less), the Illinois Department of Healthcare and Family Services (HFS) unleashed new Medicaid rules.  The rules came about because of the federal Deficit Reduction Act of 2006 (called “the DRA”).  The name should clue you in to the fact that the proposed rules aren’t designed to improve care, just to reduce spending.

With the increase in life expectancies and rise in disabling conditions like Alzheimer’s disease, extended stays in long-term care facilities are more and more common.  And the result is thousands of seniors and their families facing what are often crippling long-term care bills.  What is so sad is that many families don’t know that help is available from Medicaid.

The Medicaid eligibility rules are tough, but it is not something you should think of as “only for the poor.”  Seniors frequently qualify for Medicaid while protecting thousands of dollars in assets for themselves, their spouses, or their families.  Smart planning makes all the difference because it helps pay for many “extras” that Medicaid and Medicare do not cover.  I am passionate about helping families escape from that feeling of hopelessness every time the long-term care bill comes.

The rules HFS announced are not the final rules.  There is still a period for public comment and changes.  But they do give us an inside look into the direction Illinois is heading with its implementation of the DRA guidelines.

There are a few important things to take away from the proposed rules:

  • Crisis planning to protect assets and qualify for Medicaid will still be possible
  • Advance Medicaid planning will become even more valuable to protect your hard-earned assets (best for people who are completely healthy but looking forward 6-10 years)
  • Medicaid will be giving additional asset protection advantages to people who have long-term care insurance in place, making the insurance doubly useful (but it has to be the right kind of policy, not just any old policy will do!)

As the rules move through the process, I will keep you updated about any developments.  But consider this your “heads up” that changes are on the way!

The good news is that there’s still time to get an application in under the current Medicaid rules.  So if you know anyone who is in a long-term care facility or think may need assistance soon, tell them to call my office.  We may be able to help.

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The beach delivers an estate planning lesson (it’s not all sand and surf!)

If there’s one thing I have learned, it’s that life can teach us a lesson at any time and any place.  One of those teachable moments happened to me recently while I was on a vacation at the beach with my husband (and law partner!), Jeff.

Let me start by saying that I am one of those moms who is very strict about sunscreen.  My kids do not go swimming or play outside for very long without a healthy coat of sunscreen.

But Jeff and I found ourselves on the beach on a very overcast day.  I know that clouds don’t prevent sunburns.  But we were also sitting under our very own tiki hut.  The thought of sunscreen entered my mind, but quickly left because we were “safe” under the tiki hut.

So there we sat — in the “shade” on a cloudy day — and read our legal books for hours and hours.  How did our little beach adventure turn out?

Sunburn.  Lots of it.  Jeff got the worst of it because he is very fair skinned.  But I didn’t escape scot free.

The tiki hut gave us a huge false sense of security.  We felt incredibly safe because we had taken some steps, even though they weren’t enough.  In a sense, the cloudy skies and tiki hut prevented us from taking the truly effective steps that we needed to take to protect ourselves.

I run into the same thing all the time when talking to people about their estate plans.

  • The people who told me they got a Will to avoid probate (but a Will actually guarantees probate)
  • The parents who were very proud that they named guardians in their Will (but had done nothing to address who would care for their kids on short notice or if they were injured but not killed)
  • The adult children who took money from their elderly parent’s accounts to reimburse expenses they had incurred (but they hadn’t kept proper records so their parent’s eligibility for Medicaid long-term care coverage was put in danger)
  • The people who tell me their estates won’t have to pay estate taxes (but they didn’t include the value of their life insurance policies when they added up their estate)
  • And many other stories we hear…

Each of these people felt a false sense of security because they hadn’t been properly educated by their attorney (or had gotten documents without seeing an attorney at all, such as from Legal Zoom).  We are strong believers in education because good decisions are only possible by having the full picture.  That’s why we became National Preparedness Coalition Members.

If Jeff and I had the full picture, we wouldn’t have had to stay inside for three straight days of our “beach vacation” because of a serious sunburn.  But the stakes are much bigger in estate planning.

So, get a head start on National Preparedness Month.  Ask yourself, have you fully investigated what you need to do to protect yourself and your family?  Or are you living under a false sense of security?  If you have any questions about your plan, call me and let’s talk about it.

But don’t just think about your own family.  If you believe someone you know — a friend or family member — has a false sense of security, take the initiative to send them this email.  Tell them to get prepared — and get their plan checked out.

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