Medicaid Eligibility and Spousal Protection for Elderly Nursing Home Residents

PLANNING TECHNIQUES AND MEDICAID RECOVERY

By Attorney Ann N. Butenhof¹

1. Introduction

Any attorney who does estate planning for elderly clients or advises such clients about transferring assets must be familiar with Medicaid, because it is the only governmental program that pays for long-term custodial nursing home care. With “private pay” nursing home rates averaging in excess of $6,000 per month in New Hampshire, the typical couple can spend their life savings quickly once one of the spouses enters a nursing home. To prevent such rapid impoverishment, an attorney must know how to preserve as much of the clients’ assets as possible, while avoiding any action that would disqualify the clients from receiving Medicaid benefits.

Attorneys practicing in the public benefits arena increasingly are faced with the challenge of planning for a client’s nursing home care while the state and federal government attempt to restrict Medicaid eligibility and expand asset recovery tools. Although Medicaid planning is as permissible under the Medicaid rules as tax planning is under the Internal Revenue Code, an unjustified stigma often is attached to a couple’s efforts to plan for the care of a institutionalized spouse. The crux of the issue is that no one wishes to become ill, slowly lose physical capabilities and mental capacity and end up in an institutional setting for years. Evidently, an inherent conflict exists in our political system which supports the sheltering of assets by the rich through prudent tax planning, while simultaneously requiring taxpaying citizens to use a very modest estate to pay the ever-increasing costs of nursing home care.

Medical Assistance or “Medicaid” is a federal/state health insurance program for low-income people, which was enacted in 1965 through the passage of Title XIX of the Social Security Act.² The program is administered in New Hampshire by the New Hampshire Department of Health and Human Services (DHHS), under the regulatory supervision of the Center for Medicare and Medicaid Services (CMS), which is part of the U.S. Department of Health and Human Services.³

The most important sources of law in daily practice are the administrative rules and DHHS’ policy manuals. The administrative rules are available from the State Library, the Office of Legislative Services, and are now available on the Internet.⁴ The financial eligibility policies, which will usually be of chief concern to the estate planner, are now located in the Adult Assistance Manual (A.A.M.). Policies governing payment for particular medical services are contained in the Medical Assistance Manual (M.A.M.). These volumes are available at each of the 12 local district offices of the Division of Human Services as well as over the Internet.⁵

This article does not address the eligibility rules for most Medicaid coverage, but focuses solely on Medicaid eligibility for long-term nursing home care.

II. ELIGIBILITY CRITERIA

To be eligible for Medicaid’s long-term nursing home coverage, an individual must be both medically and financially eligible. To be medically eligible, the individual must meet the required medical standard of need for a nursing home; and, therefore, must need assistance with a number of activities of daily living. In short, for an individual to qualify for Medicaid long-term nursing home coverage, that individual must medically need to receive that level of care.⁶

Financial eligibility looks at both an individual’s monthly income as well as his/her resources. Therefore, a practitioner must examine what money the individual receives on a monthly basis, plus that person’s savings/assets.

A. Income Eligibility

In New Hampshire, an individual in a nursing home will be income eligible for Medicaid if the individual’s income is lower than the Medicaid reimbursement rate for that particular nursing home. The income of the Medicaid applicant’s spouse is not counted when determining eligibility. The Medicaid reimbursement rates vary from facility to facility, and year to year. Currently, the average rate is more than $4,300 per month.

This income eligibility rule applies to single and married individuals alike. There are some limited deductions from income that are allowed in determining eligibility, such as court-ordered support payments. General financial obligations, however, such as car payments and mortgages are not permitted as deductions.⁷

(For a discussion of the income rules relating to spouses, see Section V below.)

B. Resource (Asset) Limitations on Eligibility

In order to be resource eligible for Medicaid nursing home care coverage, a single person can have no more than $2,500 in “countable resources.” This section describes what resources are counted toward the $2,500 limit. (See Section III for a specific discussion of the allocation of resources between spouses.)

An otherwise eligible applicant whose resources exceed this $2,500 limit will lose entitlement for an entire month, and is required to reapply once the resources have been “spent down.” There is a limited exception to this harsh rule when the excess resource is the cash surrender value or equity value of one or more life insurance policies. An applicant is given three months to spend down the value of this excess equity value. In the meantime, the applicant is allowed to offset medical expenses, such as a nursing home bill, against the equity value of the life insurance, thereby temporarily qualifying the applicant for Medicaid coverage.

Similarly, an otherwise eligible recipient can lose coverage if the recipient’s assets increase in value beyond $2,500. For example, if a person inherits money, his/her assets may increase substantially. Excess resources must be spent down in order to end the disqualification period, and should be done immediately if it is simply a matter of accrued interest. Often a recipient’s monthly income (i.e., social security and/or pension payments), or accrued interest, will bring the recipient’s account balances to an amount over $2,500 for a period of time. Monthly income is not considered a “resource,” however, during the same month in which it is received. Therefore, having account balances over $2,500 due to monthly income deposits will not disqualify a recipient. The only requirement is that the recipient spend the newly deposited income within 30 days in order to avoid exceeding the resource limit. This spend-down usually is not difficult to meet because a recipient’s income must be spent towards things such as nursing home care and spousal income allowances.⁸

As discussed later in this article, a person’s principal residence, as long as it is not in a revocable trust, is not a countable resource when calculating Medicaid eligibility.⁹ Likewise, an individual’s furniture, personal belongings, one motor vehicle, and other household items necessary for daily living are not counted toward the $2,500 limit.

Moreover, there are additional categories of assets the State will not count when determining Medicaid eligibility:

1. Loans which must be repaid.
2. Real property, regardless of value, if:¹⁰
   • Occupied by the applicant as his/her principal residence or if necessary for maintenance of the home;
   • Not occupied by the applicant but producing income sufficient to meet the expenses of its ownership;
   • Not occupied by the applicant but necessary as residence for the applicant’s spouse or blind, disabled, or minor child;
   • A residence temporarily unoccupied due to applicant’s illness or hospitalization; or
   • Jointly owned real estate when the co-owner refuses to sell. See the discussion below of “inaccessible resources.”
3. Inaccessible resources – real or personal property whose value is legally unobtainable, such as:
   • Property in probate;
   • Irrevocable burial trusts; or
   • Real or personal property owned jointly by the applicant with one or more other individuals, if the terms of ownership preclude unilateral sale. The applicant must be unable to liquidate either his share or the entire property unilaterally. If property is indivisible for separate sale and the other owners refuse to sell, then it is considered inaccessible.
4. Lump sum death benefits paid to cover funeral or burial expenses.
5. Income tax refunds.
6. Life insurance, if
   • There is no cash surrender or equity value, and the face value is payable only upon the death of the insured; or
   • The combined face values of all policies do not exceed $1,500.(However, if the combined face value exceeds $1,500 and there is a cash surrender or equity value, such equity values are counted toward $2,500 limit.)
7. Items necessary for everyday living including, but not limited to, furnishings, appliances, jewelry, etc.
8. One motor vehicle.
9. Farm machinery, livestock, tools and equipment.
10. One burial plot per assistance group member.

Please note these special rules: As noted above, funds held in an irrevocable burial trust (i.e., pre-paid, irrevocable contracts with funeral homes) are considered non-countable resources. If burial funds are held in a revocable trust or contract, such funds will not be counted up to a limit of $1,500. Any portion of the equity value of the contract in excess of $1,500 will be counted against the $2,500 resource limit.

Contractual Keough plans (those in which employee withdrawal is not allowed) are excluded, but non-contractual Keough plans and IRAs are counted.¹¹

The State does count the full value of the following personal property, and any other property not specifically excluded, toward the $2,500 limit:

1. Stocks, bonds, etc.
2. All bank accounts, certificates of deposit, etc.
3. IRAs, non-contractual Keough plans (after the penalty for early withdrawal is subtracted).
4. Lump sum payments from:
   • Sale of real or personal property, or settlement of personal injury or property claims. If there were expenses associated with the lump sum settlement, such as medical bills owed to third parties, court costs, or attorney’s fees, these are deducted before the lump sum payment;
   • Retroactive Social Security, SSI benefits and unemployment compensation;
   • Insurance claims;
   • Windfalls: lotteries, prizes, awards, inheritances, etc.; and
   • Lump sum retirement benefits.¹²

C. Treatment of Real Property

Aside from the principal place of residence, real property is counted as a resource under certain circumstances.¹³ As noted above, real property that is jointly owned is not counted as a resource if the terms of the ownership prevent a unilateral sale or disposition. On the other hand, jointly owned real property is considered accessible, and therefore countable, if the other owner will agree to sell the property or the terms of ownership permit the applicant to sell it unilaterally. The state also considers real property that is permanently unoccupied to be a countable resource. If the applicant/recipient is hospitalized or institutionalized on a permanent basis, all real property is considered countable if it is not occupied by the recipient’s spouse or minor, blind or disabled child, or if it is not income producing. Real property which produces income sufficient to meet its maintenance and ownership expenses is considered an excluded resource.

Please note, however, that real property is never given a value on resource assessments, as discussed below, and is therefore never included in calculating a “spend down” or a spouse’s resource allowance.¹⁴ Rather, an otherwise eligible applicant who owns real property will be granted Medicaid immediately, but will be asked to dispose of the property within six months. This six-month grace period can be extended if the applicant demonstrates a good faith effort to sell. Once the property is sold, the net proceeds are a countable resource that may render the recipient ineligible until the proceeds are “spent down.”¹⁵

Medicaid has specific rules governing the treatment of jointly owned resources and important restrictions on an applicant’s ability to transfer ownership of assets for the purpose of reducing the total value of one’s resources below the $2,500 level.

D. Treatment of Jointly Owned Personal Property

Prior to November 1, 1995, the Medicaid rules presumed that any resources jointly owned by an applicant/recipient and other parties were owned in equal shares. Under that rule, an individual had the right to present proof that his/her share was greater or lesser than an equal share. For jointly owned resources established on or after November 1, 1995, the Medicaid rules provide that all jointly held personal property (bank accounts, etc.) is presumed to belong entirely to the applicant. The applicant must provide considerable evidence to rebut this presumption.¹⁶ However, if a joint account was established before November 1, 1995, the old rule and presumption still applies. It is therefore important to discover the date joint ownership was established, and to verify that the chain of joint ownership was never broken.

E. Treatment of Trusts

Both revocable and irrevocable trusts may be considered resources and/or income to an applicant. See generally 42 U.S.C. §1396p. Under the Medicaid program, a trust is considered to be any arrangement in which a grantor transfers property to a trustee with the intention that it be held, managed or administered by the trustee for the benefit of the grantor or certain designated beneficiaries. The term “trust” also includes any legal instrument or device that is similar to a trust. A “grantor” is defined as the individual, the individual’s spouse, a person, court or an administrative body with legal authority to act on behalf of the individual. An individual is considered to have established a trust if his or her assets (regardless of how little) were used to form part or all of the corpus and if any of the persons described as a grantor established the trust, “other than by will.” 42 U.S.C. § 1396p(d)(2)(A).

The trust rules apply without regard to:

• The purpose for which the trust is established;
• Whether the trustee has, or has exercised, any discretion under the trust;
• Any restrictions on when or whether distributions can be made from the trust; or
• Any restrictions on the use of distributions from the trust.

No clause or requirement in the trust precludes a trust from being considered under the Medicaid program. Any trust which meets the basic definitions of a trust can be counted in determining eligibility for Medicaid under either resource, income or transfer of assets rules.

For a revocable trust, all assets contained in the trust are considered to be resources belonging to the grantor. For irrevocable trusts, if the trustee has any discretion to distribute income and principal to the grantor, the trust assets may be considered as belonging to the grantor, even if the trustee has not exercised such discretion. If the trustee only has discretion to distribute income to the Grantor, the income will be counted as unearned income to the grantor. There is some risk that the principal in an irrevocable trust would be considered a resource belonging to the grantor if the grantor retains significant incidents of ownership over the trust principal.

III. RESOURCE ALLOCATION BETWEEN SPOUSES

Although many elderly couples have countable resources in excess of the $2,500 ceiling, very few have enough monthly income to absorb a nursing home bill. These clients need advice about how to qualify the unhealthy spouse for Medicaid, without destroying the financial security of the healthy spouse. In 1988, Congress enacted legislation that dramatically altered the rules regarding the transfer of assets and the allocation of resources and income between spouses.¹⁷ In 1993, significant changes were made in the asset transfer and recovery provisions of the law in the Omnibus Budget Reconciliation Act of 1993.¹⁸

The current rules on resource allocation between spouses attempt to foreclose the sheltering of assets through transfers between spouses by lumping all of both spouses’ assets together, regardless of the form of ownership. All countable assets of either spouse are considered.¹⁹ Therefore, a healthy spouse’s separate assets are deemed available to the unhealthy spouse, regardless of the length of time the assets have been segregated. The law does not allow any exceptions for separated spouses, or for spouses in second or late marriages with separate assets accumulated prior to the marriage. Thus, prenuptial agreements do not protect a wealthy spouse in a recent marriage from having her assets counted if her new spouse falls ill and seeks Medicaid coverage.

As of January 1, 2005, the rules in New Hampshire permit the healthy, or “community spouse” to retain only the greater of:

1. $19,020 or
2. One half of the assets, up to a maximum of $95,100.²⁰

Both the minimum and the maximum automatically increase each January in accordance with increases in the Federal Consumer Price Index.

The following table shows what the community spouse’s allowance will be at the present time in New Hampshire, depending on the total value of all the assets:

Assets less than$38,040	Assets between$38,040 & $190,200	Assets more than$190,200
$19,020	One-half	$95,100

These rules provide greater proportional protection for a couple of modest means, with countable assets of less than $38,040, since the community spouse is able to keep the first $19,020 in assets. For example, if the couple has $25,000 in assets, the community spouse is allowed to keep $19,020, not just $12,500. For couples with assets between $38,040 and $190,200, the community spouse is allowed to keep half of the resources. For couples with assets above $190,200, the law requires that all but $95,100 of the assets, plus $2,500 (the institutionalized spouse’s permitted asset limit), be spent before the institutionalized spouse can obtain Medicaid coverage for nursing home care.

A. “Spending Down” Resources

Practitioners should advise their clients about permissible ways to “spend down” resources. One way to reduce excess resources is simply to pay “privately” for nursing home care until the excess resources have been depleted. However, converting excess “countable” personal property resources into “excludable” resources has long been an appropriate way to protect a client’s assets while establishing Medicaid eligibility.

The nursing home spouse can spend the excess in any way that may benefit either spouse, so long as the transfer of asset rules are not violated.²¹ As explained more fully in Section V, below, excess resources can be spent by purchasing, remodeling or repairing a home; acquiring a new vehicle; paying off a mortgage; purchasing new furniture for the home or nursing home; buying new clothes; or setting up a prepaid irrevocable funeral plan. It is also permissible to spend down resources by purchasing an immediate annuity that will generate income for the at-home spouse, so long as the annuity’s payout period does not exceed the expected life expectancy of the annuitant. For many couples, one or more of the purchases and acquisitions listed above would be prudent and beneficial to the at-home spouse under any circumstances, and by so doing, the nursing home spouse spends down the excess resources, thereby establishing Medicaid eligibility.

B. The Importance of a “Resource Assessment”

The law provides that either spouse may request an “assessment,” or inventory, of the assets at the beginning of the unhealthy spouse’s “first continuous period of institutionalization” in a nursing home.²² The state will calculate the total value of the couple’s assets and each spouse’s share.

This “resource assessment” is a crucially important planning device for the couple and their counsel, because the couple is advised which assets will be protected. When neither spouse seeks such an assessment, they may expend more assets than necessary, or protect less of their resources than the law allows.

It is important to review these resource assessments carefully to detect any errors that may adversely affect your client. Either the institutionalized spouse or the community spouse may request a fair hearing if dissatisfied with the resource assessment.²³

After this “snapshot” of the assets is taken, the institutionalized spouse’s excess share of the assets – if any – will have to be reduced before Medicaid eligibility is established.²⁴

Thus, if the community spouse’s share is calculated before the couple begins to deplete their assets by paying nursing home bills, a significant portion of the couple’s original assets can be protected. On the other hand, if the couple’s countable resources increase in the period between the resource assessment and the actual application for Medicaid (through inheritance, sale of real estate, etc.), the community spouse’s protected share will not be re-calculated, so that the additional excess resources will also have to be spent down.²⁵

Once the institutionalized spouse establishes eligibility for Medicaid, there can be no further consideration of the community spouse’s resources.²⁶ Therefore, even a dramatic post-eligibility increase in the assets of a community spouse through inheritance, the sale of property, etc., will not jeopardize the Medicaid eligibility of the institutionalized spouse, and the community spouse will be able to retain these new assets.

C. Seeking Relief from the Allocation Formula

Federal law contains several provisions allowing some relief from the allocation rules. For instance, DHHS will honor a court order directing the institutionalized spouse to transfer to the community spouse a larger share of the couple’s resources than ordinarily permitted by the allocation formula.²⁷ In addition, a spouse can seek a higher resource allowance by filing for an administrative “fair hearing” with DHHS.²⁸

In 1999, New Hampshire implemented the Federal Income Allocation Rules, and chose to adopt what is known as an “income first” approach to allocating additional resources to the community spouse. Under this approach, an increase in the community spouse’s resource allowance may only occur after the institutionalized spouse has allocated the maximum amount of his or her income to the community spouse.²⁹ If it can be established that there are exceptional circumstances resulting in significant financial duress for the community spouse, then additional resources can be allocated to the community spouse, but only via a fair hearing. The Hearings Officer is limited to an all-inclusive, narrow list of “exceptional circumstances” which can form the basis for the additional allocation of resources.³⁰

Federal law also provides protection in certain cases involving assignment of assets, incapacity, and undue hardship. The state may not disqualify an institutionalized spouse who has assets over the resource limit if that spouse assigns to the state any rights to spousal support; or, alternatively, if the state has the authority to bring an action for spousal support; or, if a denial of benefits would “work an undue hardship.”³¹ Thus, the state should grant Medicaid to an otherwise ineligible spouse if it can take action to collect the excess resources from the community spouse.³²

Federal law permits each state to define “undue hardship” for this purpose and for the transfer of asset rules. New Hampshire has defined undue hardship very narrowly in the context of transfer of assets, restricting this exception to cases in which an agent or representative of the applicant makes an improper asset transfer and the applicant lacks the mental capacity to comprehend the disqualifying nature of the transfer.³³

IV. INCOME ALLOCATION BETWEEN SPOUSES

The Medicaid statute contains significant income protection for the community spouse in the form of a monthly income allowance.³⁴ The state must establish a “minimum monthly maintenance needs allowance,”³⁵ which must be at least 150 percent of the official poverty line for a two-member family unit, but may be set higher.³⁶ New Hampshire uses the minimum formula, and the minimum monthly maintenance needs allowance as of July 1, 2004 is $1,562.

The minimum monthly maintenance needs allowance is increased automatically every July in accordance with increases in the Federal Consumer Price Index. To the extent the community spouse’s income is below the state’s minimum monthly maintenance needs allowance, the community spouse will be entitled to a monthly “income allowance” derived from the institutionalized spouse’s income.³⁷

To demonstrate how the allowance rules operate, consider a couple whose monthly income consists of the following:

Husband’s Social SecurityHusband’s private pensionWife’s Social Security Total Income:

$1,100$1,200$400 $2,700

Because of the spousal income allowance, the wife, the “community spouse,” would be entitled, at a minimum, to a total monthly income of $1,562. This means she could obtain $1,162 of her husband’s income each month: $400 (wife’s income) + $1,162 (from husband’s income) = $1,562 (minimum monthly maintenance needs allowance). The husband would retain $50 as a personal needs allowance that all Medicaid nursing home recipients receive from their income,³⁸ and the remainder of his income would pay for his nursing home care. Medicaid would pay the unpaid balance of the husband’s nursing home bill.

The state must increase the spousal monthly income allowance if the community spouse has shelter expenses (rent or mortgage, taxes, insurance, utilities, etc.) that exceed $469 per month.³⁹ This additional allocation is called the “excess shelter allowance.”⁴⁰ As of January 1, 2005, the spousal income allowance can be increased to a maximum of $2,378 (known as the “maximum monthly maintenance allowance”).⁴¹

Mr. and Mrs. Reynolds: An example

Mr. Reynolds enters a nursing home. His total monthly income includes a pension of $1,500, and social security retirement payments of $1,000 (total $2,500). Mrs. Reynolds has a social security monthly income of $500, and a small pension of $150.

Mr. and Mrs. Reynolds own a home. However, between real estate taxes, a mortgage, utility costs and homeowners’ insurance, Mrs. Reynolds has monthly shelter costs totaling $1,050.

Mrs. Reynolds’ income allowance would be calculated as follows:

$1,562– 650$912

(Minimum monthly maintenance standard)(Mrs. Reynolds’ own income)(Minimum spousal income allowance)

$1,050– 469$581

(Mrs. Reynolds’ shelter costs)(Shelter deduction)(Excess shelter allowance)

$912– 581$1,493

(Minimum spousal income allowance)(Excess shelter allowance)(Spousal income allowance from husband’s income)

$1,493– 650 $2,143

(Spousal income allowance from husband’s income)(Mrs. Reynolds’ own income)(Mrs. Reynolds’ total monthly maintenance allowance)

A community spouse can obtain an even higher monthly income allowance by requesting a fair hearing with the Division of Human Services if able to demonstrate “exceptional circumstances resulting in significant financial duress …”⁴² Due to this restrictive rule, seeking a court order for spousal support from the institutionalized spouse may be a better strategy.⁴³

The law also provides an additional smaller “family allowance” for minor or dependent children, dependent parents or dependent siblings of the institutionalized spouse who reside with the community spouse.⁴⁴ This family allowance must be equal to at least one third of the amount by which the standard income allowance exceeds that family member’s income. The community spouse’s income allowance is given preference over the family member allowance and is deducted first.

V. MEDICAID PLANNING ALTERNATIVES

A. Converting Countable Resources Into Non-Countable Resources

A useful Medicaid planning tool is to convert countable resources into non-countable resources. For instance, savings can be used to make improvements to the house, pay off a mortgage, or even to purchase a house for the at-home spouse. It is also possible to use countable resources to pay debts, buy a new car, purchase an irrevocable burial policy or an annuity (discussed below).

B. Re-Titling Real Estate

Home property is not a countable resource as long as the at-home spouse continues to reside there. Even though the at-home spouse is entitled to reside in the home for his or her lifetime, it is still important to change the title on the real estate solely into the name of the at-home spouse. This will allow the at-home spouse to sell the property after the nursing home resident spouse is on Medicaid, and retain all of the proceeds from the sale. If the real estate is held jointly between the spouses, the Medicaid recipient will be considered to own one-half, and will lose Medicaid eligibility if the house is sold.

C. Annuities

Annuities can be used for Medicaid planning under certain circumstances. Since a commercial annuity is an insurance contract that is purchased for value, merely purchasing an annuity is not a transfer that will trigger a disqualification period.

An annuity can be kept as an investment until there is an actual nursing home need. By delaying the annuitization, the couple’s countable assets will be higher at the time of the resource assessment, resulting in a greater amount being retained by the at-home spouse. The annuity can then be annuitized for the benefit of the at-home spouse after the other spouse enters a nursing home, thus increasing the at-home spouse’s income. If the income is payable to the at-home spouse, it will not have to be spent on the nursing home.

It is possible to annuitize an annuity for a “period certain,” i.e., a guaranteed length of time that the annuity will provide an income stream even if the annuitant dies. Such guaranteed payout periods are attractive because an early death of the annuitant can result in a significant loss to the annuitant or/and beneficiaries if the annuity is only guaranteed for the annuitant’s life. Consequently, many annuity contracts contain a provision allowing payment for a specified term of years. In order to comply with the asset transfer rules, however, it is important that any guaranteed payout period not exceed the annuitant’s life expectancy under the applicable tables.

New Hampshire recently passed a law further restricting the use of annuities and permitting recovery by the State for any balance of the period certain remaining upon the death of an annuitant/Medicaid beneficiary. See RSA 167:4 IV, effective August 16, 2003. The new rule applies only to an annuity that is annuitized for the benefit of a Medicaid recipient, and not to an annuity acquired by a community spouse.⁴⁵

VI. TRANSFER OF ASSET RULES

In 1993, Congress enacted significant changes in Medicaid’s transfer of asset rules.⁴⁶ The federal law now mandates a 36-month “look-back” period for transfers of assets by the applicant or spouse on or after August 10, 1993, rather than the previous 30-month “look-back” period. The “look-back” period begins to run on the date the Medicaid application is filed.⁴⁷ Any transfers by a Medicaid recipient after establishing eligibility are also subject to the disqualification. The 1993 amendments also lengthened the “look-back” period to 60 months for transfers to trusts, as well as transfers from a revocable trust.⁴⁸

While an applicant must report all transfers made within the “look-back” period, not all such transfers are disqualifying and the length of any disqualification period depends on the value of the asset that was transferred. The actual penalty period for any disqualifying transfer for less than market value is calculated by dividing the total uncompensated value of the asset by the average monthly “private pay” nursing home rate in the state.⁴⁹ The average monthly private pay rate for nursing home care in New Hampshire is currently $6,004.25.⁵⁰ Thus, an uncompensated transfer of assets valued at $90,000 will cause a disqualification of approximately 15 months ($90,000 / $6,004 = 14.99 months), while a transfer of $15,000 will cause a disqualification of 2.5 months ($15,000 / $6,004 = 2.49 months).

Because a disqualification period begins to run as of the first day of the month in which the transfer was made, and not at the time of the application,⁵¹ a potential applicant may be able to transfer modest sums by preserving enough assets to pay for care during the disqualification period that will be imposed.⁵² For example, a non-married individual who is about to enter a nursing home and who has $30,000 in countable assets could give away approximately $15,000, knowing that the remaining $15,000 (plus monthly income) can be used to pay the nursing home bill during the disqualification period imposed as a result of the gift. In contemplating such modest transfers, the applicant and counsel must be cognizant of another 1993 amendment mandating that the penalties for multiple transfers be imposed cumulatively and not concurrently.⁵³

As the result of another 1993 amendment, the penalty period, once capped at 30 months, is unlimited if the transfer occurred within the 36-month “look -back” period.⁵⁴

Example: If an individual made a $250,000 gift to children in January of 2002, but did not apply for Medicaid assistance until March of 2005, he/she would not have to reveal this gift since he/she waited over 36 months before applying for Medicaid. However, if the same individual applied for Medicaid in December 2004 – that is, before the 36-month disqualification period expired – he/she would not only be required to reveal the gift, but he/she would be disqualified for Medicaid for several more months since a $250,000 gift triggers a 41.6-month disqualification period ($250,000/$6,004 = 41.6).

With respect to jointly held assets, federal law now requires that any action by the applicant or a co-owner that reduces or eliminates the applicant’s ownership or control of the asset is a transfer.⁵⁵ Thus, a withdrawal of funds by a non-applicant co-owner from a bank account that reduces the value of the Medicaid applicant’s share, potentially is a disqualifying transfer.

In November 1994, the United States Department of Health and Human Services’ Health Care Financing Administration (HCFA) (now known as CMS, or Center for Medicare and Medicaid Services) – the federal agency that supervises the administration of Medicaid – issued a lengthy transmittal amending its State Medicaid Manual to provide instructions on the implementation of new rules resulting from the 1993 amendments regarding thethe transfer of assets. In that transmittal, HCFA set forth strict new policies on life estates and annuities, which have since been adopted by New Hampshire.⁵⁶

The policy states that the creation of a life estate will be considered a transfer for less than market value whenever the value of the whole asset is greater than the value of the life estate that is retained (which is true in virtually every life estate). The penalty is to be calculated by determining the value of the entire asset and then comparing it to the value of the life estate. In the transmittal, HCFA provided actuarial tables which have now been incorporated into the Adult Assistance Manual to be used in determining the value of life estates.⁵⁷

The same HCFA transmittal sets out a similar policy regarding the purchase of annuities. For the purchase of an annuity to have been for fair market value, the term of the annuity must coincide with the life expectancy of the purchaser (or annuitant). These actuarial tables for annuities (now also included in the Adult Assistance Manual) are different from those used for life estate calculations and the annuity tables are gender-specific. If the annuity’s payout period exceeds the purchaser’s life expectancy, the amount that would be paid out after the end of the purchaser’s life expectancy is considered to be an uncompensated transfer and is subject to the penalty.

A. Turning Away Resources and Sources of Income

On November 1, 1995, New Hampshire adopted administrative rules that disqualify an individual who waives a pension, disclaims an inheritance, refuses to accept a personal injury settlement or court award or does not take action to obtain court-ordered payments.⁵⁸ These rules apply if the disclaimer or waiver is carried out by the individual or the individual’s spouse, or anyone else with legal authority to act in place of or on behalf of the individual, including a court or administrative body. Thus, a guardian or agent under a power of attorney who declines to accept a potential asset or source of income will cause the ward or principal to be disqualified.

B. Protected Transfers

Transfers to certain family members are exempt from the disqualification rules. If the transferred resource is the applicant’s home, there is no disqualification for transferring title to: 1) the spouse; 2) a child who is under 21, blind or permanently and totally disabled; 3) a sibling who has an equity interest in the home and who was residing in the home for at least one year immediately before the date of the individual’s institutionalization; or 4) an adult child who was residing in the home for two years immediately before the individual’s institutionalization and who provided care that enabled the individual to reside at home rather than in an institution.⁵⁹

It is important to point out that even though the home is not a “countable asset,” transferring it to someone other than those protected will be subject to the disqualification rules.⁶⁰ Resources other than a home can be transferred without penalty only to the community spouse and children who are blind or disabled.⁶¹

The State of New Hampshire cannot penalize an institutionalized spouse for transfers by the community spouse made after the institutionalized spouse has been found eligible for Medicaid. In other words, the community spouse is allowed to transfer the assets properly allocated to her, such as the home or her share of the personal property and resources, after the institutionalized spouse is found eligible for Medicaid.

C. Avoiding the Disqualification

A Medicaid applicant whose property transfer does not fit one of the exemptions described above can still escape the penalty if he/she can show that:

• He/she intended to dispose of the resources either at fair market value or for other valuable consideration;
• The resources were transferred exclusively for a purpose other than to qualify for Medicaid;
• The transferred resources have been returned to him/her; or
• Denial of eligibility “would work an undue hardship.”⁶²

In essence, the law creates a presumption that all transfers within the disqualification period for less than fair market value are for the purpose of qualifying for Medicaid. This presumption can be rebutted in a number of ways. For example, applicants can show that their health and/or financial situation deteriorated in an unforeseen manner, and that at the time of transfer they did not anticipate any imminent need for either nursing home care or Medicaid coverage.⁶³ The state’s rules also allow an applicant to show that the property was transferred to prevent foreclosure, or in return for an agreement to provide care to the client or maintain the property.⁶⁴

The federal authorities (Center for Medicare and Medicaid Services or CMS) defines “undue hardship” broadly, to include situations when applying the transfer of assets provisions would deprive the individual of medical care such that the applicant’s health or life would be endangered, or would deprive the individual of food, clothing, shelter, or other necessities of life. However, New Hampshire has not yet broadened its very narrow definition of undue hardship to make it consistent with CMS’s definition.⁶⁵

D. Gifting is Not Always a Good Choice

Elder law practitioners should review the potential risks of gifting with clients, as well as how gifting might conflict with the client’s overall goals. Clients should be advised, for instance, that a gift necessarily means a loss of control over the asset, and might result in foreclosing options that would otherwise be available with adequate resources. Tax implications for any gifts should also be considered, including gift tax and capital gains tax implications.

VII. LONG-TERM NURSING HOME INSURANCE

Long-term nursing home care insurance has become a much more attractive planning tool over the past 10 years. There are a couple of reasons for this. First, through state regulation and experience, the insurance industry is offering better long-term care policies. Second, the Medicaid qualification rules have restricted the planning alternatives available to individuals and couples.

When evaluating long-term care policies, clients should consider the following features: 1) the inflation protection rider; 2) the guaranteed premium; 3) the prerequisites for coverage, such as a hospital stay prior to nursing home admission; 4) the coverage for home health care and adultday care; 5) the coverage for custodial, intermediate and skilled nursing home care coverage; 6) whether Alzheimer’s disease and mental illness are included; 7) the waiver of premium provision in the case of nursing home stay; and 8) the financial stability of insurance carrier.

VIII. DIVORCE

Although a drastic measure, divorce may be an option for some couples facing a long-term nursing home stay, particularly where both spouses are competent and in agreement. Where the nursing home resident is not competent, the question becomes one of an equitable split of assets and whether the court will approve a proposed plan.

IX. MEDICAID LIENS AND RECOVERY

While the State of New Hampshire immediately files a lien on an individual’s real property when he or she is granted financial assistance under the Old Age Assistance (OAA) or Aid to the Permanently and Totally Disabled (APTD) programs, federal law places much greater restrictions on the state’s ability to file and enforce liens on the real estate of recipients of medical assistance, or Medicaid. The state is prohibited from filing a lien against the real estate of a Medicaid recipient prior to the individual’s death unless it is determined, after notice and hearing, that the individual cannot reasonably be expected to be discharged from the facility and return home.⁶⁶ Liens during the lifetime of a Medicaid recipient are barred if a spouse, minor or disabled child live in the home.⁶⁷ Likewise, there can be no lien if there is a sibling of the recipient who has lived in the home for at least a year prior to the recipient’s entry into the nursing home and who has an equity interest in the property.⁶⁸

After the death of the recipient, the state may seek adjustment or recovery of the medical assistance correctly paid from the recipient’s estate or upon sale of property properly subject to lien.⁶⁹ However, there may be no adjustment or recovery during the lifetime of a surviving spouse.⁷⁰

The federal law defines “estate” for Medicaid recovery purposes to include all property and assets included in the estate under state probate law.⁷¹ The federal law also permits a state to broaden the definition of “estate” to include property in which the recipient had any legal title or interest at the time of his/her death.⁷² As of January 1999, New Hampshire expanded the definition of “estate” for Medicaid recovery purposes to include property held in a revocable trust.⁷³ To date, New Hampshire has not chosen to expand the definition to include life estates or joint tenancies, although the legislature is considering such legislation this term.⁷⁴

For practical purposes, treating revocable trusts as probate property should not make much difference since the state is no longer pursuing the non-nursing home spouse’s estate for reimbursement purposes. For the nursing home resident spouse, revocable trusts are not helpful in any event because assets in revocable trusts are countable and must be spent down before becoming eligible for Medicaid.

Endnotes