Medicaid Eligibility and Asset Transfer Rules (Order Code RL33593 Congressional Research Service (CRS) Report January 31, 2008) – Eligibility for Medicaid’s long-term care services is limited to persons who meet a state’s functional level-of-care standards and certain financial standards (i.e., income and asset level tests). Persons qualify for Medicaid in one of the three ways: (1) they have income and assets equal to or below state-specified thresholds; (2) they deplete their income and assets on the cost of their care, thus “spending down”; or (3) they divest of their assets to meet these income and asset standards sooner than they otherwise might if they first had to spend their income and assets on the cost of their care.

Since the enactment of the Omnibus Budget Reconciliation Act of 1993, Medicaid’s rules concerning eligibility, asset transfers, and estate recovery have been designed to restrict access to Medicaid’s long-term care services to those individuals who are poor or have very high medical or long-term care expenses, and who apply their income and assets toward the cost of their care. In an attempt to discourage Medicaid estate planning, (a means by which some individuals divest of their income and assets to qualify for Medicaid sooner than they would if they first had to spend their income and assets on the cost of their care), the Deficit Reduction Act of 2005 (P.L. 109-171, DRA) contained a number of provisions designed to strengthen these rules.

The DRA lengthens the look-back period from three years to five years for all income and assets disposed of by the individual after enactment. It does not change the look-back period for certain trusts, which was already five years prior to DRA’s enactment. Under this change, asset transfers for less than fair market value of all kinds made within five years of application to Medicaid would be subject to review by the state for the purpose of applying asset transfer penalties.

Medicaid Asset Recovery Rules– Omnibus Budget Reconciliation Act of 1993 (OBRA ‘93) requires states to implement a Medicaid estate recovery program.  OBRA gives states the authority, and the obligation, to sue families via probate court to claw-back Medicaid dollars spent on a loved one’s long term care.  In this law, states are required to sue the estates of Medicaid recipients, “ to recover, at a minimum, all property and assetsthat pass from a deceased person to his or her heirs under state probate law, which governs both property conveyed by will and property of persons who die intestate.Such property includes assets that pass directly to a survivor, heir or assignee through joint tenancy, rights of survivorship, life estates, living trusts, annuity remainder payments, or life insurance payouts”.http://aspe.hhs.gov/daltcp/reports/estreccol.htm

State Filial Responsibility Laws- Filial responsibility laws (filial support laws, filial piety laws) are laws that impose a duty upon adult children for the support of their impoverished parents and can be extended to other relatives. These laws can include criminal penalties for adult children or close relatives who fail to provide for family members when challenged to do so. 28 states and Puerto Rico have filial responsibility laws in place: Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia and West Virginia. (Wikipedia) and http://law.psu.edu/_file/Pearson/FilialResponsibilityStatutes.pdf

In 2012, John Pittas, a 47 year old restaurant owner was sued by a nursing home company for $93,000 in expenses incurred by his mother over a six month period after she was denied Medicaid eligibility.  The Superior Court of Pennsylvania (Health Care & Retirement Corporation of America v. Pittas Pa. Super. Ct., No. 536 EDA 2011, May 7, 2012) found in favor of the nursing home based on “filial responsibility law” (which is on the books in 28 states), and the son was forced to re-pay the entire costs for his mother’s care.  The court finding even granted discretion to the nursing home company to seek payment from any family members it wished to pursue. (Forbes, 5/21/2012)

Is a Long Term Care Benefit Plan Medicaid Qualified?– A Long Term Care Benefit Plan is the conversion of an in-force life insurance policy into a pre-funded, irrevocable Benefit Account that is professionally administered with payments made monthly on behalf of the individual receiving care.  This option extends the time a person would remain private pay and delays their entry onto Medicaid. 

By obtaining the fair market value for the life policy, and then at the direction of the policy owner putting the funds into an irrevocable bank account which can only be administered third-party to pay for Medicaid/Medicare qualified long term care services; the Long Term Care Benefit Plan is a regulated and Medicaid qualified financial vehicle to help cover the costs of long term care.