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Implementing Health Reform: Medicaid Asset Rules And The Affordable Care Act



February 24th, 2014

On February 23, 2014, the Centers on Medicare and Medicaid Services released a State Medicaid Directors Letter analyzing the application of Medicaid liens, estate recoveries, transfer-of-asset rules, and post-eligibility income rules to individuals who become eligible for Medicaid because of their modified-adjusted gross income (MAGI).

Background

Contrary to the flat-earth concept of Medicaid espoused by Chief Justice Roberts in National Federation of Independent Business v. Sebelius, Medicaid has never been a single program but rather a cluster of programs with quite different purposes and rules.  One of its more controversial and problematic roles has been to serve as our nation’s default program for financing long-term care services.  Nursing home care, and even community-based long term care, is very costly, and long-term care can easily overwhelm the income and resources of people who are otherwise comfortably middle income.   From its inception, Medicaid has been available to pay for long-term care for people who are unable to afford it after they have effectively become impoverished by “spending down” their own assets and income.

From very early in the Medicaid program’s history, however, there has been a concern that people who could otherwise afford to pay for at least some long-term care services would voluntarily impoverish themselves, transferring assets to their children or to others to make themselves eligible for Medicaid.   Congress and the states have therefore adopted laws and regulations to limit asset transfers by Medicaid recipients.  These prohibitions were initially evaded through the use of trusts and other financial devices, resulting in the enactment of additional laws to bar these evasions.

The asset counting rules for long-term care Medicaid have always permitted recipients of long-term care services to retain a home in hopes that the recipient may at some point be capable of returning there.  Medicaid law has, however, permitted the states to impose liens on homes or other retained assets, and to recover Medicaid long-term care payments against a recipient’s estate upon the death of a recipient.  Finally, Medicaid rules permit the spouse of a long-term care recipient who remains in the community to retain a modest amount of the recipient’s income and assets to protect the “community spouse” against total impoverishment.

The Affordable Care Act creates a new category of Medicaid recipients — adults with incomes under 133 percent of the poverty level.  It also changes income and asset eligibility rules for parents, children, and pregnant women, who were already eligible for Medicaid.  Eligibility for these categories of recipients is now calculated based on “modified adjusted gross income,” or MAGI.  There are no asset requirements for persons who become eligible for Medicaid under MAGI rules.  The question thus arises as to how existing rules regarding asset transfers, liens, estate recoveries, and post-eligibility income apply to persons eligible for Medicaid based on MAGI.

This is not a mere theoretical concern.  Although the federal and state law governing Medicaid liens and estate recoveries are primarily concerned with recipients who receive high-cost long-term care services, federal law that existed prior to the ACA allows states to recover from the estates of any Medicaid recipient age 55 or over for the cost of any Medicaid services, and a number of states have existing laws that would allow such recoveries.  A number of commentators have noted that  if people age 55 or over sign up for expansion Medicaid, some state governments may  recover the cost of their care from their estate when they die.  The Memorandum attempts to address these concerns.

What’s In The Memorandum

The Memorandum begins by noting that most people who qualify for long-term care services and supplies (LTSS) will not be eligible for Medicaid based on MAGI, but rather under some other Medicaid category to which traditional asset rules apply.  Moreover, states are generally not required to cover LTSS in the alternative benefit plans (ABPs) — benchmark or benchmark equivalent essential health benefit plans — that they offer MAGI-eligible individuals.

Some MAGI-eligible individuals, however, such as the medically frail, may qualify for all state Medicaid services, including LTSS services.  Moreover, some states include LTSS in their alternative benefit plans.   While individuals who are eligible for Medicaid based on MAGI are not subject to any assets or resources test, Medicaid rules governing LTSS, including estate recovery rules, may apply to individuals who receive LTSS even though their eligibility is based on MAGI.

The Medicaid statute permit states to place liens on the real property of Medicaid recipients of institutional services, such as nursing home care, under certain circumstances.  Liens may only be placed on the property of individuals whose eligibility is based on “post-eligibility treatment of income” (PETI) rules, which require recipients to spend down all of their income except for a minimal amount on their care.  MAGI recipients are not subject to the PETI requirements, thus states may not place liens on their property.

Under the Medicaid law, states must seek a recovery from the estates of Medicaid recipients for the amounts subject to Medicaid liens.  Since MAGI recipients are not subject to liens, however, this provision does not apply to MAGI recipients.  Medicaid law, however, also requires states to seek a recovery from the estates of Medicaid recipients for the amount of medical assistance paid on their behalf when they were 55 years old or older for nursing home care or home and community-based services and related hospital and prescription drug services, or, at state option, for any other items and services under the state plan (with the exception of Medicare cost-sharing.)  The estate recovery requirement is subject to a number of exceptions, including a hardship exception, but may apply to some MAGI recipients.

The Memorandum recognizes that the threat of estate recovery may deter individuals from applying for Medicaid.  It states that “CMS intends to thoroughly explore options and to use any available authorities to eliminate recovery of Medicaid benefits consisting of items or services other than long term care and related services in the case of individuals who are determined eligible for Medicaid benefits using the MAGI methodology.”  Moreover, CMS encourages states not to pursue estate recoveries against Medicaid expansion populations and notes that there are special rules limiting recoveries against American Indians and Alaskan natives.

As already noted, the Medicaid law includes special provisions covering transfers of assets for less than fair market value by Medicaid recipients of institutional services or certain community-based LTSS before or subsequent to applying for Medicaid.  Specifically, if an institutionalized individual or the spouse of an institutionalized individual (or, at state option, a non-institutionalized individual who receives certain community-based LTSS or the spouse of such an individual) disposes of assets for less than fair market value on or after the individual’s “look-back” date, the individual is ineligible for medical assistance for institutional services (or other LTSS).  The period of ineligibility lasts for the number of months equal to the amount transferred for less than fair market value divided by the average monthly cost to a private patient of nursing facility services in the state. Exceptions, such as where an individual makes a transfer to a spouse or for a purpose other than to qualify for Medicaid, do apply.

Although assets are not considered in determining MAGI eligibility, the asset transfer rule is not a rule determining eligibility for Medicaid, but rather for determining eligibility for certain LTSS services.  The asset transfer rules apply, therefore, to MAGI-eligible individuals who receive LTSS services.   Special rules under Medicaid law that apply to annuities, life-estates, promissory notes, and trusts to block the use of these devices to evade the asset transfer provisions also apply to MAGI-eligible individuals who use LTSS services for which the asset transfer prohibition would apply.

Medicaid rules prohibit Medicaid coverage of LTSS for persons who have equity in a home that exceeds a certain value, which for 2014 is set at $543,000 (or, at a state’s option, at $814,000).  Although, again, there are no asset restrictions on MAGI eligibility, the home equity requirement applies to eligibility for LTSS services, not for Medicaid, and thus applies to MAGI-eligible individuals who receive LTSS services.

Individuals who receive institutional and home and community-based LTSS services as traditional categorically- or medically-needy Medicaid recipients must generally spend all of their income on LTSS, except for a small personal needs allowance and funds necessary to maintain their spouse or family in the community, with Medicaid paying for the additional cost of the services.  These post-eligibility treatment of income (PETI) rules do not explicitly apply to MAGI-eligible individuals.  CMS recognizes, however, that it is inequitable to apply these rules to other Medicaid recipients but not MAGI individuals.  It is contemplating rulemaking, therefore, to extend these rules to MAGI eligible individuals.

In sum, most of the rules that apply to traditional Medicaid recipients with respect to LTSS (except for lien requirements) are likely to apply to MAGI-eligible individuals who receive LTSS.  CMS intends, however, to take steps to avoid applying estate-recovery rules to MAGI-eligible individuals who do not receive LTSS to keep this from becoming a barrier to Medicaid expansion eligibility.

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1 Response to “Implementing Health Reform: Medicaid Asset Rules And The Affordable Care Act”

  1. Matt Says:

    Mr. Jost,
    I am currently in a very strange situation because of this law. Basically, I had health insurance I could afford, but then the ACA made my affordable coverage go up 100% without the subsidies. When I went through the healthcare site, I was told I had to put my children on CHIP. As it turns out, the Federal side of things is not sending the information to the State side of things so I had to fill out the state application. As I was going through the application, they ask if you get sources of income through dividends, etc., but they don’t ask about assets. When I went through the eligibility calculator, they did ask for assets. Based on the old rules, as I understand them, my current assets, which are greater than $10,000, should make me ineligible for CHIP, and I actually would prefer not to put my children on CHIP because I think it is an abuse of the program in my case. I have been trying to get in touch with the Medicaid people, but I am working and don’t have time to sit on the phone all day. I think what you are describing is slightly different from my situation, but I was hoping you could help me understand this. Based on my current understanding, I could be a millionaire who happens to get all his/her money through a dividend paying stock that happens to pay 4%. That would put the millionaire’s income at roughly what I have. That would, as I understand, qualify that millionaire for all these programs?

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