One of the most frequently asked questions I receive from my estate planning clients is “what’s the look-back period for Medicaid eligibility should I have to go into a nursing home?” The process, called “achieving Medicaid resource eligibility”, can have serious consequences if you transfer a non-exempt asset within what is commonly known as the “look-back period”. However, before I dive into that topic, I feel it is necessary to distinguish Medicaid benefits from Medicare benefits. Although the words sound similar, they have very distinct meanings and types of benefits they provide to persons seeking nursing home custodial care.
Medicare v. Medicaid
Medicare is a federal entitlement program that pays a very limited nursing facility benefit and covers a relatively small percentage of the nation’s overall nursing home costs for the aged and disabled. Medicare pays for covered skilled nursing facility care without regard to the income or assets of the beneficiary. Medicare does not pay for custodial care, only skilled care. Medicare hospital insurance benefits are limited in both duration and scope. Specifically, Medicare Part A will pay for a maximum of 100 days of daily post-hospital skilled care in a skilled nursing facility per spell of illness for a covered individual. 42 U.S.C. §1395d(a)(2) & (b)(2). Even if Medicare covers a portion of a nursing facility stay, only the first 20 days are covered in full. Medicare pays days twenty-one through one hundred subject to a daily co-insurance amount owed by the Medicare beneficiary. The 2014 co-insurance amount for Medicare’s skilled nursing home benefit is $152.00/day, effective January 1, 2014. A prior inpatient hospital stay of three consecutive days is required before Medicare can cover skilled care in a nursing facility. Placement in a skilled nursing facility must then occur within 30 days of discharge from hospital, although an exception to this rule applies if active post-hospital treatment of the condition within 30 days of discharge would be medically inappropriate.
Medicare will pay up to 100 days of covered care per spell of illness. The phrase “spell of illness” is a term of art, defined by federal statute. See 42 U.S.C. §1390 5x(a). A spell of illness begins when a Medicare beneficiary enters the hospital for inpatient services and ends 60 days after the individual is neither a resident of a hospital born in patients receiving skilled care in a skilled nursing facility. An individual can obtain additional periods of skilled nursing facility benefits if he or she suffers subsequent spells of illness and requires such care. The end of the 60-day period means that a subsequent qualifying stay in a skilled nursing facility can receive another 100-day maximum skilled care benefit. Receiving custodial long-term care in a nursing home counts toward the 60-day period since it is not skilled care. Covered care must be provided in a Medicare-qualified skilled nursing facility. Not all nursing homes provide this level of care. A skilled nursing facility is an institution that is primarily engaged in providing (1) skilled nursing care and related services for residents who require medical or nursing care, or (2) rehabilitation services for the injured, disabled, and sick.
Medicaid is a means-tested eligibility program administered by the Commonwealth of Pennsylvania in accordance with federal rules, which covers unlimited nursing facility care, among other medical services, for qualifying individuals.
Medicaid Resource Eligibility
Individuals seeking Medicaid coverage for care in a nursing facility and Aging Waiver Program benefits must not only require such care medically, but must also meet certain citizenship and financial eligibility criteria. Medically eligible individuals are “resource eligible” if total non-excluded, available resources are equal to or below the limits for the applicable Medical Assistance program. 55 Pa. Code §178.1(c). Technically, the highest current resource limit for an individual seeking Medicaid benefits for nursing facility care is $2400. However, since October 31, 2003, applicants with gross income at or below 300% of the current federal SSI benefit amount, currently $2022, can qualify with a resource limit of effectively $8000.
While there is a comprehensive list of excluded and non-excluded resources, this particular blog post will concentrate on most individual’s primary asset: the personal residence or real property used as the principal place of residence.
Real property used as a principal place of residence is considered as a resource at its equity value unless it is excluded of the property used in a trade or business essential to sell support under 55 Pa. Code §178.64, or as non-business property essential to self-support under 55 Pa. Code §178.65. Pursuant to the Deficit Production Act of 2005 (DRA) a single applicant is not eligible for nursing facility Medicaid benefits is the person’s equity interest in the home exceeds $500,000. States have the option to exempt home equity up to $750,000, if they so choose. Pennsylvania, however, has decided to home equity at $500,000. 42 U.S.C. §1396p(f)(1)(A) & (B). A quick read of the new DRA finds policymakers encouraging single Medicaid recipients use reverse mortgages and home equity loans to access the equity in their homes. The DRA provides, “Nothing in this subsection shall be construed as preventing an individual from using a reverse mortgage or home equity loan to reduce the individuals total equity interest in the home.” As a practical matter, however, a single nursing home resident receiving Medicaid cannot make payments on a home equity loan since generally all that persons income except the personal needs allowance ($45) must be paid to the nursing facility is part of the patient pay liability. Moreover, reverse mortgages require the loan to be satisfied if the borrower no longer resides in the property, as is the case when long-term care at a nursing facility is required. At present, neither borrowing approach appears helpful in preventing the forced sale of an individual’s home to pay for nursing home costs.
Effect of Transferring a Real Property Asset for Less Than Fair Market Value
You might think, “well, I can just deed my home to one of my children or other relative in exchange for $1.00 and still be eligible for Medicaid benefits.” This is an incorrect assumption.
Eligibility for MA can be adversely affected when assets are transferred for less than fair market value. Federal law requires states to determine individuals ineligible for Medicaid in the case of certain asset transfers. 42 U.S.C. §1396p(c)(1). The asset transfer rules set forth under the DRA apply to transfers that occur on or after February 8, 2006. The key to understanding the impact of gifting on Medicaid eligibility involves the concepts of “fair consideration” and “uncompensated value,” together with the difference between the “look-back period” and the “ineligibility period.” If an asset is transferred for less than fair consideration within the applicable look-back period, the uncompensated value may give rise to an ineligibility period for MA benefits based upon a specific formula.
Fair consideration is defined by the regulations as “compensation in cash or in kind which is approximately equal to the fair market value of the transferred property.” 55 Pa. Code §178.2. To the extent one does not receive fair consideration, the difference is treated as uncompensated value subject to the transfer penalty rules and may result in a period of ineligibility for MA. Uncompensated Value is defined by the regulations as: “the amount remaining after the fair market value of a property at the time of transfer is reduced by the following amounts in the order listed: (1) the cost of sale/transfer and encumbrances; and (2) the amount of compensation received. Id.
“Look-back Period”
Federal law requires Pennsylvania’s Medicaid program to calculate a period of ineligibility for certain transfers where assets are disposed of for less than fair market value. 42 U.S.C. §1396p(c)(1). The transfers affected are those that fall into the so-called “look-back period.” A sixty (60) month (5 year) look-back applies with respect to all transfers which occur on or after February 8, 2006. 42 U.S.C. §1396p(c)(1)(B).
“Ineligibility Period”
The 30-month “cap” on the ineligibility period does not exist for transfers made on or after July 30, 1994. Again, there is no cap on the period of ineligibility, so a large gift within the look-back window can create a period of ineligibility which lasts many years.
Basic Calculation of Ineligibility Period
- For transfers made on or after July 30, 1994 the period of ineligibility is a number of days, arrived at by taking the total uncompensated value of all assets transferred by the individual, or the individual’s spouse, (unless an exception applies for the transfer of an asset) after the applicable look-back date and dividing the total uncompensated value by the average daily private cost of nursing home care in the Commonwealth in effect at the time of application.
- The current daily penalty divisor of $247.06/day has been in effect since January 1, 2010. Historically this divisor has been revised upwards annually to reflect increases in the statewide average cost of nursing home care
- If an asset has been disposed of for less than FMV on or after the look-back date (and unless an exception applies to the transfer penalty rules), a period of ineligibility exists for a number of days equal to the total, cumulative uncompensated value (CUV) of all assets transferred by the individual (or individual’s spouse) divided by the average daily rate (AVG DPR) paid by a private-pay nursing facility resident in Pennsylvania. 42 U.S.C. §1396p(c)(1)(D).
The start date of the penalty period for transfers occurring on or after February 8, 2006 is not the first day of the month in which the gift occurred, but rather “the first day of a month during or after which assets have been transferred for less than fair market value, or the date on which the indivudal is eligible for medical assistance under the State plan and would otherwise be receiving institutional level care . . . .” Guidance from CMS interprets this provision of the DRA to mean that the penalty period does not begin to run until after the individual is in fact receiving institutional level care, and is otherwise eligible for Medicaid but for the operation of the penalty period.
In other words, the penalty period does not begin until after the individual is in a nursing home, spent-down, and essentially broke.
Exempt Transfers
It is important to note the exemptions to transfers. Federal and state law provide that no period of ineligibility exists when title to the applicant/recipient’s resident property is transferred to the following individuals:
- The spouse of the individual.
- The individual’s child who is under 21 years of age, or blind, or permanently or totally disabled as determined under 55 Pa. Code §140.81 (relating to deductions from earned income) or is blind or disabled based on SSI criteria as specified in 42 U.S.C. §1382c(a)(3).
- A sibling of the individual who has an equity interest in the home and who resided in the individual’s home for at least one year immediately before the date the individual became an institutionalized individual.
- A son or daughter of the individual . . . who resided in the individual’s home for at least two years immediately before the date the individual became an institutionalized individual and who provided care tot he individual which permitted the individual to reside at home rather than in an institution or facility. 55 Pa. Code §§178.104(e)(1)(i)-(iv); 42 U.S.C. §§1396p(c)(2)(A)(i) – (iv).
DISCLAIMER
The information you obtain at this site is not, or is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. I invite you to contact me and I welcome your calls, emails, and letters. Contacting me does not create an attorney-client relationship. Please do not send any confidential information to me until such time as an attorney-client relationship has been established.
Daniel P. Marnen
dmarnen@icloud.com
(814) 392-6767
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