Tragic Consequences Result from Simple or Do-It-Yourself Medicaid Planning

Simplistic or Do-It-Yourself Medicaid planning is a "cure worse than the disease."  Yet another in a long line of tragic cases illustrates why seniors should not engage in reckless transfer of assets to children in the hope of avoiding long term care or nursing home costs. Too often, they witness their fortune lost, wasted, or appropriated.  Perhaps the only thing worse than losing a hard earned fortune to nursing home cost, is being rendered penniless and potentially homeless as a result of a simple transfer of wealth to a trusted child.

In 2002, Dorothy Stutesman transferred $142,742 to her daughter, Holly Woodworth, so she would not have assets in her name if she ever needed Medicaid. In April 2010, Woodworth transferred the money to a trust designed to protect the assets from creditors. The entire corpus of the trust was used to purchase an annuity to benefit Woodworth. In February 2011, Woodworth filed for bankruptcy.

The bankruptcy trustee sought to void the trust, arguing it was a fraudulent transfer under bankruptcy code. Woodworth did not dispute that the transfer was fraudulent, but she argued that the property was never part of her estate because she was holding it in a constructive trust for her mother.

The U.S. Bankruptcy Court for the Eastern District of Virginia entered judgment for the bankruptcy trustee, holding that Woodworth clearly had complete ownership of the funds. According to the court, “Ms. Stutesman can’t have it both ways — she can’t part with title for purposes of Medicaid eligibility, and at the same time claim that she retained an equitable title to the asset. To allow this kind of secret reservation of equitable title would be to sanction Medicaid fraud.”

Read More

Source: Habiger, Richard, "Daughter who declared bankruptcy must repay $142,742," Southern Business Journal, http://thesouthern.com/business/daughter-who-declared-bankruptcy-must-repay/article_deae48d0-2aa4-11e3-8086-0019bb2963f4.html

Pennsylvania's Filial Support Law Survives Federal Challenge

Pennsylvania's filial support statute has survived a multi-faceted challenge in federal court. Filial responsibility includes the legal responsibility of a child to care for an indigent parent.  Pennsylvania recently began enforcing its filial responsibility laws, wielding the the legal obligation as a sword in Medicaid resource recovery, in effect requiring a child to reimburse the State for paying through Medicaid the cost of the parent's long-term care. Simply, a child may remain responsible for a parent's long term care costs.  

The U.S. District Court, Western District of New York upheld Pennsylvania's use of filial responsibility in Medicaid resource recovery holding that it was not preempted by  the federal Nursing Home Reform Act, and that collection of a Medicaid  debt created by the statute does not give rise to a Fair Debt Collection Practices Act claim.  Eades v. Kennedy, PC Law Offices (U.S. Dist. Ct., W.D. N.Y., No. 12-CV-6680L, Dec. 3, 2013).  Levere Pike, a New York resident, placed his wife in a Pennsylvania nursing home. After Mr. Pike's wife died, the nursing home hired a law firm that attempted to collect payment from him and his daughter, Joni Eades. The law firm eventually filed a lawsuit in Pennsylvania that is still pending.

Mr. Pike and Ms. Eades sued the law firm, arguing that the attempts to collect the debt violated the Fair Debt Collection Practices Act (FDCPA). They also argued that Pennsylvania’s filial responsibility law is preempted by the portion of the Nursing Home Reform Act (NHRA) that prohibits a nursing home from requiring a third-party guarantee as a condition of admission. The law firm filed a motion to dismiss.

The U.S. District Court, Western District of New York, granted the motion to dismiss, holding the court does not have jurisdiction over Mr. Pike and Ms. Eades' claims. The court went on to conclude that even if it did have jurisdiction, debts created by filial support statutes do not give rise to claims under the FDCPA.  In addition, according to the court, the filial support statute is not preempted by the NHRA because the two laws do not "cover the same territory."  Although arguably the decision is mostly dicta, the court's decision illuminates how federal courts are likely to view filial responsibility in the event that more states follow Pennsylvania in applying filial responsibility to Medicaid recourse recovery.

For the full text of this decision, go here.  

Medicare Ends ‘Improvement Standard’ which Required 'Likelihood of Improvement' in Chronic Conditions before Coverage of Skilled Care and Therapy Services

The Centers for Medicare & Medicaid Services has updated the program manuals used by Medicare contractors in order to “clarify” that coverage of skilled nursing and skilled therapy services does not depend on a beneficiary’s potential for improvement but rather on the beneficiary’s need for skilled care.  The manual update is part of the January 2013 settlement agreement in Jimmo v. Sebelius, No. 11-cv-17 (D. Vt.), which ended Medicare’s longstanding practice of requiring beneficiaries to show a likelihood of improvement in order to receive coverage of skilled care and therapy services for chronic conditions.

The Center for Medicare Advocacy, which along with Vermont Legal Aid represented the plaintiffs in Jimmo, announced that the Medicare Policy Manuals have been revised pursuant to the Jimmo settlement.  The Center and Vermont Legal Aid have been reviewing and providing input on drafts of the manual revisions.

“As with all components of settlement agreements, the Jimmo revisions are not perfect,” said Judith Stein, the Center’s Executive Director. “But they should go a long way to ensuring that skilled care is covered by Medicare for therapy and nursing to maintain a patient’s condition or slow decline – not just for improvement.”

CMS states in the Transmittal announcing the Jimmo Manual revisions: 

No “Improvement Standard” is to be applied in determining Medicare coverage for maintenance claims that require skilled care. Medicare has long recognized that even in situations where no improvement is possible, skilled care may nevertheless be needed for maintenance purposes (i.e., to prevent or slow a decline in condition). The Medicare statute and regulations have never supported the imposition of an “Improvement Standard” rule-of-thumb in determining whether skilled care is required to prevent or slow deterioration in a patient’s condition. Thus, such coverage depends not on the beneficiary’s restoration potential, but on whether skilled care is required, along with the underlying reasonableness and necessity of the services themselves. The manual revisions now being issued will serve to reflect and articulate this basic principle more clearly. [Emphasis in original.]

The next step in the Jimmo settlement is an educational  campaign that CMS will soon mount to explain the settlement and the revised manual provisions to Medicare contractors, providers, adjudicators, patients, and caregivers. CMS’s educational campaign should consist of national calls, forums, written materials, training, and changes to its website.

At a session on the Jimmo settlement that was part of the National Aging and Law Institute in November, Stein urged attorneys to inform the Center of any cases where coverage has been denied because the patient was not improving.  The Center would also appreciate any feedback on the upcoming educational campaign.  E-mail cases or comments toimprovement@medicareadvoacy.org 

The CMS Transmittal for the Medicare Manual revisions, with a link to the revisions themselves, is posted on the CMS website.  The CMS MLN Matters article is also available there under “Downloads.”

Supreme Court to Decide Whether Inherited IRA's Protected from Creditors

The U.S. Supreme Court has agreed to hear a case that will decide whether inherited individual retirement accounts (IRAs) are available to creditors in bankruptcy. The decision in Clark v. Rameker will resolve a split between the lower courts.

Heidi Heffron-Clark inherited a $300,000 IRA from her mother. Inherited IRAs must be distributed within five years. During the five-year period, Mrs. Clark and her husband filed for bankruptcy. The Clarks argued the IRA was exempt from creditors because bankruptcy law protects retirement funds. A district court agreed with the Clarks, but the 7th Circuit U.S. Court of Appeals reversed in Clark v. Rameker (714 F.3d 559 (2013)), holding that the money in the IRA no longer constituted retirement funds.

Meanwhile, the 5th Circuit U.S. Court of Appeals decided in In re Chilton (674 F.3d 486 (2012)), that funds from an inherited IRA should be exempt. The U.S. Supreme Court will resolve this issue later this term.

For more information about this case, click here.