Showing posts with label available resource. Show all posts
Showing posts with label available resource. Show all posts

Wednesday, October 5, 2022

Ohio Department of Medicaid Changes Treatment of Retirement Plans- Eases Burden of Planning

The Ohio Department of Medicaid (ODM) has finally adopted a change that means retirement accounts will no longer be counted  as resources for determining Medicaid eligibility. This means that Ohio law now comports with existing federal law,"[a]fter six suspenseful years," as one law firm characterized the change,  Understanding the change, and its impact, requires some appreciation of  Medicaid and its role in paying for long-term care.

As most know, Medicare provides no real long-term care benefit. Medicare does not cover the cost of any care in a nursing home when a person requires only custodial care. Custodial care includes the following services:

  • bathing
  • dressing
  • eating
  • going to the bathroom

Generally, if the care or services that a person requires can be provided by another person without a degree or certification, Medicare does not cover the service.  There is no licensing required for one person to assist another to bathe, or to dress themselves.  There is, of course, licensing required for dispensing medical care, or providing certain rehabilitative care services such as physical therapy and occupational therapy.  

Further, non-custodial care is not fully covered by Medicare.  The best Medicare will do is pay for acute or rehabilitative care for a short period of time following a three-day hospitalization.  The Medicare benefit provides payment for twenty (20) days of institutional care following hospitalization, and additional payments for necessary care up to a total of one hundred (100) days.  After that one hundred (100) days, if a person needs long-term care (in-home assistance, assisted living, or a nursing home), that care is not paid for by private health insurance or by Medicare. 

Nursing home care can cost, on average, $8-12,000/month. Most people cannot afford to pay out of pocket such a large amount for long, so many turn to Medicaid to cover these costs.

Medicaid will pay for the cost of a nursing home or assisted living facility, provided that the institution accepts Medicaid reimbursement, but Medicaid benefits are limited to the impoverished.  That means that:

  • A single person can have no more than $2000 to their name (in addition to a home and a car);
  • A married couple is limited to a maximum of $139,000 and often less if the combined estate is less that $278,000 (the Community Spousal Resource Allowance or CSRA is one-half of the estate up to $139,000 but only one-half whatever the estate is valued at if the estate is less than $278,000).

To qualify, Medicaid applicants must "spend down," a euphemism for impoverishing themselves, especially since the person receiving their benefits may have to contribute their income to their cost of care.

Taxes and Retirement Accounts Under The Old Rules

For many people, retirement accounts (IRAs, 401ks, 403bs, deferred compensations, Roths, etc.), have replaced the home as the most valuable asset in their estate. Retirement accounts are owned by human beings (for example, trusts or LLCs cannot own retirement plans), and cannot be transferred between people except by death or divorce. Except for Roth IRAs, the taxes haven’t been paid on the accounts, so if individuals want to cash it out, they’ll incur significant income tax. 

Safeguarding the home or after-tax investments from spend-down ahead of time under the Medicaid rules is and has been fairly straightforward. Simply, to protect the retirement accounts, the account would be liquidated and the tax  incurred and paid.  In addition to the tax consequence, liquidation often meant losing the future benefits of tax deferred growth.  The options for safeguarding retirement accounts were limited, complex, expensive, and, for most people and advisors, frustrating. 

Many people would simply leave their retirement assets exposed to spend-down risk, choosing to forego the tax incurred and necessary, and protect their home and other assets.  Imagine a senior paying the cost and expense necessary to protect their $200,000 home, only to lose their $500,000 IRA left exposed. Those who chose against protecting the IRA in advance would, in crisis situations, end up with a severe tax consequences liquidating their IRA to either pay for care, or to protect other assets.

Under the old rules, if a couple had $500,000 in retirement assets, that amount counted toward their asset limit. They would have to spend their money until they reached $139,000 in total countable assets, incurring taxes along the way.  Retirement accounts were not treated any differently than checking or brokerage accounts for eligibility purposes.

Taxes and Retirement Accounts Under The New Rules

Starting in 2016, Ohio changed how it takes Medicaid funding from the federal government. As part of that change, it had to align Medicaid with Social Security disability asset rules. Under Social Security rules, retirement accounts are not counted as assets if they pay out regular, periodic payments – those payments are counted as income instead. In other words, as long as you take your required minimum distribution, or set up a recurring distribution that looks like a required minimum distribution, then Medicaid wasn't supposed to consider how much is in that account, just how much those distributions are.

After four years, the Ohio Department of Medicaid finally started talking about making the change. Some counties adopted these rules consistently, others inconsistently, and some not all. Finally, after more than a year of promising guidance, ODM published Medicaid Eligibility Policy Letter 164 on May 26, 2022. This letter clarified how the Social Security rules applied to Ohio and confirmed that retirement account payouts should be treated as income, and the principal should not be counted.

The change means seniors won't be forced to cash out their retirement accounts in order to qualify for Medicaid. It will save taxes and allow more money for the applicant or the healthy spouse. 

Some folks believe, and are being led to believe that the new rules completely protect retirement accounts.  That is not true.  The income is still countable, but estate planning can provide a solution in the form of a Qualified Income if the income is excessive.  Even then, and more fundamentally Medicaid estate recovery still exists.  Medicaid estate recovery permits Ohio to recover money paid in benefits from a Medicaid recipient’s estate.  

Regardless, the change will make planning much comfortable for people with large retirement accounts. 

Tuesday, March 10, 2020

Irrevocable Trust Assets Found Available Resources for Medicaid in Arkansas

 Assets in a Medicaid applicant’s irrevocable trust are available resources for Medicaid spend down, because the trustee had the discretion to make distributions for the applicant’s health and welfare, according to an Arkansas appellate court. Arkansas Department of Human Services v. Hogan (Ark. Ct. App., No. CV-19-491, Feb. 19, 2020).

Bobbie Hogan created an irrevocable trust, which gave the trustee the discretion to make distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare. Ms. Hogan transferred her home to the trust, sold the home, and deposited the proceeds in the trust. More than five years later, Ms. Hogan applied for Medicaid. The state determined that the trust assets were available resources and denied her benefits.

Ms. Hogan appealed the denial to court. The trial court ruled that the trust was not an available resource, because the trustee had absolute discretion to make distributions. The state appealed.

The Arkansas Court of Appeal reversed, holding that the trust is an available resource. According to the court, because the trust allowed distributions of principal and income for Ms. Hogan’s health, support, medical care, and welfare, “there are circumstances in which payments can be made to or for the benefit of [Ms. Hogan] from the trust, making the trust an appropriate available resource for [Ms. Hogan].”  

This decision underscores how important the drafting of the trust is to accomplish a particular objective.  Trusts filled with unfettered discretion, and comfort clauses ultimately provide the State opportunities to defeat the objectives of the trust.  The risks of irrevocable trust planning must be carefully considered, understood, and accepted.  While it is discomforting, the best course to plot toward an objective is the simplest, most direct, clear course.  Trusts that expressly prohibit distributions of income and/or principal for health, support, maintenance, comfort and welfare, are, often the best course to an objective that seeks to protect eligibility for Medicaid.     

Tuesday, December 10, 2019

Asset May Be Available Resource for Medicaid Even if the Resource Cannot Be Sold (Converted to Cash)

An Ohio appeals court has ruled that a Medicaid applicant's real property may be counted as excess resources even though the applicant was unable to sell the  property. Communicare v. Ohio Department of Job and Family Services (Ohio Ct. App., 8th Dist., No. 106874, Sept. 19, 2019).
Mohsen Fanous owned three pieces of real property that were collectively valued at around Sixteen thousand dollars ($16,000.00). He was, apparently, unable to find anyone willing to pay anything for the properties. When he applied for Medicaid benefits, the state denied his application, finding that the properties put him over the Medicaid resource limit and that it could not verify his other resources.
Mr. Fanous appealed, arguing that the properties should not have been considered as countable resources because he was not able to sell them. Because Ohio law defines resources to includes property that the applicant has an ownership interest in and has the legal ability to convert to cash, the trial court dismissed the appeal, and Mr. Fanous appealed again.
The Ohio Court of Appeals, Eighth District, affirmed, holding that the state properly denied Mr. Fanous's application due to excess resources. According to the court, "whether [Mr.] Fanous was able to find a purchaser is a wholly different consideration from what the regulation contemplated, namely whether [Mr.] Fanous had the legal authority to sell the properties in the first place."  Because Mr. Fanous had the legal authority to sell the properties, the value of the properties were considered an available resource, notwithstanding that he could not convert the property to cash.  



This case represents why Medicaid often puts applicants and their families between a "rock and a hard place."  The applicant is unable to liquidate the assets for cash necessary to pay for long-term care, and the applicant is otherwise unable to pay for long-term care.  Often. the reality is that family members, such as children or grandchildren, are "forced" to pay for the applicant's long-term care.    

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