We just won another Medical Assistance appeal issue. In this case, Medical Assitance was initially denied for nursing home benefits and the son of the Medical Assistance applicant was handed an invoice from the nursing home for over $100,000. Needless to say, he was upset. We were able to successfully argue that that the transactions at issue were not Medicaid Penalty transfers and that full Medical Assistance benefits should have been granted from day 1. We received the Administrative Law Judge opinion today removing approximatley 98% of the penalty. Client is happy.
The issue of whether or not an IRA asset is a countable asset is an interesting issue from a Maryland Medical Assistance perspective. For individuals and their spouses, when an ill spouse goes into a nursing home and reviews the issue of applying for Medical Assistance for the ill spouse, the issue that routinely comes up is the issue of what is a countable asset towards the Medical Assistance threshold for the community spouse and ill spouse (i.e. how much can the ill spouse and community spouse own and still be eligible for Medical Assistance benefits). From a Maryland perspective, and IRA account and other forms of retirement accounts are fully countable assets. This is specifically addressed in the Maryland Medical Assistance Manual and all of the caseworkers are processing Medical Assistance applications counting IRA and other forms of retirement assets as countable assets. The real question is whether or not Maryland is correct in treating the IRA and other forms of retirement assets as countable assets. The answer is Maryland may well indeed be incorrect. We are looking for the right client scenario to push this issue and clarify and correct this fundamental determination that IRA and other retirement assets should not be countable assets.
Medicaid Spousal Impoverishment Figures for 2012
The new minimum community spouse resource allowance (CSRA) is $22,728, and the new maximum CSRA is $113,640. The new maximum monthly maintenance needs allowance is $2,841. The minimum monthly maintenance needs allowance remains $1,838.75. This has yet to be implemented for Maryland. It is expected to come out shortly. It is unclear if this will be retroactive to January 1, 2012.
In part, what this means is that the community spouse of a Medical Assistance applicant can have no more than $113,640 in countable assets at the point when she is seeking eligiblity for the nursing home spouse. The prior maximum amount allowed was $109,560.
According to the newly published survey by Metlife, the average cost of long term care continues to rise. According to the report the average room nursing home rates rose nationwide by 4.4 percent to $87,235 a year or $239 a day, while assisted living facility costs jumped 5.6 percent on average to $41,724 a year or $3,477 a month.
According to the Metlife survey, Baltimore area nursing homes ranged in monthly costs (for a semi private room) from $6,944 to $9,424 a month. The Baltimore area average assisted living costs grew to $3,830 a month. The Baltimore area average home health aide charged $19/hour.
From a Maryland perspective, once an individual is eligible for long term care Medical Assistance, all of his or her income must go to the nursing home except for certain deductions. Notably, the deductions are health insurance, personal needs allowance (currently at $71/month), and possibly a spousal allowance. While there may be other needs for the nursing home resident, a question often poised is can the resident’s income be used to pay for private nurses? The answer here in Maryland is “no.” If private duty nurses or aids are going to be employed they must be paid for by other resources, typically, the surviving spouse or other family members.
So, it came as no surprise that in a recent out-of-state case, that this court also held that private nurse costs could not be deducted from the nursing home resident’s income (once they were on Medicaid). In Re Pitman v. Daines (N.Y. Sup. Ct., App., Div., No. 2011 NY Slip Op 08681, Dec. 1, 2011). In that case, the nursing home resident paid for private nurses to provide 24-hour care. After the resident died, the resident’s executor sought to have the decedent’s net available monthly income reduced for Medicaid eligibility purposes by the amount the decedent paid for
the nurses, but the state refused.
After a hearing, New York State Department of Health found for the state, and the executor appealed.
The New York Supreme Court, Appellate Division, held that the amount the resident paid for private nurses could not be subtracted from his monthly income for Medicaid eligibility purposes. According to the court, “private 24-hour nursing care may have provided the deceased with ‘optimal care’ but was not ‘essential’ care that was ‘medically necessary’ for purposes of Medicaid reimbursement.”
If this same case were heard here in Maryland, it is my opinion that the court here would come to the same conclusion.
A good portion of our clients engaged in virtually no planning (before they came to our office) when faced with a parent or loved one entering a nursing home. Even in this late stage of the game, there are plenty of opportunities to protect a parent’s or loved ones’ assets from nursing home related costs. The key document to this process is the financial power of attorney for the nursing home resident. Without a doubt, this document will be key to the asset protection process. Ideally, this power of attorney was drafted by an attorney and, if recently executed, conforms with the new Maryland provisions relating to financial powers of attorney. Without this document, the next question is whether or not the nursing home resident can sign a new financial power of attorney. Even if this person cannot sign (or should not sign), then seeking court authorization will be neccessary. The absolute key is that just because one enters the nursing home do not assume that you can’t save assets at that point. That assumption is totally incorrect.
Recent Tax Court Decision Clarifies When Long-Term Care Expenses are Deductible
There is no question that long-term care can be very expensive (both assisted living and nursing home level of care). However, many of these long-term care expenses can be deducted the parent’s income tax return as a medical expense deduction. A recent U.S. Tax Court recently ruled on whether or not non-medical caregiving expenses are deductable for non-medical personnel.
In the Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia and her doctor recommended that she get 24-hour-a-day care. Ms. Baral’s brother hired caregivers to assist Ms. Baral with her daily activities. On her income tax return Ms. Baral included, as a medical expense deduction, the payments made to the caregivers. The IRS said the expenses were not deductable. Following Ms. Baral’s passing, her estate appealed the IRS determination to the U.S. Tax Court.
The Internal Revenue Code provides that expenses for medical care may be claimed as an itemized deduction if they exceed 7.5% of adjusted gross income (this will increase to 10% of adjusted gross income in 2012). The definition of allowable medical expenses includes the cost of long-term care if a doctor has determined the parent is chronically ill. Chronically ill is defined as needed help with such basic activities as eating, going to the bathroom, dressing, or requiring substantial supervision due to a sever cognitive impairment.
In this case, the Tax Court agreed that the payments Ms. Baral made for caregivers for assisting and supervising her were deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personal since a physician found that the services provided to her were necessary due to her condition.
The issue of whether caregiving expenses are deductable as a medical expenses is a tricky area, but one that is worth exploring as the potential income tax savings may be substantial. Remember, the medical expense deduction may be available in both the nursing home as well as assisted living context. Please seek legal counsel for more detailed information.
What is cited below is another jurisdictional case which illustrates the limits of what a State may do to accomplish a Medical Assistance (i.e. Medicaid) recovery on community spouses’ assets. In this case, an attempt was made to put a Medicaid lien on the estate of a recently deceased community spouse at a time when the nursing home spouse continued to receive Medicaid benefits. In this case the court ruled that the State was prohibited from reaching into the spouses’ estate for recovery.
An Idaho district court rules that the state cannot recover assets from the estate of a Medicaid recipient’s spouse that were transferred to the spouse before the Medicaid recipient died. In Re: Estate of Perry (Idaho Dist. Ct., 4th Dist., No. CV-IE-2009-05214, March 16, 2011).
Martha and George Perry owned property together. Mrs. Perry entered a nursing home, and Mr. Perry transferred the property into his name. Mrs. Perry then began receiving Medicaid benefits. Mr. Perry died before Mrs. Perry, and the property was sold. After Mr. Perry’s death, the state filed a claim against his estate seeking recovery of more than $100,000 in Medicaid benefits it had so far paid on Mrs. Perry’s behalf.
The state asserted that, because Mrs. Perry previously had an interest in the property during the marriage, the state could recover an amount equal to her ownership interest. The estate’s personal representative countered that the state was entitled only to recover an amount equal to Mrs. Perry’s interest in the home at the time of her death. Because Mrs. Perry was still alive at the time of the transfer, the personal representative argued the state could not recover any amount. The magistrate ruled that the state’s ability to recover costs was limited to assets that were transferred to the recipient’s spouse at death, not to inter vivos transfers. The state appealed. (Mrs. Perry died while the appeal was pending.)
The Idaho District Court affirms, holding the definition of “estate” in federal Medicaid law does not permit the state to recover property interests the Medicaid recipient divested before death. The court determines that there is a conflict between state and federal law because state law would allow the state to recover from the spouse’s estate so long as the property was once community property, but the court concludes that federal law preempts state law.
The Department of Human Resources just released an update changing the document requirements for a Medical Assistance application. The changes for what is required in the initial application is a profound change in terms of the financial statement documentation that is initially needed. Instead of a full five years worth of documentation, what would be needed initially is a snap shot of statements covereing the eligiblity month and then the previous years statements but only for the anniversary month (i.e. if you are seeking eligiblity for July 2011, then you would need financial statements for July 2010, July 2009, July 2008, July 2007, and July 2006). However, an additional item that will be needed are tax returns for the previous five years. These new provisions take effect for all applications beginning May 1, 2011.
There is no question that a financial power of attorney holds what is called a “fiduciary duty” to act in the best interests of the grantor. But what if that power of attorney holder breaches that duty and takes “mom’s” funds for herself? What if her taking of mom’s funds caused mom to be disqualified from Medical Assistance (i.e. Medicaid)? Can she be found liable?
An interested case in Indiana answered that quesion in the affirmative.
An Indiana appeals court rules that a woman breached her fiduciary duty to her mother when, among other things, she refused to cash out a life insurance policy in order to qualify her mother for Medicaid and later profited from the policy. Shaw v. Covenant Care Waldron Home (Ind. Ct. App., No. 73A04-1005-SC-317, March 2, 2011) (unpublished).
Joni Shaw admitted her mother to a nursing home. Ms. Shaw signed the admission agreement on behalf of her mother as her attorney-in-fact. Ms. Shaw applied for Medicaid on her mother’s behalf, but the application was denied due to a life insurance policy. Ms. Shaw refused to cash out the policy, and the Medicaid application was never approved. In addition, Ms. Shaw withdrew funds from her mother’s account and deposited them into her sole account. After her mother died, her brother, who was the beneficiary of the life insurance policy, gave her $8,000 from the proceeds of the policy.
The nursing home had an outstanding balance of $5,709.40, which Ms. Shaw refused to pay. The nursing home sued, alleging breach of contract and breach of fiduciary duty. It argued that an attorney-in-fact who breaches a duty to the principal is liable to third parties as though he or she were the principal. The small claims court found in favor of the nursing home, and Ms. Shaw appealed.
The Indiana Court of Appeals affirms, holding that Ms. Shaw breached her fiduciary duty to her mother. According to the court, because Ms. Shaw profited from refusing to cash in the life insurance policy and she transferred funds from her mother’s account to her own account, it was clear that Ms. Shaw was acting in her own self-interest to the detriment of her mother.
The interesting question from a Maryland point of view is what right does the nursing home have to sue the attorney-in-fact. Can other interested family member’s sue on behalf of mom? The answer to that question is “yes.” However, court action will need to be started to give that family member standing to recover the stolen assets.