In order to qualify for Medicaid nursing home (or in some cases assisted living) benefits, you have to meet certain eligibility requirements. Important among these are income and asset restrictions listed below.
|2015 Asset and Income Eligibility Levels*|
|Medicaid Recipient||Community Spouse|
|Minimum: N/A||Minimum: N/A|
|Minimum: N/A||**Minimum: $1,966/month|
|*Effective April 1, 2015
** For purposes of determining spousal diversion amount
The Medicaid qualification process can be complex and there are a number of possible pitfalls. This is not something you should attempt without the assistance of a qualified legal professional. There are a number of organizations that purport to provide Medicaid planning services. These organizations may not be lawyers and should not be providing legal advice.
If you would like to learn more about options in long-term care asset protection planning and Medicaid, without any obligation or requirement for a one-on-one meeting with an attorney, we invite you to attend our complimentary Truth About Medicaid Planning Workshop. A complete schedule of workshop listings can be found on our website at by clicking here.
Florida’s New Medicaid Law Became Effective November 1, 2007 and January 1, 2012!
On February 8, 2006, the Deficit Reduction Act of 2005 (known as the DRA) signed by President Bush become effective. The DRA represents the most significant change to federal Medicaid rules in 17 years and dramatically impacts the rules governing Medicaid qualification and gifting. The DRA required that all states implement their own regulations—Florida’s become effective on November 1, 2007 and January 1, 2010.
There were 11 major changes to the law that affect seniors:
1. The “look-back” period was changed to five years for all transfers
Under the previous law, when applying for Medicaid benefits the Department of Children and Families (Florida’s State Medicaid Agency) reviewed all financial transactions of the applicant that occurred within a 3-year period preceding the application (referred to as the “look-back” period), unless transfers were made to or from a trust, when they were subject to a 5-year look-back.
Under the new law, any financial transactions that occur on or after January 1, 2010 will be subject to a single 5-year look-back because the new law does not distinguish between transfers from individuals or trusts. Transactions that are relevant during the look-back period include not only transfers of assets (gifts), but also the sale of real property, personal property, stocks, bonds, and mutual funds, closing accounts and all other financial transactions.
2. The penalty start date for transfers within the five-year look-back was postponed
When an individual gives away something of value without receiving something of equal value in return (which does not include love and affection), they will be deemed to have made an “uncompensated transfer,” commonly known as a gift. If a gift occurred within the relevant look-back period, an individual will be penalized—resulting in a period of ineligibility (a/k/a “penalty period”) for Medicaid benefits. The penalty period is calculated by dividing the amount of the uncompensated transfer by the average cost of one month nursing home care at the private pay amount.
In Central Florida, the average cost of nursing home care is approximately $7,500 to $8,000 per month. However, Florida’s Department of Children and Families assigned the current average cost of care at $7,362 per month, which is the divisor for determining the penalty period.
Here’s an example of how this works. Let’s assume an individual makes a gift of $100,000. (Remember, this gift can be a transfer of cash, securities or real property—any uncompensated transfer is a gift). Take the $100,000 gift amount and divide by the average cost of care ($7,362). The resulting penalty period is 13.6 months. That means an individual applying for Medicaid today would not be eligible until 13.6 months had elapsed. The penalty period doesn’t start until an individual who is “otherwise qualified” applies for Medicaid. So, if I made a gift on January 1, 2011, of $100,000 and I’m otherwise eligible for Medicaid and apply on in February 2012—13.6 months later—the penalty period has not expired. It begins on the date I apply—February 2012 and does not expire until approximately March 2013.
The postponement of the penalty start date for transfers that occurred within the 5-year look-back period is likely to be the harshest of the new rules for many reasons. Will you be able to remember every transaction that occurred within 5 years of your application for Medicaid benefits? What about gifts made to charity, are they treated differently? How will the nursing home be paid during the prospective penalty period when the Medicaid applicant only has $2,000 in assets? The bottom line is it is imperative to implement planning as early as possible, that you keep good financial records and keep those records for at least 5 years in case Medicaid is needed.
3. Elimination of the “rounding-down” technique for monthly transfers
This change, in combination with the prospective application of the penalty period discussed above, will have the biggest impact on the way we currently plan for Medicaid in Florida. Under the old law, as long as total gifting during a calendar month did not exceed the penalty divisor no penalty would be imposed because we were permitted to “round-down” the transfer to the nearest whole number.
This rounding down permitted monthly, serial gifting that when used in combination with the application of the old penalty period discussed above would allow us to gift nearly double the penalty divisor per month for as many consecutive months as were necessary, without incurring a penalty beyond the month the gift was made.
Under the new law, however, rounding down of gifts is now prohibited. In addition, the new law also requires the aggregation of gifts that result in less than a one-month penalty. Consequently, gifting an amount less than the penalty divisor on anyone calendar month will no longer be disregarded. Instead, it will be added to any gifts that occur in the next month (or any of the next 59 months in the 60 month look-back). The resulting penalty for the total amount of the gifts would be applied prospectively after the date of application.
As a result of these changes in the law, there is no longer any benefit of monthly gifting. In fact, such monthly gifting will now likely be more detrimental to eligibility than lump sum gifting.
4. Restriction on the use of annuities
There are generally two broad categories of annuities: deferred annuities and immediate annuities. A deferred annuity is an investment you purchase from a life insurance company that permits your investment to grow income tax deferred. Although the annuity contract can have deferred surrender charges that will result in a penalty if you terminate the annuity too soon, under the terms of the annuity contract you have the ability to terminate the annuity any time you want. As a result, the money invested in the deferred annuity is considered an available asset for Medicaid purposes.
An immediate annuity, on the other hand, is not considered an asset for Medicaid purposes. An immediate annuity is similar to a pension you might receive after retirement. With an immediate annuity you are only eligible to receive the income stream and you do not have any ability to reach the principal. As a result, an immediate annuity is not considered an asset for Medicaid eligibility purposes, but the income derived from the annuity is counted as an income resource.
The new law does not do anything to change deferred annuities—they are still considered assets for purposes of Medicaid eligibility. What has changed is the treatment of immediate annuities.
Under the old law, immediate annuities that were “actuarially sound” would not be considered an asset for purposes of Medicaid eligibility when they were also irrevocable and non-assignable. When determining actuarial soundness, the State of Florida only required the annuity to pay out in full over a period that does not exceed the actuarial life expectancy of the annuitant. The manner of the payments was not specified in the law. As a result, several states, including Florida, permitted what became known as “balloon annuities.”
A balloon annuity is an immediate annuity that pays interest, plus a nominal amount of principal each month (typically between $10.00 to $100.00) over all but one month of the life expectancy of the annuitant, with the final month’s payment being a balloon payment of the unpaid principal balance. In other words, an individual with a 60 month life expectancy could purchase a $100,000 balloon annuity that would pay approximately $150 per month during months 1 through 59, with month 60 paying the balloon of $99,410.
Under the new law, if a balloon annuity is created on or after November 1, 2007, the Medicaid applicant will be deemed to have made a transfer of assets that will result in a period of ineligibility based on the amount invested in the annuity. As a result, balloon annuities are no longer viable under the new law for the medicaid applicant.
It is important to remember, however, that although balloon annuities are abolished under the new law, traditional immediate annuity planning remains viable. As such, if an immediate annuity makes equal periodic payments over the actuarial life expectancy of the annuitant (or a shorter period), it will not be considered a transfer of assets. It will, however, be required to meet the new beneficiary designation requirements discussed below.
So, what about annuities (balloon or equal periodic payments) that were created PRIOR to November 1, 2007? Those annuities will generally be grandfathered in and will not be affected by the new law, with one caveat. Under the new law, all immediate annuities created by the Medicaid applicant or the applicant’s spouse must name the State of Florida as the irrevocable beneficiary of the annuity to the extent of Medicaid payments made for the benefit of the Medicaid recipient. The only exception to this irrevocable beneficiary designation is when the Medicaid applicant is survived by a spouse, minor child or a disabled child.
As a result of this new requirement, the preparation of customized beneficiary designation forms will be of critical importance to be sure no more is paid back to the State than necessary. If any immediate annuity does not name the State of Florida as the irrevocable beneficiary, the annuity will be considered an available asset for Medicaid purposes.
5. Limitations on the value of Medicaid Applicant’s homestead
One of the long-time hallmarks of homestead protection in Florida has been the unavailability of the primary residence as an asset for Medicaid qualification purposes. Under both federal and state law, the homestead property was exempt, regardless of its value, as long as the Medicaid applicant had the intent to return home (which was generally presumed) or a spouse or minor/disabled child of the Medicaid applicant lived in the home.
Under the new federal law, however, the homestead property will only be treated as exempt—or unavailable—for Medicaid qualification purposes when the equity in the property is $525,000 or lower. If the equity in the home is in excess of the $525,000 limitation, the applicant will be denied Medicaid even if he meets all other eligibility requirements. The only exception to the new law is when the Medicaid applicant’s spouse, minor child or disabled child continues to actually live in the home.
6. Requiring the income-first rule in providing support to the Community Spouse
Under the old law, if the spouse of a Medicaid applicant still lived at home (referred to as the “Community Spouse”) and received income that was below the minimum amount permitted by federal law, we could raise her income through one of two methods known as the “income first” and “resource first” tests. When using the “income first” technique, we simply pulled income from the nursing home spouse and gave it to the Community Spouse to raise her income to the amount permitted by Medicaid regulations.
However, by using the “resource first” technique, we were able to exempt assets in excess of the Community Spouse’s asset limitation that were necessary to produce income to raise the Community Spouse’s income to the amount permitted by Medicaid regulations. By using this technique, it was not unusual to allow the Community Spouse to keep $300,000 or more in assets, while still obtaining Medicaid benefits for her spouse.
The federal law does not abolish either the “income first” or “resource first” techniques. Instead, the federal law mandates the use of the “income first” technique. If the Community Spouse can raise her income to the amount permitted by Medicaid regulations by utilizing income of the nursing home spouse, then she will not be able to keep any assets in excess of the $113,640 limitation. However, if the Community Spouse’s income still does not meet the amount permitted under Medicaid regulations after full utilization of the nursing home spouse’s income, we may still be able to exempt assets in excess of the $113,640 limitation to the extent they are needed to produce income.
7. New rules on the treatment of the “buy-in” at Continuing Care Retirement Communities
For people who are residents in a Continuing Care Retirement Community (“CCRC”), these next two changes may catch some families by surprise. A Continuing Care Retirement Community is a retirement community that provides the full continuum of care for its residents: independent living, assisted living and nursing home care. Typically, residents in a CCRC pay a lump sum “buy-in”/entrance fee when they move in to the community, which, among other things, guarantees their right to live in the facility for the remainder of their lifetime—regardless of whether they run out of money before their death.
When an individual applies for residency in a CCRC, the application typically requires financial disclosure of the applicant’s assets. Although the CCRC has always had the ability to consider the assets disclosed in the application when making its decision on admission, the CCRC was generally prohibited from taking any adverse action against the individual if they later engaged in long-term care asset protection planning and applied for Medicaid. In other words, if an individual disclosed $300,000 of assets in an application to the CCRC and then implemented one or more asset protection strategies following admission in an effort to preserve assets and obtain Medicaid benefits, the CCRC could not take any adverse action against them, despite the disclosure of $300,000 on the original application.
Because most CCRC’s were counting on being paid at their private pay rates based on the assets disclosed, many attempted to change their admission contracts to prohibit asset protection planning after admission to the CCRC. Fortunately, most of these attempts were found to be in violation of federal law and, therefore, were not successfully enforced. That will likely change as a result of the Deficit Reduction Act.
The new law now specifically grants authority for a CCRC to include a provision in their admission contract that will REQUIRE residents to spend resources declared in their application for admission on their care before they may apply for Medicaid benefits. This contractually required spend-down will likely greatly limit protection of assets disclosed in the application and underscores the importance of meeting with an elder law attorney PRIOR to submitting the application for admission to review what assets should be disclosed.
Once admitted, the CCRC entrance fee/”buy-in” may be refundable, partially refundable or not refundable at the death of the resident (or if the resident decides to leave the community prior to their death). Under the old law, whether the entrance fee was refundable or not, it was not considered an asset for purposes of Medicaid eligibility—even when the CCRC contract permitted the use of the entrance fee toward the monthly cost of care at the facility, thereby reducing the amount refundable at the death of the resident.
However, under the new law the lump sum entrance fee paid upon admission to a CCRC will be considered an available asset for Medicaid eligibility purposes when three criteria are met: (1) the individual may use the entrance fee to help subsidize his care in the CCRC; (2) the individual is eligible for a refund of any remaining entrance fee when he dies or leaves the community; and (3) the entrance fee does not confer an ownership interest in the CCRC.
Because refundable entrance fees will now be considered available assets for purposes of Medicaid eligibility, it will be important to consider alternatives for the utilization of entrance fees when implementing a long-term care asset protection plan.
8. Restricting the use of notes, loans and mortgages
Under prior federal law, neither statutes nor regulations provided any specific guidelines on the terms of notes, loans or mortgages for Medicaid eligibility. As a result, some states permitted notes, loans and mortgages that were actuarial sound (as described under the annuity discussion above), and some did not.
In Florida, we were able to use actuarially sound notes, loans and mortgages for many years as an asset protection planning technique. However, in March 2005, the State of Florida abolished the use of notes, loans and mortgages, by deeming almost all notes, loans and mortgages as available assets, notwithstanding their irrevocability or actuarial soundness.
The new federal law, however, now provides specific guidelines on the issuance of notes, loans and mortgages in determining whether they will be deemed available for Medicaid eligibility purposes. Under the new law, creation of a note, loan or mortgage on or after 11/1/2007 will generally be considered an incompensated transfer when determining eligibility for Medicaid benefits unless the note, loan or mortgage is actuarially sound, provides for equal, periodic payments and is not self-canceling.
9. Permitting the Purchase of a Life Estate in Real Property
This change to the federal law is another area that may actually increase planning opportunities in Florida. Although the old law contained provisions for the valuation of life estates in real property (the right to live in a home and/or enjoy the benefits of that property for the rest of one’s life, with the remainder interest passing to a third party—typically a family member), it was somewhat ambiguous about how the purchase of life estates would be treated for Medicaid eligibility. As a result of the ambiguity, states implemented the rules regarding life estates very differently.
In Florida, we were able to exempt the value of a life estate in real property for Medicaid purposes, as long as the Medicaid applicant owned the underlying property in fee simple before they gave away the remainder of the property, retaining the life estate interest. However, if the individual attempted to buy a life estate in their child’s home (or the home of any other person), that purchase, regardless of its actuarial soundness, would be deemed as a transfer of assets with a corresponding penalty period for Medicaid purposes.
The new federal law, however, now specifically addresses the treatment of life estate interests in real property that are purchased in the home of another individual. Under the new law, the Medicaid applicant can purchase a life estate in a family member’s home and that purchase will NOT be considered a gift for Medicaid purposes, as long as the purchase of the life estate is actuarially sound (does not exceed the life expectancy of the Medicaid applicant) and the Medicaid applicant lives in the home for at least one year after the date of purchase.
10. Expansion of the Long-Term Care Partnership Program
Again, this change to the federal law will actually create another opportunity for long-term care asset protection planning that did not exist under the old law. The Long-Term Care Partnership Program is actually being resurrected after nearly 13 years of dormancy. Before the passage of OBRA 1993, the last federal change to the Medicaid eligibility law, only four states implemented a long-term care partnership plan. However, any state that did not implement a partnership program prior to 1993 was precluded from implementation at a later date.
The Long-Term Care Partnership Program is a joint effort between the government and individuals to share the cost of
long-term care in a way that will be mutually beneficial for both parties. In short, the partnership program permits individuals to purchase certain qualified long-term care insurance policies to help pay for their long-term care needs. In exchange, the federal government will raise the asset limitations for Medicaid eligibility purposes to allow the individual to keep more assets and qualify for Medicaid benefits.
Specifically, the new law provides that any individual who purchases a qualified long-term care insurance policy in a state that implements a Long-Term Care Partnership Plan will be able to maintain assets in an amount equal to the insurance benefit payments that are made to or on behalf of that individual over the term of the insurance policy. For example, although the normal asset limitation for Medicaid eligibility for a single person is $2,000, if that individual has a long-term care insurance policy that paid out $180,000 over a 3-year period, that individual will be permitted to maintain the $182,000 in assets and still qualify for Medicaid benefits.
There are several specific criteria that are required for the insurance policy to be qualified for the partnership program. However, these policies will be one of the best ways we can help plan for our long-term care needs and can be used in conjunction with other long-term care asset protection planning techniques to reach the maximum possible benefit.
11. Requiring States to implement a “hardship waiver” policy
The final change to the federal law is the specific requirement that states must implement a “hardship waiver” policy to address the potential denial of Medicaid benefits because of an uncompensated transfer made during the 5-year look-back period when the imposition of a penalty period would cause an “undue hardship” to the Medicaid applicant. The federal law defines an undue hardship as a hardship that would deprive the individual of food, clothing, shelter or other necessities of life, or would deprive the individual of medical care such that the individual’s life or health would be endangered.
Each state is required by the new law to create a formal hearing procedure to process the requests for a hardship waiver. Because nursing homes may have the most at risk with the denial of Medicaid of someone who no longer has any assets to pay the nursing home bill, the new law permits nursing home representatives to file for and represent the nursing home resident at the hearing for the hardship waiver determination.
Although the hardship waiver policy is a step in the right direction, the new law does not do anything to change current law that any transfer within the look-back period will be presumed to have been made with the intent to qualify for Medicaid benefits—whether that transfer was made to a charity, for a child’s medical expenses, a grandchild’s schooling or any other purpose. In addition, based on the definition of “hardship” quoted above, if the individual is in a nursing home and that nursing home cannot discharge the resident because he/she is not well enough to be discharged to their home and no other facility will take them (who would take a non-paying resident?), it is unlikely that the individual will meet the deprivation of food, clothing, shelter or medical care such that their life or health would be in danger as required by federal law.
As a result, we are not overly optimistic that the hardship waiver policy – even after implementation in Florida – will provide much of a saving grace for Medicaid applicants who make gifts for purposes other than to qualify for Medicaid.
This brief summary covers all the major changes contained in the Deficit Reduction Act of 2005, now effective in Florida. Although the new law does eliminate some of the planning opportunities previously available, it also opens up other opportunities previously permitted under Florida law. The biggest message sent by the new law is that planning in advance of need is now more important than ever and working with a qualified expert in long-term care asset protection planning is essential.