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Medicaid Law Overview

The following is a short overview of the rules and regulations for Medicaid coverage of expenses of long term care in a nursing home. This outline is prepared primarily for Tennessee residents, but much of what is included is based on federal law.

Medical Requirements.
In general, the applicant must be certified by a doctor (in a document called the Pre-Admission Evaluation, or “PAE”) as needing institutionalized care. The PAE must be done within 90 days prior to the application for Medicaid. If the elder is not certified as needing nursing home care, the application will not be approved. The applicant must require in-patient nursing care and be unable to perform at least one of the activities of daily living (ADL) or have a serious cognitive disability. Serious dementia, including Alzheimer’s disease, is generally considered a condition serious enough to warrant certification for nursing home care.
Income Cap Limitations.
In about 20 states, including Tennessee and Mississippi, a Medicaid applicant who has more than 300% of the federal SSI benefit amount ($1,911/month in 2008) is not eligible to receive any Medicaid benefits, but there is an approved approach to overcome this problem. Federal law allows the nursing home applicant to place his regular income into a “qualified income trust” (“QIT,” also called a “Miller trust”). The Medicaid recipient’s nursing home and other expenses are paid from the QIT, with the balance remaining in the QIT after the Medicaid recipient dies being paid over to the state. There is no limitation on the amount of income a nursing home Medicaid recipient’s spouse may receive in his or her own name (the “name on the check rule”).
Asset Limitations.
There are strict limitations on assets the Medicaid recipient may own. In general, Medicaid rules allow an institutionalized individual who is unmarried to have a maximum of $2,000 in available assets (for Tennessee; maximum is $4,000 in Mississippi). (If the institutionalized person is married, see next paragraph.) Some assets may be considered exempt or “not available.” Examples of these exempt or non-available assets are the family home, household furniture, one car, and certain other assets that are illiquid (i.e., not readily saleable, in spite of efforts to do so). If the home or other assets are sold during the elder’s lifetime, the sales proceeds may cause the elder to lose Medicaid until the money is spent down to $2,000 (Tennessee).
Spousal Resource Allocation by DHS (not applicable if patient is unmarried).
In general, for persons institutionalized in 2008, Tennessee Department of Human Services (DHS) Medicaid rules allow the well spouse to keep half of the available assets, with the well spouse being allocated a minimum of $20,880 and a maximum of $104,400. (Mississippi always allocates the first $104,400 of assets to the well spouse.) A Resource Allocation is required to be made as of the date the ill spouse enters the hospital or nursing home and remains for more than 30 days (sometimes called the “snapshot date”). DHS totals all the available assets owned by either spouse on the snapshot date, sets aside half the assets for the well spouse (if the total is above the minimum amount) and re quires the Medicaid applicant to spend down his half to $2,000 before the applicant can be approved. If the institutionalized spouse is incompetent and has assets in his separate name with no power of attorney, it could cause significant problems with making any required allocations to the well spouse.
Spousal Income Allowance (not applicable if patient is unmarried).
If the ill person is legally married, the well spouse is allowed to keep for her own needs all of the income that is paid to her in her separate name (“name on the check rule”). If her separate income is insufficient to live on, DHS will allocate the well spouse an income allowance from the institutionalized spouse’s income so that the well spouse has a minimum of $1,711.00. Larger amounts, up to $2,541/month may be reallocated under certain circumstances, and if even more income is needed to support the well spouse, the spouse may request a “fair hearing” to increase the spousal allowance.
Medicaid Eligibility Planning.
The chief reason for Medicaid eligibility planning is to shorten the time before an elder is eligible for Medicaid, particularly if the elder has, or soon will have, very high costs of care. A secondary reason is to protect assets for the care of the community spouse, if any, or to preserve some family assets the elder wishes to pass on to children. The chief reason for Medicaid eligibility planning is to shorten the time before an elder is eligible for Medicaid, particularly if the elder has, or soon will have, very high costs of care. A secondary reason is to protect assets for the care of the community spouse, if any, or to preserve some family assets the elder wishes to pass on to children. There are spend-down possibilities that are not penalized by Medicaid regulations, and proper planning with the help of an elder law attorney will often disclose others. Here are a few examples:

Purchase of exempt assets and services that will be needed by either spouse in the future, such as an irrevocable prepaid funeral and burial plot for each spouse.
Pay existing bills.
Care agreements. Family members may now be spending large amounts of time and money helping to care for the elder. Sometimes a child gives up a job or cuts back her hours to help a parent, a child might move in with the parent to provide assistance, or the parent might move in with the child. Medicaid regulations presume the time and money family members give to help the parent is a gift, but a written agreement, signed in advance of the payment for rent or personal services, can overcome that presumption. These caregiver agreements must be carefully drafted to assure that the agreement is acceptable to the Medicaid agency. It is important to recognize the money paid for services rendered must be treated as taxable income to the recipient.
Permitted transfers of the home. Federal law permits the elder to transfer the elder’s family home to certain people without penalty, including transfers to the well spouse, a caregiver child who has lived in the family home (though there are significant restrictions on such transfers), and a transfer to the elder's sibling who owns a part interest in the home and who has lived for at least one year. Even permitted transfers may have negative tax implications, however.

Recent Change to Federal Law Prohibits Most Gifts.
The Deficit Reduction Act of 2005 (“DRA 2005”) on which went into effect on February 8, 2006, greatly limited gifting of assets as a Medicaid planning tool. (DRA also made other significant changes to Medicaid law.) (Note: Tennessee has announced that the DRA 2005 penalties are being invoked retroactively to transfers on or after February 8, 2006.)

a. Gifts Prior to the Passage of DRA 2005 on February 8, 2006: Only gifts that totaled $3,394 or more in any one month (for Tennessee—or $3,100 for Mississippi) cause a period of ineligibility under the prior rules. Larger gifts disqualify the applicant from receiving Medicaid until the penalty period expires. The period of ineligibility or penalty for gifts prior to 2/8/06 begins on the date of gift and continues until the penalty period expires. The length of time the penalty lasts for such gifts depends on the amount of the gifts. For example: a gift of $33,940 causes an ineligibility period that lasts 10 months, beginning in the month the gift was made. In the 11th month, if the applicant is otherwise eligible, he can qualify for Medicaid. DRA 2005 prohibits the states from imposing any more than a 36 month look-back period for all gifts prior to 2/8/06, except gifts to or from certain trusts (60 month look-back applies). Note, however, that the Tennessee Department of Human Services has implemented rules that require a five year disclosure of gift look-back. Though these rules appear to be in violation of federal law, DHS rules apply the same penalties to gifts made prior to February 8, 2006, as after that date.

b. Gifts Made after February 8, 2006: The DRA requires that any gifts made by the Medicaid applicant or his spouse after passage of DRA 2005, except those made to certain exempt recipients (spouse, disabled persons, etc.) cause the applicant to be ineligible for Medicaid beginning on the date the applicant has $2,000 or less of countable assets (Tennessee) and is otherwise eligible for Medicaid. In other words, the penalty for a gift begins, not when the gift is made, but when the spend-down is completed and the applicant is out of money. The look-back period for gifts made after February 8, 2006, is 60 months, so a gift now will cause ineligibility any time within the next 60 months the applicant has completed the spend-down and applies for Medicaid. The length of the new penalty is the amount of the total of all gifts within that 60 month period divided by the average daily cost of nursing home care for the state. The DRA makes no such exceptions to the kinds of gifts that create this penalty, and even gifts to churches could cause the applicant to be ineligible for Medicaid unless the states establish “hardship” exceptions.
Estate Recovery.
The states each have “estate recovery” programs to recover amounts the state paid for Medicaid benefits paid to the nursing home or for home and community-based Medicaid. The state may seek recovery from all assets in the “probate estate” of any person over 55 years of age for whom long term care Medicaid benefits were paid by the state. The family home is often the only asset that was exempt during the recipient’s lifetime, and it will be subject to estate recovery subject to certain limitations. Under current Tennessee and Mississippi law, only assets in the Medicaid recipient’s sole name at the time of his death are subject to estate recovery, with the state’s rights being superior to whatever the will might provide. The states have the right under federal law to expand its estate recovery efforts to include any property in which the deceased Medicaid recipient had an interest at the time of his death, even property titled jointly with the spouse or another person with rights of survivorship, but currently neither Tennessee nor Mississippi have passed legislation allowing such “expanded” estate recovery by the state.

Prepared by:
William King Self, Jr.
Certified Elder Law Attorney
Apperson, Crump and Maxwell, PLC
6000 Poplar Avenue, Suite 400
Memphis, TN 38119
(901) 756-6300
www.elderlawmemphis.com

Updated March, 2008

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