Michigan Medicaid Update

• Medicaid Estate Recovery Enacted October 1, 2007.
• July 1, 2007, Sweeping changes to rules - 5 year lookback and more.
• Protection for spouses and disabled children not affected.
• Advance planning is required.

Harsh Rules Published July 1st 2007 and Changes Continue a Year Later

1. Changes Not Affect Protection for Spouses or Disabled Children
On July 1, 2007 Michigan Medicaid implemented DRA 2005 with new rules. The good news is that unless spouses of applicants have engaged in divestment the new rules will have no effect on their application. It will remain true that Medicaid community spouses can protect all of their life-savings by hiring a Michigan elder law attorney. The attorney can go to probate court for an order increasing the community spouse asset allowance. Or, the attorney may draft an asset protection or sole benefit trust for the Medicaid community spouse so that he or she will not be impoverished. All life-savings may be protected this way. The new rules continue to allow transfers to or for a disabled child without divestment penalty.

2. The New Rules Do Not Change Spend Down
The Medicaid applicant or spouse, or agent may still spend the money on anything. That includes prepaid funerals, burial goods for the family, new cars, home repairs and improvements, new appliances and other items for patient, spouse, disabled child, and maintenance of all property including homestead and vacation property.

3. Medicaid Divestment Rules Are Completely Changed
The new law does three things to attempt to eliminate divestment of assets so that all of an elder's money will be spent on the nursing home rather than stay in the family.

1. Five year lookback for transfers after February 8, 2006; three year lookback earlier transfers.
2. Aggregation of all transfers during the lookback period and brings all transfers made during the lookback forward to the date of application for Medicaid. The worker will have to determine the total amount transferred over five years and then impose a “penalty period” for the total of all transfers.
3. The “penalty period” for all transfers begins after application when the person is “otherwise eligible.” Medicaid will not pay for nursing home during a penalty period the length of which approximates how many days of nursing home care could have been paid for by the property divested.
4. Penalty periods are no longer “rounded down.” The prior law called for dropping of fractions of months and imposing a penalty period of whole months only.

Example: Within five years of applying for Medicaid, Mrs. King “loaned” her son $10,000 for purchase of a new home and gave two grandchildren a gift of $1,000 on their graduation for education; and gave the church $500 each year. Result: Total “transfers” of $14,500. Penalty period 2.61 months that will begin after she has spent down her remaining funds to $2,000 and applied for Medicaid. How she will pay for the 2.61 months is unknown.

4. The Penalty Period Runs Only After Application
This creates a problem for those who apply for “retroactive benefits.” For example, what if Mrs. King, above, applied for Medicaid after she recuperated for two months in the nursing home? Though she may have been otherwise eligible during those two months, the penalty period will not run till after she applies. That means her Medicaid would not cover the prior months plus 2.61 months after she applied. How will she pay for the 4.61 months?

5. Annuities Rules Make the State a Beneficiary
DRA 2005 imposes the requirement that the state be a beneficiary of annuities of Medicaid recipients. The new rules make the State of Michigan the beneficiary upon death of the annuitant second only to spouses and disabled children.

6. New Rules Limit the Homestead Equity to $500,000
The exempt homestead equity is limited to $500,000. That will not be a problem for the vast majority of Michigan Medicaid applicants. It will be a big problem for those who have non-working farms or homes on multi-acre parcels. It simply means that if the total parcel is worth over $500,000 the applicant is not eligible. Period.

7. Equity in Rental Property Limited to $6,000
Rental property will not be exempt as an income producing asset if the applicant's equity is greater than $6,000. This change effectively means there is no more exemption for rental property.

Michigan enacted Medicaid Estate Recovery as required by Federal Medicaid law. Michigan was the only state to not have such a program. Details are not yet final. The Department of Human Services, the Michigan Medicaid department, must present a program that complies with the law to the federal agency CMS for approval. How long this will take nobody knows

Estate recovery means the government will seek pay back for all the costs of care it rendered to the nursing home resident. The law as passed provides that such pay back will only come out of the probate estate of the deceased or the probate estate of a surviving spouse upon his or her death.

There are a number of provisions that make the final contours of the program unpredictable. The law requires the tracking of assets of recipients as part of the estate recovery program. While there is no recovery during the life of a surviving spouse, there is a provision to pursue recovery from the estates of spouses of recipients. What assets would be included or excluded is unknown.

The law provides for exemptions. There is a homestead exemption limited to 50% of the average price of a home in the county. Farms and other income producing property are also exempt. There are exemptions for disabled children, caregivers of two years of more, and for a co-owner sibling living in the home. There is a provision for Hardship exemptions as well.

We will not know the details of the Michigan program until the department presents its proposal to CMS.

Changes Continue
In 2008 change continues to be the operative word when speaking of the Michigan Medicaid policy. Many new rules are of questionable legality, however correction may only take place through court. For example, the policy proclaims home care and personal care contracts to be divestment if a person is in a nursing home or in some assisted living residences, or eligible for Medicaid waiver services in-home. Now payments under these contracts are divestment without a doctor's letter finding the services necessary. These changes seem designed to move a person into a nursing home, rather than using funds to stay out of the nursing home. The irrational policy now penalizes giving away an unused car, meaning it will just have to sit unused, rusting away, somewhere.

Result
Advance planning is required and opportunities to avoid the harsh consequences of the five year rule are missed by those who do not plan well in advance of placement. Call us at 248-356-3500 today for an appointment.