Michigan Elder Law Today ©

As an elder law attorney who assists seniors and their families with Medicaid eligibility, I am frequently called on to review Medicaid nursing home applications that have been denied.  Since most people who need to move to a nursing home and apply for Medicaid are the frail elderly, often age 80 and over, these Medicaid applications were usually prepared by someone else for the nursing home resident, be it their spouse, who also may be quite elderly, or an adult child of the nursing home resident.

There is good news for older veterans and their surviving spouses who rely upon Aid and Attendance to pay for their home care, assisted living, and nursing home costs.  The amounts veterans and their surviving spouses receive in Aid and Attendance will increase in January 2012.

The U.S. Department of Veterans Affairs has indicated that single veterans receiving Aid and Attendance will receive $1,703.00 per month.  Married veterans receiving Aid and Attendance will receive $2,019.00 per month.  Surviving spouses of veterans receiving Aid and Attendance will receive $1,094.00 per month.

These are the first increases in the VA’s Aid and Attendance program since 2008.

As an elder law attorney practicing in Oakland County, I am often asked “what’s the difference between a nursing home and assisted living facility?”  The difference in the appearance between the two types of facilities can be dramatic, because nursing homes tend to be more hospital like. 

A nursing home provides residents with a room, personal care, nursing care, medical services, and meals.  As to the room, it is often semi-private, meaning the resident has a roommate.  Residents of nursing homes tend to have chronic conditions requiring long-term care and need assistance with multiple activities of daily living, such as bathing, dressing, eating, toileting, transferring in and out of beds or chairs, and help with continence issues.  Moreover, residents of nursing homes often have cognitive and memory problems due to various forms of dementia, such as Alzheimer’s disease.  Medicare does not pay for this long-term custodial care in a nursing home, but Medicaid will pay for nursing home care provided that the asset, income, and medical criteria are met.

Nursing homes also provide care for patients needing shorter-term recovery after a hospitalization.  Medicare may pay for up to 100 days of this type of skilled nursing care per spell of illness, which tends to be physical therapy and rehabilitation services after a stroke or broken bone.

The average cost of a nursing home in Michigan in 2011 is $220 per day, $6,692 per month, or $80,300 per year.

Assisted living residences provide services for people who are not able to live independently, but who do not require the level of care provided in a nursing home.  For instance, assisted living facilities provide housing for those who need help with day-to-day living, but who do not need the 24-hour level of care found in nursing homes.  Residents of assisted living may need help with personal care, assistance with meal preparation, some assistance with some of the activities of daily living, and housekeeping services.  Residents of assisted living facilities tend to have their own private living space, which can range from just a bedroom with a private bathroom, to a small apartment with a living room, bedroom, bathroom, and small kitchen area.  Assisted living facilities tend to have many activities for their residents.  Sometimes they seem like a nice resort with good staff and lots of activities.

Many assisted living facilities have special “memory units” for older people with Alzheimer’s and other forms of dementia who need a great deal of supervision. 

The average cost for assisted living in Michigan is $3,425 per month or $41,100 per year.  However, costs can easily exceed $5,000 a month for assisted living residents living in memory units.  Assisted living facilities in Michigan do not accept Medicare or Medicaid as a payment source for the cost of room and board.

In conclusion, nursing homes tend to be more institutional and hospital like.  They accept Medicaid as a payment source.  Some of the residents tend to be very frail, many others have dementia, and some residents of nursing homes are there because they have inadequate financial resources to live in assisted living or elsewhere.  Assisted living facilities are more home-like, though they can provide a similar level of care as a nursing home.  Assisted living facilities are strictly private pay, meaning the resident or family has to pay the bill out of their own funds or with long-term care insurance or the veteran’s Aid and Attendance benefit.

A recent report finds what many of us working with older people and their families already know, which is the cost of nursing home care continues to rise.  MetLife’s Mature Market Institute’s 2011 survey determined that the statewide average cost of a semi-private room in a Michigan nursing home is $220 per day or $6,600 per month.  Many of our clients in nursing homes in northern Oakland County are paying more than that at about $230 to $240 per day.

The MetLife study also cites interesting U.S. Census Bureau statistics that the median age of U.S. nursing home residents is 82.7 years.  Often, people who have not dealt with long-term care in their family think of nursing homes as being places for people in their 90’s or older.  Moreover, many also erroneously think of nursing homes as places people move to when they are quite incapacitated and about to pass away in a few weeks or a month or so.  The survey makes clear that nursing home residents are made up of people ranging in age from their 60’s to their 90’s and older.  While some stays are short term, average stays in a nursing home are about 2 years.    

As such, given the high costs and high chance of living in such a facility for a long time, it is important to plan ahead about how to pay for long-term care.  Long-term care insurance should be considered, but many seniors wait too long to obtain such policies and then feel they cannot afford the $3,000 to $5,000 annual premiums or they may not pass the health underwriting standards for the insurance.  Estate and longevity trusts or Medicaid Asset Protection Trusts should be considered, either alone or in conjunction with long-term care insurance policies.

Michigan’s new estate recovery law will most likely affect the home.  The reason for this is the home is the major non-countable asset a nursing home resident can own while qualifying for Medicaid nursing home benefits.  However, the state will not seek to recover against the home in some circumstances.

First, if the nursing home resident is married and their spouse, called the community spouse is living in the home, estate recovery will not apply.  However, the community souse may still want to consider planning to avoid estate recovery for the following reasons.  First, the community spouse may die before the nursing home spouse.  In many cases, the nursing home spouse would then inherit or otherwise solely own the house again, causing it to be subject to estate recovery.  Second, the community spouse may need nursing home care themselves someday.  In that case, estate recovery would be pursued against the home based on their receipt of Medicaid.

It’s a shame when taxpayers have to pay for these programs all their working lives and then, when it comes time to use them, the state now may seek to recover against their home. 

In addition, the State of Michigan will not seek to recover assets from the home of a Medicaid recipient while one of the following other individuals is actually residing in that home:

A controversial topic in the news in our state this year was Governor Snyder’s proposal to reduce the exemption of pensions and other retirement income from Michigan’s income tax.  That topic was of great interest to seniors and other older people living on a fixed income who were understandably concerned about how such a change would affect their ability to make ends meet.  In the end, the favorable income tax treatment afforded to some retirement income was reduced, especially for people born after 1952.

What got lost in the shuffler during the controversy over the income taxation of older people’s retirement income was the subject of estate recovery.  At the same time, the administration was seeking to have an estate recovery program implemented in Michigan that may have a significant effect on seniors.

Estate recovery is the process by which states are required to recover expenses from the estates of individuals who receive Medicaid assistance in a Michigan nursing home or through the MI Choice Waiver program. On September 30, 2007, Michigan became the last state in the nation to adopt an estate recovery law.  The estate recovery law allows the state to recover the costs paid for by the Medicaid program from assets owned by the Medicaid beneficiary at the beneficiary’s death. In most cases, the recovery would typically come from the only asset most Medicaid beneficiaries own at their deaths, the home.

The Granholm administration’s estate recovery plan was rejected by the federal government based on it being not expansive enough.  The updated plan submitted by the Snyder administration was approved by the federal government on May 23, 2011.  The state has started to issue correspondence to Medicaid beneficiaries regarding estate recovery.

Under the Estate Recovery program, the Michigan Department of Community Health (MDCH) will seek repayment of benefits received from Medicaid.

Who is Subject to Estate Recovery?

Estate Recovery only applies to Medicaid beneficiaries who are 55 years of age or older and have received long-term care services anytime on or after September 30, 2007.

What is an Estate?

An estate includes all property and other assets that pass from a deceased beneficiary to that person’s heirs through a probate proceeding.  

How Does Estate Recovery Work?

When MDCH learns of a Medicaid beneficiary's death, a notice and other information will be sent to the estate representative or heirs. This notice will state that MDCH intends to file a claim and how much the claim will be. A questionnaire will be sent with the notice. 

Once the questionnaire is returned, an undue hardship application may be requested. If no exemptions apply, then MDCH will file a claim against the estate.

Future posts will address additional details about Michigan's new estate recovery law.

Governor Snyder signed a tax reform bill into law on May 26, 2011, that will result in the income taxation of certain retirement income, reducing the favorable exemption from taxation previously afforded to most retirement income under Michigan law. Though the change is technically a reduction in an exemption, for many people the end result is the same as a tax increase.

Changes of interest to seniors and other older people regarding the new Michigan income tax law include the following.

The individual income tax rate is set at 4.35% until January 1, 2013. Then, it will be set at 4.25 %.

In regards to retirement income, there is a three-tiered approach under the new law, the application of which will determine whether or not retirement income is taxed.

First, people born prior to 1946 (age 67 or older as of December 31, 2011) will continue to receive the current retirement income exemptions, the personal exemption, Social Security exemption and the exemption for dividends, interest, and capital gains.

Second, individuals born between 1946 and 1952 (age 60 to 66 as of December 31, 2011) will have a $20,000 single and $40,000 married joint retirement income exemption, which is in addition to the personal exemption and Social Security exemption until age 67. At age 67 and after, they will receive a $20,000 single and $40,000 married joint senior exemption against all income, in addition to the personal and Social Security exemptions.

Third, taxpayers born after 1952 (age 59 or younger as of December 31, 2011) will receive the personal exemption and Social Security exemption until they turn age 67. At age 67 and after, they will have a choice of either (1) a $20,000 single and $40,000 married joint senior exemption against all income, or (2) the personal and Social Security exemptions.

This is quite a negative change for the last group. During the sustained recession in Michigan in the last 10 years, many people in their fifties were forced to take an early retirement due to their employer downsizing. Due to the early retirement, they will receive less in retirement benefits then if they had been able to continue to keep working until age 65 where they and their employer could have continued to contribute to their retirement plans. Now, under the new law, more of their retirement income will be subject to income tax.

Many people are aware that they can make gifts of $13,000 per year without any negative tax issues.  This is the federal gift tax annual exclusion amount.  What is less understood is that this federal gift tax law conflicts with the federal Medicaid laws and, in this situation, the Medicaid law controls.  So while it is true that one can make gifts of $13,000 per year without any gift tax ramifications, for Medicaid purposes, such gifts will be considered a divestment if they occur within 5 years of applying for Medicaid. 

Still, some seniors want to make gifts to their family before their life savings are gone.  More importantly, a nursing home resident will often have needs that exceed the amount of $2,000 in funds they are allowed to have while qualifying for Medicaid.  If all of their funds have been spent down before obtaining Medicaid, how will those needs be met?  $2,000 may only pay for one year’s worth of real estate taxes.  How pays the taxes on the home after that money is gone?  The family would have to in order to keep the home.  If a senior has spent down to $2,000 or less, they are essentially out of money and out of care options.  What can be done to avoid being out of money and out of options?  Consider the following hypothetical case study with an adult daughter we will call Sally and her mother who is a nursing home resident.

Sally feels worn out. Four years ago her father died and for the past three years she has been caring for her aging mother.  At first, it was little things . . . grocery shopping, trips to the doctor, help with her medication, and things like that. But as her mom's health deteriorated, Sally's burden has increased. The last six months have been difficult. That's because Sally had to move her mom to a nursing home. Mom couldn't live at home any more.

Sally thought her job would be easier once the nursing home staff took over, but it hasn't turned out that way. As the oldest daughter, Sally still feels responsible, even though technically, someone else is now responsible for Mom's care. Sally feels like she has to be there. So she visits her mom four or five days a week.

Sally is running herself ragged and Mom is running out of money. Besides the home, Mom has about $50,000 left, and at $6,500 per month for the nursing home, Sally knows Mom's money won't last long. When the money runs out, who will be there to pay for Mom's nursing home? Sure, Sally has heard Medicaid will cover the nursing home, but she's also heard Medicaid won't cover everything. What then?  Sally is quite distraught. "Is there anything else I can do?" Yes, there are steps she can take.

The last thing we want is for a nursing home resident to spend down to the $2,000 Medicaid limit because then they are out of money and out of options.  Assuming there is a proper power of attorney in place, Mom can still make a transfer of some of the remaining $50,000 to Sally.  This will create a pool of protected funds that can be used for Mom's other needs after she obtains Medicaid eligibility, such as paying the real estate taxes on the home.  Other needs Mom may have, even after qualifying for Medicaid are cable T.V. in her room, replacement dentures, eye glasses and hearing aids, and clothing.  Also, if Mom has to go to the hospital after qualifying for Medicaid, she may lose her spot in the nursing home.  The reason for this is someone has to be in the bed in order for the nursing home to be paid by Medicaid.  If Mom is in the hospital temporarily, the nursing home may have to fill her spot with another patient in order to generate revenue.  If some of Mom’s money is protected, it can be used to pay for a bed hold if Mom is temporarily in the hospital.  That way Mom will not lose her spot and the family will not have to scramble to find another acceptable nursing home for Mom.

If there is not a proper power of attorney in place, this planning still may be able to be done, but we will have to first obtain probate court authority.

Usually, at least fifty percent can be saved if not more, even after a senior moves to a nursing home.  The amount that can be saved depends upon if there have been any prior gifts, Mom's income, Mom's medical expenses, and the daily rate for the nursing home. 

Sally says, "what about the five year look back period.  I heard you can't make any gifts within five years of moving into a nursing home?" 

The look back period is a disclosure requirement.  This means that when one applies for Medicaid, you must disclose to Medicaid if there have been any gifts or transfers made within the five years of applying for Medicaid.  However, there is no law prohibiting Mom from making a gift within the five year period, even after she moves to a nursing home.  After all, it is her property, she can do want she wants with it.  It is true that Medicaid can apply a penalty if Mom makes a gift.   The penalty is simply that Medicaid will not pay for Mom's care for a period of time.  That is why the entire $50,000 cannot be saved; some of these funds, along with Mom's income, will need to be used to pay for her care during the penalty period.  It is the elder law attorney's job to apply the laws so that Mom can make the maximum gift with the minimal penalty.  The portion of the funds that Mom does not gift will be structured to pay the nursing home during the penalty period.  That way the nursing home will be paid in full.  After the expiration of the penalty period, Medicaid will start paying and at least fifty percent of Mom's assets have been protected.

The above explanation is the “short version” and this type of planning must be handled in a very specific manner.  For instance, you cannot just make a transfer of 50%.  Funds have to be structured to pay the nursing home during the penalty period and the timing of filing the application is critical.  However, when done properly, such planning can be used to make sure that Mom is never out of money and out of options; this planning will allow Sally to provide for all of Mom's need while qualifying for Medicaid to pay for the nursing home.

Case Study: Medicaid Planning for Married People, Part 2

One of the most common mistakes people make with Medicaid qualification in Michigan is assuming the government will help them protect their assets.  Unless a nursing home resident is already eligible for Medicaid, another key mistake is relying on care staff or family members to complete the Medicaid application.  All too often I am called in to clean up these mistakes.  Consider the hypothetical case of a couple, with a husband will call George and his wife, whom we will call Martha.

George, age 76, and Martha, who is 74, have been married for 52 years. George suffered a series of strokes over the last two years and also has dementia. After the last stroke, he was discharged to the nursing home for therapy. After 6 days at the nursing home, the staff called Martha and told her George was no longer participating in therapy, so his Medicare coverage will end in three days.

Later that day, someone from the billing office at the nursing home calls Martha and tells her that since George's Medicare coverage is ending, they need her to bring a check for $13,000 to the nursing home tomorrow, $6,000 is for a security deposit and $7,000 for George's first month of care at the private pay rate. Martha is overwhelmed by all of these events and calls her son, Jack, for assistance. George and Martha own a home worth $175,000, a car, and have $225,000 in various savings accounts and certificates of deposit.

Martha asks the social worker at the nursing home for a Medicaid application. Later, she gives it to Jack and they fill it out together. Jack takes the Medicaid application to the local Department of Human Services office in Madison Heights. The staff tells Jack he has to take it to the Walled Lake office, since that office process the applications for the nursing home where George is a resident. Jack gets back in his car and drives across town to the Walled Lake office and files the application.

Six weeks later, Martha receives a notice from Medicaid that she can keep $109,560 of their savings, the maximum protected spousal amount. George can keep $2,000, and the rest must be spent down before George qualifies for Medicaid. Martha is shocked but starts spending down the other $113,400. The nursing home costs $7,000 a month, so Medicaid starts paying after 16 months

This is an unfortunate result in that Michigan's Medicaid policy actually provides that, when you have a married couple, assets can be transferred to a certain type of trust for the benefit of a community spouse.  The community spouse is the spouse who is not a nursing home resident, Martha in this case. However, the state will not create this trust for you or even tell you about it. You have to create the trust yourself and learn about it on your own.

The ability to transfer assets to this special trust for the benefit of the community spouse provides an excellent planning option for couples, a strategy that can provide nearly immediate eligibility with minimal difficulty. The trust, if properly drafted and structured, is recognized as an exception to the Medicaid divestment rules. If an applicant transfers assets to such a trust that is properly drafted and structured, the transfer of these funds will not be a divestment. Pursuant to this rule, an applicant may transfer an unlimited amount of resources into this trust, excluding them from being considered as resources for Medicaid eligibility purposes while retaining the ability to have the resources transferred back to the community spouse, in the future, for his or her needs. Each such trust is unique, in that the provisions in it are drafted based on each couple's specific financial, personal, and family situation. This trust is different from the standard revocable living trust that many married couples have.  It is also different from certain other types of Medicaid asset protection trusts, such as “income-only” trust which must be created and funded outside the 5-year look back period.  This special trust for a community spouse can be created and funded within the 5-year look back period.

In George and Martha's example, they have $225,000 in countable assets. The protected spousal amount is $109,560. If the special trust had been established and funded with the additional $113,400 or more, eligibility for Medicaid would have been achieved immediately. The funds in the trust would have been available for Martha's needs.  Martha would still also get to keep the $109,560 protected spousal amount. This case illustrates the importance of getting expert help (see number 9 in theTop Nine Mistakes People Make with Medicaid Qualification in Michigan).

Upon the death of the community spouse, any assets remaining in this trust are distributed to the beneficiaries chosen by the community spouse. The community spouse retains the power to change the trustee and final beneficiaries. If the community spouse needs more of the assets, the trustee can have discretion to distribute more of the assets to the community spouse. Nearly any type of asset can be conveyed into the trust without the need to liquidate or negative tax ramifications.

When one spouse requires nursing home care, married couples are encouraged to get comprehensive legal counsel from an experienced elder law attorney.  The help and information such a couple will receive will save a lot of money; an additional $113,400 in George and Martha’s care.

With married couples, when one spouse requires nursing home care, it can be an extremely difficult situation due to both financial concerns and the sad situation of seeing your spouse’s health decline.  Consider a hypothetical married couple, with a husband will call Ralph and his wife, whom we will call Alice.  Ralph and Alice were high school sweethearts. Two years ago, Ralph and Alice celebrated their 50th anniversary. Shortly after that, Ralph was diagnosed with Alzheimer's disease and his health has gradually deteriorated. Yesterday, Ralph wandered away from home, which has been an ongoing problem. The police found him, hours later, sitting on a street curb, talking incoherently. They took him to a hospital. Now the family doctor has told Alice that she should place Ralph in a nursing home. Ralph and Alice grew up during the Depression. They always tried to save something each month. Their assets, totaling $120,000, not including their house, are as follows:

Savings account.. . . . . . . . . . . . $35,000.00

CDs. . . . . . . . . . . . . . . . . . . . . . 65,000.00

Money Market account . . . . . . . . . 17,000.00

Checking account. . . . . . . . . . . . . 3,000.00

Residence (no mortgage). . . . . . . . 150,000.00

Ralph gets a Social Security check for $800.00 each month; Alice’s check is $300.00. Her eyes fill with tears as she says, “At $6,800 to the nursing home every month, our life savings will be gone in less than two years!” What’s more, she’s afraid she won’t be able to pay her monthly bills, because a neighbor told her that the nursing home will be entitled to all of Ralph’s Social Security check.

There is good news for Alice. It’s possible she will get to keep everything, all of their assets and all of the income, and still qualify for Medicaid to pay Ralph’s nursing home costs. The process may take a little while, but the end result will be worth it.

To apply for Medicaid, she will have to go through the Department of Human Service (DHS). If she does things strictly according to the way DHS tells her, she will only be able to keep about half of her assets plus she will be entitled to a minimum monthly income to pay her expenses (See number 7 in the Top Nine Mistakes People Make with Medicaid Qualification in Michigan). But the result can actually be much better than that.

Michigan law allows her to seek an increase in her income allowance. Based on a 6% rate of interest, their entire savings, plus their Social Security, will not general enough income to bring her up to the current allowable minimum monthly income of $1,822. However, she must proceed properly, and if so, Alice may be entitled to keep their entire savings, and Medicaid will pay for Ralph’s nursing home.

The challenge is that this cannot be accomplished at the case worker level. However, it can be done by seeking a court order awarding Alice more of the assets then Medicaid's default minimums. She will have to get advice from someone who knows how to navigate the system. But with proper advice, she’ll be able to avoid the spend-down and keep everything she and Ralph have worked so hard for.

This is possible because the law does not intend to impoverish one spouse because the other needs care in a nursing home. This is certainly an example where knowledge of the rules, and how to apply them, can be used to resolve Alice’s dilemma.