Michigan Elder Law Today ©

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.

Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. This is a federal law that applies only to couples. The intent of the law was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e. at home (the "community spouse.") The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.

As a result of this recognition, division of assets was born.  Basically, in a division of assets, the couple gathers all their countable assets together in a review. Exempt and unavailable assets, discussed above, are not counted.

The countable assets are then divided in two, with the at-home or “community spouse” allowed to keep one half of all countable assets to a maximum of $109,560. The other half of the countable assets must be either “spent down” until less than $2,000.00 remains or protected using various legal strategies. The amount of the countable assets which the at-home spouse gets to keep is called the protected spousal amount.

Each state also establishes a monthly income level for the community spouse. This is called the Community Spouse Income Allowance. In Michigan, the community spouse is permitted to keep a minimum monthly income of $1,822.  The nursing home resident is permitted to keep $60 per month from their income.

If the community spouse does not have at least $1,822 in income, then he or she is allowed to take the income of the nursing home spouse in an amount large enough to reach the Community Spouse Income Allowance (i.e., up to at least $1,822).  This avoids the necessity (hopefully) of the community spouse having to dip into savings each month, which would result in gradual impoverishment. The nursing home spouse’s remaining income goes to the nursing home, so even though they may have qualified for Medicaid, the nursing home resident can still be contributing a significant amount to their cost of care. 

To illustrate, assume a husband is the spouse in the nursing home and has an income of $1,700.00 per month from Social Security and a pension.  The wife is the at-home spouse and receives $800.00 per month in Social Security income. With her Social Security, she is $1,022 short each month:

$1,822 community spouse’s monthly needs allowance (as determined by formula)

-  800 community spouse’s Social Security

=$1,022 short fall

In this case, the community spouse will receive $1,022 (the shortfall amount) per month from the nursing home spouse’s Social Security and/or pension and the rest of the nursing home spouse’s income will then be paid to the nursing home for the cost of his care, less $60 a month.  This amount is called the patient pay amount and, in this case, $618.00 will be paid to the nursing home each month, even after obtaining Medicaid eligibility.  Medicaid will pay the remaining portion of the nursing home bill.  If the nursing home resident and community spouse have health insurance premiums, this can also continue to be paid out of the nursing home resident's income. 

Often the loss of even part of the nursing home spouse’s income as the patient pay amount can still be a hardship on the community spouse as many seniors require their total income to meet their needs. This does not mean, however, that there are no additional planning alternatives which the couple can pursue, as will be discussed in future posts.

Some Common Questions

I’ve added my kids’ names to our bank account. Do they still count?

Yes. The entire amount is considered 100% available to the person applying for Medicaid unless you can prove some or all of the money was contributed by the other person who is on the account. This rule applies to cash assets such as:

• Savings and checking accounts
• Credit unit share and draft accounts
• Certificates of deposit
• U.S. Savings Bonds

Can’t I just Give My Assets Away?

Many people wonder, can’t I give my assets away? The answer is, maybe, but only if it’s done just right. The law has a severe result for people who simply give away their assets to create Medicaid eligibility (called divestment). It is not a civil or criminal penalty; the penalty is that Medicaid will not pay for your care for a period of time. For example, for every $6,816 (in 2011) given away during the five years prior to a Medicaid application creates a one month period of ineligibility.

So even though the federal Gift Tax laws allow you to give away up to $13,000 per year without gift tax consequences, a gift of that amount would result in a period of ineligibility of nearly two months for Medicaid purposes.  During the penalty period, the nursing home bill must be paid by the nursing home resident or their spouse, otherwise the nursing home can seek to evict the resident.  When the nursing home bill is not being paid due to a penalty period, the family may have to step in to pay it to avoid the eviction.

Also, these are your assets, so be careful. If you give them away, you truly lose all control and the legal protections afforded to owner's of assets, so outright gifts of assets should be avoided if you are planning ahead.  Transfers may make sense if someone is about to go to a nursing home or is already in one, but they have to be structured just so to avoid problems.

I’ve added my child as a joint owner on my mutual funds or real estate. Do they still count?

Designating someone else as a joint owner on real estate, mutual funds, or stocks can be very risky, but in some cases the now jointly owned asset may be considered unavailable for Medicaid purposes.  The asset would only be considered unavailable if 5 years or more have passed since establishing the joint ownership arrangement, if the asset can only be liquidated with all owners’ consent, and if one of the owners refuses to give their consent.  However, there can be some real problems with the use of joint ownership.

First, it is important to realize that designating someone other than your spouse as a joint owner on such assets is considered a divestment for Medicaid purposes.  So, for instance, if you have a mutual fund valued at $50,000 and you make your child a joint owner on the account, the Michigan Department of Human Services will consider you to have made a $50,000 divestment, resulting in a 7 month period of ineligibility for Medicaid.

There are other potential problems with making someone a joint owner on your assets.  One that is overlooked is once you make someone a joint owner on your asset, that person has all the rights of an owner.  What that means is, using our $50,000 mutual fund example, the new joint owner has the right to sell the mutual fund and take all the money.  Also, your asset is subject to all of the joint owner’s potential problems.  For instance, if they get divorced, sued, or have a bankruptcy, what you still consider your asset can be lost in their problem because they are a joint owner.

If you make someone a joint owner on an asset that has appreciated in value, there can be a larger income tax that is owed when the asset is eventually sold.  Finally, joint ownership trumps your estate plan.  For example, if your Last Will and Testament or Revocable Trust provides that your assets are to be divided evenly amongst your children, but you have made one of the children the joint owner on the $50,000 mutual fund, all of that mutual fund belongs to just that child and the others would receive nothing.  These same potential problems apply to making someone “joint” on your bank accounts.

Unavailable Assets and Medicaid

Some assets are considered "unavailable" by Michigan's Department of Human Services when qualifying for Medicaid. This means you can keep these assets and qualify for Medicaid nursing home benefits. These are usually going to be assets registered in certain types of Trusts. Trusts with long-term care planning provisions may be created and funded by an applicant or a spouse, and the assets may be used to provide for the needs of the applicant or spouse without the assets being categorized as countable resources for Medicaid. These exceptions are as follows:

• Assets registered in a Medicaid Asset Protection Trust or an Irrevocable Trust for VA (Veterans) Purposes if more than 5 years have passed since ownership of the assets was registered in the trust.
• Testamentary trusts. Assets in a trust created by a Last Will and Testament are not counted. This is true regardless of when the trust was created or the extent to which the assets in the trust are available to meet the needs of the Medicaid recipient. This means that if a married couple is planning ahead, their estate plan can provide that at the time of the passing of the first spouse, some or all of the assets are protected for the surviving spouse and available for their needs, but are not at risk for nursing home costs. Unfortunately, few people have such a provision in their estate plan. This type of trust can be created with a specific type of revocable trust and Last Will and Testament so that long, drawn-out probate proceedings are avoided.
• Assets in a Sole Benefit Trust established for the community spouse (described in more detail in the in the Case Study, Part 2).

In addition, certain jointly owned assets may be considered unavailable, which will be discussed in the next post.

All other assets are generally non-exempt, and are countable.  Basically, all money and property, and any item that can be valued and turned into cash, is a countable asset unless it is one of those assets listed above as exempt. This includes:

• Cash, savings, and checking accounts, credit union shares and draft accounts
• Certificates of deposit
• U.S. Savings Bonds
• Individual Retirement Accounts (IRA), Keogh plans (401K, 403B)
• Prepaid funeral contracts which can be canceled
• Assets registered in a Revocable Living Trust
• Real estate (other than the residence)
• More than one car
• Stocks, bonds or mutual funds
• Land contracts or mortgages held on real estate sold

While the Medicaid rules themselves are complicated and tricky, it’s safe to say that a single person will qualify for Medicaid as long as she has only exempt assets plus a small amount of cash and/or money in the bank, not exceeding $2,000.00. For a married couple, the spouse who is not a resident of a nursing home can keep the exempt assets and half of the countable assets, but no more then $109,560.00.

Of course, with further planning, as will be discussed in future posts, a single person can protect significantly more than $2,000 and a married couple can usually protect all of their assets.

Some assets are neither exempt nor countable, but rather are considered Unavailable Assets, which will be discussed in Part 9.

To qualify for Medicaid, applicants must pass some fairly strict tests on the amount of assets they can keep. That means you either qualify for Medicaid on a particular date or you do not. What I mean by that is when the caseworker at the Department of Human Services reviews your application, they cannot qualify you for Medicaid if they think that would be fair, if you paid a lot in taxes, or if you have already spent a lot of your money on your own care. Under Michigan's Medicaid rules, all of that is irrelevant. It's not like a divorce case where a judge divides up the couple's assets based on what the judge thinks is fair. The caseworker does not have any discretion; the caseworker can only approve your application if you meet the strict asset and income tests. That means you should never apply for Medicaid until you know you qualify. You should not submit the application to "see what happens." If you do not qualify when you submit the application, what will happen is your application will be denied.

Therefore, to understand how Medicaid works in Michigan, we first need to review what are known as exempt assets, non-exempt (or countable) assets, and unavailable assets. Exempt assets are those which Medicaid will not take into account (at least for the time being). In general, the following are the primary exempt assets:

• the nursing home resident may have a total of $2,000 in cash or money in the bank.
• the Home, as long as the equity in the home is below $500,000. This limit does not apply if the spouse or a minor or disabled child lives in the home. However, as of July 1, 2011, Michigan will have estate recovery, which I will discuss soon in another post.
• Personal belongings and household goods. Essentially, the rule allows for a person’s normal clothing, furnishings, and living utensils to be excluded.
• One vehicle of any value. It does not matter whether the applicant is licensed to drive. The vehicle may be a car, truck, motorcycle, motor home, or boat. When an applicant owns more than one vehicle, the vehicle with the highest equity value is excluded.
• A small amount of life insurance may be excluded. The rule regarding the exclusion of life insurance is somewhat confusing and requires looking first at the policy’s face value, i.e., what it says on the cover of the policy. The exclusion rule is that, for a policy or policies to be excluded, the total combined face value of all policies owned on the life of a single insured must be $1,500 or less. If any life insurance policies are not excluded based on their face value, their countable value is then a function of the cash surrender values.
• Life Insurance–Funded Funeral Exclusion. Individuals may purchase life insurance on themselves and assign ownership of the insurance to a funeral director. When the individual dies, the funeral director will receive the funds and use them to pay for the funeral services. If such an arrangement is entered into and the insurance policy is irrevocably assigned to the funeral director, the value of the insurance is excluded and the transfer of the policy to the funeral director will not be treated as a divestment provided the amount of insurance does not exceed the value of services and goods purchased.
• Irrevocable prepaid funeral contract for the nursing home resident. Another method of prepaying for funeral services is to simply pay for the services ahead of time. This is done by entering into a Michigan irrevocable funeral contract with the funeral director and paying for those services in advance. The value may not exceed $11,393. An “Irrevocable Funeral Contract Certification” form must be completed.
• Burial Fund Exclusion. Up to $1,500 of a segregated and “clearly designated” fund may be set aside to pay for burial expenses, and this fund, plus all the interest earned on it, will be excluded.
• Burial Space Exclusion. An individual’s “burial space” is excluded as well as burial space owned by the individual and intended for use by certain family members, spouse; parents; siblings; and children. Burial space includes a grave site, crypt, mausoleum, casket, urn, vault, headstone, costs of opening and closing a grave site, and costs for maintaining the grave site.

All other assets are generally non-exempt, and are countable.

As life expectancies and long term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $6,800.00 per month or more for the cost of a nursing home in southeast Michigan, and those who can pay for a while may find their life savings wiped out in a matter of months, rather than years. Moreover, many people transition to a nursing home after having substantially spent down their funds paying for home care or assisted living care for months or years.  The result is whatever money is left, needs to be protected.

Fortunately, the Medicaid Program is there to help. In fact, in our lifetime, Medicaid has become sort of like the long term care insurance of the middle class. However, obtaining eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have. The reasons for Medicaid planning are simple:

First, in order to qualify for Medicaid, the nursing home resident can only have $2,000 or less of money in a bank account.  However, the nursing home resident will surely have more needs than can be met by this $2,000 amount. It is my belief that if it is clear that an individual needs to reside in a nursing home for the rest of their life or, at least an extended period of time and, due to the cost, will need to qualify for Medicaid, it is better to have a pool of resources set aside for the nursing home resident's needs instead of just relying on the $2,000 to cover their needs.

What needs might a nursing home resident have? If an individual is receiving care in a nursing home, typical needs and costs include guardianship fees, Guardian Ad Litem fees, hair care, podiatry, dentures, eye glasses, handicap or medically necessary transportation, additional attendant care, clothing, cable television, and items for the resident's use in their room. One of the most frequent needs is for a bed hold. If an extended hospitalization occurs, the nursing home resident may lose their space in the nursing home unless a fee is paid to hold their bed. The nursing home resident may be very likely to suffer a loss in capacity due to the trauma of the hospitalization. This can be compounded if they are discharged to an unfamiliar environment and unfamiliar caregivers in a new nursing home. It can also be very stressful on the family to search for another facility in a short period of time or face placement in an undesirable facility. This can be avoided by paying for a bed hold, but their needs to be a source of funds to pay for it.

Other common costs are related to the preservation and maintenance of the home, including real estate taxes and necessary repairs like roofing and window replacement, yard care, snow removal, etc.

As you can see, these needs would rapidly deplete the $2,000 account that the nursing home resident is allowed to have while qualifying for Medicaid. These needs would either then go unmet or the family would need to pay out of their own savings.

Second, you need to provide enough assets for the security of your loved ones; they too may have a similar crisis. The health of the nursing home resident's spouse (the community spouse) may deteriorate and they may have home health care or assisted living costs. How will the community spouse's needs be met if most of the couple's assets have already been spent on the nursing home resident's care?

Third, the Michigan Medicaid rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should and their family security is jeopardized.

Medicaid is a benefit program which is primarily funded by the federal government and administered by each state. Sometimes the rules can vary from state to state, which adds to the misinformation about what can be done to protect assets when qualifying for Medicaid. The information on my website is about Michigan's Medicaid program.

One primary benefit of Medicaid is that, unlike Medicare (which only pays for skilled nursing), the Medicaid program will pay for long term care in a nursing home once you’ve qualified. Medicare does not pay for treatment for all diseases or conditions. For example, a long term stay in a nursing home may be caused by Alzheimer’s or Parkinson’s disease, and even though the patient receives medical care, the treatment will not be paid for by Medicare. These stays are called custodial nursing stays. Medicare does not pay for custodial nursing home stays. In that instance, you’ll either have to pay privately (i.e. use long term care insurance or your own funds), or you’ll have to qualify for Medicaid.

In considering how to pay for nursing home care in Michigan, one of the first issues that comes up is if Medicare pays for nursing home care.  There is a great deal of confusion about Medicare and Medicaid, probably in part due to their very similar names.

Medicare is the federally funded health insurance program primarily designed for people age 65 and older.  It is national health insurance for everyone over age 65 and has been in place since the 1960’s. There are some limited long term care benefits that can be available under Medicare. In general, if you are enrolled in the traditional Medicare plan, and you’ve had a hospital stay of at least three days, and then you are admitted into a skilled nursing facility (often for rehabilitation or skilled nursing care), Medicare may pay for awhile.

Since it is national health insurance for those over age 65, there are no income or asset qualification rules for Medicare benefits in a nursing home, unlike Medicaid.  With Medicare nursing home benefits, the issue centers more on the type of care you need, not your assets or income.  If the patient broke their hip and needs physical therapy or had a minor stroke and needs rehabilitation services, Medicare may pay for those services in a nursing home for a period of time.  If an older person has dementia and it has been recommended that they need twenty-four hour custodial care in a nursing home or assisted living facility, Medicare does not pay for any of that care.

If you qualify, Medicare may pay for the full cost of the nursing home stay for the first 20 days and can continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible that’s $141.50 per day. Some Medicare supplemental insurance policies, called Medigap polices) will pay the cost of that deductible. So, in the best case scenario, Medicare may pay for up to 100 days of skilled care or rehab. services for each “spell of illness.” In order to qualify for these 100 days of coverage, however, the nursing home resident must be receiving daily “skilled care” and generally must continue to “improve.” (Note: Once the Medicare beneficiary has not received a Medicare coverage level of care for 60 consecutive days, the beneficiary may again be eligible for the 100 days of skilled nursing coverage for the next spell of illness.)

While it’s never possible to predict at the outset how long Medicare will cover the rehabilitation in the nursing home, from my experience, it usually falls far short of the 100 day maximum. If the nursing home resident will not benefit from therapy or skilled care and just needs to live in a nursing home for the custodial care, Medicare will pay nothing. Even if Medicare does cover the 100 day period, what then? What happens after the 100 days of coverage have been used?

At that point, in either case you’re back to one of the other alternatives: long term care insurance, paying the bills with your own assets, or qualifying for Medicaid.

If an older person is receiving skilled care or rehabilitation services in a nursing home that is being paid for by Medicare and if it is unclear if they will be able to return home, that is a good time to meet with an elder law attorney.  The reason for this is that while Medicare is paying the nursing home bill, the spouse or family of the individual in the nursing home will have time to consult with the elder law attorney and consider and implement any Medicaid planning options, which may be appropriate.  Many families wait to contact an elder law attorney until after Medicare benefits have ended and they have been asked to pay a $6,500 deposit to the nursing home or are being billed $220 a day.  At $220 a day in Oakland County and as is common in other areas of southeast Michigan, after just one week, the nursing home bill will be $1,540.00.  Then a family can be in a crisis situation and may feel rushed to obtain information and make decisions while a large nursing home bill is being racked up.  By consulting with an elder law attorney earlier in the process, this stress can be avoided, better care decisions can be made, mistakes can be avoided, and more money can be saved.

Andrew Byers is an Elder Law Attorney in the Rochester Hills area and helps older people and their families make decisions about long-term care and asset protection.

Along with getting good quality of care for the nursing home resident, the major concern is how to pay for it when it costs $6,600 or more a month. There are, essentially, just four ways to cope with such astronomical costs:

1. Long Term Care Insurance - If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of the nursing home. Unfortunately, long term care insurance has only started to become somewhat popular in the last few years and most people facing a nursing home stay do not have this coverage. Even if the nursing home resident has long term care insurance, it may not pay the full cost of the nursing home bill. In that case, you will still need to apply your income, use your savings, or qualify for Medicaid.

2. Pay with Your Own Funds - This is the method many people are required to use at first. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging $220 a day or $6,600 per month in the metropolitan Detroit area of Michigan, few people can afford a long term stay in a nursing home.

3. Medicare - This is the national health insurance program primarily for people 65 years of age and older, certain younger disabled people, and people with kidney failure. Medicare provides short term assistance with nursing home costs, but only if you meet the strict qualification rules, which are described on this site.

4. Medicaid - This is a federal and state funded and state administered medical benefit program which can pay for the cost of the nursing home if certain asset and income tests are met.

Since the first two methods of private pay (i.e. using your own funds) and long term care insurance are self-explanatory, our discussion will concentrate on Medicare and Medicaid in future posts.

There are six tests or criteria that have to be met in order to qualify for Medicaid in a Michigan nursing home.

1.  Medical Need:    To be eligible for long-term care Medicaid benefits, the person must meet certain medical and functional eligibility criteria, i.e., they must need custodial care in a nursing home.

2.  Age or Disability:  the nursing home resident must be age 65 of, if not yet age 65, blind or disabled.

3.  Citizenship and Residence:  the nursing home resident must be a U.S. citizen or a permanent resident alien.  You have to be a resident of the State of Michigan; this criteria is met by having the intention to stay in Michigan.

4.  Income:  the Medicaid applicant's income from Social Security, pension and certain investment income must be $20.00 less than the nursing home's private pay rate.  For instance, if the nursing charges $220 per day or $6,600 per month, so long as your monthly income is $20 less than the $6,600 private pay rate, you meet the income criteria for Medicaid.  Note, if you are married, the income of the spouse who is not living in the nursing home, called the community spouse, is not counted.

5.  Assets:  the nursing home resident's countable assets must be less than $2,000.00 for at least one day of each month in which Medicaid benefits are sought.  If married, the nursing home spouse can have $2,000.00 in countable assets and the community spouse can keep a portion of assets called the protected spousal amount.  The protected spousal amount is one-half of the couple's countable assets, but at least $21,912 but no more than $109,560.00  For instance if a married couple has $80,000 in countable assets, without further asset protection steps being taken, the community spouse would only be able to keep $40,000.  Alternatively, the protected spousal amount can be set by a judge by filing a petition to increase the protected spousal amount.  In addition, certain trusts can be used to protected additional assets for the community spouse without causing any Medicaid problems.

6.  Application:  you have to apply for Medicaid, provide certain financial documentation and the Department of Human Services has to verify that you passed each of the first five tests.

We will review each of these criteria in more detail in future posts.

Andrew Byers is an Elder Law attorney in Auburn Hills, Michigan who assists seniors and their family with Medicaid nursing home benefits.