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Following the Steps for Medicaid Planning

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August 17, 2018
Author: Sandra L. Sherlock-White
Organization: Law Offices of Sandra Sherlock-White, LLC


I. FOLLOWING THE STEPS FOR MEDICAID PLANNING

A. Reviewing the Program Basics

On average, Americans are living longer today than in the first half of the 20th Century. Many live longer and healthier and wealthier lives, while still others suffer from chronic and debilitating disease and acute symptoms of aging and poverty. While the dialogue of health care \"reform\" continues, healthy and frail elders face the fear of not being able to access appropriate and necessary medical care. In the face of financial ruin when a need for long term care arises, the elderly may turn to Medicaid as a means of payment for long term care.

\"Medicaid\" or Title XIX of the Social Security Act of 1935 is a medical assistance program which was created by federal statute (42 U.S.C. §1396), at a time when only 15% of Americans lived to the age of 65 years and more than 30% of older Americans lived in poverty. Today 80% of Americans live to the age of 65 years, and so their challenge is to die healthy.

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The Medicaid program is administered by the individual states in compliance with the federal regulations. The Connecticut Medicaid regulations can be found in the Uniform Policy Manual as issued by the Department of Social Services.

The Deficit Reduction Act of 2005 (S. 1932) (the “DRA”) imposes the most significant changes in Medicaid law since the passage of OBRA ’93 in 1993. The DRA, though signed by President George W. Bush on February 8, 2006, may be unconstitutional under the Bicameral Clause of the U.S. Constitution. The Bicameral Clause provides that before a bill is signed into law by the President, it must be passed in precisely identical form by both the House and the Senate. Leading legal scholars believe that the DRA is not valid law because the legislation signed by the President had not in fact been approved in precisely the same, identical version by both the House and the Senate.

The bill passed by Congress contained a provision that reduced the duration of Medicare payments for durable medical equipment (DME) from the existing fee schedule of an unlimited period of time, to 13 months for most DME and to 36 months for oxygen equipment. The reduction of payments for DME was the result of an effort to reduce Medicare spending and an accommodation for the objections from legislators in Ohio where a major manufacturer of oxygen equipment is located. After the Senate cleared the bill, a Senate clerk made a significant substantive change to the legislation in extending the duration of Medicare payments for all DME to 36 months. Although the Senate clerk realized the mistake and the Republican House leadership was informed of the error several weeks before final House action was scheduled to occur, the Republican leadership did not seek to correct the problem in the proper manner of sending the legislation back to the Senate for the mistake to be corrected for fear that any additional vote in the Senate could endanger passage of the legislation. Instead they brought the legislation to the House floor without revealing to Congress or the Democratic leadership that the bill did not represent the version passed by the Senate. In a very close vote of 216 to 214, Congress approved the bill that contained the error. The House version provided for 36 months for DME while the Senate version provided for 13 months. Before being transmitted to the President for his signature, a Senate clerk again revised the text to restore the 13 month period for coverage of DME other than oxygen equipment. The House Speaker, Dennis Hastert and President Protem of the Senate, Ted Stevens, certified to the President that the legislation that he was about to sign had been passed by both the Senate and the House despite the fact that the Republican leadership in both the Senate and the House knew that was not true. Advocates have argued that the DRA is not a valid law because it was not passed in identical form by both chambers and is therefore unconstitutional.

The DRA as signed by President Bush, drastically changes Medicaid rules regarding transfer of assets, and what assets are considered countable or available in determining an individual’s Medicaid eligibility. Many provisions of the DRA are ambiguous. In the wake of this confusion and controversy in the passage of the DRA, the elderly and the disabled, facing the catrostrophic and crippling costs of the need for long-term care, will now be confronted by the ambiguity of a law that may be found unconstitutional.

One of the many ambiguous parts of the DRA is the effective date of its provisions. The general section regarding effective dates provides for an extension of effective dates for state law implementation. The opportunity for states to make the law effective by adopting state implementing laws during the state’s legislative session following the bill’s enactment leaves us in a period of greater uncertainty as we look to analyze the DRA and find effective strategies to respond to these changes in the law.

On July 27, 2006, the Centers for Medicare and Medicaid Services (CMS) issued a series of letters to the State Medicaid Directors to provide guidance on the implementation of new rules related to specific provisions of the DRA. The provisions are discussed in a series of enclosures. CMS notes that many provisions of the federal statute are not changed by the DRA, and that unless specifically amended, existing law will govern.

The Department of Social Services (DSS) is engaged in the adoption of regulations to implement changes to the Uniform Policy Manual (UPM), at the time of the writing of this article. The Department of Social Services Uniform Policy Manual, Policy Transmittal number UP-07-02 issued May 11, 2007. There is an effective date of April 1, 2007. The draft regulations follow a process by which they are reviewed at the Office of Policy Management (OPM) by budget analysts. A notice of intent to adopt the proposed regulations was published on April 10, 2007 in the Connecticut Law Journal. This notice stated that “these revisions are being made to comply with, and give effect to, The Deficit Reduction Act of 2005 (Public Law 109-171).” The notice of intent to amend regulations further provides “statement of purpose: to comply with, and give effect to, The Deficit Reduction Act of 2005 (Public Law 109-171).” A public hearing was held on the proposed Regulations on April 25, 2007. The deadline for public comments was May 10, 2007.

On March 5, 2009, the Department of Social Services mailed a Memorandum dated February 11, 2009 to individuals who commented on the proposed regulations in order to respond to those comments. A copy of the regulations with revisions based on public comment was enclosed.

A report was issued by the Legislative Commissioner’s Office (LCO) to the Legislative Regulation Review Committee on May 7, 2009 regarding the proposed regulations. The LCO Report found that, “Specifically, the DRA does not explicitly require the changes in policy provided in proposed UPM section 3029.10 concerning the return of transferred assets, proposed UPM sections 3029.14 and 3029.15 concerning the transfer of home equity loan proceeds and proposed UPM section 3029.15 concerning the transfer of assets because of undue influence.” Of great significance, the LCO Report also concluded that proposed UPM section 3029.10 H. 4 may be in violation with the Supremacy Clause of the U.S. Constitution and in conflict with federal law. Furthermore, the LCO Report concluded that the undue hardship provisions of proposed UPM section 3029.25 appear to be inconsistent with the undue hardship provisions of the DRA. A hearing was held before the Legislature’s Regulations Review Committee on June 9, 2009. At this hearing, a number of Committee members including Representative Rowe and Senator Hartley (co-chairs of the Committee), Senators Harris and Roraback, and Representative Leone, commented about the number of objections they had received and the concerns raised by the LCO Report that the regulations were in conflict or violated the DRA and federal law. The Committee rejected, without prejudice, the proposed regulations. The minutes stated, “There were several concerns expressed by the members about the legal sufficiency of this regulations and [they] suggested that all of the concerned parties meet towork out the problems which seemed to be at issue.”

A meeting was held to discuss revisions to the proposed regulations on August 5, 2009 with Senator Harris and Roraback, representatives from DSS, representatives of the Elder Law Section of the Connecticut Bar Association, CT NAELA, the Alzheimer’s Association, Connecticut Legal Services, and non-profit nursing homes. At the request of Senators Harris and Roraback, DSS submitted written responses to issues raised at that meeting and the Elder Law Section of the Connecticut Bar Association submitted a written reply to DSS’ responses. At the time of the writing of these materials, DSS and the Elder Law Section have been discussing proposed revisions to the DRA regulations. Some new draft language for the proposed UPM on all but four issues was agreed upon by March 17, 2010 between DSS and the Elder Law Section. The new drafts were submitted to the DSS Commissioner and then to the Attorney General’s office.

No further action had been taken by DSS while the Lopes appeal regarding a DRA compliant annuity (see section regarding annuities) was pending. Now that the Lopes appeal has been decided by the 2nd Circuit Court of Appeals, DSS is in the process of drafting new proposed regulations. A coalition of representatives from DSS, the Elder Law Section, Connecticut Legal Services, CT Chapter of NAELA, and Leading Age have met and continue to discuss proposed revisions to the DRA regulations. DSS has indicated that it will publish a notice of intent to adopt the revised proposed regulations in the Connecticut Law Journal and that there will be a period for public comments.

B. Getting a Grasp on Medicaid Qualifications and Coverage for Single Individuals
a. Income Limit

Institutional Long Term Nursing Facility Care

A single institutionalized individual must apply to the cost of his care his income less a monthly $60 - Personal Needs Allowance

1. Resource Limit and Exempt Assets

In order to qualify for Medicaid benefits, a single institutionalized individual may have no more than the following exempt assets

A. $1,600.00 in assets (UPM 4005.10B)
B. Irrevocable Funeral Contract of not more than $5,400.00 or revocable funeral contract of not more than $1,200 (UPM 4020.10H, UPM 4020.10I)
C. A burial plot (UPM 4020.10D)
D. Life Insurance with a face value of $1,500.00 in the aggregate or less. Policies that have no cash surrender value regardless of the face value. Public Act 13-234 Section 127 (Effective October 1, 2013) amended CGS 17b-261 to provide that an in individual shall not be determined ineligible for Medicaid solely on the basis of the cash value of a life insurance policy worth less than $10,000.00 provided that the individual is pursuing the surrender of the policy, and that upon surrendering the policy all proceeds of the policy are used to pay for the individual’s long term care.
E. Essential household items (UPM 4020.10B)
F. Personal effects (UPM 4020.10C)
G. An automobile having a fair market value of $4,500.00 or less, or of any value, provided (1) the automobile is needed for employment or (2) the automobile is needed for the medical treatment of a specific ongoing medical problem; or (3) the automobile has been modified for handicap use (UPM 4020.10K)
H. Home property - real property which an applicant owns and is using as a principal residence (may be in Connecticut or out of state) Home property owned by an individual who enters a long term care facility keeps its exempt status provided the individual is expected to return home (UPM 4030.20A,4,D)


Section 6014 of the DRA disqualifies an individual for long term care assistance if the individual’s equity interest in the individual’s home exceeds $500,000.00. This provision, however, shall not apply to disqualify such individual if the individual’s spouse, child under age 21 or blind or disabled child is living in the home. A state may elect an amount greater then $500,000.00 provided that amount does not exceed $750,000.00. Beginning in 2011, each year the dollar amounts specified shall be increased based on the percentage increase in the consumer price index for all urban consumers rounded to the nearest $1,000.00. As of January 1, 2014, this amount was $814,000.00. The law provides that an individual may use a reverse mortgage or home equity loan to reduce the individual’s total equity interest in the home. The effective date of this provision applies to applications filed on or after January 1, 2006 but general effective date section seems to apply for states that need to change their legislation to comply. Proposed UPM 4030.20 E provides for a home equity cap of $750,000 for individuals applying on or after January 1, 2006. Subsection 4 of the proposed regulation provides that an individual may be eligible to receive Medicaid payment for long term care services notwithstanding possessing home equity in excess of $750,000.00 if the individual can demonstrate to the satisfaction of the department that they cannot obtain a reverse mortgage, home equity loan or similar instrument. There is no methodology stated in the UPM to a method of determining value. In its Memorandum, DSS stated that it will continue to use its existing methodology to determine fair market value, which is based on real estate appraisal analysis. In addition, DSS stated that if the applicant has only a fractional interest in the property and the other shares were not transferred to others “for the purposes of qualifying for assistance,” DSS will look at only the applicant share of the fair market value. Subsection 4b of the proposed regulations considers the effect of a partnership long term care insurance, but provides for a disregard in an amount greater than or equal to the amount of home equity in excess of $750,000.

Formerly the Uniform Policy Manual provided that where loan proceeds were segregated, those loan proceeds were excluded per UPM 4030.40, and UPM 5050.47B. As of April 1, 2007, UPM section 5050.47B has been removed. PA 10-73 which was passed into law in May 2010 provides that the funds derived from a reverse annuity mortgage loan or other home equity conversion loan are not treated as income or assets for eligibility purposes, provided that the funds are kept in a segregated account and the Medicaid recipient does not transfer such funds to another person for less than FMV.


At the time of the Medicaid application, the Department will assess the expectation that the applicant will return home, and continue the assessment every 6 months from the time of application or admission to the long term care facility. The Department will take into account the treating physician's diagnosis of the applicant's medical condition and prognosis for recovery. A statement from the treating physician should be obtained reflecting his or her opinion that there is a realistic possibility that the applicant can and will return home. The Department also considers the availability of at home care that the applicant could receive as an alternative to institutionalization. The applicant's intention to return home and his or her financial ability to maintain the home will also be considered. If the Department makes an unfavorable decision, the applicant may request an administrative fair hearing. If the individual is not expected to return home, the home property retains its exempt status only if one of the following relatives of the individual reside there:

- the spouse

- a child under 21

- blind or disabled child or

- a sibling who has an equity interest in the home property and has resided there for at least one year prior to the individual's institutionalization UPM 4030.20.


Assets which are not exempt will be treated as counted assets in the determination of Medicaid eligibility.


  1. Home Property which does not qualify as exempt as described above will count as an asset unless the applicant is making reasonable efforts to sell it. A lien will be placed on the property by the Department, and the amount of benefits paid will be recovered from the sale proceeds.
  2. A life use is defined as: the right of a person to occupy and/or enjoy the income proceeds of real property during the person's lifetime in accordance with the terms of a legal agreement UPM 4000.01

The value of a life use is determined by the Department based upon the applicant's gender and age. If the life use cannot be sold, it will be treated as inaccessible. For instance, if the remainder men are unwilling or unable to purchase the life use, it will likely be rendered unmarketable. Query, who would purchase an institutionalized and elderly individual's life use?

Section 6016(D) of the DRA provides that the funds used to purchase a life interest in the home of another individual will be regarded as assets which have been transferred unless the purchaser resides in the home for a period of at least one year after the date of purchase. This provision may provide a new planning technique for an individual to purchase a life interest in the home of another where the purchaser will be residing for at least one year after the purchase. A valuation of the fair market value of the life estate will need to be performed in order to determine the purchase price. This exception to the transfer of assets rules does not require that care be received by the purchaser. In its directive, CMS states that if the individual makes a gift of the life estate interest, the value of the life estate should be treated as a transfer of assets. CMS further states that the DRA provisions pertaining to life estates do not apply to the reservation of a life estate by individuals transferring real property. The proposed regulations regarding these changes concerning life estates are found at UPM 4030.18.

  1. Jointly owned assets are presumed to belong solely by the applicant and the full value of the jointly owned asset is counted in the determination of Medicaid eligibility. This presumption may be rebutted with \"clear and convincing evidence that the joint owner is the legal owner. UPM 4010.10

    D. Annuities may be counted to the extent that the principal may be liquidated. If it has been annuuitized and cannot be liquidated, the stream of income will be counted as income to the applicant. However the annuitization or purchase of the annuity may be treated as a transfer of assets if it was not \"actuarially sound\", or even if it was “actuarially sound” if the circumstances at that time of the purchase or annuitization were such that Department of Social Services determines that the purpose of the purchase or annuitization was improper.


PA 03-3§59 signed into law August 20, 2003 provides that the proceeds of an annuity contract purchased with the assets of a Medicaid recipient shall be deemed to be part of the estate of the deceased recipient and shall be payable to the state by the beneficiary of such annuity for full reimbursement of benefits paid. Section 6012 of the DRA requires a Medicaid applicant to disclose a description of any interest that the applicant or the applicant’s spouse has in an annuity (or similar financial instrument as specified by the secretary), regardless of whether the annuity is irrevocable or is treated as an asset. Any application or redetermination must include a statement that the state becomes a remainder beneficiary under such annuity or similar financial interest by virtue of the provision of such medical assistance. Also the state shall notify the issuer of the annuity of the right of the state to be a preferred remainder beneficiary in the annuity. The state may require the issuer to notify the state when there is a change in the amount of income or principal being withdrawn from the amount that was being withdrawn at the time of the most recent disclosure. The state shall take such information into account in determining the amount of the state’s obligations for medical assistance or in the individual’s eligibility for such assistance.

The purchase of an annuity [doesn’t say by or for whom] shall be treated as the disposal of an asset for less than fair market value unless:


  1. The state is named as the remainder beneficiary in the first position for at least the total amount of medical assistance paid on behalf of the annuitant; or
  2. The state is named as such beneficiary in the second position after the community spouse or minor or disabled child and is named in the first position if such spouse or a representative of such child disposes of any such remainder for less than fair market value.


This section includes in the definition of a transfer of assets, the purchase of annuities, by or on behalf of a Medicaid applicant annuitant unless;

1. It is an annuity meeting requirements of certain sections of 408 and 408A of the Internal Revenue code of 1986 [described in IRC section 408(b)-Individual retirement annuity; or 408(q)-Deemed IRA under employer plan; or purchased with proceeds from account or trust described in IRC section 408(a)-Individual retirement account; 408( c )- certain trusts established by employers and certain employee associations; or 408(p)-Simple retirement account; or a SEP (IRC 408(k); or a Roth IRA (IRC 408(a); or;

  1. If it is an annuity that is irrevocable, non-assignable, actuarially sound based on Social Security tables and pays out in equal installments during the term of the annuity with no deferral or balloon payments made. The change in the annuity rules shall apply to transactions, including the purchase of an annuity, occurring on or after February 8, 2006. Again, this section may be subject to the general effective date provisions regarding state implementation.


The proposed regulations at UPM 3029.12 appear to subject any annuities purchased by a Medicaid Applicant/Recipient to the transfer of asset rules unless they are specifically excepted from the transfer of asset rules pursuant to the DRA (individual retirement annuity, etc and Department named as remainderman in either first (or if permitted), second position.) Annuities purchased by or on behalf of Community Spouses will be treated as a transfer of assets unless the State is named as remainderman. Payments made from an annuity if made to other than applicant, community spouse, or blind or disabled child (but not minor child), can be treated as a transfer of assets. However, even if they are not treated as a disqualifying transfer of assets, annuities purchased by a Medicaid Applicant/Recipient or a Community Spouse may be treated as an asset, except when the Community Spouse has annuitized his or her IRA and named the State as beneficiary in the first position per an email from Marc Shok dated May 4, 2010. He further stated in his email that such an individual retirement annuity need not be actuarially sound if it was purchased by the Community Spouse with assets always owned by the Community Spouse. Even if the annuity was non-assignable, DSS had been taking the position that the stream of income will be regarded as an asset with a value of its sale on the secondary market for annuities (“an emerging market” per J.G. Wentworth.) (See below discussion of the Lopes decision) In its Memorandum, DSS stated that in the case of an immediate annuity that is not assignable, DSS will count the value of the income stream as an available asset, and that individuals would have the opportunity to demonstrate that there is no market for a specific annuity, in which case there would not be any value as an asset. In addition, DSS indicated that it would provide guidelines to its staff as to determining when a market exists.

In Lopes v. Starkowski No. 3:10-CV-307 (JCH) D.Conn 8/11/10 the Court granted the plaintiff’s Motion for Summary Judgment and directed DSS to approve the plaintiff’s Medicaid application. DSS had treated the income stream of the community spouse’s immediate single premium non-assignable irrevocable annuity as a countable asset in her spouse’s Medicaid application. Relying on James v. Richman, 547 F.3d 214 (3rd Cir. 2008) the Court found the DSS UPM 4030.47 to be more restrictive than SSI criteria and therefore violates federal law by treating the community spouse’s income stream as an asset. See Weatherbee v. Richman, 351595 F. Supp. 2d 607 (W.D. Pa. 2009) aff’d 351 F.App’x 786 (2d Cir. 2009). On September 15, 2010 an appeal brought by the state was filed at 4:59 pm. DSS had indicated that it would not apply the Lopes decision to any Medicaid applications while that appeal was pending.

On October 2, 2012 the Second Circuit Court of Appeals decided the appeal in favor of Mrs. Lopes holding that the payment stream from a non-assignable annuity is not a resource for purposes of determining Medicaid eligibility. Lopes v. Department of Social Services, 696 F.3d 180 (2nd Cir. 2012) In doing so, the Second Circuit joined the Third, Ninth and Tenth Circuit Courts of Appeal on this issue. It is noteworthy that the Second Circuit asked HHS to file an amicus brief in the case. The Second Circuit in its decision stated that HHS made two persuasive arguments that supported the District Court’s and Lopes’s interpretation of the SSI regulations as classifying income from non-assignable annuities as just income, and that this interpretation coheres with the policy goals of Medicaid-“in particular, protecting community spouses from impoverishment by permitting them to retain some of their assets, while recognizing that couples must apply a fair share of their combined resources toward the cost of care before receiving benefits.” Id. at 11 “HHS further notes that its interpretation of the income/resource distinction is consistent with the treatment of annuities in the DRA. The DRA provides that, so long as annuities are disclosed in Medicaid applications and name the State as the remainder beneficiary, the placement of assets in an annuity will not be considered a suspect ‘transfer of assets’ exposing an applicant to certain penalties. 42 U.S.C. 1396a(a)(18), 1396p(c)(1)(A), 1396p ( e)(1).” Id. at 12.

On October 12, 2012 Marc Shok, Adult Services Program Manager, issued an email to DSS Eligibility Staff regarding Lopes v. Starkowski to inform them as to how the case affects their treatment of annuities. The email provides for “New annuity policy” that: “The Lopes decision pertains to irrevocable, non-assignable annuities and prohibits us from regarding the right to receive income as an available asset. The decision does not affect how we evaluate whether there has been a transfer of assets resulting in a penalty, therefore please continue to check whether all conditions have been met in accordance with UPM 3029.12


Effective immediately:

? Continue to count deferred annuities (annuities where individuals have not elected to start to receive payments) as available assets.

? Unless their terms prohibit assignment, continue to evaluate annuities in payment status as available assets.

? Do not regard the right to receive income from irrevocable, nonassignable annuities as available assets. Instead, count the payments as income.

The above applies to pending applications (including those where Dan Butler previously reviewed the annuity) as well as those that have requested hearings due to denials on this basis. Please continue to send annuity contracts to Dan Butler, who will evaluate and advise you of what needs to be done.

The Lopes decision is an agenda item at the upcoming LTC Ops meetingmore details will follow. In the meantime, please contact Adult Services if you have any questions.”

DSS has indicated that case workers do not review any annuities and that they are all being sent to Dan Butler for review the language for compliance.

E. Section 6015 of the DRA amends federal law with regard to countable assets to include entrance fees of continuing care retirement communities (CCRCs). The DRA provides that an individual’s entrance fee in a continuing care retirement community or life care community shall be considered a resource available to the individual to the extent that (A) the individual has the ability to use the entrance fee, or the contract provides that the entrance fee may be used, to pay for care should other resources or income of the individual be insufficient to pay for such care.

(B) the individual is eligible for a refund of any remaining entrance fee when the individual dies or terminates the continuing care retirement community or life care community contract and leaves the community; and

(C) the entrance fee does not confer an ownership interest in the continuing care retirement community or life care community.


The proposed regulations regarding CCRCs are found at UPM 4030.18. In its Memorandum, DSS stated that it would not modify its regulations to address concerns raised regarding whether a Community Spouse must leave a CCRC if his or her spouse with Alzheimer’s disease enters a nursing facility and the entrance fee deposit exceeds the minimum CSPA.


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