Medicaid Changes - A Brewing Storm

1. Fredrick P. Niemann, Esq.
Medicaid Changes
The Approaching Storm
FREDRICK P. NIEMANN, ESQ.
Hanlon Niemann, PC
ELDER LAW AND
LIFE CARE PLANNING
3499 ROUTE 9 NORTH, SUITE 1-F
FREEHOLD, NJ 07728
(732) 863-9900
www.njelderlawcenter.com
www.njmedicaidattorney.com
www.applyingformedicaidinnj.com
www.appealingmedicaiddenialinnj.com

2. Fredrick P. Niemann, Esq.
Fredrick P. Niemann offers his clients nearly 30 years of
accomplished practice in law. He is a member of the
National Academy of Elder Law Attorneys, the
Guardianship and Conservatorship Committee of NAELA,
the Special Needs Trust and Estate Tax Committees of
NAELA, the Monmouth County Chancery Practice
Committee, New Jersey State Bar Association Elder Law
Section, and the Monmouth County Chancery Practice
Committee. Mr. Niemann is one of the few attorneys in New
Jersey to be accredited by the Veteran’s Administration to
file applications for the Aid and Attendance pension on
behalf of Veterans and or their spouses.

3. Legal Wit
A curious passerby stopped before a grave in a
cemetery, containing the tombstone declaring:
“Here lies a lawyer and an honest man.”
“An who’d ever think,” he murmured, “there would
be room for two men in that one little grave!”
From the World’s Best Jokes
edited by Lewis Copeland

4. Legal Wit
It was so cold one day last February that I saw a lawyer with his hands in
his own pockets.
Robert Peterson, comedian
A lawyer is a man who helps you get what is coming to him.
Laurence J. Peter,
educator/writer
The first thing we do, let’s kill all the lawyers.
Shakespeare

5. Cold Hard Facts
• 60% will require long-term care
• 43% of people over 65 require nursing home care
• It costs per month
– $4,000-$5,000 for home care
– $4,000-$8,500 for assisted living
– $9,000-$12,000 for nursing home
– $18-$22 per hour minimum 3 hours for home
health aid
– $120-$150 for a 12 hour shift for home health aid
– $175-$230 for a 24 hour shift for home health aid
with 8 hours of sleep

6. The Greatest Threat
• The greatest threat to the financial security
of middle and upper middle class
Americans is the cost of long term
convalescent care!

7. 5 Ways to Pay for
Long Term Care
• Private pay
• Long-term care insurance
• Medicare (for up to a maximum of 100
days of skilled care, the first 20 days are
covered 100% then there is a co pay for
the additional 80 days)
• Veterans Administration Pension Benefits
(Aid & Attendance)
• Medicaid

8. Goals of Planning
for Long Term Care
GOAL 1
Asset and Income Protection
– Provide Economic Security for the Community
Spouse
– Preserve Inheritance for Children
– Avoid Medicaid Liens on Family Assets and
Income
GOAL 2
Lifecare Planning
– Best Quality Care for Aging Person
– Avoid Being a Burden on Kids

9. WHAT IS MEDICAID?
IT IS A :
• Federal program
• Administered by the State of NJ under
contract with each County Board of Social
Services (ie., Monmouth, Ocean,
Middlesex, Mercer, Bergen)
(cont’d.)

10. Programs Continued
• Traditional Medicaid Long Term Care (Strict
Medicaid) is for:
– Nursing Home
– Assisted Living
– Home based programs (Global Options)
• Medically Needy Medicaid is for:
– Nursing Home Care only

11. Medicaid Eligibility is Based on
1.Medical Eligibility
A. The importance of the “PAS”
B. The requirement of a nursing home level of
care regardless of program being applied for:
1.Income Eligibility
2.Asset / Resource Eligibility

12. Income and Resource Limits
Under Medicaid Programs
Program
Income
Cap
Resource
Cap
Medicaid
Only
$2,130
$2,000
Medically
Needy*
Floating
$4,000
Global
Options+
$2,130
$2,000
*Nursing Home placement only, not Assisted Living, Global Options
+Primarily Home Based Care but can include Assisted Living Medicaid
(See next slide)

13. Cost to Client for Medicaid
Single Person
• Global Options
– No cost to individual
– “Estate recovery” on principal residence
– Care is limited to approved “Care Plan”
• Seldom (Never) 24/7 Care Services
• Can Include Medical Equipment, Supplies, Drugs
• Assisted Living
– There is a cost share for the applicant for their room and board
– Resident keeps $100 per month for their personal
needs allowance
(cont’d)

14. (Cont’d.)
• Nursing Home
– Institutionalized resident turns over all income to the
nursing home except $35 for personal needs each
month
• Practical Tip
– All income but personal need allowance goes to
nursing home and assisted living residence (except
Global Options)

15. Married Couples
2012 – 2013 INCOME
Minimum Monthly Needs Allowance
MMNA $1,891.25 + utility allowance of $365
RESOURCES
Community Spouse Resource Allowance
Minimum $ 23,312
Maximum $ 115,920
The 50% Formula

16. Non-Countable Resources
• Home with conditions and limitations
– Community Spouse exemption only, not a
single person
• Automobile (unlimited value for community
spouse only)
• Household Goods
• Personal Effects
• Irrevocable Prepaid Funeral ( Trust or
Insurance Policy)

17. Non-Countable Resources
(continued)
• Term Life Insurance
• Life Insurance With Cash Surrender Value
of $1,500 or Less
• $2,000/$4,000 Personal Needs Allowance
• For single person there are practical ways
to possibly minimize but not eliminate
spend down

18. BEWARE OF THE MEDICAID “BOOBY
TRAP”, THE LOOK BACK PERIOD
for Gifts & Uncompensated Transfers
• What is the Look Back Period?
• The Deficit Reduction Act of 2005
– Increased look back to 5 years
– Look back period begins date applicant
requires a nursing home level of care
(Medicaid eligibility) and the application is
filed with the County Board of Social Services

19. Here’s an Example of the “Look
Back Period” Under the DRA
Mom transfers $200,000 4 ½ years ago to
children and now needs a nursing home level of
care
• Because transfer was made within 5 years, the
penalty will be for the full $200,000 transferred
• Penalty period is for the full value of the gift if
application filed within 5 years of gift
• Results: the $200,000 transfer will have to be
spent down to $2,000-$4,000

20. What Strategies Are Available to
Preserve Resources?
• The Medicaid Landscape is Changing on
a DAILY BASIS
• There are multiple lawsuits currently
pending in which elder law attorney’s are
taking the state to federal court
• Strategies differ between single individuals
and married couples

21. Convert Countable Resources to
Non-Countable Resources
• This process can be complicated and
requires financial calculations
• See the advice of a qualified elder law
attorney
• If done correctly, you can protect a
significant amount of resources

22. Example:
Our Clients and Spend Down
• Assets to Spend Down $118,440
• Pay Down Mortgage - 10,000
• Prepay Funeral - 8,000
• Use Funds for Qualifying Purchases
and Spend Down of Resources - 35,000
• Purchase of Personal Needs Items - 1,000
• Adjusted Countable Assets
Remaining $ 58,440

23. Whenever Appropriate, Start the
5 Year Clock, Pre Plan
• Use of Trusts
1.Irrevocable trusts
A. Grantor trusts for income and estate
tax benefits
B. Income only trust
2.Must be an outright transfer; remember,
no strings can be attached
(continued…)

24. (Cont’d)
• No access to income
• No access to principal
• 5 year lookback
• Keep in mind family issues, tax
consequences, further care needs

25. More Advanced Concepts
The Purchase of a Life Estate
in Child’s Home
• 1 Year Residency required
• Based on actuarial life expectancy of
parent
• Capital Gains Tax Considerations to
– Parent
– Child
(cont’d.)

26. (Cont’d.)
• Regulations define method of calculating
value of Life Estate
• Transfers to disabled child(ren)
– Age does not matter
– SSI
– SSD
– DDD
• Outright OR in trust
• Be careful not to jeopardize SSI and
Medicaid eligibility

27. Purchase Remainder Interest
in Parent’s Home
• Parent sells interest in their home to child
• Opposite concept of parent purchasing of
life estate in child’s home
• Strict criteria for NJ eligibility

28. Care Agreement(s)
• Must be in writing
• Can not be for past services
– Prospective services only
• Reasonable Compensation
– Based on hourly/daily rates
(cont’d.)

29. Care Agreement
• What is “Reasonable Compensation?”
– can include rent, utilities
• Care in Parent’s Home
• Care in Child’s Home
• Care in Separate Residences
• Documentation is a must
• Failure to document equals denial

30. Care Agreement… (continued)
• Taxable Income to Caregiver
• Withholdings Required by Parent
– FUTA
– FICA
– Income Tax (optional)

31. Life Insurance
• Convert Cash Value to Additional Paid Up
Insurance
• Assign ownership & beneficiary
designation on term policies
• Children can/should purchase high value
insurance policies
– Example:
• $250,000 death benefit
• $65,000 cash surrender value
• Mom 89 years old

32. Medicaid Qualifying Annuity
(MQA)
• A little known and understood type of
annuity
• NOT! A commercial annuity
• Must have mandatory features to be legal
under NJ Medicaid

33. Strategies for
Protecting Your Home
• Timing and Contents of Transfer Critical
• Transfer to Community Spouse
• Transfer to Child Under 21, Blind or
Disabled
• Transfer to Caregiver Child
– Strict Conditions Precedent Must be Met
– Transfer to Sibling With an Ownership Interest

34. What About the Transfer of
the Home Outright to Children
• Gift Tax Issue
• Carry Over Basis
• Loss of $250,000/$500,000 Principal
Residence Exclusion
• Lose Homestead Tax Rebate, Veteran’s
Deduction, Senior Citizen Deduction,
Itemized Deduction

35. Other Options to Protect the Home:
Transfer Home/Retain Life Estate
• Retain Control
• Gift Tax
• Step Up in Basis
• Retain Homestead Tax Rebate
• Veterans Deduction, Senior Citizen
Deduction, Itemized Deduction
• Principal Residence Exclusion/Trust

36. Summary of Seminar by
Use of a Case Example
You Be the Lawyer
Bill Smith Age 88 (early onset Alzheimer’s)
Sofia Smith Age 71 (good health, primary
caregiver)
House (jointly owned) $450,000
John IRA $101,000
Sofia IRA $44,000
Brokerage Account (jointly owned) $160,000
CD’s (jointly owned) $75,000
(cont’d)

37. (Cont’d)
Money Market (jointly owned) $30,000
Checking Account $14,000
Vacation condo in Florida
(jointly owned) $150,000
1998 Buick (Sophia) $5,000
2007 Ford (Bill) $9,000
Total Assets: $1,038,000
(cont’d)

38. (Cont’d)
Income
• Bill
– Social Security $1,200 per month
• Pension $1,300 per month
• LTC Insurance $5,000 per month
Total $7,500 per month
• Sofia
– Social Security $989 per month
Total $989 per month

39. As You Develop a Plan, Here
Are a List of Considerations
• Income Requirements and Limitations Under
Medicaid
• Resource Requirements and Limitations
Under Medicaid
• Transfer Rules and Penalty Periods
• Income, Gift and Estate Taxes

40. (Cont’d)
• Beneficiary Designations of Existing
Accounts and Assets
• Estate Recovery
• Fair Hearing Appeals
• Documents

41. A Final Thought
Long Term Care Insurance (LTCI)
• 5 Year Policy
• Inflation Factor
• Transfer of Assets Prior to Start of Policy
Benefits
– Policy Pays for Care During Penalty Period
• NJ Long Term Care Partnership Act
– No one over 65 who is healthy should be
without LTCI!

42. Hanlon Niemann, PC
Attorneys at Law
3499 Route 9 North, Suite 1-F
Freehold, NJ 07728
(732) 863-9900
fniemann@hnlawfirm.com
www.njelderlawcenter.com
www.njmedicaidattorney.com
www.applyingformedicaidinnj.com
www.appealingmedicaiddenialinnj.com
FREDRICK P. NIEMANN, ESQ.
ELDER LAW AND
LIFE CARE PLANNING