Medicaid: Strengthening Financial Protections for Beneficiaries and Their Families

Background

Medicaid coverage for long-term services and supports (LTSS) provides a safety net for vulnerable older people who have low incomes and few assets, or who become impoverished because of medical and LTSS needs. In fiscal year 2015, Medicaid paid $152 billion for LTSS (in both institutional and home- and community-based settings), or approximately 32 percent of total Medicaid expenditures. Institutional care still accounts for the great majority (59 percent) of Medicaid LTSS spending for older people and adults with physical disabilities.

However, federal and state eligibility criteria can seriously hamper access to Medicaid coverage. To be eligible, an applicant must meet strict income and asset rules, which vary widely from state to state. In most states, older people who are eligible for Supplemental Security Income (SSI) are considered eligible for Medicaid. In 2016 the federal SSI eligibility thresholds for individuals were $733 per month in countable monthly income and $2,000 in liquid assets. Yet certain states, known as 209(b) states, may impose even more restrictive eligibility rules (see Chapter 6, Low-Income Assistance: Low-Income Assistance Programs—Supplemental Security Income for more information on SSI).

In determining program eligibility, Medicaid does not count the person’s home, one car, and a modest amount of personal goods. However, the Deficit Reduction Act of 2005 (DRA) limited the value of exempt home equity ($552,000 in 2016), with states having the option to exempt up to $828,000.

Financial eligibility—certain states allow people over the age of 65, and younger people with disabilities and large medical expenses, to spend down their assets in order to meet their state’s eligibility test for Medicaid coverage of LTSS in a nursing facility. States also may use a special income rule to qualify individuals for LTSS services: Income may not exceed 300 percent of the federal SSI benefit.

States that do not offer a “medically needy” program must allow people who need nursing facility care to qualify for LTSS through the special income rule. Applicants whose total incomes exceed the eligibility standard cannot get Medicaid nursing facility coverage unless they place their incomes in a so-called Miller Trust. When the person dies, the state receives money remaining in the trust to reclaim the amount that Medicaid spent on the person.

Personal needs allowance—in 2016 nursing facility residents who are Medicaid-eligible are permitted to keep a personal needs allowance of between $30 and $110 per month (depending on the state) to cover basic expenses such as personal hygiene supplies and phone calls.

Financial protections for spouses—Medicaid requires states to allow spouses, including same-sex spouses, of nursing facility residents to protect income and assets to prevent spousal impoverishment. In 2016 states had to allow a minimum of $1,991 per month in income, with the option of allowing up to $2,981. Any income above that goes toward the cost of the beneficiary’s nursing facility care. States also had to allow spouses to protect between $23,844 and $119,220 in assets. These amounts are automatically updated annually for inflation.

States can offer the same protection to spouses, including same-sex spouses, of Medicaid recipients who receive home- and community-based services (HCBS) under a waiver program. For five years beginning January 1, 2014, states are required to extend spousal impoverishment protections for HCBS beneficiaries. Following the June 26, 2015, US Supreme Court ruling that state same-sex marriage bans are unconstitutional, married domestic partners may no longer be eligible for these income and asset protections.

Estate recovery—under the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), all states must recover Medicaid costs for nursing facility or HCBS care from the estates of people who received benefits at age 55 or older. OBRA 1993 defines “estate” to include assets that are part of the probate estate under state law. States can include other property in which the individual had any legal interest at the time of death, including property passing by joint tenancy or living trust. Under federal law states have the option to implement estate recovery for receipt of primary- and acute-care services. Thus individuals who enroll in the Medicaid expansion could be subject to estate recovery rules (see Chapter 7, Health: State Plan Amendments and Waiver Authority—Medicaid Waiver Authority).

Today almost every state and the District of Columbia have an active program for recovering Medicaid costs from estates. Recoveries cannot be made while there is a surviving spouse or dependent child; but in some states, unmarried domestic partners and same-sex spouses may not have that protection. With certain exceptions and exemptions, a number of states recover expenditures by filing liens on the homes of Medicaid recipients; however, no recovery can be made until both the recipient and spouse die, the house is sold, and any surviving children reach the age of 21.

States may allow liens to be placed prior to an individual’s death. But federal law prohibits states from imposing pre-death liens unless the person is in a nursing facility and expected to be permanently institutionalized. Any pre-death lien must be removed if the individual is discharged from the nursing facility and returns to the community.

Transfers of assets—in determining Medicaid eligibility, states must look back for a given time period to determine whether an applicant transferred assets for less than fair-market value. If so a penalty period is imposed during which the applicant is ineligible for benefits. The passage of the DRA tightened the asset transfer rules. Applicants have the option of requesting a hardship waiver. Those who do should receive help in developing a care plan and budget for medical and supportive services and necessities for the duration of the penalty period.

Medicaid: Strengthening Financial Protections for Beneficiaries and Their Families: Policy

Maintaining existing Medicaid services

In this policy: FederalState

AARP supports:

  • maintaining existing guarantees of long-term services and supports (LTSS) through Medicaid—AARP opposes a congressionally mandated block grant of federal Medicaid spending, which would shift costs and risks to states. Such a shift would severely undercut LTSS and nursing facility quality (see also Chapter 7, Health: Medicaid);
  • expanding the Medicaid program to improve access to LTSS; and
  • ensuring adequate federal and state Medicaid funding.

Choice of service

In this policy: FederalState

AARP supports ensuring that people who qualify for Medicaid have a choice between home- and community-based care (HCBS) or nursing facility care and have a choice of providers.

Public input

In this policy: FederalState

AARP supports an open contract development, waiver, or state plan amendment process that provides for meaningful public input.

Medicaid eligibility criteria

In this policy: FederalState

The federal government and states should not use more restrictive financial criteria for determining the Medicaid eligibility of the aged, blind, and people with disabilities than the criteria used in the Supplemental Security Income program. (This recommendation applies only to the 11 “209(b) states,” which have more restrictive eligibility rules.)

The federal government should reduce the wide variability in income and asset limits for Medicaid program eligibility and for eligibility under medically needy and categorically needy programs.

The asset limit for eligibility should be increased for all Medicaid LTSS beneficiaries and indexed for inflation. States should establish higher asset levels for HCBS beneficiaries to help them remain in their homes and communities.

At a minimum all individuals with incomes at or below 100 percent of the poverty line ($11,670 per year for an individual in 2014) should be considered categorically eligible for Medicaid.

The federal government should stipulate that a state may not deny eligibility under the home equity provision if the individual is not eligible for a reverse mortgage or a home equity loan.

Making beneficiaries aware of right and responsibilities

In this policy: FederalState

Medicaid beneficiaries and applicants should be clearly instructed about their rights and responsibilities, including grievance and appeals processes.

Deficit Reduction Act of 2005 (DRA)

In this policy: Federal

Congress should repeal the provisions of the DRA that lengthen the look-back period for asset transfers, change the start date of the penalty period, and impose a cap on home equity. Also Congress should not modify these provisions in ways that further restrict eligibility for Medicaid-funded LTSS.

Transfer-of-asset penalties

In this policy: FederalState

Federal and state regulations should establish clear guidelines on what constitutes a hardship for determining transfer-of-asset penalties.

Guidelines on transfer-of-asset penalties should address methods for distinguishing deliberately abusive practices from legitimate transfers that occurred in the normal course of life events.

The federal government should define the types of transfers that should be presumed to be legitimate and not subject to a penalty—for example, donations to churches and charities, donations to family members for medical and educational expenses, and a reasonable level of undocumented expenditures—unless the state can demonstrate an intent to improperly qualify for Medicaid.

A threshold limit should be established for transfer-of-asset penalties so that those making reasonable levels of transfers for charities, religious donations, or personal gifts, or who are unable to provide documentation of all purchases over a five-year period, are not penalized.

Government attempts to prevent abusive asset transfers for the purpose of qualifying for Medicaid should focus on deliberately fraudulent or abusive activities and loopholes in state laws, not the ordinary actions of typical moderate- and low-income families.

Asset transfers made outside the individual’s control—such as those resulting from a court order because of fraud or misrepresentation—or made before the individual could reasonably be expected to anticipate the need for long-term care within the next five years (e.g., disabling injury, onset of a disabling disease, or diagnosis of a previously undetected medical condition after the transfer date) should be exempt from consideration when implementing the provisions of the DRA.

Hardship waivers for transfer-of-asset penalties

In this policy: FederalState

Uniform criteria should be established for evaluating whether denial of coverage under stringent DRA provisions causes hardship.

Hardship waivers should be granted to individuals who require LTSS but would be denied Medicaid because of prohibited asset transfers.

Federal and state regulations should establish hardship waivers of the home equity limit in order to protect people who have no other way to pay for needed care and to ensure that people are not forced to sell their homes to get the needed care.

Federal regulations should require that states give all applicants information about the availability of hardship exceptions, ensure presumptive eligibility until a final decision is rendered, and provide a standardized appeals process for people whose exemption requests are denied.

Penalty periods

In this policy: FederalState

The imposition of a penalty period should be delayed until it is determined that the applicant has the income and resources sufficient to pay for all necessary medical and support care and treatment, food, housing, utilities, and other necessities of life for the duration of the penalty period.

Federal and state regulations should require monitoring during the penalty period to ensure that applicants are not deprived of care or necessities.

Federal and state regulations should allow for and promptly process hardship-waiver requests and appeals prior to or during the penalty period.

Prior to the imposition of a penalty, applicants seeking a hardship waiver of the penalty should receive assistance in developing a care plan and budget for medical and supportive services and necessities for the duration of the penalty period.

States should provide advance written notice to the applicant identifying the income and resources available, and the projected costs of medical and support care and treatment, food, housing, utilities, and other necessities of life during the penalty period.

Applicants should be afforded the opportunity to appeal state determinations of support costs.

Recovery of transferred assets

In this policy: State

States should not impose blanket requirements that applicants seek the return of all transferred assets and should not mandate civil or criminal legal action. This could be done by establishing a minimum transfer amount for which recovery is required.

Frivolous recovery efforts lacking any lawful basis and criminal complaints motivating an applicant to file charges of malicious prosecution should be prohibited.

States should establish a hardship exception for those unable to make any recovery effort due to disability.

Home equity barriers to coverage

In this policy: FederalState

Federal and state regulations should establish hardship waivers of the home equity limit that protect people who have no other way to pay for needed care.

The federal government should encourage states to provide clear information about other options to individuals who are denied Medicaid eligibility due to home equity under the DRA.

States should be required to use a fair process to determine an individual’s home equity (i.e., a home’s current fair-market value for property tax purposes, minus any outstanding debts against the home).

States should be allowed to increase the home equity cap up to the maximum allowed by the DRA with minimal administrative burden. Congress should not modify the home equity cap to further restrict eligibility for Medicaid-funded LTSS.

States should not deny eligibility under the home equity provision if the individual is ineligible for a reverse mortgage or unable to obtain a home equity loan.

Protection for spouses, domestic partners, and children

In this policy: FederalState

Unmarried domestic partners and spouses in same-sex marriages should be provided all the financial protections given to opposite-sex community spouses.

Current financial protections for spouses, caregivers, and dependent children should be retained. Federal and state governments should make permanent financial protections to prevent impoverishment of spouses of beneficiaries who receive Medicaid home- and community-based services.

Prohibition of federal and state requirements that the children or grandchildren of Medicaid beneficiaries receiving LTSS assume financial responsibility for their parents’ or grandparents’ care should continue.

States should set the highest “community spouse resource allowance” and “spousal maintenance needs allowance” possible under federal law to provide community spouses with the greatest financial protection.

Estate recovery program

In this policy: FederalState

The word “estate” under the estate recovery program should be defined no more broadly than it is under state probate law.

Heirs should have an extended period of time to reimburse the state so they are not forced to sell the deceased person’s home and should be protected from coercive tactics designed to force repayment of Medicaid expenditures.

Federal regulations should require states to use all money recovered from the estates of Medicaid recipients to improve the program.

Procedures for waiving estate recovery when undue hardship would result should be established.

Federal regulations should ensure public accountability by requiring estate recovery programs to provide consistent and readily available data on the total costs of the program and the numbers of beneficiaries affected, as well as other essential information, such as the number of exemptions, deferrals, hardship waivers, liens, and contested recoveries.

Federal regulations should ensure that consumers are adequately informed about Medicaid estate recovery. Recovery notices should be timely, clear, and easy to read (e.g., published in an adequate type size), and should include vital information concerning exemptions, deferrals, hardship waivers, liens, and consumer obligations and rights.

Federal regulations prohibiting states from placing liens on the property of Medicaid recipients who receive LTSS in the home and community should remain in force.

Medically needy programs

In this policy: FederalState

The federal government should require states to implement medically needy programs for all people regardless of care setting, including institutional and home- and community-based LTSS.

States should maintain the medically needy programs for nursing facility residents and use the special income rule at 300 percent of the Supplemental Security Income benefit level.

States should enact a medically needy program if they do not have one.

Personal needs allowance

In this policy: Federal

The federal government should increase (in accordance with the Consumer Price Index) the minimum personal needs allowance for Medicaid beneficiaries in nursing facilities and supportive housing, and should adjust it annually to account for changes in the cost of personal needs.