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December 2011Volume 17Number 1PDF icon PDF version (for best printing)

Summary of DRA changes that will affect your clients and how you process their Medicaid applications

It’s been more than 18 months since we first met with the Department of Healthcare and Family Services to discuss the “new rules” that were coming to Illinois. Of course, as Medicaid planners and elder law attorneys, we knew the “new rules” meant implementation of the long-dreaded Deficit Reduction Act of 2005 (DRA). Due to the harsh nature of the proposed rules, we created and co-chaired the Task Force for Senior Fairness, a group of 25 elder law attorneys and other people knowledgeable in the area of Medicaid, to fight for Illinois Seniors and fair rules for Medicaid eligibility. The Task Force worked closely with the Illinois State Bar Association’s Elder Law Section Council’s Heather McPherson and their extremely competent lobbyists, Jim Covington and Lynne Davis.

After 18 months, countless hours of research, 60 pages of our written commentary on the proposed regulations, numerous meetings with the Department, lobbying the 12 Senators and Representatives serving on the Joint Committee on Administrative Rules (JCAR) and other legislators, eight trips to Springfield, two official hearings and several intense week-ends of eleventh hour negotiations has resulted in a very different set of rules that will become law on January 1, 2012.

The new rules are compliant with the DRA but also go beyond just DRA rules. The new regulations are harsher than current rules and require the practitioner to be aware of how this impacts your clients and the future of your elder law practice. Here is a summary of the major changes beginning in the New Year:

1. Disclosure: The “Look-back” period will increase from 36 months to 60 months;

2. Asset Limit: The applicant that applies with more than $2,000 in total assets will be put in a spend-down. However, any penalty will not begin until the spend-down has been met and the applicant is down to just $2,000 in assets;

3. Non-allowable transfer and penalty periods: All non-allowable transfers will be accumulated and brought forward. The penalty period will not begin until the applicant is “otherwise eligible” which is defined as “institutionalized and would be otherwise eligible for Medicaid”;

4. Penalty Period: The penalty period begins with the LATER of:

a. the first day of the month during which a transfer for less than fair market value is made; or

b. the date on which the person is eligible for medical assistance and would otherwise be receiving long term care services were it not for the imposition of the penalty period and the spenddown has been met;

5. There will be no “round down” for penalties: The penalty period will be determined by dividing the total assets transferred by the average monthly cost of the facility where the applicant resides at the time of application. The new rules allow the penalty period to be calculated to the half of a day. For example, if $65,000 was transferred and the cost of care is $4,000, the penalty would be 16.25 or 16 months and 7.5;

6. Multiple transfers are accumulated and treated as a single transfer: Multiple, non-allowable transfers are cumulated and treated as a single transfer. One period of ineligibility will be calculated to determine the length of the penalty period. Once the penalty has been determined by the Department, it continues to run without regard to whether or not the applicant continues to receive long-term care services;

7. Retroactivity and Hardship Waivers: The new rules will be retro-active, meaning future applicants who made transfers prior to January 1, 2012 will be judged not according to the rules that were in place at the time they made the transfer but according to the new, harsher rules. However, any applicant who signs an affidavit stating that they relied on the rules that were in place at the time of the transfer will be granted an undue hardship waiver for transfers made prior to November 1, 2011.

8. Hardship Waivers: The rules require that the Department shall waive penalty period (or a portion thereof) if the applicant will have an undue hardship due to the penalty period. An undue hardship exists when the applicant would be deprived of the following:

a. medical care that would endanger their life or health; or

b. food, clothing, shelter, or other necessities of life.

The applicant has the burden of proof that the actual, not just possible, hardship exists and the Department may require written evidence to substantiate that the transfers which created the penalty were not done on the applicant’s own accord. (i.e., you can’t get a waiver if you created the hardship). The following criteria may be considered by the Department: whether legal action has been taken to recover the assets and the medical condition, mental capacity and financial ability of the applicant at the time the assets were transferred. Other evidence that may help the applicant is if they will be forced to move if denied eligibility for Medicaid and/or if they would be prohibited from joining their spouse in a facility or living in close proximity to their family;

9. Transfers and the Community Spouse: If a transfer made by the community spouse creates a penalty period for the institutionalized spouse and the community spouse subsequently becomes institutionalized and is otherwise eligible for medical assistance, the penalty will be split equally between the spouses. However, if one spouse predeceases during the penalty period, the remaining penalty will be added to the surviving spouse’s penalty;

10. Home Equity Limit: The limit for the applicant’s equity interest in his or her home is limited to $750,000. Any lien or mortgage can offset the equity value of the home. Farmland is exempt if the land is being farmed and producing an income;

11. Life Estate: Under old rules, an applicant could buy a life estate in someone else’s property and this was a purchase for fair market value, even if the life estate owner never lived in that property. Under the new rules, such a purchase would be a non-allowable transfer unless the person resided in the property for one full year. This does not mean that an applicant can buy the life estate, live in the property for one year and then be free and clear. It simply means that the transfer is for fair market value and will not be included in the non-allowable transfers category.

12. Care-taker child exemption: The criteria for an exempt transfer of homestead property to the caretaker child has increased. The caretaker child still needs to care for their parent at least two years prior to the date the parent became institutionalized but they also need to provide evidence that:

a. The applicant needed care that would otherwise required an institutional level of care. This proof can be met with a physician’s statement or other medical professional. Interestingly enough, the rules allow a diagnosis of Alzheimer’s or other dementia related illness to be prima facie evidence that the applicant required an institutionalized level of care; AND,

b. Proof of the child resided with the person for two years immediately prior to the applicant’s institutionalization (such as tax returns, driver’s license, cancelled checks, etc.); AND

c. Proof that the care provided by the child prevented the institutionalization of the parent. This may be met with a sworn affidavit or statement signed by the caretaker child.

13. Personal Care Agreements. Under the new rules, there will be heightened scrutiny when an applicant has paid a friend or family member for care. The rules have a presumption that services, care or accommodations are, “gratuitous and without expectation of compensation.” An applicant will not only be penalized for paying for any past care without a written agreement. Furthermore, if care was provided for a loved one for “free” in the past and there was a change which led the applicant to begin to pay for that same care, it will be considered a transfer for less than fair market value without credible documentary evidence that pre-exists the delivery of care. Again, this is one area that is remains hyper-technical and an impossible hurdle to overcome - how would an applicant have credible documentary evidence that pre-exists the delivery of care?

14. Pre-Paid Burial Contracts: are limited to a $10,000 limit for goods and services. Note: although the HFS rules have been approved by JCAR, the funeral home industry continues to strongly lobby against this limit. This may be changed by rulemaking in the near future;

15. 3-month Backdating: The Department will take a separate snapshot of the assets in each of the backdated months. Only medical costs, burial contract and up to $10,000 of attorney fees will be allowed to reduce the amount of assets in the backdated months. For example, if applicant has $12,000 in January, purchases a burial plan for $8,000 and pays legal fees in the amount of $2,000 prior to applying for Medicaid in April, this applicant should be eligible to receive Medicaid for the three months prior to April despite having more than $2,000 of assets;

16. Non-homestead real property: Non-homestead real property, which includes the homestead if it is no longer exempt, is considered available. Farmland which produces income is exempt under the new rules. If the homestead is listed for sale, it is exempt (but will be liened). If the homestead is being rented, it must be producing annual income that is not less than 6% of the person’s equity interest. For example, a house worth $150,000 must be bringing in annual rent of $9,000 in order to be considered unavailable for Medicaid purposes;

17. Return of Assets to the Applicant: There will be no credit under the new rules for partial returns. As discussed above, if there was a partial return that was done in reliance upon current rules prior to November 1, 2011, there is the possibility of obtaining a hardship waiver to shorten the penalty. However, going forward under the new rules, the applicant will not receive credit for a partial return, they will only receive credit for a full return of gifted assets;

18. Medicaid Qualifying Annuities (MQA): MQAs must still meet all of the current requirements such as no cash value, non-assignable, equal monthly payments and must not be for longer than the annuitant’s life expectancy. But now, the State must be named as a remainder beneficiary after the community spouse or adult disabled child, if any;

19. Promissory Notes: Promissory Notes will be allowed within certain criteria, but providing required proof of applicant’s tangible, verifiable record of consistent, timely payments could be problematic;

20. Transfers of Income: Transfers of income in the month it is received will no longer be an exempt transfer;

21. Refusal to Disclose: If the community spouse refuses to disclose his or her assets, the institutionalized spouse must assign to the State any right of support from the community spouse.  The State may pursue any legal means in order to determine the community spouse’s Administrative Support Obligation. While some practitioners read the new rules to create no change from the current rules regarding this issue, we believe we will have to “wait and see” what the changes in the refusal to disclose regulations bring, practically speaking, from the Department. ■


Kerry R. Peck is the managing partner of Peck Bloom, LLC in Chicago, Illinois.

Diana M. Law is the managing partner of Law ElderLaw, LLP in Aurora, Illinois.

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