DMA Files Waiver Request

 On August 28, the Division of Medical Assistance (DMA) filed a waiver request with the federal Centers for Medicare and Medicaid Services (CMS) to permit it to ratchet up the MassHealth penalties for transferring assets and to limit the use of annuities in MassHealth planning. The request was not made available to elder law advocates until September 9th. The waiver, if approved, would: '¢ increase the look-back period for transfers of real estate to five years and for transfers to trusts to 10 years. '¢ Begin the period of ineligibility for transfers on the later of the date the MassHealth applicant moves to a nursing home or the date his or her funds would have run out had the transfer not occurred. '¢ Require that annuities be subject to estate recovery by the DMA. '¢ Treat expenditures by the applicant or spouse as transfers unless they fit into a number of categories. '¢ Enact a variety of more limited restrictions on activities the DMA deems excessive. The DMA states that the purpose of its waiver 'is to discourage Medicaid applicants from making large transfers of assets for the purpose of qualifying for Medicaid payment of their institutional long-term care services.' According to the DMA, it is based 'on the belief that it is reasonable and fair to expect individuals who are fortunate enough to have adequate resources to use their own resources to pay for nursing home care.' It states further, that 'as currently designed, the rules do not provide sufficient deterrence [to transferring assets] and suffer from several loopholes. These loopholes are exploited by sophisticated estate planners who help individuals with substantial assets to fully or partially avoid a penalty period by transferring those assets to a third party.' Look-Back Period The DMA seeks to extend the look back period for transfers to 5 years for transfers of real estate and to 10 years for transfers into trust, exempting the first $300,000 of equity in a home from the extended period. It's unlikely that this would change planning significantly, but it would make the reporting requirements on MassHealth applications even more demanding than they are now. Transfer Penalty Start Date The DMA's proposal to change the start date of the penalty for transfers of assets is more significant and even less workable. The DMA proposes to begin the penalty period for a disqualifying transfer on the later of the date of entry to a nursing home, the date of transfer or the date the applicant would have been eligible for benefits had the transfer not occurred. Currently, the penalty period begins on the first day of the month in which an asset was transferred. For instance, a transfer of $64,000 on October 7, 2002, caused 10 months of ineligibility beginning October 1, 2002, and ending July 31, 2003. Under the proposed rule, if the person who made the transfer entered a nursing home on May 1, 2003, the penalty period would not end until February 29, 2004, if based on the date of nursing home entry. However, the latest date would probably be the date the individual's funds would have run out absent the transfer. It's this last part of the proposed rule that seems entirely unworkable. Somehow, the DMA must determine how long the individual's funds would have lasted. However, if that's when the penalty period starts, by definition the nursing home resident will have no funds to pay for his or her care during the penalty period. What happens then? Further, this change in the rule penalizes people who make smaller transfers and those who don't plan as far ahead, but not those who do more planning or make larger transfers. This is because the look-back period for most transfers remains at three years. Transfers made more than three years prior to application for benefits, except in the cases of real estate other than the home and trusts, will not cause any penalty period to occur. Thus, if in our example the individual had transferred $640,000 instead of $64,000, he would wait until October 8, 2005, to apply for benefits and be entirely unaffected by the proposed new rule. Annuities The DMA's proposal regarding annuities is not nearly as severe as its wish to postpone the transfer penalty start date. It would continue to permit community spouses to shelter excess assets through the purchase of actuarially sound annuities, but it would require that the Commonwealth be named the remainder beneficiary up to the amount of MassHealth benefits it has paid out on behalf of the institutionalized spouse. We do not have a major problem with this rule since it continues to permit the use of annuities to protect spouses of nursing home residents. But it seems inconsistent with the Romney administration's recent passage of the income-first rule limiting protections for lower- income community spouses. As a result, many more community spouses will be forced to purchase annuities rather than preserving their necessary savings in other investments. (Should we take a look at what annuity companies have contributed to the Romney campaign chest?) Spend Down The DMA proposes to treat all expenditures by MassHealth as transfers unless they are for one of the following uses: 1. Medical care; 2. Necessary living expenses; 3. Necessary home maintenance, but not home improvement; 4. Purchase of an annuity that fits the MassHealth rules; or 5. The purchase of a long-term care insurance policy. The problem with this proposal is that it will lead to many disputes between applicants and the DMA over whether expenditures for medical care and home maintenance are reasonable. What about building a ramp on a house to facilitate a wheelchair? What about improving a house so a family member can move in and provide care? What if it doesn't work out and the owner goes to a nursing home anyway? The application process is difficult enough as it is. This proposal would make it more time-consuming for both the applicant and the DMA and lead to more fair hearings. Under the current rules, it probably would affect few people since the amounts in question usually are not great. If they were treated as transfers, it wouldn't matter because the penalty period in most cases would be long over before the application for benefits. But if this were combined with the proposal to start the penalty period on the date the applicant would have been eligible had she not added a new bathroom to her home it would create many situations where there was no money to pay the nursing home fees. The difficulty for nursing homes, nursing home residents and their families would mount at a great rate with this change. Successive Transfers Some transfers are permitted under the MassHealth rules. For instance, an individual may transfer her home to a caretaker child, defined as a child who has lived with and cared for her parent for at least two years before she moved to a nursing home. The DMA would track what the caretaker child did with the house after receiving it and the transfer would lose its exemption if the caretaker transferred the house to other siblings who did not qualify. While the concept makes some sense, it's hard to see how it would work. What the caretaker child does with his new property is his choice. If he wants to share it with his siblings, he's free to do so as he would be with any other property he owned. He just shouldn't be given the property with the condition that he will subsequently add his siblings' names to the deed so they all own it jointly. However, it's hard to see how this can be monitored. Equity Loans Currently mortgages and equity line payments are considered housing expenses in determining the necessary income of a community spouse. The DMA proposes to permit such treatment only if the community spouse can show that the equity line was used for 'necessary' home maintenance, health care or living expenses. This is one of the more wrongheaded proposals largely because money is fungible. One person takes out a home equity loan to pay for acceptable expenses, and it may be used to increase her income allowance. Another uses savings or other funds for similar purposes, but takes out a home equity loan to help pay for a grandchild's wedding or college tuition, and that's treated as unacceptable by the DMA. The only difference between the two situations is the use of the home equity loan, but the result can be tragic. Hardship Waiver and Intent The DMA claims that it's transfer rules will not harm Massachusetts residents because it will grant a hardship waiver to the transfer penalties where the nursing home resident is threatened with discharge and has made every effort to retrieve the transferred property. Of course, gaps in coverage are likely and the difficult application process will be made even more difficult. The DMA will further exempt from penalty those transfers shown to have been made exclusively for purposes other than to qualify for MassHealth. Unfortunately, the burden of proof will be on the applicant. Intent, especially exclusive intent, can be hard to prove. Who has only a single motivation in whatever action she takes? Projections The DMA projects its waiver request will affect only 1 percent of seniors entering nursing homes and that they would transfer on average $33,000 each. It projects further that if its entire waiver request is approved, it will save $53.6 million over a five-year period, a savings of .6 percent of almost $8.5 billion projected in expenditures over that period. According to the DMA projections, fewer than 200 nursing home residents at any one time would be paying privately for care rather than receiving MassHealth benefits due to the new transfer rules. Even assuming the DMA's projections are accurate, given the increased administrative burden on the DMA intake workers these changes would cause, and the fact that half the $53.6 million in savings goes to the federal government, one wonders whether these changes are worth the trouble or a net benefit to Massachusetts taxpayers.