Avoid This Costly Medicaid Mistake

Reader note: This is a major rewrite of an article first published in 2018.

Question: Do you know someone who MIGHT have to consider a nursing home placement and a Medicaid application within the next 5 years?

Next Question: Is that person able to swing the $11,000 monthly bill?

If you answered “Yes” and “No” please do yourself a favor and read on.

I won’t waste your time going back over the Medicaid application issue because I have written about it elsewhere. You can read that here.

What I want to do here is emphasize a couple of extremely important matters and give you a few pointers.

The Medicaid Transfer Penalty

Every other client meeting I have includes someone asking about “that five year look back rule.” What they are asking about is the general Medicaid nursing home rule that “sanctions” certain asset transfers. DSS “looks back” five years and adds up all free gift-type transfers. They then divide by $7,110 (which is supposed to be the average per bed Medicaid reimbursement rate in North Carolina, but that number is somewhat dated) to calculate the sanction.

If Grandma transferred $71,100 to Francine four years ago and applies for Medicaid this month there could be a 10-month sanction, which will be the amount of time Medicaid will refuse to pay the nursing home. No, they don’t take the money back; they simply will not pay the nursing home. It’s your problem.

There are a few exceptions: Transfers between spouses, transfers to a disabled child, modest and recurring donations (think of church), or other transfers made with absolutely no thought of qualifying for Medicaid (good luck, the burden of proving that is on you).

The transfer rule can bite in other unexpected ways. Read on.

Madeleine and Sneaky Medicaid Transfers

Madeline asked for our help qualifying her mother (Agnes) for Medicaid after Agnes’s admission to the nursing home. We pursued a number of strategies and got her mother currently qualified for Medicaid. The problems came up after the application had been submitted.

As part of the application, we stated that no sanctionable transfers had been made by Agnes within the past five years (after Madeleine assured us that was the case).

A few days after the submission we received notice that DSS wanted to see FIVE years of bank statements. Madeleine wasn’t happy, but we had warned her.

Ten days later we submitted the six inch high stack of statements.

Three days later DSS notified us that we needed to explain a series of withdrawals over the years. Nearly every month the bank statement showed withdrawals of $200 to $500 “CASH.” They totaled around $20,000.

I asked Madeleine what they were. She said, “Why, they were to me. I reimbursed myself for mileage and other expenses like groceries I bought for Mom. Is that a problem? They weren’t gifts.”

My answer? “Madeleine, it’s a problem if we can’t begin to substantiate what they reimbursed you for. Did you keep detailed records?”

Her response was something like “not-really-but-sorta.” We were looking at close to a 3-month transfer of assets penalty.  What that means is Medicaid will not pay the nursing home for three months once they have determined that Agnes is otherwise qualified for Medicaid (but for the transfers).

Fortunately, after much painstaking work and records reconstruction and affidavits we were able to lower the penalty to less than a month.

But it wasn’t easy.

What could have been done

There really isn’t a clear-cut answer other than: Be careful.

Here is what I suggest, depending upon your level of paranoia, dedication, and attention to detail.

·       Consider a simple “Reimbursement Agreement” in which Mom agrees to reimburse you for documented out-of-pocket expenses. Shortly after the end of every month, give her a statement with copies of receipts attached. Have her write YOU a check for that exact amount. PLEASE file the statement in your “Reimbursement Folder.” OK, you might think, the “Reimbursement Agreement” is a bit over-the-top. While I don’t think so, at least implement the system of “statements with receipts attached.”

·      Give the bank a copy of Mom’s power of attorney and ask that you be an authorized signer on her account. Then pay for Mom’s expenses with her account – and PLEASE do not write checks to “CASH.”

Pamela and Personal Care for Dad

When Pamela came in to see me about “finally” having to put Dad in the nursing home she explained that Dad had been frail for years and up until 6 months ago he needed help around the house with basic chores, shopping, cooking, and the like. Six months ago, Dad took a turn for the worse and his physician said at that time that he probably belonged in a nursing home. But until now, Pamela couldn’t bring herself to do it.

Pamela also told me she’d been paying herself about $2,200 a month the past 6 months or so for taking care of Dad a good bit of the day (not unreasonable since she quit her job). She’d also been paying “some other ladies cash under the table” (the IRS might take issue with that).

Problems? You bet! In fact, would I actually be writing about this if it wasn’t a problem?

Federal law (which NC is obligated to follow) simply requires that payments made for services rendered must be a fair market exchange. Period.

The NC Adult Medicaid Manual, however, attempts to pose stricter standards. In order for payment for “personal care services” to be a nonsanctionable transfer, the payments must be:

·       Pursuant to a written contract.

·       Must pertain to future services only (in other words you can’t go back and “paper up” a transaction after the fact).

·       Pursuant to a physician’s written statement that says the services are “necessary to prevent entry . . . to a nursing facility or intermediate care facility for the mentally retarded.”

Most knowledgeable elder law attorneys take the position that this, if literally applied, would sanction payments made to a home health agency or non-related home health worker providing services needed to keep the applicant safe, or entertained, or whatever. If this was the case, I believe the NC Association of Home & Hospice Care would be outside the Department of Health & Human Services building in Raleigh with pitchforks and torches.

I think this is overzealous manual writing from several years ago that wasn’t carefully thought through.

The concept is this: Dad could spend thousands of dollars buying a case of mink-lined wading boots if that is what “floats his boat.”

That being said, the next section of the manual says that any transfer to a family member for services that were provided for free in the past, must be pursuant to a written agreement entered into on or before the services were rendered.

Theoretically, Medicaid could sanction Granddad for paying his grandson to mow his yard. I think that is nonsense, but it certainly could be applied to a daughter providing personal care services.

My Bottom Line: Even if a homecare provider is non-related, get a written agreement before the services are rendered, and then honor it. Do this especially if the provider is a relative. I would also do whatever I could to have a physician paper it up with an order before the services are rendered. After all, a physician wants to help, and one could argue that services meant to keep Mom from falling are “necessary to prevent the entry” into a nursing home.

Finally, not that Medicaid cares, but the IRS certainly does. If you’re paying someone “under the table” STOP IT. There are all sort of inexpensive payroll services out there.

Back to Pamela. Can I help her? It is going to be tough. We might be able to get “the other ladies” covered, but I don’t believe we’ll have any luck with her. A descriptive photo appears to the right. Fill in the blank: “Pamela is ____________.”

The Takeaway

This is frightfully confusing stuff. Penalties can be horrific (multiply $11,000 by the number of months messed up). In many cases you can avoid later penalties, but it must be structured correctly under the tutelage of someone who knows what they’re doing.

Yes, you might have to pay some attorney fees, but in the long run that could be the best “bang for the buck” – certainly better than DIY (which can, in the end, be very expensive).