By Alan Polack
Without going into excruciating detail, I am reporting on four cases that have impacted Medicaid and Supplemental Security Income (SSI) rules.
1) Hughes v McCarthy, 6th Circuit Court of Appeals, Case No. 12-3765; decided Oct. 25, 2013.
The Hughes court construed federal law regarding the requirement to name the State of Michigan as a beneficiary of single premium immediate annuities (SPIA).
For those of you who have done Medicaid planning for a while, you will recall that this requirement was instituted by the Deficit Reduction Act of 2005.
The requirement severely limited the use of SPIAs in Medicaid planning.
The Hughes court decided that if the community spouse purchased a SPIA that was irrevocable, non-assignable and actuarially sound, it no longer required designation of the state as a beneficiary when the spouse died.
Now, the State of Michigan, following the decision in Hughes, has changed its rule (BEM 405) effective May 1 to allow community spouses to purchase SPIAs to protect their spenddowns without naming the State of Michigan as a beneficiary.
This allows community spouses to spread the payments of the annuities over a longer period of time thereby reducing the community spouse’s monthly income. This is beneficial since the community spouse may then qualify for a minimum monthly maintenance needs allowance from the nursing home spouse’s income. The bottom line is that community spouse SPIAs are now in play in Medicaid planning.
2) Department of Community Health v State of Esther Keyes, Michigan Court of Appeals, case number 320420 (for publication); decided April 16, 2015.
In 2007, the Michigan Legislature amended the Michigan Social Welfare Act to establish a Medicaid Estate Recovery Program. The program was not approved by the federal government until July, 2011.
Esther Keyes was originally admitted to a nursing home in April 2010 and began receiving Medicaid benefits.
At that time, the department’s application for Medicaid for nursing home residents did not contain a notice that Esther’s estate would be subject to Medicaid recovery as required by the Michigan statute.
Esther died in 2013 and DCH filed a claim in the Bay County Probate Court seeking reimbursement against Esther’s estate for Medicaid expenses.
The trial court determined that the department had failed to notify Esther of estate recovery at the time of enrollment and granted summary disposition in favor of the estate on the claim. The state appealed.
The Court of Appeals held that Esther received notice of estate recovery when she filed a new application (redetermination) in 2012.
The court opined that Esther’s previous enrollment in 2010 does not change the fact that when she sought eligibility in 2012 she received sufficient notice of estate recovery and due process was not offended.
The trial court’s summary disposition was reversed. Lack of notice is no longer a viable defense.
3) Jensen v Department of Human Services, Court of Appeals, Case Number 319098; decided Feb. 19, 2015.
Betty Jensen was an elderly woman with dementia who lived at home without assistance until May 2011. At that time her grandson, Jason Jensen, hired a non-relative to serve as Jensen’s home health aide.
Jason and the caregiver did not enter into a written contract.
Pursuant to an informal agreement, Jason paid the caregiver $19,000 of Betty’s assets. Betty entered a nursing home in March 2012.
Sometime after, Betty executed a written contract with Jason agreeing to reimburse him for mileage he accumulated while managing her affairs for the past year. Betty paid $1400 to Jason.
In April 2012, Jason applied for Medicaid benefits for Betty. Although Betty was eligible for Medicaid, the DHS slapped her with a seven month penalty period for divesting her funds.
Jason challenged the divestment penalty before an administrative law judge and then in a circuit court appeal contending that his payments to the caregiver and mileage reimbursement to him should not be treated as divestments under the “Home Caretaker and Personal Care Contracts” provision of Bridges Eligibility Manual (BEM) 405 — the applicable policy upon which the DHS relied.
The circuit court reversed the decision of the administrative law judge holding that a written agreement for services is only required when the services are rendered by relatives of the Medicaid applicant.
Since the caregiver was not a relative, Jason’s payments to the caregiver, a non-relative, for services to Betty could not be characterized as divestments.
The Court of Appeals embarked on a convoluted construction of the care agreement requirements contained in BEM 405. In a nutshell, the court did not distinguish between care provided by a relative from care provided by a non-relative.
In other words, all the requirements for a valid care agreement are fully applicable to any care agreement regardless of who the caregiver is.
The court agreed with DHS that the payments to Jason and the caregiver were divestments and reversed the circuit court.
Any care agreement must meet all of the requirements of BEM 405 to insure that payments made pursuant to an agreement are not considered a divestment.
4) Draper v Colvin, U.S. Court of Appeals, Eighth Circuit, Case Number 13-2757, decided March 3, 2015.
Anyone who drafts special needs trusts knows that, pursuant to federal law, they can be created by a parent, a grandparent, a guardian or by court order.
In this case, Draper’s parents held a power of attorney over their disabled 18 year old daughter.
They created a special needs trust pursuant to 42 USC Section 1396p(d)(4)(A) to protect the child’s assets without reference to the power of attorney.
The trust was funded with proceeds from a personal injury settlement via the parents’ power of attorney.
The SSA determined that the assets in the trust were countable and determined that Draper had been overpaid SSI benefits because her assets exceeded the statutory limit.
The court ruled that the federal statute did not define the word “establish.” Therefore, the SSA, through its Program Operations Manual System (POMS) decided to make up their own definition.
The POMS state that the parent “may establish a seed trust using a nominal amount of his own money, or if state law allows, an empty or dry trust.”
After the seed trust is established, the legally competent disabled adult can transfer his own assets to the trust or, if incompetent, through another individual with a power of attorney.
Since Draper’s parents did not establish an empty or seed special needs trust with their own assets as the initial trust res, the personal injury settlement that they transferred to the trust was countable.
In addition, since Draper’s parents funded the trust by using their authority as attorneys-in-fact for Draper, the court decided that the trust was actually established by Draper, which is not allowed by federal law.
It should be noted that the trust did describe the original res as the personal injury settlement proceeds. Therefore the court ruled that this was not an empty trust.
So it seems if a parent creates a special needs trust, it should describe the original res as the parents’ ten dollars and not the disabled child’s money.
I hope that any of you out there who draft special needs trusts read this case and let me know if I have got it right.
———————————
Alan F. Polack specializes in elder and probate law and practices out of Shelby Township. He is a former president of the Macomb County Probate Bar Association.
