This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled program coming in 2016-2017. The initial installment (April 28, 2016) provided an overview of the transition from the old system (following section 209(b) of the federal Medicaid law) to the new system (that will follow section 1634 of the federal Medicaid law.) The May 5, 2016 installment discussed the new income rules that will go into effect with the new eligibility system. The May 12, 2016 installment discussed setting up a Qualified Income Trust (aka Miller Trust) that will be necessary for people who need ABD Medicaid to help pay for long term care. The June 16, 2016 installment discussed the Ohio rules that describe how to use the Miller Trust each month. The June 23, 2016installment discussed the difficulty in understanding the need for a Miller Trust. The July 1, 2016 installment discussed the need to empty the Miller Trust account every month. The July 7, 2016 installment discussed the need to balance the Miller Trust with the desire to have health insurance. The July 15, 2016 installment discussed the confusing deposit rules for Miller Trusts. The July 21, 2016 installment discussed the changes that the Ohio Department of Medicaid made to the form Miller Trust document. The July 28, 2016 installment discussed whether income is supposed to go directly into the Miller Trust. The August 4, 2016 installment discussed Medicaid’s insistence that the transfers (or deposits) into the Miller Trust account be automatic. The August 11, 2016 installment discussed money that doesn’t actually reach the Medicaid-recipient that, nonetheless, counts as “income” for purposes of using a Miller Trust. The August 18, 2016 installment discussed the appearance that a person on long term care Medicaid has an increase in income when he/she stops paying Medicare premiums. The August 25, 2016 installment discussed the impact of tax withholding on certain income sources and the difficulty that the tax withholding creates for the Miller Trust. The September 2, 2016 installment discussed the limit placed on monthly costs of the Miller Trust. The September 9, 2016 installment discussed how Ohio’s Medicaid rules appear to count income tax refunds twice. The September 15, 2016 installment discussed the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.) The September 22, 2016 installment discussed keeping the house with an intent to return to home. The September 29, 2016 installment discussed keeping the house while a dependent family member lives there. The October 6, 2016 installment discussed the home that is co-owned by someone else (other than the spouse.) The October 27, 2015 installment discussed real property that is “essential for self-support.” The November 10, 2017 installment discussed the retirement funds belonging to the spouse who does not seek Medicaid’s help with long term care costs. The November 17, 2016 installment discussed the 2016 changes in how Ohio Medicaid will allow applicants to give away some of their assets cover the resulting penalty period through a return of part of the assets. The December 1, 2016 installment discussed Ohio Medicaid’s new prohibition on using promissory notes to recover from an applicant giving away assets. The December 8, 2016 installment discussed the possibility of using a Special Needs Trust to recover from assets given away creating a Medicaid penalty period. Today’s installment will discuss the use of short-term annuities to recover from a long term care Medicaid penalty period that results from giving away assets.
Note: What I am calling “assets” Medicaid calls “resources.” In Medicaid’s terminology, “assets” includes both “resources” and “income.” Because most of the public thinks of “resources” as human resources or natural resources, and thinks of money in the bank as “assets,” I will use the term “assets” in this installment to refer to money in the bank and other similar things of value (like real estate, life insurance, etc.) that may be included in the applicant’s life savings.
Generally, when an applicant for Medicaid for long term care services gives away something of value (aka “assets,”) Medicaid will not pay for services for the amount of time that the given-away assets would have covered. This “penalty” is found within the “transfer of assets” rule in Medicaid’s regulations.
Despite the penalty, some Medicaid applicants wish to give away some of their assets. Usually, the applicants wish to give assets to their children. The giving of these assets to the applicant’s children often gives the applicants a great deal of emotional relief because it allows some of their money (the results of their working lives) to outlive them. Most parents want to leave something to their children and grandchildren. Finding a way to allow these applicants to give some of their assets is what most elder law attorneys try to do.
The trick is finding a way to cover the applicant’s long term care costs during the time that Medicaid will not (i.e., during the “penalty period” aka the “Restricted Medicaid Coverage Period.”) There used to be 4 different ways to cover such a penalty period. During 2016, Ohio Medicaid changed the rules on covering this penalty period. Today’s installment will discuss the use of short-term annuities to cover a penalty period in long term care Medicaid benefits.
Medicaid rules allow a person who gave away assets to use an annuity to cover his/her long term care costs during the associated penalty period. The annuities must meet a number of criteria:
– The annuity remainder beneficiary must be the state of Ohio. (Ohio may be named after the spouse or a dependent child.);
– The annuity must be Irrevocable and non-assignable;
– The annuity must be “actuarially sound” by paying out over a time period equal to or shorter than the annuitant’s life expectancy as determined by the Social Security Administration (usually found via a certain online calculator); and
– The annuity must pay out in equal monthly payments with no anticipated lump sum (except, potentially, to a remainder beneficiary.)
An annuity that meets these requirements is often called a Medicaid-Compliant Annuity.
Satisfying these requirements is relatively easy. They can all be set at the time of the purchase of the annuity. The trickiest part is determining the monthly payment and the number of monthly payments from the annuity. The annuity payments should be large enough to almost cover the monthly difference between the client’s monthly income and monthly costs. The number of months should be long enough to cover the penalty period.
Short term annuities are available (to my knowledge) from two sources, Krause Financial Services (MedicaidAnnuity.com) and Safe Harbor Annuity (SafeHarborAnnuity.com.) I have used Krause for such annuities. I became aware of Safe Harbor’s participation in this market in August 2016 and have not yet used Safe Harbor.
Until recently, Cuyahoga County’s Medicaid office had espoused the position that “actuarially sound” meant that the annuity must pay out for the ENTIRE life expectancy of the annuitant rather than for a period of time equal or less than the annuitant’s life expectancy. This position posited that any designed payout shorter than the life expectancy set forth in the Social Security tables referenced in the rule made the purchase of the annuity an improper transfer. (I do not know whether any other counties or individual caseworkers did so.) Two appeals of this position ruled against the county’s policy. Then, in November 2016, Cuyahoga County announced that it would accept annuities that were as long as or shorter than the person’s life expectancy.