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, 2016 installment 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. Today’s installment will discuss the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.)
Very few real properties are worth less than $1,500 (the resource limit for Medicaid eligibility under the old rules.) So, ownership of real property would prevent eligibility for Medicaid for long term care. Under the rules in place before August 1, 2016, the value of the real property did not count toward financial eligibility for Medicaid as long as the real property was up for sale.
According to Ohio Administrative Code section 5160:1-3-05.15, real property was exempt from the resource calculation for a Medicaid recipient/applicant if the property was up for sale through a broker or agent. (Sale by owner was not sufficient.) The broker or agent had to list the real property on the multi-listing service (the MLS.) And, the asking price could not exceed the value listed in the county appraisal records. If these conditions were met, the property was not counted against the Medicaid recipient/applicant.
As soon as the property sold, the Medicaid recipient/applicant would have to spend down the proceeds to resume Medicaid coverage. If the property didn’t sell before the person passed away, the state could place a lien on the property through the Medicaid Estate Recovery process as a way to partially replenish the Medicaid coffers. (This exemption of real property during the period it was listed for sale was very important during the 2008-2009 real estate market meltdown.)
Under the new rules that took effect on August 1, 2016, Medicaid has gotten out of the real estate business. Ohio Administrative Code section 5160:1-3-05.15 has been rescinded. There is no longer an exemption for real estate even if it is up for sale. (Note: The residence is different and will be discussed in the future.) The ownership of real estate will prevent an applicant from receiving Medicaid coverage for long term care unless the total value of all owned properties is less than $2,000 (the new limit on resources for a Medicaid recipient.) In other words, the real property has to fit into the low limit placed on all resources of a Medicaid recipient.
Now, sale of the real property is not enough to qualify for Medicaid for long term care. Sale of the property turns an illiquid asset (real property) into liquid assets (cash.) The cash proceeds are not likely to be less than $2,000, so the former owner of the real estate would be Medicaid ineligible because of the cash resources he/she has received. The person who needs long term care can do much more with cash than with real estate to move toward Medicaid eligibility. The cash can be used for medical/care expenses, or it can be used to buy some items that the Medicaid applicant would like. Of course, if the proceeds are great enough, some can be given to the person’s children and some used to pay off the Medicaid penalty that results from giving away assets.
Then, when the person’s assets are below $2,000 (and, if necessary, arrangements have been made for a penalty period, the person becomes eligible for Medicaid for long term care.
Because the new rules effectively prevent Medicaid eligibility for a real estate owner, I’m advising clients to sell properties quickly. Because of the speed with which a deal can be completed, I’m starting to move to auctions rather than traditional listings for real property. (I do apologize to my friends in the traditional real estate brokering business, but my clients’ needs must come first.)