Qualified Income Trust Can Reduce Income to Qualify for Medicaid

            In order to qualify for Medicaid to pay for long-term care, a person must have little assets and must also have a monthly income that is less than the “income cap”.  Beginning January 2020, the Medicaid income cap in the State of New Jersey is $2,349.00.

            If a person has a gross monthly income of more than $2,349.00, then he or she will not qualify for Medicaid assistance even if that person has virtually no assets.  New Jersey, however, allows a person to reduce their gross monthly income below the income cap through the use of a special trust known as a Qualified Income Trust.  The Qualified Income Trust is commonly referred to as a “QIT”.

            In order to establish a QIT, a trust agreement is prepared and signed by the person who needs long-term care and another individual who is the Trustee.  In many cases the individual who has power of attorney can sign the trust agreement on behalf of the individual who needs long-term care.

            The trust agreement must set forth that the person’s monthly income will be deposited into the trust and will be utilized for that individual’s long-term care needs.  The trust must be “irrevocable”.  This means that the trust cannot be revoked or canceled. 

            Both federal and state law requires that the trust agreement provide for reimbursement of Medicaid benefits to the State of New Jersey.  New Jersey must be the primary beneficiary of the trust agreement.  When that individual passes away, then New Jersey will be reimbursed for all of the Medicaid funding that the person received from Medicaid.  Any remaining balance of the trust assets will then be paid to the person’s beneficiaries and heirs.

Income Cap Changes for 2020

Medicaid is the only government long-term care insurance program.  Each of the 50 states, as well as Washington, D.C., has Medicaid to help individuals pay for their long-term care needs at home, in an assisted living facility and a nursing home.  In order to qualify for Medicaid, there are strict rules with respect to assets and income.

            In New Jersey, an individual is not allowed to own more than $2,000.00 of resources.  A resource is an asset that can be converted to cash, including most life insurance policies that have a cash surrender value.

            New Jersey is one of a number of states in our country that has an income cap.  If an individual’s income is greater than the income cap then that person will not qualify for Medicaid assistance.  The income cap is based upon a person’s gross monthly income.

            According to applicable law, the Medicaid income cap is based upon the maximum benefits that an individual can receive from Supplemental Security Income, also known as SSI.  The Medicaid income cap is calculated by taking the maximum SSI benefit per month and multiplying it by 300%.  In 2019 the maximum SSI rate was $771.00 per month.  This resulted in a Medicaid income cap of $2,313.00.

            Beginning January 2020, the maximum SSI monthly benefit is $783.00.  Therefore, the New Jersey Medicaid income cap is calculated as follows:  $783.00 x 300% = $2,349.00.

            In summary, an individual must now have a gross monthly income of no more than $2,349.00 to qualify for Medicaid in the State of New Jersey.

Change in Medicare Co-Payment for Skilled Care

If you require rehabilitation or therapy in a nursing home facility, then Medicare may provide some assistance to you, at least for the first several months.  According to federal law, Medicare will cover your skilled nursing care in a facility as long as certain requirements are met.  For example, you must have been receiving care in a hospital for at least three consecutive days immediately prior to your admission into the nursing home facility for care.  In addition, your care in the facility must be considered “skilled” rather than “custodial”.

            If a person requires help with activities of daily living rather than medical care, then that care may be considered custodial.  Medicare does not provide coverage for custodial care.  On the other hand, if a person requires rehabilitation, physical therapy and/or occupational therapy, then that care may be considered skilled, which is covered by Medicare.

            According to federal law, Medicare will provide payment in full for the first 20 days and then a portion of the remaining 80 days.  A federal regulation provides that there must be a daily co-payment equal to one-eighth of the hospital deductible amount.  Pursuant to this law, there was a daily co-payment of $170.50 for the 80 day period of time in 2019.  This daily co-payment, however, has increased effective January 1, 2020.

            Effective January 2020, the daily co-payment for care in a skilled nursing facility is $176.00.  Unless there is adequate coverage through supplemental health insurance, an individual who requires skilled care in a facility and receives payment from Medicare will still have an outstanding balance owed of $14,080.00 for a stay in a facility of 100 days.

Medicare Does Not Require Improvement

Many health care providers believe that Medicare will only provide coverage if a patient is making “progress.”  For most of my clients who are in nursing homes, the facility normally informs our client’s family that in order to maintain Medicare coverage, the individual must be making progress.  Otherwise, the nursing home facility is under the belief that if the individual has reached a plateau, then Medicare will terminate.

The applicable federal state does not require “progress” in order to continue Medicare coverage.  As long as the health care services are being provided to maintain the individual’s well-being, or at least prevent the resident’s well-being from diminishing, then Medicare should cover those services.

I am very pleased to confirm that as a result of a class action lawsuit that was filed against the federal government, a settlement was eventually reached in federal court.  According to the terms of the settlement agreement, Medicare is not allowed to terminate coverage to a patient who has stopped improving.

The Center for Medicare Advocacy and the Vermont Legal Aid filed a class action lawsuit against the federal government in Federal Court.  This case is known as Jimmo v. Sebelius.  The objective of this class action lawsuit was to stop the government’s use of the improvement standard.  The federal government tried to dismiss the case.  The court refused to dismiss the case and as a result, a settlement was eventually entered into by Medicare and the plaintiffs in the class action lawsuit.

The terms of the settlement agreement require that Medicare revise the Medicare Manual to make it clear that Medicare coverage of skilled nursing and therapy services “does not turn on the presence or absence of an individual’s potential for improvement.”  Rather, Medicare coverage is based upon whether or not the individual needs “skilled” care, even if this care will simply maintain the beneficiary’s current condition, or at least slow further deterioration.

Unfortunately, many nursing homes are not complying with federal law and insist that the resident show progress in order to keep Medicare coverage.  The Center for Medicare Advocacy encourages people to appeal if they are told by a nursing home that Medicare will not cover skilled care because they are not improving.

Report Cards for Nursing Homes

Our clients usually do no sit at home and decide that their health is declining, and they should therefore enter into a nursing home facility.  Most of our clients enter into a nursing home after receiving care in a hospital.

The individual may require rehabilitation and skilled care in a facility, but if there is not improvement in the person’s ability to live independently, then that person may have to continue to reside in a nursing home facility.

Often, the social workers at the hospitals will request that the patient’s family decide on the nursing home that the patient may require.  Selecting an appropriate nursing home can be a daunting task.  New Jersey requires a type of report card for each of the nursing homes in order to assist families in selecting an appropriate nursing home facility.

You can obtain a report card on any nursing home in the state of New Jersey.  This information can be obtained through the internet.  The New Jersey Health Department has posted the New Jersey Performance Report for Nursing Homes on its website.  Their website is: www.state.nj.us/health.

The federal government also has information available on the internet concerning nursing homes.  The Centers for Medicare and Medicaid Services, also known as CMS, is required to have a summary of the last inspection report of almost every nursing home in the country.  The federal government operates a Nursing Home Compare.  Their website is www.medicare.gov.

To find the ratings for nursing home facilities in a particular area, you should connect to www.medicare.gov and select “nursing home compare.”

I often recommend that the family consider retaining the services of a Geriatric Care Manager as the selection of a nursing home can involve a considerable amount of time.  I also recommend that our clients visit the nursing home several times and during different shifts.  You are allowed to talk to the staff of the nursing home, and you should observe how the residents are being treated.  In fact, it is very important to speak to the nursing home residents and their families when selecting a nursing home.

Seek Legal Advice before Gifting Assets

If significant assets are transferred to a child, then there will be a tax and estate planning ramifications from the transaction.  The transfer of funds may prevent the parent from obtaining Medicaid assistance to pay for needed long-term care.

In a decision rendered by the Appellate Division of the New Jersey Supreme Court, a mother transferred $150,000 to her child with the understanding that the mother would live in that child’s house for the rest of her life.  Unfortunately, the mother and her daughter did not sign any legal documents as the time that the sum of $150,000 was transferred to the daughter and son-in-law.

After more than two years of litigation in the courts, the Appellate Division of the New Jersey Superior Court affirmed Cape May County’s denial of Medicaid assistance to the mother because of the transfer of $150,000 to her daughter.  This decision is known as J.M. v. Cape May County Board of Social Services.

In the J.M. case, the 77-year-old mother had lived in Pennsylvania for 45 years with her husband.  In February 2008, she separated from her husband, and they were divorced in July 2008.

Prior to the divorce, the mother, J.M., moved in with her daughter, who lived in a two-story, two-bedroom house in Cape May.  By the end of February 2008, J.M.’s marital home sold, and she received approximately $152,000 from the sale of the property.  In March 2008, J.M. gave a check of $150,000 to her daughter and son-in-law, but she wrote “gift” in the memo section of the check.  In April 2008, the daughter and son-in-law purchased a three-bedroom house from more than $400,000.  They used the check from J.M. of $150,000 as the down payment and obtained a mortgage for the balance.

In March 2009, J.M. was admitted to the Crest Haven Nursing and Rehabilitation Center.  J.M. will require long-term care for the duration of her life.  J.M. applied for Medicaid to help pay for the cost of her nursing home care.  The Cape May County Board of Social Services denied the application because the transfer of $150,000.  J.M. then filed an appeal of this decision to the Office of Administrative Law.

In court, J.M.’s daughter testified that she was provided with a check for $150,000 so that her mother could obtain a “life estate” in a house that would be owned her daughter and son-in-law.  Their intent was to provide J.M. with a life estate so that she would be ensured that she would have a residence with her daughter and son-in-law for the term of her natural life.

Unfortunately, J.M. wrote the word “gift” in the memo section of the check.  Furthermore, no contract, deed, or any type of document was signed by J.M. and her daughter concerning the life estate in March 2008.  Rather, J.M. simply gave a check for $150,000 to her daughter but wrote “gift” in the memo section.

No documents were signed by J.M. and her daughter in March, April, May, and June 2008.  During this period of time, J.M.’s health failed as she suffered from a severe bacterial infection, which resulted in her hospitalization and then rehabilitation at a nursing home facility.

Finally in July 2008, a document was signed that provided a life estate to J.M. for $150,000.  This was not a deed that was prepared by an attorney.  When J.M.’s daughter attempted to file this document with the Clerk of Cape May County, it was rejected by the clerk.  The clerk informed J.M.’s daughter that she would need to have a deed prepared and it would have to be recorded with the Clerk of Cape May County.

On November 7, 2008, eight months after J.M. had provided the check of $150,000 to her daughter, a deed was finally signed that granted a life estate interest in the property to J.M.  Although the deed was signed in November 2008, it referred to the deed being made on April 10, 2008.

After approximately two years of litigation in the courts, the Appellate Division of the New Jersey Superior Court ruled that the transfer of $150,000 by J.M. to her daughter was a “gift.”  Even though the daughter signed a deed that granted a life estate interest in the home to her mother, the Appellate Division ruled that this was a gift.

The Appellate Division relied upon a provision in the Deficit Reduction Act of 2005 that requires that J.M. actually reside in the daughter’s house for at least one year after the date that she purchased the life estate.  In this case, J.M. failed to reside at her daughter’s house for at least one year.

The failure of J.M. to retain a qualified elder law attorney, document the transaction, and proceed in accordance with applicable law resulted in costly litigation for more than two years and the denial of Medicaid assistance to play for her long-term care need for a period of almost two years.

Medicaid’s Determination of Spousal Support

The calculated Medicaid spousal support when the husband or wife enters into a nursing home facility is often inadequate because Medicaid regulations base support on the poverty line for a family of two.  If a spouse is not pleased with the decision rendered by Medicaid on the issue of spousal support, then an appeal can be filed with the Office of Administrative Law.  A fair hearing will be conducted before an Administrative Law Judge.  The healthier spouse must prove that the spousal support awarded by Medicaid should be increased due to “exceptional circumstances resulting in financial duress.”

It is extremely difficult to prove exceptional circumstances resulting in financial duress.  Furthermore, even if an Administrative Law Judge rules that the support should be increased, that Judge’s decision is automatically reviewed by the Director of Medicaid, the Director of the Division of Medical Assistance and Health Services.  In many cases, the Director reverses a favorable decision rendered by an Administrative Law Judge.

A better option may be to file a family court action in the Superior Court of New Jersey.  According to a landmark decision rendered by the Appellate Division of the New Jersey Superior Court in the case of M.E.F. v. A.B.F., the healthier spouse does not have to prove exceptional circumstances or significant financial duress if a family court action is pursued in the Superior Court.

The Gloucester County Division of Social Services argued that the Superior court of New Jersey did not have jurisdiction to increase spousal support.  Furthermore, Gloucester County argued that the Superior Court could not increase support unless there existed exceptional circumstances and financial duress.  In the case of M.E.F. v. A.B.F., the Appellate Division ruled that a healthier spouse can obtain a court order from the family court awarding greater spousal support after Medicaid eligibility is determined.

Also, the Appellate Division ruled that a healthier spouse does not have to show exceptional circumstances and financial duress in an action filed in the family court.  Despite this favorable ruling, the Appellate Division did not allow an increase in spousal support.  The Appellate Division noted that the wife had embarked on the administrative path by receiving and challenging her spousal support.  The Appellate Division reasoned that the wife was limited to that path until a final administrative determination had been reached.

If you are not satisfied with the decision rendered by Medicaid on the issue of spousal support, then there are options available for you.  You can proceed with an appeal before an Administrative Law Judge or possibly file an action for support in the Gloucester County Superior Court.  It is important to review these rights with your qualified – elder law attorney so that your legal rights are protected for you.