I facilitated a discussion at the first ever Wisconsin NAELA Chapter UnProgram on June 13, 2008, in Green Bay, Wisconsin on the subject of DRA. Four of the topics discussed are outlined below:
1. Medicaid Complaint Annuities – Community Spouse
In those states that have already passed the DRA legislation, in the majority of the states it is clear that if the community spouse purchases a Medicaid Complaint Annuity (“MCA”) with the spend-down amount, it is required that the primary beneficiary designation of the MCA must read as follows: “The State Medicaid Program is the primary beneficiary to the extent that the institutionalized spouse, namely ______, received Medicaid benefits.” In light of these facts, the following question was asked, “If the community spouse dies prior to collecting all of the monthly payments from his or her MCA, what happens to the balance of the monthly payments?”
At the community spouse’s death, the claim amount to the State Medicaid program is frozen. At that point, a letter is directed to the State Medicaid program to determine what amount is owed for the past Medicaid benefits. The Medicaid benefits claim amount will include room and board costs, as well as pharmacy. Depending on the total amount due, the total value of the remaining monthly payments in the MCA, and whether the MCA included a cash commutation feature[1], the results of the each case could be drastically different. If the claim amount exceeds the value of the remaining monthly payments, and there is no cash commutation option available, the elder law attorney will want to negotiate a settlement. In the alternative, assuming the claim amount does not exceed the remaining monthly payments, the elder law attorney is still encouraged to try to negotiate a settlement.
2. Medicaid Compliant Annuities vs. Promissory Notes
Again, in those states that have already passed the DRA legislation, it is clear that MCA’s are required to name the State Medicaid program as the primary beneficiary to the extent that the institutionalized person received Medicaid benefits. With Promissory Notes, in that they do not bear beneficiary designations, and they cannot be self-canceling (“SCIN”), it is clear that at the death of the Medicaid recipient, the State Medicaid program could pursue any monthly payments remaining in the Promissory Note. Within the group, the following question was asked, “Is it better to use a Promissory Note versus an MCA?” It is clear that the MCA, because of its beneficiary designation, which favors the State Medicaid program, offers the elder law attorney a timely closure of the respective file. In the alternative, in that the State Medicaid program could pursue the Obligors under the Promissory Note for the balance of the monthly payments, the Promissory Note avenue leaves an open liability, which could exist for many years.
3. Reverse Half-a-Loaf vs. Gifting/Short-Term MCA Plans
Within the group, the following question was asked,”Does the Reverse Half-a-Loaf Plan offer more opportunity than a Gifting/Short-Term MCA Plan?”
With the Reverse Half-a-Loaf Plan, the potential Medicaid recipient would give away all of the spend-down amount, and would immediately apply for Medicaid benefits. The divestment penalty period associated to the transfer would be prescribed – 10 months. Assuming the Medicaid recipient retained $2,000.00, or less, a pre-paid funeral arrangement, and personal property, he or she would be otherwise eligible, except for the 10 month divestment penalty period. Over the course of the next 5 months, the Medicaid applicant’s children – the Giftees, would assist the Medicaid applicant in paying any outstanding nursing home bills. At the end of the 5 month period, with a partial cure having taken place, the Medicaid applicant would ask to have the original 10 month divestment transfer penalty reduced to 5 months – based on the gift amounts that were indirectly returned to the Medicaid applicant by way of the payments made to the nursing home. If all works as planned, the Medicaid applicant would receive the proposed adjustment, and would be economically eligible for Medicaid benefits in month 6.
Nationally, in many states are now disallowing partial cures, the aforementioned individual would not be eligible for Medicaid benefits in month 6. At the same time, the Medicaid applicant would be deemed not “otherwise eligible” in that the returned monthly gift amounts would put him or her over the resource allowance - $2,000.00.
With the Gifting/Short-Term MCA Plan, the Medicaid applicant would not give away all of the spend-down amount. Instead, the Medicaid applicant would gift away approximately ½ of the spend-down amount, and would use the other half to purchase a MCA. If the math is correctly done, the Medicaid applicant would be economically eligible to go on Medicaid benefits at the beginning of month 6. Additionally, with the case not involving a partial cure, it appears that the Gifting/Short-Term MCA Plan offers a more reliable Medicaid opportunity.
4. Long-Term Care Insurance
Within the group, the following question was asked, ”Is it possible to buy a long-term care insurance plan which can be paid up with a single payment, and allows for a total return of premium if the insured does not utilize any of the LTCI benefits?” The answer was yes, in that one insurance company now offers such a plan.
[1]This option allows the beneficiaries to close out the remaining monthly payments with a lump sum cash payment.
