What you need to know about Medicaid’s Patient Pay Obligation

Nursing home residents who qualify for Medicaid benefits to pay for their care are obliged to turn over their monthly income, typically Social Security and pension benefits, to the facility where they reside. This is the Medicaid recipient’s “patient-pay” obligation. Medicaid pays the rest.

But there are a few exceptions to this patient-pay requirement. One such exception is a $45 monthly personal needs allowance. Another exception is any medical expense that is not covered by either Medicare or Medicaid. This expense can be paid off the top before paying over the balance to the nursing home. Insurance premiums for Medicare supplemental health insurance or for prescription drugs are examples of such expenses. A family member should never allow a Medicaid recipient’s private health insurance coverage to lapse. It can remain in force at no cost to the family. The third exception to a Medicaid recipient’s monthly patient-pay obligation is the $90 Aid & Attendance benefit received by qualified veterans. Yet another exception is the ability to divert all or part of one’s income for the support of a low-income community spouse.

What is a Life Estate?

The phrase “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death when it passes to the other owner. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it. They also can play an important role in Medicaid planning.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

When the life tenant dies, the house will not go through probate since, at the life tenant’s death, the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states such as Pennsylvania that have not expanded the definition of estate recovery to include non-probate assets.

Although the property will not be included in the probate estate, the full value of the home will be included in the deceased owner’s taxable estate for purposes of Pennsylvania Inheritance Tax. Children who inherit from a deceased Pennsylvania resident incur a 4.5% inheritance tax on the date of death value of taxable assets, minus applicable deductions.

The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share, and the larger the share of the remaindermen.

Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if you apply for Medicaid within five years of the transfer. Purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property, and live in the house for more than a year.

For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father has lived in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid.

Four provisions people often forget to put in their own estate plans.

Even if you’ve created an estate plan, are you sure you included everything you need to? There are certain provisions that people often forget to put in a will or estate plan that can have a big impact on a family.

1. Alternate Beneficiaries
One of the most important things your estate plan should include is at least one alternative beneficiary in case the named beneficiary does not outlive you or is unable to claim under the will. If a will names a beneficiary who isn’t able to take possession of the property, your assets may pass as though you didn’t have a will at all. This means state law will determine who gets your property, not you. By providing an alternative beneficiary, you can make sure that the property goes where you want it to go.

2. Personal Possessions and Family Heirlooms
Not all heirlooms are worth a lot of money, but they may contain sentimental value. It is a good idea to be clear about which family members should get which items. You can write a list directly into your will, but this makes it difficult if you want to add items or delete items. A personal property memorandum is a separate document that details which friends and family members get what personal property. In Pennsylvania, you can refer to this list in your will, keep it with your will and make changes to the list from time to time without needing to contact your lawyer. You don’t have to make out a list, and most people don’t. In that event, your executor will distribute your personal items in the event the beneficiaries cannot agree.

3. Digital Assets
More and more, we are conducting business online. What happens to these online assets and accounts after you die? There are some steps you can take to help your family deal with your digital property. You should make a list of all of your online accounts, including e-mail, financial accounts, social media accounts, and anywhere else you conduct business online. Include your username and password for each account. Also, include access information for your digital devices, including smartphones and computers. And then, you need to make sure the agent under your durable power of attorney and the personal representative named in your will have the authority to deal with your online accounts.

4. Pets
Pets are beloved members of the family, but they can’t take care of themselves after you are gone. While you can’t leave property directly to a pet, you can name a caretaker in your will and leave that person money to care for the pet. Don’t forget to name an alternative caretaker as well. If you want more security, you can set up a pet trust. With a pet trust, the trustee makes payments on a regular basis to your pet’s caregiver and pays for your pet’s needs as they come up.

Can a Nursing Home Hold Friends or Family Members Responsible For a Resident’s Care?

If your loved one is entering a nursing home, you may worry whether you could be liable for his or her care. Under federal law, a facility that accepts Medicaid as payment for the cost of a resident’s care after the resident goes broke (almost all do) cannot require a family member or friend to co-sign an admission agreement and take on personal liability. However, most, if not all, nursing home contracts do impose certain obligations upon the person who signs the agreement on behalf of the resident. Typically, the signer is obliged to ensure that the resident’s funds are used to pay for the nursing home and to apply for Medicaid when the funds run out. If the resident incurs an unpaid nursing home bill because Medicaid eligibility is delayed, the signer can and will be held personally liable.

This contract provision deceptively implies that the signer may not permit a resident to take measures to protect assets and then qualify for Medicaid. On the contrary, federal law provides that a Medicaid-participating skilled nursing facility “may not seek additional payment from a resident for covered items or services.  It must accept…Medicaid as payment in full.”  In other words, it is illegal for a facility to require that a resident spend all of his or her money on nursing home care instead of protecting all or part of it through legal long-term care planning measures that accelerate Medicaid eligibility.

Beware of the Filial Support Trap

Unfortunately, some family members DO in fact, incur financial liability on another basis, namely, state “filial support” laws. Pennsylvania’s is perhaps the most onerous in the country. Under filial support, adult children are obliged to financially support their indigent parents. In Pennsylvania, a nursing home resident’s son or daughter can and will be sued for the parent’s unpaid nursing home bill. This happens when someone’s Medicaid eligibility is delayed, and there are unpaid services that pre-date the eligibility date for Medicaid benefits. Moreover, this financial obligation applies even if the child received none of the parent’s assets and even if the child did not sign the nursing home admission agreement or have any involvement with the parent’s care or placement.

How to Avoid the Filial Support Trap and Still Protect Assets

The good news is that filial support liability will not be incurred with proper planning. If the nursing home resident qualifies for Medicaid to pay for care immediately upon exhaustion of assets, everyone is happy: no unpaid nursing home bill and no lawsuit against the child.

Contact Keith Eliou, Esq. for advice and assistance if your loved is in a nursing home or will be entering one. Even if the nursing home entry has already occurred and the resident has declared all of his or her assets, it’s not too late to implement legal measures to protect one’s estate. We have helped thousands of families over the years to obtain needed care and qualify for Medicaid benefits without forfeiting their estates.