August was turbulent month for new Medicaid applicants. Until August 15, 2014, if your spouse went into the nursing home, and the two of you had any assets above the Medicaid limits, you could protect those assets by transferring them to a solely for benefit of spouse (“SFBO”) trust before applying for Medicaid. On August 15, the rules changed.
SFBO trusts are irrevocable and assets from them can only be distributed to the non-nursing home spouse, also called the community spouse, and only after a certain period of time. When distributions do start, they are made regularly over the life expectancy of the community spouse pursuant to the Michigan Department of Human Services (“DHS”) tables.
These SFBO trusts are specifically allowed by Federal law and prior to August 15, were specifically allowed by state law. For at least 18 years, SFBO trusts have been common tools used by married Medicaid applicants in Michigan. However, for Medicaid applicants whose first Medicaid application was decided on or after August 15, 2014, the rules are now different.
New Rules. Starting August 15, the Michigan DHS has taken the position that assets in these SFBO trusts are countable resources that put couples over the asset limits. As such, DHS is then denying the Medicaid applications. This is a 180 degree turn around from the rules and policy in place for at least the last 18 years. Internal DHS documents show that as recently as August 8, 2014, assets in these SFBO trusts were not countable in determining Medicaid eligibility.
The change in the SFBO trust rules came without any notice to anyone, not even the DHS workers reviewing Medicaid applications and determining Medicaid eligibility. According to DHS policies, all trusts and annuities are sent to the DHS Office of Legal Services/Trust and Annuities Unit in Lansing for review. After August 15, Lansing just started denying Medicaid applications of anyone who has used an SFBO trust . According to a county DHS worker, Lansing only sent out a formal memo about the change in the rules after DHS workers flooded them with inquiries about these denials.
The change in the DHS rules not only came without notice to Medicaid applicants and DHS workers, but came without any public hearings and without anyone being able to comment on the rules changes. According to the county DHS worker, Lansing claimed these changes to Medicaid rules and policies, were not a “change” in policy and that they were just implementing existing policy. Yeah, right!
Renewals of Approved Applications Unaffected. When a Medicaid applicant is approved for Medicaid, the approval is generally good for about a year. A renewal application must be filed each year for verification of continued Medicaid qualification. Early reports from DHS workers and from elder law attorneys indicate that Lansing is approving renewals of Medicaid applications with SFBO trusts which were initially approved in prior years.
This is good news for the thousands of families of Medicaid renewal applicants who currently have irrevocable SFBO trusts being administered in Michigan. However, there are no guarantees when dealing with DHS. Just like they did on August 15, they can change the rules at any time, without public hearings and without notice.
There are Still Options. Do not despair. At this time, it seems that only SFBO trusts are in the crosshairs of Lansing bureaucrats. There are still other tools that Federal and state lawmakers have given couples to protect assets for the community spouse.
These tools may not be as convenient or as flexible as the SFBO trusts. However, these tools will allow the community spouse to be able to continue to live in and maintain the family homestead. The couple would not have to sell the home that the community spouse could not afford to maintain without the protected assets.
Legal Action? There are many who claim that the actions of DHS in changing the SFBO trust rules were illegal and improper. This would not be the first time that DHS has done things that others believed were illegal and improper.
On prior occasions, groups of harmed Medicaid applicants successfully sued DHS because of similarly claimed illegal and/or improper actions of DHS. Because of the significant negative impact that these new rules have on Medicaid applicants and because of the way the changes in the rules were implemented, I very much suspect that there will be some sort of legal action against DHS. Stay tuned.
Wrap up. Medicaid laws are extremely complex and, as we have discussed today, can change without notice. I do not recommend that you attempt Medicaid planning on your own. If you did, it may result in months of Medicaid ineligibility and substantial private pay nursing home bills for you and your loved ones in the amount of $7,000 or more, per month. You should seek expert advice from a knowledgeable legal specialist with experience in elder law matters and Medicaid applications.
By: Matthew M. Wallace, CPA, JD
Published edited September 21, 2014 in The Times Herald newspaper, Port Huron, Michigan as: Changes to spousal nursing home Medicaid qualifications