I recently received the following inquiry from a colleague:
I’m working with a client whose mother has been self-pay in a nursing home for several months as she spends down her savings. They applied for MassHealth in January and they anticipate she’ll run out of funds by mid-March. There’s the possibility that they will incur a penalty period since in June 2012, their mother gave about $80k to her daughter.
My understanding is that the lookback period is 5 years and that period begins on the date the application was filed, as opposed to when she will become eligible for Medicaid once her money is spent down. Is that understanding correct? The family just needs to know what to expect and is considering asking the sister to recoup the cost but wishes to avoid undue conflict if possible.
His understanding is correct. When you apply for MassHealth coverage of nursing home care you have to report all gifts you or your spouse made during the prior five years—the so-called "lookback" period. Then MassHealth applies a period of ineligibility—the "penalty" period—of about one month for every $11,000 transferred. In this case, the lawyer's client will be ineligible for a little more than seven months ($80,000 ÷ $11,000 = 7.27). The penalty period begins when she spends down her other funds to $2,000 and applies for MassHealth benefits, in this case in mid-March and ends about November 1st.
So, what are the family's options? Here are a few:
- Pay for their mother's care through October. This may be difficult, with pressure undoubtedly put on the sister who received the gift. They might also bring her to one of their homes, but presumably the reason she's in a nursing home is that she can't live anywhere else.
- "Cure." If the sister returns the $80,000, MassHealth will treat the gift as if it never happened. Then the family can spend down the funds by paying for their mother's care, buying anything she may need, and prepaying her funeral. This, of course, assumes that the sister still has the funds to return and is willing to do so. If necessary, other family members could pitch in or she could borrow money from them or a bank to return the gifted funds.
- Cure and pooled disability trust. The sister could return the funds and then what's left after spending down could be transferred to a (d)(4)(C) or pooled disability trust. Under the terms of this safe harbor, funds can be set aside to pay for whatever the mother may need in the future. They will be managed by a non-profit for her benefit. It's unlikely that the family would receive any of these funds at her death because there's a requirement that the Commonwealth be reimbursed out of such remaining funds for its MassHealth payments on her behalf.
- Partial cure. The sister may not have $80,000 to return, but may be able to give back some of it. This would shorten the ineligibility period. If it worked out perfectly, she would be able to return enough to pay for her mother's care during the shortened ineligibility period. Unfortunately, MassHealth may react by changing the start date of the new shorter penalty period to the date the mother runs out of the transferred funds, still leaving the mother without money to pay the nursing home during the shorter penalty period.
- Withdraw the application. As you may have noted, if the family had waited until July to apply for benefits, they would not have had to report the gift because it would have occurred more than five years before the date of application. The act of applying, in effect, extended the five-year lookback period by four months. This might be corrected by withdrawing the application and reapplying after five years have passed, but as with the partial cure, there's no guarantee about the results. MassHealth may still impose the penalty period based on the first premature application.
- Appeal. There are two potential grounds to appeal the denial of benefits. The first is that no penalty is supposed to be applied if the mother's reason for making the gift had nothing to do with achieving eligibility for MassHealth. If it can be shown that the mother was in perfect health in 2012 and that she gave the money to her daughter for a down payment on a house, for instance, she may be able to meet the burden of proof. Another potential ground for appeal is to seek a hardship waiver of the penalty. This might be possible if it can be shown that the sister was a bad actor. For instance, the mother might have given her daughter the money to build an in-law apartment for her, and the daughter may have pocketed and spent the money instead. On the other hand, if the daughter had actually built the apartment and mom had lived there for almost five years, the transfer should not be deemed a gift and should not cause a penalty period. Instead, it was an exchange for a benefit. As you can see, any of these appeals must be made based on the facts of the case and in each case, the burden of proof is on the applicant for benefits.
- Cure and transfer. Some transfers are not penalized, the main one being transfers to trust for the benefit of someone who is under age 65 and permanently disabled. If any of the family members are disabled, the sister could return it to the mother, who could then transfer it into trust for the benefit of the disabled family member.
As you can see, the short answer to my colleague's question is that the transfer caused a penalty period. The long answer is that there are potential responses for the family, many of them depending on whether the sister or other family members can come up with the $80,000 necessary to cure the original transfer.