Introduction

Many individuals and couples have purchased or are considering the purchase of a long term care insurance policy to help defray the cost of nursing home care. A typical long term care policy will provide a specified amount of money for nursing home care, on a per day basis, up to a lifetime maximum amount. The policy may also have additional coverage that provides for home health and community care, as well as an inflation rider that increases the coverage amount over time. There is, however, another very important benefit to owning a qualified long term care policy. The policy may help you, or your family, avoid the Medicaid lien or estate recovery rules.

The Medicaid Recovery Rules

Under the current regulations, the value of the home in which you live does not count in determining the value of your assets for purposes of qualifying for MassHealth (Medicaid) assistance. The purpose of the MassHealth regulations is to insure that your home will remain available to you, should you intend to return to it, even after you have entered a nursing home. But what if your disability does not permit you to go home, and you are permanently confined to a nursing home while receiving MassHealth assistance? Unless your spouse, a child under the age of 21, a blind or permanently and totally disabled child lives in the home; or unless a sibling who has a legal interest in the property lives there for at least one year before your admission to the nursing home, then the Massachusetts Division of Medical Assistance will be allowed to recover the value of the Medicaid benefits paid on your behalf. In such cases, a Medicaid lien is placed on the property and if your home is sold during your lifetime, the Division of Medical Assistance will recover the value of the Medicaid benefits paid on your behalf out of the sale proceeds. Upon your death, the lien is extinguished, but the Division of Medical Assistance will be able to recover the benefits paid on your behalf from your probate estate. Fortunately, the estate recovery is deferred until after the death of a surviving spouse, or while there is a surviving child under 21 years of age or a blind or permanently and totally disabled child residing in the home.

One method of avoiding the Medicaid estate recovery is to create a "life estate" in the property by transferring title to it to one's children while retaining the right to live in the home for life. A person holding a life estate interest in the property would be responsible for paying the costs of maintaining the property (i.e., insurance, taxes, other liabilities, etc.) just as if such person owned the property outright. Upon death, the life estate is extinguished and the children would then own the entire interest in the property, and the home would not be included in the decedent's probate estate. As a result, the Medicaid lien does not attach to the home and the home would not be used for the recovery of Medicaid benefits.

The life estate presents a series of complex issues. Careful consideration of these issues should be given before adopting this strategy. For example, two years ago, the Massachusetts legislature adopted a new legislation which would expand the estate recovery program to also recover from any assets a person held immediately before death, including those which passed outside of the probate estate. That legislation effectively destroyed the utility of the life estate. Luckily, a year after enacting this legislation, the legislature amended the Massachusetts General Laws to again limit Medicaid recovery to the probate estate. However, that is not to say that the legislature would not someday expand the Medicaid recovery rules to once again include non-probate assets.

The Long Term Care Insurance Exception

There is another, and in some cases better, option to avoid the Medicaid lien and the estate recovery rules. Under current regulations, the Division of Medical Assistance may not recover payments from a person for nursing home facility or other long term care services if such person: (1) were institutionalized, i.e., no longer living at home; (2) had notified the Division that such person had no intent of returning home; and (3) on the date of admission to the nursing home, such person owned a qualified long term care insurance policy with coverage that met the MassHealth and the Massachusetts Division of Insurance regulations.

Qualified Long Term Care Policy

What is a qualified long term care insurance policy? In order to be qualified, a policy must meet certain requirements such as minimum coverage, eligibility standards, benefit requirements and limitations and exclusions. For those policies issued after March 15, 1999, MassHealth regulations require that (a) the policy must cover nursing and custodial care in a nursing facility licensed by the Department of Public Health; (b) the daily benefit must be at least $125 per day in a nursing facility; (c) the lifetime benefit must provide at least 730 days of coverage in a nursing facility; and (d) the elimination period may not be longer than 365 days in a nursing facility or, in lieu of the elimination period, a deductible may not be more than $54,750.

It should be noted that the exemption from the Medicaid lien and estate recovery rules is only applicable to services provided in a nursing home facility when a person is permanently institutionalized and does not intend to return home. There is no exemption from the recovery rules for amounts MassHealth paid for home health care, hospital care, physician visits or prescriptions, even though a policy may provide such coverage.

Illustration of the Requirements

A common long term care policy provides for nursing home care, as well as home health or community care (sometimes referred to as a mixed-services long term care policy). In such cases, the decision to utilize non-nursing home benefits must be carefully considered. Consider the following example: You own a long term care policy that provides a lifetime maximum benefit of $175,000 and a nursing home benefit of $150 per day. If you use more than $65,500 of benefits on home health care, you run the risk that your policy will fail to qualify for the Medicaid lien and estate recovery exception because the cash benefit remaining in the policy may be insufficient at the time you enter the nursing home to meet the MassHealth requirements. As noted above, to qualify for the recovery exception a policy must provide at least 730 days of coverage in a nursing facility. If your policy does not have enough cash benefit remaining to pay for 730 days you will not qualify for the exception. Put another way, the policy must have 730 days of coverage available on the day you enter a nursing home.

Conclusion

The Division of Medical Assistance will seek recovery of Medicaid benefits paid by MassHealth on your behalf for long term, nursing home care. Such recovery can be accomplished either by placing a lien on your home, or by making a claim against your probate estate. One way to avoid these recovery rules is to purchase a qualified long term care insurance policy which remains in force upon your entry into a nursing home. If you have a long term care insurance policy, or you are evaluating a policy for purchase, you should take steps to ensure that it meets the Massachusetts requirements for qualification. Furthermore, be sure to use any non-nursing home benefits cautiously so as not to jeopardize the exception from the Medicaid lien and estate recovery rules.

If you or your spouse are considering purchasing a long term care insurance policy, or have done so in the past, please call us to schedule an appointment to discuss the impact that this long term care policy will have on your Medicaid planning.

This newsletter is intended for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. For further information please contact one of our attorneys. Information contained herein has been abridged from laws, court decisions and administrative rulings, and should not be construed as legal advice or legal opinions on specific facts. The enclosed material is provided for education and information purposes by MacLean Holloway Doherty Ardiff & Morse, P.C. to clients and others who may be interested in the subject matter. 2005 MACLEAN HOLLOWAY DOHERTY ARDIFF & MORSE, P.C.

MacLean Holloway Doherty Ardiff & Morse, PC
8 Essex Center Drive, Peabody, MA 01960