State efforts to impose work requirements for Medicaid benefits is subject of lawsuit

Under the federal Medicaid statute 42 USC 1396__ there is a provision called “Section 1115 waiver” which is designed to enable States to try out variations on their Medicaid programs to reach broader segments of the population. The pertinent section of the Waiver is:  QUOTE HERE

In mid-January this year, CMS announced a policy in which it authorized States to develop programs that would require certain Medicaid-eligible persons (non-elderly, non-disabled, non-pregnant adults) to be employed or to participate in ‘community engagement activities” such as skills training, education, volunteering, job-searching or caregiving, as a condition for ongoing receipt of Medicaid insurance benefits. Ten states have responded to date. The first such waiver request that was approved is Kentucky’s. Poor adults must be work or person community engagement activity  20 hours a week to retain their health insurance under Medicaid. Kentucky is also imposing cash premium obligations on these Medicaid recipients, copayments for non-emergency use of an emergency room, and elimination of payment for non-emergency medical transportation. No doubt a significant increase in the State’s Medicaid bureaucracy will be required to create or implement all of these community engagement programs and to monitor the participation and prevent erroneous terminations of benefits. I wonder if the cost of all that has been compared to the cost of the lost Medicaid benefits.

The Kentucky waiver has been challenged in federal district court. There are 15 individual plaintiffs who are adversely affected by the new requirements. Click HERE for discussion and details. A major basis for the challenge is that the CMS invited and approved waiver requests that violate the purpose and objectives of the Medicaid Act that were articulated by Congress. The critical requirements for Medicaid eligibility have been resources, income limits, settings for delivery of services, and in many cases, transfer penalties. Under the existing statute, which is part of the Social Security Act, the Secretary of CMS can waive a state’s compliance with certain Medicaid requirements when a State proposes an “experimental, pilot, or demonstration project which, in the judgment of the Secretary is likely to assist in promoting the objectives of” the medicaid program. Stated another way, a Waiver needs to further the objectives of the Act, not reduce the availability of services to otherwise-eligible individuals. NAME OF SUPREME COURT CASE?? So, for example, States have implemented Home and Community-based Services or Assisted Living services under the Medicaid waiver, or have enabled people whose income exceeded three times the federal poverty limit (the “income cap”) to receive Medicaid services.

The new process appears to be encouraging States to come up with ways to restrict the number of needy people who can receive Medicaid health care benefits. The obligations will be onerous or impossible for some people. A person may have no control over his/her ability to secure 21+ hours of employment. A person with a poor employment history and limited skills may find it impossible to find community volunteer work.

There’s no indication that New Jersey is pursuing any of these onerous obligations. We shall see what emerges on the national front.


Changing a Trust to reduce your access to funds can cause a Medicaid transfer penalty

In Maurice Needham vs. Director of the Office of Medicaid, the Massachusetts Court of Appeals upheld a transfer penalty imposed by the State Medicaid program after the Medicaid applicant obtained a court order amending his trust. There was a revocable Trust containing Needham’s house, and an irrevocable Trust for Needham’s benefit which was the sole beneficiary of the revocable Trust. Needham had created both Trusts (he was the “settlor.”) In the Irrevocable Trust, the trustee was directed to accumulate the principal and to use it for Needham’s future needs without regard to the interest of the remaindermen (his children). When Needham applied for Medicaid benefits, the Agency concluded that the assets in the Trusts were countable, available assets, and denied his application due to excess resources because under federal law, the Medicaid applicant is only allowed to have $2,000 in countable available resources.

After requesting an administrative hearing/appeal, Needham went to Court and sought a court order reforming the irrevocable Trust, to remove him as the beneficiary. This “reformation” was ordered by the Court based on a Stipulation signed by Needham and the co-Trustees, and the order said it was effective “ab initio,” meaning, back to the beginning of the Trust. Next, in the administrative tribunal, the Administrative Law Judge decided that the action to reform the Trust was an uncompensated  transfer of assets, and that a transfer penalty would be imposed which would delay the receipt of benefits. The next appeal was to the Courts. The trial court reversed the administrative ruling, and decided that it was bound by the Court order and that “ab initio,” the Trust only existed in a form which would not be a countable resource. On appeal by the State, the Massachusetts Appeals Court reversed.

The Court explained its rationale as follows: “The issue before us is not whether the trust was reformed as a matter of State law. The issue is whether MassHealth is required to recognize a reformation as a matter of Federal law when determining whether there has been a disqualifying transfer. The answer to that question in this case is no. Were the answer different, persons of means would be permitted to enjoy otherwise countable assets held in trust throughout their lives, transfer those assets for less than fair market value by reforming the trust ab initio when their health declines, and thereby obtain Medicaid payment for long-term nursing home care without complying with the waiting period imposed by Federal law.”

There is a limit on the resources a Medicaid applicant can have.  When it comes to a Trust that is created with the assets of the applicant or their spouse which is not a bona fide Special Needs Trust , federal law at 42 USC 1396p(d)(3)(B) says that “(i) if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual, the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall be considered resources available to the individual.” New Jersey’s counterpart regulation is at NJAC 10:71-4.11.

 The related legal issue is that when an individual takes action to reduce his access or ownership of an asset, there is generally the risk that a transfer penalty will be imposed if he applies for benefits within 5 years of doing that. 42 USC 1396p(c) [federal law] and NJAC 10:71-4.10.

 There are times that a Trust has to be reformed because the way it is written is a mistake on the part of the scrivener (the person who wrote the trust) or the way it is written doesn’t match up with the intention of the settlor. Court proceedings for trust reformation are not uncommon. However, what looks like an ordinary state court proceeding can have an unexpected impact on Medicaid eligibility — that’s the “law of unintended consequences.” Now, the judges in New Jersey make a point of telling such parties that while the Court has jurisdiction to enter the relief the party is looking for, the court cannot make a determination about the impact the action may have with regard to Medicaid eligibility. That is an issue between the applicant, the agency, and federal law. Matter of A.N.

As I like to say, careful planning can prevent a crisis. The best time to avoid potential Medicaid eligibility problems is before the cows are out of the barn, and well before they kick the lantern over and set the  on shed on fire (I’m giving a nod to Miss O’Leary of folk song fame).

Call for advice on Medicaid eligibility, trust reformation, and preparation of Medicaid applications … 732-382-6070