Second Circuit Affirms Private Right of Action Against Dilatory Medicaid Agency

There exist countless Federal and State statutes and regulations that require governmental agencies to act within certain time frames. All too often, however, agencies ignore the deadlines, leaving the citizen requesting action frustrated and seemingly with no recourse.

Persons denied Medicaid benefits may file for "fair hearings" before an Administrative Law Judge.  Under Federal law, a fair hearing must be held within 90 days of the date that the fair hearing is requested. See 42 C.F.R. Sec. 431.244(f)(l)(ii).  In New York, fair hearings are administered through the Department of Health ("DOH").

All too often, the DOH has failed to hold the requested fair hearings within the 90-day time frame.  A group of aggrieved New Yorkers, in the case of Shakhnes v. Berlin,  filed a class-action lawsuit in U.S. District Court for the Southern District of New York requesting a determination that the DOH must comply with Federal law in timely holding fair hearings after a Medicaid denial.

Evidence during the trial showed that in at least 36 percent of the cases the DOH failed to hold fair hearings within 90 days, and that the average time to resolved cases took a whopping 326 days. The District Court found in the plaintiffs favor and issued an injunction ordering the DOH to hold fair hearings and implement the relief ordered at the hearings within the statutory 90-days window.  The DOH appealed the ruling to the Second Circuit Court of Appeals.

On August 13, 2012, the Second Circuit affirmed the District Court's ruling, but held that the District Court's decision was overbroad in requiring the DOH to not only hold fair hearings within 90-days, but to actually implement relief ordered in the fair hearing within the same 90-day time frame.  The Circuit Court held that Federal law does not impose an obligation for the state Medicaid agency to implement the relief ordered with in such 90-day window, and thus remanded the case to the District Court with instructions to "craft an order of injunctive relief consistent with this opinion."

Click here to read the full Circuit Court opinion.

Insufficient Recordkeeping Under Personal Services Contract Contributes to Loss of Medicaid Benefits

Long-term care Medicaid benefits are a valuable commodity, and will be provided by the government only upon proof that the applicant has met the strict eligibility criteria.  The recently decided case of Swartz v. NYS Dep't of Health (App. Div., 3rd Dep't., June 17, 2012) emphasizes the importance for an applicant to have all their ducks in a row when submitting an application for institutional care.

In Swartz, two parents in declining health moved in with their daughter.  At the time of the move the parents and daughter entered into a "personal services contract" under which the daughter agreed to provide custodial care and related services to her parents on a 24-hour basis.  The contract specified that the daughter was to maintain contemporaneous records as to the dates and nature of services provided.  The contract further specified that the daughter was to be paid at rates between $15.50 and $17 per hour, depending upon the type of services she provided to her parents.

The use of a personal services contract between a parent and a child (or any other caregiver with the exception of a spouse) is a permitted means of transferring wealth from the parent to the caregiver without incurring a Medicaid "penalty period" that would otherwise result if assets were simply transferred to a child as a gift.  Under present law, any nonexempt asset transfers within 60-months of filing a nursing home Medicaid application results in a period of Medicaid ineligibility.  For example, a $100,000 gift made by a Medicaid applicant residing in Orange County to anyone other than their spouse during the 60-month "look back" period will result in a period of nursing home Medicaid ineligibility, or "penalty period," for 9.7 months.  If, however, the same $100,000 were paid to a caregiver for documented care provided for the Medicaid applicant pursuant to a written personal services contract, that wealth transfer should not result in the imposition of a Medicaid penalty period.

Despite the existence of a valid personal services contract, the Court in Swartz held that the Broome County Department of Social Services was justified in determining that a portion of the payments to the daughter were in fact disqualifying gift transfers.  The main flaw in the personal services agreement was that while the contract called for the daughter to be paid for 24-hour care, the Court noted that, "the record contains no detailed contemporaneously-prepared records documenting the services that [the daughter] allegedly provided each night of the week between the hours of 10:45 P.M. and 6:00 A.M."  Accordingly, the Court held that $36,000 of the daughter's "salary" attributed for nighttime care was not supported by the documentary evidence, and was properly considered a gift rather earned compensation by Broome County.

The Swartz decision follows a line of cases that have consistently held that if you are going to utilize a personal services contract, it is imperative that the caregiver maintain complete and contemporaneous time records to document the type and extent of services to be provided under the agreement.  Merely "being there" during the night does not appear sufficient justification to charging a "fee" for the entire night.  This result seems a bit harsh in that a non-related caregiver such as a private home care agency will certainly charge a fee for being available all night even if services are not required.  But the Courts pay especially close scrutiny to caregiver arrangements between related parties, and failing to document actual care provided will almost certainly result in a determination that the pay for any undocumented periods will be considered an uncompensated gift transfer for Medicaid purposes.

I am more troubled by the Court's holding that it was acceptable for the Broome County Department of Social Services to determine that the appropriate hourly rate for home healthcare rates was $9.22, which according to U.S. Department of Labor statistics is the mean hourly wage rate for a personal home healthcare aide in New York; the Swartz family had asserted that the appropriate rate to apply was $15.50, which is the rate they claimed would have been paid to a local home healthcare agency.  Most caregivers are provided by home healthcare agencies, and personal services contracts routinely provide that hourly rates are pegged to those of local home healthcare agencies. It is unfair to penalize family caregivers who often sacrifice their own careers to take care of a parent or other loved-one by limiting compensation to what is essentially poverty-level subsistence.

Federal Court Approves Community Spouse's Purchase of Annuity to Shelter Excess Resources

Earlier this week, the United States Tenth Circuit Court of Appeals issued what might be considered a landmark decision in the realm of "crisis" Medicaid planning.  In Morris v. Oklahoma Dept. of Human Resources (10th Cir., No. 10-6241, July 9, 2012), the Court held that a Community Spouse may use assets in excess of the Community Spouse Resource Allowance ("CSRA") to purchase an immediate annuity, which effectively converts non-exempt resources into an income stream. This strategy allows a Community Spouse to avoid having to spend down all of their excess resources in order for a sick or disabled spouse to be eligible for nursing home Medicaid coverage.

In New York, community spouses are presently permitted to retain excess resources by executing a "spousal refusal," which effectively renders the assets and income of a refusing spouse as unavailable for determining a community spouse's Medicaid eligibility.  However, many counties are now actively bringing post-Medicaid approval "support actions" against refusing community spouses who retain assets in excess of the CSRA.  Like the community spouse in Morris, a community spouse residing in New York may consider purchasing an immediate annuity to convert excess resources into an income stream, thereby rendering that spouse less of of a target for a spousal recovery lawsuit.

The entire Morris opinion can be read here.

Finders Keepers? Arizona Court Says Not So Fast

An Arizona appellate court recently held that the estate of a man who hid $500,000 cash in the walls of his dilapidated house, rather than the subsequent homeowners, was entitled to the money.  In Grande v. Jennings,  the court held that the original homeowner, Robert Spann, had not in fact abandoned the cash that he had hid in the walls of his home.  Apparently Mr. Spann had made a habit of hiding cash and other values throughout  the home where the cash in dispute was found, as well as other homes that he had owned.

Sometime after his death, Spann's daughter, Karen Spann Grande, as personal representative of her father's estate, sold the home to a couple, Sarina Jennings and Clinton McCallum.  During the course of renovations undertaken by the new homeowners, the $500,000 in cash was discovered hidden in various walls throughout the home.  The contractor initially failed to tell the homeowner's about the cash, but he was eventually ratted-out by one of his employees. After Jennings and McCallum  sued the contractor seeking to recover the cash, Grande sued Jennings and McCallum, claiming that her father's estate was in fact entitled to the money.

After the cases were consolidated, Grande won at trial.  On appeal, the appellate court agreed with the trial court that under Arizona law, to be deemed to have abandoned personal property, "one must voluntarily and intentionally give up a known right."  In this instance, the court ruled, no such voluntary and intentional relinquishment of the cash had been proven, and thus the estate was entitled to the money.  

While the estate ultimately prevailed in this case, Mr. Spann's "method" of estate planning surely left something to be desired. 

Click here to read the decision in its entirety.

GAO Recommends Imposition of Asset Transfer Penalties for VA Pensions

After a year-long investigation, the United Stated Government Accountability Office ("GAO") is recommending that Congress enact legislation that would impose asset-transfer penalties for veterans applying for VA pensions.  Presently, there are no asset-transfer restrictions for the VA pension program

Under current law, veterans who served during war time (they need not have served in combat or even in a combat theater) and who have high medical-related expenses (including the costs for home health aids or assisted living) may be eligible for a VA pension that can pay up to $2,019 per month.  The key requirements are that (i) the monthly out-of-pocket medical expenses must exceed the household income, and (ii) the veteran's assets (and his/her spouse's, if applicable) cannot be "excessive". Unlike the Medicaid program, which has a defined maximum resource limit of $14,250, the VA pension program has no fixed number.  Rather, a "safe" range is often considered to be $20,000 to $50,000, although the VA examiner has wide discretion in determining asset eligibility.

The GAO report claims that over 200 organizations have been identified that claim to assist veterans to obtain a VA pension.  The report alleges that many of these organizations sell veterans unsuitable products in order to become pension-eligible.

While there are almost certainly abuses among certain organizations or companies that purport to assist veterans in navigating the VA pension system, in my view the report unfairly lumps skilled elder law attorneys with the "snake oil salesmen" that produce the worst abuses of the system.  Nonetheless, it appears that there is growing bipartisan support in Congress to implement asset transfer penalties similar to the transfer penalties currently imposed for other means-tested programs such as SSI and nursing home Medicaid.

Click here for the New York Times story on the GAO report.

Forbes Article Highlights Key Estate Planning Mistakes

Rob Clarfeld, a CPA and Certified Financial Planner who writes periodically for Forbes, recently highlighted seven major estate planning errors.  In my view, he couldn't be more on point.   Number two on his list is the ever-increasing use of "do it yourself" estate planning through LegalZoom and similar websites.  As he says, doing your own estate planning "is a recipe for disaster."

Clarfeld also underscores the importance of ensuring that your beneficiary designations and asset titling must be consistent with your estate plan; far too often the client's planning documents (e.g., wills and trusts) provide for a particular result, but the assets are titled incorrectly (e.g., often jointly titled with another owner), and the beneficiary designations listed on the clients retirement accounts, annuities and life insurance are inconsistent with the client's planning goals.

Clarfeld's final "major" error -- "Leaving assets outright to Adult Children" -- parrots what I have been advocating for the past 13 years; namely, that one of the best gifts we can provide to our adult children is to leave their inheritance in trust.  These lifetime trusts need not at all be restrictive or otherwise prevent the children from having use and access of the inheritance.  To the contrary, a child's trust can be designed as a "beneficiary controlled trust" that allows the child to serve as his or own trustee having access to the trust assets.  If, however, the child were to someday go through a divorce or have creditors knocking at their door, the trust assets -- assuming the trust is properly structured and maintained -- would be deemed off-limits to those "creditors and predators."

State-by-State Estate Tax Survey

The American College of Trust and Estate Counsel has just released this comprehensive Death Tax Chart summarizing the estate and inheritance tax laws currently in effect in the 50 states and the District of Columbia.  Of the local jurisdictions, New York, New Jersey and Connecticut each have a state estate tax distinct from the federal estate tax, while Pennsylvania has a state inheritance tax.