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Courtesy of Ronald Fatoullah & Associates


Medicaid is a “means tested” program enacted by Congress in 1965 to address the healthy care needs of individuals who are unable to afford such care. The program is jointly funded by the federal, state and local governments. In order to qualify for Medicaid coverage, an individual must be under twenty-one (21) years of age or over sixty-five (65) years of age, or disabled, blind, eligible for public assistance or recipients of Supplemental Security Income.

Medicaid benefits include coverage of long-term institutional care and home care. In order to qualify for Medicaid home care and institutional care, applicants must meet certain asset requirements and submit an application that conforms to the requirements of the appropriate Department of Social Services Agency to which the application is being submitted. An application must be made on a state prescribed form. Medicaid coverage can be retroactive for up to three months prior to the month of application.

Many individuals have felt compelled to deplete their available resources in order to become eligible for Medicaid benefits due to the rising cost of health care, inaccessibility of private insurance, and the increased need for care as they age. This idea that a well spouse’s resources may be depleted is a cause of concern and has created feelings of insecurity for many.

In new York State, the Medicaid program is administered by the local county Departments of Social Services and, in New York City, by the human Resources Administration. State Medicaid statutes and regulations are subject to and must be consistent with federal law. Many significant changes in the federal law regarding Medicaid eligibility were promulgated by the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), which was signed into law by President Clinton on August 10, 1993. OBRA-93 contains many changes that limit the ability of individuals to become eligible for Medicaid benefits. Unfortunately, the language contained in many sections of OBRA-93 is ambiguous, which has made it difficult to interpret the precise meaning of the changes. Fortunately, the Center for Medicare and Medicaid Services (“CMS”) and state legislatures have interpreted many of the ambiguities. Also, an administrative directive released by the New York Ste Commissioner of Social Services in 1996 has interpreted much of OBRA-93.

The Deficit Reduction Act of 2005 (“DRA”),signed by President Bush on February 8, 2006, has further amended Section 1917 of the Social Security Act to change asset transfer rules, require the disclosure of annuities and naming the State as the beneficiary and count as an available resource certain entrance fees for continuing care retirement communities. Changes to the asset transfer rules include making additional assets-such as funds used to purchase a promissory note, loan, mortgage or life estate-subject to imposition of a penalty unless the purchase meets certain criteria. The Deficit Reduction Act also amends Section 1919 of the Social Security Act to impose a home equity limitation for nursing facility services and community-based long-term care services.

Medicaid eligibility rules and regulations as well as elder law planning concepts in general, are constantly changing. As such, it is imperative to keep abreast of these changes, and to establish a network within these changes may be discussed, analyzed and implemented for the benefit of their clients. While not all fair hearings are published, the Western New York Law Center and the Greater Upstate Law Project have placed several thousand full text fair hearings on their website.

Medicaid Eligibility

Resources- In order to qualify for Medicaid, an individual may have non-exempt resources totaling no more than $4150 (in 2006). A married couple applying for Medicaid may have combined non-exempt resources of no more than $5400. The community spouse of a nursing home recipient may retain resources of up to $99540 (see below for a detailed explanation).

Bills incurred for nursing facility services may be uses to offset excess resources. Individuals may also spend excess resources on an irrevocable pre-need funeral agreement.

Exempt Resources

In addition, the individual can have either an irrevocable funeral trust or a $1500 burial fund. There is no limit to the amount that can be placed in the irrevocable funeral trust fund, but the money in trust that is not used for funeral and burial expenses must be paid to the County in which the applicant resided. For applicants who have both a $1500 burial account and an irrevocable burial trust, any dollar amount not designated for burial space related items (e.g. casket, burial space) reduces the amount permitted in the $1500 burial account. The irrevocable funeral trust may be moved from funeral home to funeral home.

For community based Medicaid applicants, the applicant/recipient’s home is considered an exempt resource, and will not affect Medicaid eligibility. Under the DRA, equity in the home may not exceed $750000. Medicaid can recover against the home at the time of the recipient’s death if the home is part of the recipient’s probate estate. For institutionalized applicants, an applicant who holds title to a homestead with equity not exceeding $750000 will be eligible if there is a possibility that the individual can return from the nursing home, or if the recipient has stated his or her intention to return home.
However, Medicaid can place a lien on the home, which will be removed if the applicant returns home. In Anna v Bane, the Court held that a client’s subjective intent to return home was sufficient to determine that a homestead shall not be counted as an available resource. The Court concluded that a State’s presumption that a Medicaid applicant had no expectation of returning home was a violation of a federal statute.

A lien will not be placed on the home, and the home will not be countable, even if the applicant does not intend to return home, if the home is occupied by a spouse, minor or certified blind or certified disabled child. In the case of a home that is occupied by a sibling with an equity interest in the home and who has lived in the home for at least one year prior to the applicant/recipient/s admission to a medical facility, a lien will not be placed, but the home will be a countable resource if there is no intent to return. If the nursing home Medicaid recipient has no intention of returning home from the institution and none of the exemptions apply, the home will be treated as any other non-exempt resource, creating ineligibility.

IRA’s or qualified retirement accounts of the applicant are exempt if the applicant is receiving periodic payments. An applicant that is 70 ½ or older with an IRA or qualified retirement account is defacto receiving periodic payments and therefore the IRA and retirement accounts are exempt. The periodic payments, however, are deemed to be income and will be budgeted by Medicaid accordingly. Medicaid’s policy on IRA’s changed in early 2002. IRA’s and any qualified retirement accounts of a non-applying spouse that are in periodic payments status are also exempt, but count towards the spouse’s resource allowance.

The aggregate of all German and Austrian reparation payments made to the applicant/recipient (A/R) as a result of Nazi persecution are also exempt. In these cases, the A/R should obtain a letter from Germany orAustria to prove the amount of reparation payments received by the A/R.

Additional Exempt Resources

Personal property such as clothes, furniture, personal effects and a car are exempt items. Life insurance policies with no cash surrender value are also exempt.


In 2006, a community-based Medicaid recipient is permitted to retain income of $692 each month, and an additional $20 of the monthly household income if the Medicaid recipient is aged, blind, or disabled. A couple may retain $900 monthly. A nursing home Medicaid recipient may retain $50 of income each month. Income exceeding the allowance must be contributed toward the individual’s health care unless there is a community spouse with income under $2489 per month. Under such circumstances, the applicant/recipient’s income may be budgeted to the community spouse, to bring her income to the $2489 level.

Institutional Medicaid Eligibility Pre-DRA

Transfers of Assets for Less Than Fair Market Value – the agency to which institutional application is made will “look back” at an individual’s financial records for a period of 36 months prior to the requested “pick-up date” (the date on which the applicant requires Medicaid to begin providing benefits). Under OBRA-93, the look back period in the case of payments to or from certain trusts has been increased to 60 months. The “look-back” period is used to determine whether income or resources have been transferred by the applicant (or spouse) for less than fair market value (i.e., gifted).

When a gift has occurred within the look-back period, Medicaid will impose a period of ineligibility, or “penalty period” on the applicant. The applicant will then be required to pay privately for his or her care during that period. New York calculates the penalty period as commencing on the first day of the month following the month in which the transfer was made.

The penalty period is calculated by dividing the total cumulative, uncompensated value of all assets transferred during the look-back for less than fair market value by the current average monthly cost to a private–pay patient in a nursing facility within the State. The resulting number is equal to the number of months for which the applicant will be ineligible for institutional Medicaid benefits. According to the New York State Department of heath, the current average cost of nursing home care is $9132 in New York City (all 5 counties), $9842 in Nassau and Suffolk Counties, $6872 in the Northeastern Region, $7375 in the Rochester Region, and $6540 in the Western Region.

To apply these regulations, consider a New York City resident who has gifted the sum of $100,000 to his daughter on January 1, 2005. To calculate the penalty period for Medicaid nursing home benefits, divide the $100,000 gift by $9,132 (the figure applicable for New York City applicants). The resulting penalty period is 10.95 months commencing February 1, 2005 and ending September 30, 2006. Thus, the individual may apply for, and be eligible for institutional Medicaid benefits as of October 1, 2006, provided his or her resources do not exceed Medicaid eligibility levels.

Transfers made by a community spouse to any individual or entity other than the Medicaid recipient, after acceptance has been determined, will not affect the institutional spouse’s Medicaid eligibility. Hence, post-acceptance transfers by a community spouse will not result in a penalty period for the institutionalized spouse.

It is important to note that OBRA-93 has eliminated the “cap” on penalty periods, which may be a trap for the unwary. For example, suppose that a Nassau County resident transferred $400,000 to his son on January 25, 2003. If he applies for institutional Medicaid benefits after the 36 month look back period has elapsed (i.e. February 1, 2006 or thereafter), he would be eligible for institutional Medicaid benefits. However, if that same individual applied for Medicaid only 34 months after the transfer (December 1, 2005), then the Department of Social Services (“DSS”) would impose a penalty period for 40.64 months ($400,000 divided by $9,842= 40.64) commencing on February 1, 2003, the month following the transfer. By failing to wait the additional two months to apply for Medicaid, this individual would have to pay privately for nursing home care for an additional 4 months, unless other planning measures are taken.

Institutional Medicaid Eligibility Post-DRA

The look-back period for transfers made on or after February 8, 2006 has increased from 36 to 60 months for nursing home Medicaid applications. For transfers made on or after February 8, 2006, the begin date of the period of ineligibility is the first day of the month after which assets have been transferred for less than fair market value, or the date on which the otherwise eligible individual is receiving nursing facility services for which Medicaid coverage would be available but for the imposition of a transfer penalty, whichever is later, and which does not occur during any other penalty period. As a result, in most cases, the waiting period for nursing home Medicaid eligibility will not start until the A/R is in a nursing home, has assets of no more than $4,150 (plus other exempt assets) and has applied for benefits.

For applications filed on or after August 1, 2006, for nursing home Medicaid coverage, social services districts must require resource documentation for the past 36 months (60 months in the case of a trust). Districts will continue to request resource documentation for the past 36 months until February 1, 2009. Beginning February 1, 2009, districts will require resource documentation for the past 37 months. The look-back will increase by one-month increments until February, 2011, when 60 months of statements will be required.

In the event that the imposition of a transfer penalty would create an undue hardship for the applicant/recipient, an exception may be made to the application of the penalty.

Return of Assets

If all or parts of the transferred assets are returned after the Medicaid eligibility determination, the assets must be counted in recalculating the individual’s eligibility as though the returned assets were never transferred, and the length of the penalty period must be adjusted accordingly. The recalculated penalty period, if any, will begin when the individual is receiving nursing facility services for which Medicaid coverage would be available but for the imposition of the transfer penalty. Therefore, the recalculated penalty period cannot begin before the assets transferred and subsequently returned to the individual, have been spent down to the applicable Medicaid resource level.

If an application is denied or a case discontinued where a transfer penalty has been imposed, the individual must file a new application. If upon reapplication, the transferred assets have been returned to the applicant, for purposes of determining eligibility, the original transfer penalty period is to be reduced by the returned assets.

Exempt Transfers

The following transfers (gifts) are exempt from Medicaid transfer penalty rules:

  1. assets transferred to the individual’s spouse, or to another for the sole benefit of the individual’s spouse;
  2. the outright transfer of assets to an applicant/recipient’s blind or disabled child;
  3. transfers for fair market value or for the other valuable consideration;
  4. transfers of assets exclusively for a purpose other than to qualify for medical assistance (Medicaid)
  5. transfers for less than fair market value that have been returned to the Medicaid/applicant/recipient and/or spouse.

Transfers involving spouses

Transfers between spouses are exempt from Medicaid ineligibility rules. The purpose is to protect against the impoverishment of a community or well spouse. The following are also exempt:

1.transfers to an individual other than an applicant/recipient’s spouse for the sole benefit of the individual’s spouse; and
2. transfers from an applicant/recipient’s spouse or another for the sole benefit of individual’s spouse.

The regulations permit transfers between spouses to be completed within 90 days after a determination of eligibility, if the community spouse’s assets do not exceed the Community Spouse Resource Allowance. However, completing all transfers to a spouse prior to submission of the Medicaid application often simplifies the application process.

Transfers to certain trusts

The following transfers by an A/R and his or her spouse are also exempt for the purposes of Medicaid eligibility:

  1. The transfer of assets to a trust established solely for the benefit of the applicant/recipient’s blind or disabled child; and
  2. The transfer of assets to trust established solely for the benefits of an individual under 65 years of age who is disabled.

Transfer of a homestead

If title of a homestead (primary residence of the A/R) is transferred to one of the following persons, no penalty period will be imposed:

  1. a spouse
  2. a child under the age of 21, or a blind or disabled child;
  3. a sibling of the applicant/recipient who has an equity interest in the home and who was residing in the home for a period of at least one year immediately prior to the date the applicant/recipient became institutionalized; and
  4. an adult child who resided in the home for a period of at least two years before the date the applicant/recipient became institutionalized and who :provided care” to such individual which permitted such individual to reside at home rather than an institution.

Institutionalized Applicants With Spouses

In 1988, Congress enacted the Medicare Coverage Act (MCCA). MCCA was created to remedy the impoverishment of community spouses who were left without the means to support themselves upon institutionalization fo of their ill spouses. The federal government permitted states to establish income and resources levels for the community spouse, with a maximum level.

With regard to the income maximum, a community spouse’s income of up to $2489 per month, including interest, is not considered available to pay for the institutionalized spouse’s care. This total may include the total income of both spouses, regardless of who earned this money and regardless of the name in which the income is received. As such, if the individual income of the community spouse is less than $2489 per month, the community spouse will be entitled to keep the amount of the institutionalized spouse’s income necessary to bring her income up to $2489. In the event a community spouse’s income is greater than $2489, Medicaid will request that the community spouse’ contribute 24% of the excess over $2489 towards the care of the institutionalized spouse.

If the community spouse’s monthly income is below $2489, Medicaid will look first to the income of the institutionalized spouse to bring the community spouse’s income up to the allowable level.

All resources held by either spouse or by both spouses will be considered available to the institutionalized/applicant spouse. The community spouse is entitled to retain a Community Spouse Resource Allowance (“CRSA”), currently $74,820, or ½ of the couple’s total resources, up to a maximum of $99,540. The CRSA as well as the homestead in which the spouse resides are not considered available to pay for the institutionalized spouse’s care. The community spouse may retain more than the CSRA if her income is below $2489, or if she requires a greater amount for her support as determined by a fair hearing or court order.

In assisting married clients with a nursing home Medicaid application, extensive advocacy may be required where an argument can be made for an enhanced CRSA. An enhanced CRSA is established by a court order or fair hearing.

Spousal Refusal

If a community spouse has assets and/or income in excess of the CSRA and/or MMMNA, such assets and income will be considered available to pay for the institutionalized spouse’s care. However, under current New York law, Medicaid benefits will not be denied to the institutional spouse if the community spouse refuses to contribute any of his or her excess assets and or income by signing a “Spousal Refusal” letter.

In addition, when a community spouse refuses to contribute to the institutional spouse’s care, the Medicaid applicant/recipient must execute an assignment of support rights against the community spouse and in favor of the Department of Social Services.

A formal assignment of support will not be required if the applicant is unable to execute the assignment because of a mental or physical impairment, or if the denial of assistance would create an undue hardship. In such circumstances, the assignment of support rights from the institutionalized spouse to the Department of Social Services will be implied.

In cases involving spousal refusal, Medicaid has the right to commence an action on behalf of the recipient against the community spouse, in order to compel support and for reimbursement of expenses incurred on behalf of the institutional spouse. Further, Medicaid has the right to recover from the community spouse for benefits paid on behalf of the institutionalized spouse. It is always best to seek the advice of an elder law practitioner and subsequently implement a plan prior to submission of the Medicaid application in an attempt to eliminate or reduce the chance of a spousal suit. Such plans typically involve purchase of an annuity or an issuance of a loan, thereby turning the community spouse’s excess assets into an income stream.

Community-Based Medicaid Eligibility

Medicaid rules regarding transfer of asset penalty periods currently apply only to persons seeking or receiving coverage for nursing home services. Therefore, if a person needs medical assistance to pay for a home health aide or for a hospital visit, there is no period of ineligibility, even if that individual has transferred assets for less than fair market value. For example, if a client is seeking community-based Medicaid in January, 2007, the client may transfer his or her assets in December, 2006. The client may then apply for and be eligible for community-based Medicaid beginning January 2007 as long as his or her assets are below the allowable resource level. The same resource levels for the applicant/recipient apply for both community based and institutional Medicaid. It must be noted that there are no statutory protections of resources and income of well spouses of community based Medical recipients. Thus, a spousal refusal should be submitted for virtually all home care Medicaid applications in which the well spouse has assets. The homestead, as well as the surrounding land, is an exempt resource for applicants applying for community based Medicaid.

Most Medicaid districts in New York have implemented a simplified application procedure for community based Medicaid. Under this procedure, the applicant need only provide information about income and resources for a three-month (rather than 36 month or 60 month) period prior to the requested Medicaid pick-up date.

Trusts Established by the Medicaid Applicant

OBRA 93 changed the rules regarding trust funds, imposing restrictions on Medicaid eligibility. Irrevocable income-only trusts are often used as a tool to protect assets of Medicaid applicants. These trusts typically provide that while income is distributed to the grantor, the trust principal cannot, under any circumstances, be distributed to the grantor. HCFA (now “CMS) interpreted OBRA 93 to mean that in such cases the income and not the principal will be deemed available to the applicant. If a trust provides that principal can be paid to the grantor, even if only for a limited purpose, or even at the sole discretion of the trustee, then the entire principal of the trust will be deemed available to the grantor because there is a circumstance under which some principal could be paid, even if it is a remote one. In such a case, Medicaid eligibility will be denied to the grantor for excess resources.

As previously mentioned, if an applicant has transferred assets to or from certain trusts, including asset transfers to an irrevocable income only trust, the look back period will be sixty (60) months, even for transfers prior to February 8, 2006.

Of course, assets in a revocable trust with the Medicaid applicant as grantor will be considered available. As such, revocable trusts are often not used as a Medicaid planning tools, but rather for other purposes, including avoiding probate and continuing management of assets if the grantor becomes unable to do so. However, the revocable trust can be used to avoid probate of assets held by the A/R, thereby eliminating Medicaid recovery. There is a distinction between liens and recovery and Medicaid can still pursue a lien placed on the A/R’s home during his lifetime. Finally, transfers from a revocable trust, even if made prior to February 8, 2006, will result in a 60 month look-back period.


Medicaid continues to be the only way for most seniors in the United States to pay for the high cost of long term health care needs. Many aspects of the Medicaid program constantly change on the federal, state, county, and district levels. It makes a great deal of sense to hire someone who is well versed in all of the laws and recent changes to assist you with strategy and the application. Enlisting the services of a highly qualified elder law practitioner will go along way in protecting the assets of your estate.