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Resource Spend-down for Nursing Home Care

When an individual suffers an event which requires hospitalization, a spouse is usually overwhelmed.   Rehabilitation in a facility is often recommended immediately following multiple days of hospitalization.   Admission to a rehabilitation facility involves signing “standard and routine” paperwork related to terms of payment by insurance and Medicare.

Despite the support of family members and courtesy of facility personnel, the admission paperwork can feel like an ambush. Reassurance that facility staff will manage the process of collecting payment if the spouse signs a few routine papers can be unintentionally deceptive.  This is especially true if a need for long-term care in a facility is foreseeable.  For example, an older person who has been declining with a dementia diagnosis suffers a severe orthopedic injury which affects mobility.  Dementia can sometimes interfere with a patient’s ability to comply with the demands of physical therapy.  Similarly, it can be hard to predict whether a stroke victim will be able to recover enough mobility to be cared for safely at home.

After a hospital admission of three days, Medicare will usually pay for at least twenty days of therapy in a rehabilitation facility, but not more than one hundred days. After that, Medicare payment for the room and board ends.  Unless the patient has long-term care insurance, the cost of $300 to $400 per day becomes an out-of-pocket expense.

Unless a rehabilitation facility is a sub-acute hospital, it normally has nursing care beds for a long-term stay when the safe discharge of a patient is not possible.   With isolated exceptions, such facilities accept Medicaid, also known as Medical Assistance, as a form of payment from the Department of Human Services.  It is against federal law for a rehabilitation facility which accepts Medicaid to discharge a patient for lack of ability to pay privately.

Medicaid is correctly understood as a payment of last resort.   This means that ability to collect from Medicare, long-term care insurance, and a patient’s personal monthly income must first be exhausted.  Generally, the spouse is permitted to keep his or her income.

The area of greatest confusion is the requirement to “spend-down” assets to supplement insurance and monthly income before Medicaid will pay. The process of spend-down is complicated and not well understood.   The nursing home lacks any legal duty to teach a patient about legal options, such as for a husband or wife to exclude resources or to convert them to additional income for the other spouse.  For the same care, a nursing home receives significantly less in payment from a Medicaid-subsidized patient than it does from a private pay patient, so there is no incentive to encourage a patient to pursue an accelerated spend-down strategy.

We have seen families spend tens of thousands of dollars on care that Medicaid would have paid for if a family had only known how to ask.     Common errors involve a failure to understand the options in relation to the cash value of a life insurance policy or for an IRA/ 401(k) retirement account, and how to account properly for property that is in a revocable living trust. The spend-down opportunities are neither logically intuitive nor necessarily consistent with standard accounting and investment practices.

For the same reasons that we advise our clients to see a CPA or an enrolled agent for tax preparation advice, or a financial planner for investment advice, it is advisable when a spouse is in a nursing home to seek help from an attorney who has significant experience with understanding the laws related to Medicaid.

Occasionally, we help a client whose spouse has been receiving Social Security disability income, but was admitted to a nursing home before collecting a retirement pension earned from employment. Experience taught us that the statement from the pension administrator about the cash value of the retirement plan can be greatly misleading, since the spouse will unfairly lose assets if at first a determination is not made about the amount which may be accessed immediately as a cash payment, and what part must be annuitized as future income.

The process of accounting for marital property is known as the Resource Assessment. Although it appears to be very simple and in some cases it can be, when a husband and wife have life insurance, annuities, multiple retirement accounts or a vacation home, expert help is advisable.  Lost opportunities are extremely expensive.

A nursing home is not required to submit a Resource Assessment immediately. One nursing home established a standard practice of waiting to submit the Resource Assessment until a resident was out of money and in definite need of Medicaid.   This saved the nursing home time and maximized its revenue, but the delay prevented the resident from promptly obtaining information which could have been used to save money by obtaining Medicaid sooner.

Once a Resource Assessment is submitted, the Department of Human Services has thirty days to respond with a spend-down determination. Often, a spouse has paid for three or four months of care privately before receiving that determination.   The Resource Assessment does not include instructions on how to accelerate the spend-down process.

On occasions when we meet a client quickly after entry to a rehabilitation facility, we may be able to complete the Resource Assessment, direct the accelerated spend-down process, and qualify for Medicaid immediately upon termination of Medicare funding. One reason we can do this is that our experience with the Resource Assessment process allows us to correctly predict the outcome.

When a spouse or parent is in a rehabilitation facility, nothing is routine. The paperwork is confusing.  In the midst of such stress, the nursing home’s offer to handle all paperwork related to third party payments for care can be tempting.  But when the cost of not knowing your options can be $300 to $400 per day, it is better to get legal help sooner rather than later from an attorney who understands the Medicaid process.

By Dave Nesbit, Attorney