October 2006


During the months that have passed since our last newsletter, there have been some developments I want to make you aware of so you may plan accordingly.


Texas Implements Federal Changes in Medicaid Eligibility


In the last newsletter we told you about the passage of the Deficit Reduction Act of 2005 (DRA 2005) and President Bush’s signing the Act into law on February 8, 2006.  Congress and the President have seriously impeded the ability of many poor senior citizens to qualify for Medicaid assistance with their essential nursing home care. 


Also, I told you President Bush signed a version of the DRA 2005 only the Senate had passed; it never passed the House.  In September the Clerk of the House of Representatives issued a timeline of events and documents involved in the passage in signing of the DRA 2005 into law.  They reveal that what President Bush signed never passed to the House of Representatives.  These documents have been filed in the one remaining lawsuit that is continuing to challenge the constitutionality of this law.  This certainly adds fuel to the fire.  Meanwhile, three other lawsuits have been dismissed by the courts.  The DRA 2005 might be overturned eventually, but probably not any time soon.  Elder law attorneys and the states’ agencies that administer Medicaid are proceeding as if the law is constitutional and will be fully implemented. 


The Texas Health and Human Services Commission on June 30, 2006 published the proposed rules to implement the changes required by DRA 2005.  The Texas Chapter of the National Academy of Elder Law Attorneys submitted substantial substantive comments and some members appeared at a public hearing seeking some modifications and clarification of ambiguities in the proposed rules.  Their comments were accepted and some issues have been resolved by revisions to those proposed rules, but others remain unresolved.  One of the most significant positive revisions is that the partial return of transferred assets (gifts) will result in a partial reduction of the penalty period resulting from such transfers.  This will enhance the ability of Elder Law attorneys to counsel clients to correct gifts that were improvidently made by folk who did not have good legal counsel.


The final rules by HHSC were expected to be promulgated to be effective as of October 1, 2006.  This means that the review and determination of Medicaid eligibility for all applications filed on or after October 1 will apply the new rules as they interpret the DRA 2005.  As I write there still is a little uncertainty on the actual effective date but it most likely will be October 1.


As a result of the adoption and implementation of these rules for Texas, all of us at the Ensign Law Firm, P.C. have worked diligently to complete several Medicaid applications and have them filed with HHSC by Friday, September 29.  We believe that doing so will facilitate the determination of eligibility for those applicants.


For a description of and my comments on the substantive (and draconian) changes that have been made by DRA 2005, please review our May newsletter.  You may view this newsletter on the Firm’s web page at  http://www.ensignlaw.com/May%202006.html


Implications for Future Medicaid Eligibility


The changes made by DRA 2005 will have far-reaching effects, the extent of which can only be estimated at this time.  There still will be uncertainty until there have been policy clarifications by HHSC as questions arise in the course of trying to apply the newly implemented rules.




For many people who will be helping their elders to make choices regarding their future care and their finances and the possibility of Medicaid eligibility, probably the greatest trap will be the gifting rules. 


At this time, it appears that most transfers that are made without the transferor receiving equal value will result in the application of a penalty period.  The HHSC rules provide a few exceptions but the burden of proof clearly is upon the applicant.  One of these exceptions is if “the assets were transferred exclusively for a purpose other than to qualify for medical assistance...”  Some believe that this might exclude routine gifts of small amounts to family for special occasions such as birthdays and Christmas.  Some believe it might exclude charitable contributions to churches or charitable organizations.  However, at this time there does not appear to be good guidance available on these matters.  So special precautions need to be taken regarding any transfers/gifts if an elder contemplates the possibility of qualifying for Medicaid in the future.  As all transfers/gifts made within five years prior to the date of application will be reviewed with a view to disqualifying the applicant, excellent records of all gifts need to be maintained. 


As we described previously, this penalty period will only begin after the Medicaid applicant is otherwise qualified in all respects.  So the applicant will have no funds to pay for the nursing home care during this penalty period resulting from those gifts.  At least the Texas rule allowing partial returns of gifts resulting in a partial reduction of the penalty period will allow some relief for those who have not planned wisely.




Another trap for the unwary will be the purchase of an annuity for a Medicaid applicant or community spouse.  A transfer penalty will result from such purchase unless the annuity is purchased with tax-deferred funds or meets the following requirements:


·             The annuity is irrevocable and nonassignable; and

·             The annuity is actuarially sound; and

·             The annuity provides for payments in equal amounts during the term of the annuity, with        no deferral and no balloon payments made.


A related requirement according to the HHSC (following the rules of the federal government’s Centers for Medicare and Medicaid Service) is that any application for Medicaid eligibility must disclose ownership of all annuities and include a statement that “the State becomes a remainder beneficiary... by virtue of the provision of such medical assistance.”  This is intended to allow the State of Texas, after the death of the Medicaid recipient, to claim the benefits of such annuity to repay the costs of Medicaid assistance.  This parallels the provisions of the Medicaid Estate Recovery Program (MERP) that files claims against the estate of the deceased Medicaid recipient so that the State will recover from the house, vehicle, and other estate assets the costs of care provided.  So annuities will no longer be a mechanism to avoid estate recovery.   


The adoption of these new rules by HHSC does not change the pre-existing Texas rules that require all annuities to be counted as resources (thus disqualifying the applicant) unless five criteria are met which include a requirement to payback to Medicaid from the annuity for Medicaid services received.


The heightened restrictions placed upon Medicaid eligibility validate our statement in the last newsletter: “The key issues elders and their caregiving loved ones face actually revolve around providing high quality care that improves their quality of life.  The money issue is not the central issue when the care and quality of life issues are faced realistically.  This is because nursing home care is not the primary source of care for the vast majority of elders.  So Medicaid is not going to be available because it primarily pays for nursing home care and sometimes for in-home care, though rarely.  When we get our priorities straight and recognize that our elders’ funds are for their care, the money issues usually work themselves out with some planning, often short of Medicaid qualification.”  As a result, we shall continue to expand our emphasis on Life Care Planning for elders and their families. 


Medicaid Estate Recovery Program


As reported in the last newsletter, the Texas Medicaid Estate Recovery Program (MERP) is now in full swing.  It is administered by The Recovery Unit of the Public Consulting Group, Inc. (PCG), the contractor hired by HHSC to send the notices and file the claims.  Since then we have had experience in one case dealing with MERP.  We have been pleased that this case was handled with professionalism.  Furthermore, the MERP contractor has an excellent contact person who took plenty of time to answer in detail a number of questions I posed that benefited me and my Texas NAELA colleagues. 


In the case we handled, the Medicaid recipient had not received sufficient assistance to justify the time and effort that would have been required for the filing and adjudication of a claim by MERP.  So the estate of the deceased recipient did not have to pay MERP.  Of course, the family members were rejoicing and so were all of us at the Firm.


If you or your family members or clients receive such a MERP notice, please be aware that some response is needed in a timely fashion.  We recommend you consult with qualified legal counsel for assistance to preserve any rights against such MERP claims.  The notice may be accurate and the claim valid – but then it may not be. 


Living Trusts No Longer Prevents Estate Recovery


The homestead of a Medicaid applicant is considered a non-countable resource if the applicant intends to return to the home, even if that is highly unlikely in the future, so long as the applicant signs the appropriate HHSC form.  Thus owning a home does not prevent a person from qualifying for Medicaid.  However, that home is not exempted from the claims of the State following the death of the Medicaid recipient under the Medicaid Estate Recovery Program because it will be part of the deceased’s probate estate. 


In an attempt to save the homestead from the Medicaid Estate Recovery Program, some applicants for Medicaid have conveyed their homestead into a revocable living trust.  Because assets in a living trust do not pass through probate, it was thought that the homestead in a living trust would not be subject to a claim by the State for reimbursement.  Indeed, this belief was bolstered by the fact that HHSC had taken the position that the homestead as a non-countable resource outside of such a trust would enjoy the same status within the living trust. 


Now the Centers for Medicare and Medicaid Services (CMS) has approved a policy treating a home in a revocable living trust as a countable resource.  While final guidance with a policy clarification memo or other rulemaking by HHSC is still pending, it appears this change will have two possible effects.  If the homestead has been conveyed to a living trust before the application is filed, the homestead will be a countable resource and the applicant will not be eligible for Medicaid unless and until the house is conveyed out of the trust back to the applicant.  If Medicaid eligibility was already certified and the homestead is in a living trust, at the next annual recertification, the home will have to be conveyed out of the living trust back to the trustmaker (the settlor) and trust beneficiary, the Medicaid recipient. 


HHSC Call Center Use Curtailed


In a misguided attempt to save tax dollars, the Texas Health and Human Services Commission signed a contract with a private company, Accenture, with the total estimated cost of approximately $900 million.  The belief was that this company could handle all the application process for the various benefit programs administered by HHSC.  The forecast savings were supposed to come from the elimination of many of the jobs held by experienced state employees who handled the review of the applications such as for Medicaid, the Child Health Insurance Program (CHIPs), food stamps, etc.


Earlier this year HHSC began a pilot program using the call centers to accept applications.  It has been a disaster in almost every respect.  Poor training of the Accenture employees resulted in incorrect assistance and advice being given by phone.  Potential applicants calling the call centers were placed on hold for lengthy periods of time and many of them hung up in disgust and did not call back.  And applicants suffered lengthy delays in receiving benefits.


Elder law attorneys and those areas involved with the pilot program had encountered numerous and major problems in the filing and consideration of applications.  Sometimes they were lost.  Sometimes the processing times were inordinately long, far beyond the time frames established by law that would have been complied with by the State caseworkers.  The Accenture outsourcing experiment proved to be a nightmare for them and their clients.


In the process of implementation of this program, even before the rollout of the pilot program, many experienced caseworkers left for other State positions or other jobs, especially if they were not at the top of the seniority list and expected to be terminated eventually.  This resulted in a substantial brain drain that could have long-lasting consequences.  Fortunately, in this area, the pilot program was never implemented.  As a result, the Firm has been blessed to continue working directly with outstanding HHSC employees who have genuine concern for the applicants and are willing to work professionally with their legal counsel.  We are indeed thankful for this blessing.


Several State Representatives became aware of these serious problems and became involved in the controversy as did the State Comptroller who launched an investigation.  Several of my colleagues in the Texas Chapter of NAELA spoke at public hearings requesting the termination of the Accenture contract or the removal of the Medicaid program from the call centers.  Medicaid applications are simply far too complex to be received by telephone from the elderly or their representatives.  Additionally, the Medicaid rules are far more complex than those for other state benefits such as CHIPs or food stamps and substantial training is necessary for caseworkers.  The Accenture employees had insufficient training to know how to deal with the complex issues that arose in the process of certifying applicants for Medicaid eligibility.  In short, the capabilities of Accenture as a contractor were far oversold and the state purchased a pig in a poke.


As a result of the efforts of my colleagues and other concerned parties, HHSC has suspended the use of these Call Centers at least in the Medicaid context.  With time we may see the full termination of that contract and, perhaps, recovery of some of the Texas tax dollars wasted in the process on Accenture. 


Breaking News – Entitlements Need Revamping


In previous newsletters I have alluded to the concerns we have for the future of long-term care benefits from our federal and state governments.  As I was preparing this newsletter, Federal Reserve Chairman Ben Bernanke was warning that delay in making sure that Social Security and Medicare are fiscally sound will increase the burden on future generations of such programs. 


“If we don’t begin soon to provide for the coming demographic transition, the relative burden on future generations may be significantly greater than it otherwise could have been,” Bernanke told the Economics Club of Washington in his speech that focused on the demographic shift of the U.S. population as the baby boom generation retires and the strain on entitlements grows. 


Many Texans will recall the launching with substantial fanfare of the Great Society by my fellow Texan, President Lyndon Johnson.  The American people were promised that this welfare state would cure our ills and that there would be health care and long-term care assistance for all who might need it.  Well, friends, the train that picked up steam and moved on down the tracks a few decades ago is now pulling back into the station as the steam is dying down because the tax dollars are no longer available to maintain this great social experiment.


Continuing Education and Speaking


In May I attended the two-day Institute on Estate Planning presented by the Amarillo Area Estate Planning Council.  In August I attended the annual two-day Tax Institute presented by the Panhandle Chapter of CPAs. 


In September, Bonnie McMillan, our Geriatric Care Manager, attended a two-day seminar in Nashville entitled Interdisciplinary Life Care Planning Concepts for Members of the Elder Law Staff.  She met other Geriatric Care Managers and Life Care Planning attorneys and came back energized.  She brought confirmation that the services we have been offering in the last year are just what the aging population in this area need.  Furthermore, our services are at the level of what other law firms provide that have been doing Life Care Planning for years.  This validation has energized our efforts even more as we focus on Life Care Planning and estate planning, especially with the devolving of Medicaid as the primary method of planning long-term care financing.


In July, Bonnie and I were privileged to help the Area Agency on Aging educational program by both speaking to two groups of volunteers – the Ombudsmen and the Benefits Counselors.  The Ombudsmen give of their time to assist elders in nursing facilities around the area with problems.  The Counselors volunteer to counsel the aging about benefits for which they may be eligible.  The Area Agency on Aging is a great resource and asset to the elder community in the entire Panhandle.  Call them at (806) 331-2227 for more information about their services.   


In August I was invited to speak to over 100 guests of The Park Central Retirement Community at a luncheon.  The topic was Getting Your Legal House in Order.  Bonnie also spoke about some of her experiences as a Geriatric Care Manager.  This was a home-going of sorts for Bonnie as she had been the Clinical Educator for the Ware Living Center until her retirement a year ago. 


Getting Your Legal House in Order was also the topic of my presentation to a large group at the Amarillo Senior Citizens Association - Potter County Extension Service meeting in May.  This was also the topic of my presentation in September to the Alzheimer’s Association at their monthly Lunch ‘N Learn program.  Call Ken Branum at 372-8693 for more information about this program and other services the Association offers to those with Alzheimer’s disease and their families. 


Bonnie and Trina continue to represent the Firm at several health fairs providing information about our Life Care Planning, estate planning and other legal services.  They delight in meeting folk and helping them to think about the needs they may have now or in the future and solutions to the problems they are likely to encounter. 


A great event for seniors is coming in October.  Please mark you calendar now to attend the Senior Fall Festival on Thursday, October 26th, from 9:00 am to 1:00 pm at the Civic Center.  Sponsored by the Senior Ambassadors Coalition, it will be a great opportunity to learn about many of the services available to elders from care providers in this community.  Please stop by our booth and say hello. 



Whenever we may be of assistance to you, your loved ones, your friends or your clients with Life Care Planning, estate planning or other legal matters affecting elders, please contact us.  We would be pleased to assist.


May your Fall be warm and wet with rain to fill our lakes and aquifers while being filled with the delights of this season as we give thanks for all the blessings that have been showered on us.