Ohio Medicaid changes “Aged Blind Disabled” Eligibility – Penalty Recovery through a Promissory Note

Friends, I didn’t write a blog last week.  I was celebrating Thanksgiving with my family.  I hope you too enjoyed your Thanksgiving weekend.

This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled program coming in 2016-2017.  The initial installment (April 28, 2016) provided an overview of the transition from the old system (following section 209(b) of the federal Medicaid law) to the new system (that will follow section 1634 of the federal Medicaid law.)  The May 5, 2016 installment discussed the new income rules that will go into effect with the new eligibility system.  The May 12, 2016 installment discussed setting up a Qualified Income Trust (aka Miller Trust) that will be necessary for people who need ABD Medicaid to help pay for long term care.  The June 16, 2016 installment discussed the Ohio rules that describe how to use the Miller Trust each month.  The June 23, 2016installment discussed the difficulty in understanding the need for a Miller Trust.  The July 1, 2016 installment discussed the need to empty the Miller Trust account every month.  The July 7, 2016 installment discussed the need to balance the Miller Trust with the desire to have health insurance.  The July 15, 2016 installment discussed the confusing deposit rules for Miller Trusts.  The July 21, 2016 installment discussed the changes that the Ohio Department of Medicaid made to the form Miller Trust document.  The July 28, 2016 installment discussed whether income is supposed to go directly into the Miller Trust.  The August 4, 2016 installment discussed Medicaid’s insistence that the transfers (or deposits) into the Miller Trust account be automatic.  The August 11, 2016 installment discussed money that doesn’t actually reach the Medicaid-recipient that, nonetheless, counts as “income” for purposes of using a Miller Trust.  The August 18, 2016 installment discussed  the appearance that a person on long term care Medicaid has an increase in income when he/she stops paying Medicare premiums.  The August 25, 2016 installment discussed the impact of tax withholding on certain income sources and the difficulty that the tax withholding creates for the Miller Trust.  The September 2, 2016 installment discussed the limit placed on monthly costs of the Miller Trust.  The September 9, 2016 installment discussed how Ohio’s Medicaid rules appear to count income tax refunds twice.  The September 15, 2016 installment discussed the Ohio Department of Medicaid’s change in policy regarding real estate (other than the residence.)  The September 22, 2016 installment discussed keeping the house with an intent to return to home.  The September 29, 2016 installment discussed keeping the house while a dependent family member lives there.   The October 6, 2016 installment discussed the home that is co-owned by someone else (other than the spouse.)  The October 27, 2015 installment discussed real property that is “essential for self-support.”  The November 10, 2017 installment discussed the retirement funds belonging to the spouse who does not seek Medicaid’s help with long term care costs.  The November 17, 2016 installment discussed the 2016 changes in how Ohio Medicaid will allow applicants to give away some of their assets cover the resulting penalty period through a return of part of the assets.  Today’s installment will discuss Ohio Medicaid’s new prohibition on using promissory notes to recover from an applicant giving away assets.

Note:  What I am calling “assets” Medicaid calls “resources.”  In Medicaid’s terminology, “assets” includes both “resources” and “income.”  Because most of the public thinks of “resources” as human resources or natural resources, and thinks of money in the bank as “assets,” I will use the term “assets” in this installment to refer to money in the bank and other similar things of value (like real estate, life insurance, etc.) that may be included in the applicant’s life savings.

Generally, when an applicant for Medicaid for long term care services gives away something of value (aka “assets,”) Medicaid will not pay for services for the amount of time that the given-away assets would have covered.  This “penalty” is found within the “transfer of assets” rule in Medicaid’s regulations.

Despite the penalty, some Medicaid applicants wish to give away some of their assets.  Usually, the applicants wish to give assets to their children.  The giving of these assets to the applicant’s children often gives the applicants a great deal of emotional relief because it allows some of their money (the results of their working lives) to outlive them.  Most parents want to leave something to their children and grandchildren.  Finding a way to allow these applicants to give some of their assets is what most elder law attorneys try to do.

The trick is finding a way to cover the applicant’s long term care costs during the time that Medicaid will not (i.e., during the “penalty period” aka the “Restricted Medicaid Coverage Period.”)  There used to be 4 different ways to cover such a penalty period.  During 2016, Ohio Medicaid changed the rules on covering this penalty period.  Today’s installment will discuss the use of a promissory note between the Medicaid applicant and a family member.

First, let’s explain a promissory note.  A promissory note is a legal document that contains a promise to repay a loan.  For example, anyone who has mortgaged a home has probably signed a promissory note as an agreement  to pay back the borrowed money.

In the context of Medicaid for long term care context, the person needing care can give away some of his/her assets.  Then, to pay for care during the penalty period that results from the give-away of assets, the person who needs care must set up a flow of income to pay the monthly care costs.  (The assets given away are protected from long term care costs and from Medicaid as long as the flow of income to pay for the penalty period is calculated correctly.  It really is a big math problem.)

Monthly installments to repay a loan can be just the flow of income to appropriately cover such a penalty period.  So, the person who needs long term care can lend money to someone (usually a family member, but it can be someone else.)  Then, the family member (as the borrower) would repay the loan in installments of an appropriate size to cover the monthly care costs during the penalty period.  To document the repayment terms (and to ensure that the “loan” wasn’t actually given away, which would result in a longer penalty period,) the lender (the person needing care) and the borrower (the family member or friend who offering to make the monthly payments) would have to sign a promissory note.

Remember, there’s no need for a promissory note if it isn’t used to cover a penalty period.

Before Ohio Medicaid’s August 1, 2016 rule changes, the acceptability of promissory notes was a bit unpredictable.  Some county Medicaid offices would accept promissory notes.  Some county offices would not accept them.  And then, even within some county Medicaid offices, some caseworkers would accept promissory notes and some would not accept them.

Now, after the August 2016 rule changes, Ohio Medicaid has (supposedly) prohibited the use of promissory notes for penalty recovery.

So, if promissory notes are prohibited, why would I even write about them?  I’m not sure that Ohio’s prohibition on promissory notes in Medicaid cases is permanent.

The federal Social Security law allows promissory notes to be used as described here, and the Medicaid program (at both the federal and state level) are part of the Social Security law.  One would think, that something allowed by the Social Security law would be allowed by the Medicaid rules that exist only because of the Social Security law.  So, at some point, some elder law attorney will probably challenge Ohio’s prohibition of promissory notes as a violation of the Social Security law.

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