Ohio Medicaid changes “Aged Blind Disabled” Eligibility – Problems with Tax Withholding

This week’s blog continues the discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled (ABD) 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, 2016 installment 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.  Today’s installment will discuss the impact of tax withholding on certain income sources.

The Ohio Department of Medicaid rule on Miller Trusts (aka Qualified Income Trusts or QITs) took effect on August 1, 2016.  A copy of the final rule is available here.  The latest version of the form Miller Trust from the Ohio Department of Medicaid can be found here.

Ohio’s county offices that oversee Medicaid are going to be able to implement this rule (and the other rule changes that occurred at the same time) very slowly.  While the pace at which the counties get up to speed may seem frustrating, it is very hard to overstate the enormity of the changes that Ohio’s Department of Medicaid is trying to make.  Not only are there the rule changes for people who need long term care that I have been discussing (and will continue to discuss) in my blog and newsletter.  There are bigger changes (affecting tens of thousands more people) in the eligibility rules for Medicaid for people who are disabled but do not need long term care.  In addition, to oversee the new requirements for all affected people, the state and county Medicaid offices have to move to a new software system to manage the Medicaid program.

As discussed previously, someone in Ohio who needs Medicaid support to pay for long term care whose gross monthly income exceeds the Special Income Level ($2,199.00 at this time) must use a QIT to make the income over the Special Income Level not “income” anymore in the eyes of Medicaid.  (Yes, the process is as hard to follow in real life as it is to follow in that sentence.)  In order to get the benefits of the QIT, the amount of income over the $2,199 (or more than just that excess income) must be placed into the QIT each month so that the remaining “countable” income is $2,199 or less each month.  (I know, it’s not getting any more understandable.)  Please realize that there is no real-world logic in this requirement.  These are just the rules.  There are many requirements in the rules that could have been made easier or more logical, but, still, the underlying requirement to put money into a Miller Trust and spend it out of the Miller Trust all in the same month is not logical.

Like the Medicare premium discussed in the last installment, money withheld for taxes is another form of “invisible” gross income that must be taken into account when determining the need for a Miller Trust.  Unfortunately, determining whether money is being withheld for taxes can be far trickier than determining whether money is being withheld for Medicare premiums.  Almost everyone who receives social security retirement income pays a Medicare premium, and most of those people pay the same set amount each month.  (A few people with “high income” in retirement pay more for Medicare coverage.)  Dealing with the question of Medicare premiums when determining whether someone needs a Miller Trust is relatively straightforward.

Determining whether someone has money withheld for taxes may not be nearly so straightforward.  The amounts of tax withholding aren’t uniform.  There are as many withholding amounts as there are pensioners.  Heaven only knows where the Medicaid applicant put his/her records from setting up the pension at the time of retirement.  Eventually, a pension statement might show arrive in the mail to help the family learn what tax withholding amount the pensioner chose.  Finding the information necessary to calculate gross income is likely to be an uphill battle.  Tax withholding is a more “invisible” form of gross income than others.

Okay.  Eventually, the existence and amount of withheld money for taxes will be sorted out for a Medicaid applicant.  Figuring that stuff out will allow the person to get Medicaid coverage.  That isn’t the end of the problem, however.

A Medicaid recipient’s obligation to pay income for his/her care is based on gross income.  In Medicaid’s view, that money withheld for taxes is not an allowable deduction from income.  The withheld taxes will reduce the amount that the person is allowed to keep each month (the Personal Needs Allowance, currently set at $50) or the amount that the person is supposed to pay to the long term care provider (the Patient Liability, the Patient Responsibility, or, in Medicaid’s new terminology, the Share of Costs.)

The other common form of “invisible” gross income, the Medicare premium, is an allowed deduction from income because it’s a health insurance cost.  As a result, the Medicare premium doesn’t reduce the Personal Needs Allowance or Patient Liability.  Figuring out the Medicare premium and adjusting when the Medicare premium ends (discussed in the previous installment) are paperwork exercises, but they do not impact the actual spending of money.  By contrast, tax withholding impacts the Medicaid recipient’s spending.  Someone will get less money.

Of course, the Medicaid recipient (or family) should try to get the withholding stopped, but that effort may or may not work.  Pension plans are notoriously bureaucratic (not too different from Medicaid in that way.)  The request to stop withholding may or may not float to the top of the paperwork heap in a reasonable amount of time.

In the meantime, the Medicaid recipient or the long term care provider will have to be shorted some money until tax returns can be filed and a refund paid out.

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