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LTC Insurance Partnership Shows Signs of Life

This week, seemingly out of nowhere, the long awaited first blip of life for the long term care insurance public-private partnership appeared in the attached DHS memo. Click here.

The memo seems to say that soon we will have a LTC insurance partnership program up and running in Michigan.

The history is that several years ago Michigan applied for, and was granted, the opportunity to participate in the partnership which has been active in several other states for decades. Notwithstanding the initial approval, the program was shelved in Michigan purportedly pending the implementation of an estate recovery program. Michigan has had an estate recovery program for at least 4 years now. What prompted the State to act at this moment is unknown, but certainly welcome.

A state that has a public–private partnership allows persons applying for long term care Medicaid benefits to exclude an amount in excess of the normal exclusions, which amount is the amount of coverage that the applicant has through an approved long term care insurance product. The protection will apply at the time of application (thereby increasing the asset allowance for eligibility) and with respect to estate recovery (protecting assets that would otherwise be subject to recovery). As the memo states, it will not be required that all of the benefits be paid out before the Medicaid beneficiary dies or leaves the Medicaid program, in order for the protections to be triggered.

Still unknown are what an insurance policy will need to include for it to meet the requirements to provide this protection. Still unknown is how the policy will be worded – question like: Will this protected amount be in addition to the amount allowed under the eligibility rules as they currently exist, or instead of?

Stay tuned. More to come.

Department Promises Change on Spousal Annuity Beneficiary Issue

Thanks to the excellent advocacy of Amy Tripp and David Shaltz, it appears we may be getting close to resolving one of the difficult issues related to using annuities in Medicaid planning in cases involving married couples.  The issue relates to the State of Michigan’s interest in annuities purchased by a community spouse.

In the case of Hughes v McCarthy, U.S. Court of Appeals, 6th Circuit, 2013, the Court reversed a determination by Ohio’s Medicaid agency which concluded that an annuity purchased by the community spouse was divestment because the State was not named first beneficiary, but rather a contingent beneficiary after the nursing home spouse.  The Hughes opinion goes into extensive detail regarding the underlying federal law, and concludes that the Ohio agency was wrong.  The analysis of the opinion clarifies that the requirements for naming the State as a beneficiary at all are not applicable to annuities purchased by the community spouse before application for benefits.  Click here to read Hughes.

Michigan policy, set forth in BEM 401, is less clear on the topic.  It says that any annuity must name the State as beneficiary “for an amount at least equal to the amount of the Medicaid benefits provided.”  What is unclear is whether the term “benefits provided” relates to the annuitant (who would be the community spouse) or the nursing home resident.

In the Calhoun County case handled by Amy Tripp in which this issue arose, the annuity was purchased by the community spouse and the State was named as beneficiary for medical expenses incurred by the annuitant and paid by the State, which would only apply if the community spouse became a Medicaid beneficiary at some later date.  Calhoun County DHS concluded this was divestment, and that determination led to contact with higher ups in the Department.

The response from the Michigan Department of Health and Human Services was an acknowledgement that the policy as written is wrong, and a promise to revise the policy to comply with the Hughes decision.  Click here to read the exchange of correspondence.  While we do not know at this time exactly how the policy will be revised, this is a big deal for everyone who uses these types of annuities in married couple Medicaid plans.

In any event, the good news is that the Department is responsive to such inquiries and willing to review policy where it can be demonstrated that such policy is not complying with the governing law.  (The Hughes case is a Sixth Circuit decision, and Michigan is in the Sixth Circuit.)

Thanks David, Thanks Amy and Thanks Mr. Meyer, acting Deputy Director of DHHS.  We are hopeful that this is the beginning of better lines of communication with the Department so that we can work together toward the benefit of the populations we mutually serve.

AN UPDATE:  No detail – but some movement.  Click here

AND NOW THE FINAL POLICY:  Looks good.  Click here

COA Geek Alert: Unpublished Opinions

For those who don’t do appellate work, you may not want to spend your time reading this.  For this who do ….

The Michigan Supreme Court has published proposed changes to the Court Rules relating to unpublished opinions.  Click here to read the proposed rules.  The purpose of the proposal seems to be to further shelter these opinions from being the product of the legal rigor one would expect from a state appellate court.  This would be accomplished by making the citation of unpublished opinions in appellate briefs “disfavored.”

I found that Justice Markman’s concurrence and dissent nicely articulates the problems with this concept.  As he notes, unpublished opinions should be unpublished only because they rely on prior cases which more thoroughly rationalize the controlling rule of law.  They should not be perceived “second class” cases.  We have already drifted into a arena where the Court of Appeals seems to believe they can issue an opinion that allows for the result they want in a particular case, and by leaving the opinion unpublished, offer something less than solid legal ground on which the result is based.  This proposed change to the Court Rules would only exacerbate that bad situation.

8th Circuit Decision Stuns SNT World

Topic:  Self Settled Special Needs Trusts, aka Medicaid Payback Trusts, aka d(4)(A) Trusts.

Legal Background:  When a person under 65 meets the requirements of being disabled for the purposes of qualifying for needs-based government benefits (most notably Medicaid and Supplemental Security Income), they have the ability to meet the financial eligibility requirements of those programs by transferring assets they may have into a trust for their own benefit, provided those trusts meet the requirements of 42 U.S.C.§ 1396p(d)(4)(A). The law provides that once they put their own assets in these trusts, those assets will not be considered as part of their resources in determining eligibility for the aforementioned benefits.  The law allows the property held in such trusts to be used for the benefit of the disabled person during their life, but upon the death of the disabled person/trust beneficiary, the state(s) that paid for medical expenses for that disabled person are entitled to be reimbursed for those expenses from whatever trust property has not been distributed during the disabled person’s life.  The law does not currently allow the disabled person themselves to create these trusts, rather it says such trusts must be created by a parent, grandparent, guardian or court order.  It is this “who can create the trust” issue that is the subject of this surprising case.  These trusts are useful in all sorts of situations, including, where the person who is disabled became disabled as a result of medical malpractice or a car accident and receives a settlement or judgment as a result.  This allows the injured party to receive the lawsuit proceeds and use them to enhance their quality of life while remaining on government benefits, most importantly Medicaid.

This Case:  Click here to read Stephany Draper v Social Security Administration.  Stephany Draper is a person under the age of 65 who received a personal injury settlement. The parents of Ms. Draper created a d(4)(A) trust by signing it in their individual capacities, clearly attempting to satisfy the requirement option that the trust be created by a parent.  The parents, coincidentally, were also agents for Ms. Draper under a financial power of attorney.  The parents used their authority as Ms. Draper’s agents to sign the personal injury settlement documents and transfer the settlement proceeds to the Trustee of the d(4)(A) trust they created in their individual capacity.

The Social Security Administration said that this trust did not protect these funds because the parents were really acting as their daughter’s agent when they created the trust.  The 8th Circuit Court upheld the Social Security Administration’s decision, noting that Courts must give significant deference to the Social Security Administration with respect to the interpretation of the Social Security Act.

The fact that the Court upheld the conclusion that even though the parents signed the trust individually, and not as agents under the power of attorney, they were in fact acting as Ms. Draper’s agents in doing so; and notwithstanding the fact that the law itself expressly authorizes a parent to create such a trust, is more than troubling.  But the analysis gets even stranger.  The Court goes on to support this conclusion by asserting that even where State law allows the creation of an unfunded (or “dry”) trust, if someone creates an unfunded trust that trust is not valid because of the requirement that to create a valid trust the party creating it must have a financial interest in the trust, citing the Restatement of Trusts 3rd for that proposition.  The Court says, it seems, that they could either have concluded that the trust itself was not valid because the parents could not have created a trust in which they had no financial interest, or, alternatively, that the parents must have been acting as their daughter’s agents in creating the trust.  Since the Social Security Administration concluded the latter, they upheld that conclusion.

Obviously the Draper case will impact the way attorneys help clients create d(4)(A) trusts in the future. The 8th Circuit Court of Appeals is a Federal Court of Appeals, one step below the United States Supreme Court.  So this is not an insignificant decision.  However, Michigan is not part of the 8th Circuit.  Rather Michigan sits in the 6th Circuit. Technically, Michigan Courts are not bound by this decision.  However, in reality, Social Security Administration offices all over the U.S. will be emboldened by this “victory” and we will no doubt see an increase by the Social Security Administration with respect to aggressive challenges to self-settled special needs trusts as a result.