When we are working with families who wish to engage in Medicaid planning or for whom a family member must file an application for benefits, there are some common misconceptions we observe. Families do not often appreciate that the Medicaid eligibility rules are extremely complicated and those rules are not always understood by the employees of the Connecticut Department of Social Services (“CT DSS”) who adjudicate benefit claims. Nonetheless, CT DSS can and will be expected try to apply their Medicaid eligibility rules in ways that are prejudicial to our clients’ interests. A Medicaid claim is not merely a question of forms and paperwork. Rather, it is something we must approach similar to a litigation case where we are compelled to prepare thoroughly by marshalling all of the facts and the law to best advocate for our client’s position. A 2015 case from the New York Court of Appeals shows the type of dispute we might be called upon to deal with. See Matter of Rivera v. Blass (N.Y. Sup. Ct., App. Div., 2nd Dept., No. 2012-01466, 28518/11, April 1, 2015).
In 2008, the husband of 84 year old Carmen Rivera lent their grandson $200,000 in exchange for a promissory note (“Note”). The Note called for repayment of principal over a 15 year term with interest accruing at 5.5% annually. At the outset, we should explain that in order for a promissory note to be respected by the Medicaid authorities and not treated as a transfer for less than fair market value, certain rules must be followed. Those rules provide that a Note must: (1) be “actuarially sound,” meaning repayment must be premised on a term no longer than the life expectancy of the lender, (2) provide for repayment to be made in equal amounts during the term of the loan, without deferral or with any balloon payment, and (3) prohibit the cancellation of amounts due upon the death of the lender. See CT UPM Section 3029.14.
The Riveras’ grandson and his wife began making their payments under the terms of the Note. However, in March of 2009 Ms. Rivera fell and broke her hip and entered a nursing home. She then applied for Medicaid in August 2010. Upon the advice of an elder care attorney and in an attempt to comply with the Medicaid rules, the Note was amended in May 2010 to provide that: (1) the terms were made nonnegotiable and nonassignable, (2) the obligation could no longer be cancelled and would survive the death of Ms. Rivera’s husband, and (3) payments would need to continue in favor of the estate of Ms. Rivera’s husband upon his death. Nonetheless, despite their best efforts, the New York Department of Social Services (“NY DSS”) decided a penalty period in the amount of 14.058 months would be applied before Medicaid benefit payments could commence. That penalty was calculated from the amount of Note principal that had not yet been repaid, which was $152,567.42.
After the initial decision, the Riveras appealed the decision and an administrative “fair hearing” was held. At that hearing, Mr. Rivera asserted that he made the loan to his grandson because he wanted income and also because his grandson needed funds to renovate his home. Mr. Rivera said that Ms. Rivera had no chronic health problems and he presented a December 2007 letter from Ms. Rivera’s doctor confirming she was in good health. NY DSS countered by arguing that under the Medicaid rules the Note was not actuarially sound and that therefore the loan was properly treated as a transfer for less than fair market value to which the penalty was applied. Furthermore, NY DSS argued that the Riveras failed to rebut the presumption in the Medicaid rules that such a transfer was made for any other purposes other than for the purpose of obtaining Medicaid eligibility. The fair hearing decision upheld the original NY DSS penalty period imposition.
Then, the Riveras appealed to the state civil court and there they achieved a much more favorable decision. The appellate court was satisfied that the Riveras did present abundant evidence that the loan was made for purposes other than Medicaid eligibility. Among other things, (1) the loan was properly documented by the Note which was later amended, (2) the interest rate on the Note was higher than what banks were charging at that time, (3) Mr. Rivera received the income he was looking for and his grandson made all of the required payments, (4) there was evidence that the Riveras had made loans to family members before and all of those loans had been properly repaid, (5) the grandson really did take the borrowed funds and use them to renovate his home, and (6) there was ample evidence that Ms. Rivera was in good health at the time of the loan and had no expectation she would need nursing home rehabilitation in the near future. So the appeals court ordered that the penalty period would not be applied and benefits would be paid to Ms. Rivera retroactively for the 14.058 month period.
So what lessons can we learn from the Rivera case? It seems obvious to us based on the facts that the loan was not made for purposes of helping Ms. Rivera gain Medicaid eligibility. At the time of the loan, she was healthy and had no expectation she would fall and break her hip the following year and end up in a nursing home. Nonetheless, NY DSS still made the argument that the loan was made in expectation of her imminent Medicaid needs – sort of a “crystal ball” depiction of the facts of the case. When the law contains a presumption it means that the party challenging that law will be facing an uphill battle. Here, the Riveras apparently had sufficient resources to wage that battle and were able to present sufficient evidence to overcome the presumption. Many families are not so fortunate and do not have the resources to lodge such a judicial appeal in the first place, never mind winning such an appeal.
In the Rivera case, she happened to suffer from her fall a mere one year after the loan. But any transfer or questioned loan occurring within the 60 month Medicaid look back period will need to overcome the same presumption. It may sound absurd but a gift or loan to a family member made five years before a Medicaid application will still be treated as if it was made for the sole purpose of obtaining Medicaid eligibility years later, unless the Medicaid claimant offers overwhelming evidence that it was not.
Please call us at 860-769-6938 if you have any questions about the issues presented above or if you care to discuss any other planning issues with us.