SPECIAL ISSUES IN WC AND LIABILITY SETTLEMENTS INVOLVING PRESERVATION OF ELIGIBILITY FOR MULTIPLE PUBLIC BENEFIT PROGRAMS: PART I

 

By John J. Campbell, Esq., CELA, MSCC

 

Introduction

 

          On July 23, 2001, the Centers for Medicare and Medicaid Services (CMS), the federal agency administering the Medicare and Medicaid programs, published its memorandum, entitled “Workers’ Compensation: Commutation of Future Benefits.”  Since that time, worker’s compensation (WC) attorneys, employers and WC insurance carriers have grown more and more sensitive to the need to reasonably consider Medicare’s interests in WC settlements meeting CMS’ criteria.

 

          Representatives from CMS have now announced CMS’ position that Medicare retains its secondary payer status after settlement of third party liability (TPL) claims, as well as WC claims.  CMS does not currently require the use, review or approval of Medicare Set-Aside Arrangements in TPL settlements involving future medical expenses.  However, it is necessary to report the TPL settlement to CMS; and CMS expects the entire portion of the TPL settlement representing future medical expenses to be exhausted on such expenses before Medicare will pay for future injury related medical care.

 

          As a result, Medicare Set-Aside Arrangements are now used routinely in the settlement of WC claims involving future medical expenses where the claimant must maintain eligibility for Medicare benefits.  Further, it is recommended as a matter of prudence that plaintiffs wishing to preserve Medicare eligibility consider creating some sort of arrangement, similar to a Medicare Set-Aside Arrangement, in conjunction with their TPL settlements involving future medical expenses. 

 

          However, there are many cases where the plaintiff may be severely disabled and may require significant attendant or custodial care.  In addition, the plaintiff may only receive a limited monthly disability income benefit; or may currently rely on public benefits other than, or in addition to Medicare, to pay for his or her  medical care.  In these cases, it is essential to understand that Medicare is only one of several public benefit programs for which the plaintiff may need to qualify following the settlement.

 

          The eligibility criteria for entitlement programs, such as Social Security Disability Insurance (SSDI) or Medicare are vastly different from those for financial needs based benefit programs, such as Supplemental Security Income (SSI) or Medicaid.  In complex cases where plaintiffs may need to achieve or maintain eligibility for multiple public benefit programs, it is essential to look beyond what Medicare requires.  It is vital in these types of cases to employ a holistic approach to public benefit planning to ensure that the receipt of settlement proceeds will not foreclose the plaintiff’s ability to access all public benefit programs for which the plaintiff may need to qualify.

 

          This article will be presented in two parts.  Part I of this article will focus on the features and eligibility criteria applicable to each of the 4 most relevant public benefit programs: Medicare, Medicaid, SSDI and SSI.  Part II of this article will discuss some special settlement planning techniques necessary to preserve multiple public benefit eligibility for the settling plaintiff.

 

Medicare

 

          Medicare is a federally funded insurance program that provides medical benefits for the elderly and disabled.  Medicare is an entitlement program, i.e., eligibility does not depend upon the beneficiary’s level of income or resources.

 

          Anyone who is 65 years of age or older may receive Medicare benefits.  For individuals eligible for Social Security or Railroad Retirement benefits, Medicare Part A is available at no cost.  Individuals who might not qualify for Social Security or Railroad Retirement benefits may still obtain Medicare Part A coverage by paying a monthly premium.  Medicare Part A is also available without monthly premiums to persons suffering from end stage renal disease (ESRD) and to persons who have received SSDI benefits for at least 24 consecutive months.

 

          Medicare Part B is available to persons who are eligible for Medicare Part A and who pay the monthly Part B premium.  The Medicare Part B premium of $78.20[1] per month is usually deducted from individual’s Social Security or SSDI benefit.  If a person does not enroll in Medicare Part B within 3 months of enrollment in Medicare Part A (unless a “special enrollment period” applies), the monthly premium will be greater.

 

          Medicare Part A covers in-patient hospital stays.  Beneficiaries are required to pay the Part A deductible for in-patient hospital stays.  The Part A deductible amount is $912 per spell of illness, plus $228 per day for days 61-90 and $456 per day for days 91-150 (lifetime reserve days).  Medicare Part A will also cover certain hospice costs, and some skilled home health care for home-bound beneficiaries.    

 

          Medicare Part A also provides limited benefits for patients receiving skilled nursing care in a skilled nursing facility (SNF).  Provided the patient was discharged to a skilled nursing facility within 30 days of a 3 day hospital stay, Medicare will pay for up to 100 days of SNF benefits.  For the first 20 days of skilled care in a SNF, Medicare will pay full benefits.  For days 21 through 100, the patient co-pay amount is $114.00 per day.  After the 100th day, Medicare SNF benefits end. 

 

          The full 100 days of coverage are not guaranteed.  Coverage will end when the beneficiary is no longer deemed to require “skilled care.”  This will often occur when the beneficiary stops making improvement and reaches a “plateau.”  For example, if a beneficiary in a SNF is receiving rehabilitation five days a week and stops making progress, Medicare usually will stop making payment.  At that point, the beneficiary’s institutional care requirements are considered to be for attendant or custodial care, which Medicare does not cover.  

 

          Medicare Part B covers other medical costs, such as physician visits and services, outpatient hospital care, clinical laboratory services, durable medical equipment, physical and occupational therapy, and some skilled home health care.  Beneficiaries must pay the Medicare Part B annual deductible amount ($110) and must also pay the Medicare Part B co-insurance, which is 20% of Part B covered services.

 

          In addition to Parts A and B, Medicare Advantage plans under Medicare Part C provide alternative managed care and other insurance alternatives to traditional “fee for service” Medicare.  However, to enroll in any of the Medicare Advantage plans, one must be eligible for and enrolled in both Medicare Parts A and B.

 

          Beginning January 1, 2006, Medicare Part D will provide prescription drug coverage.  Beneficiaries seeking to enroll in the basic prescription drug coverage plan under Medicare Part D will be required to pay a premium, currently estimated at around $35 per month, in addition to the Part B premium.  The beneficiary must also pay the annual deductible amount of $250. 

 

          After the deductible, Medicare will pay for 75% of annual prescription medication costs from $250 to $2,250.  Medicare will not pay any benefits for the next $2,251 to $3,600 per year; and will resume coverage at 95% for annual prescription costs of over $3,600.  More comprehensive prescription drug coverage plans will also be available under Medicare Part D, but at higher premium amounts.    

 

Medicaid

 

          Medicaid is a financial needs based medical assistance program cooperatively funded by the federal and state governments.  The criteria for Medicaid eligibility are governed under both federal and state law, so these criteria differ somewhat from state to state.  Further, different criteria apply to Medicaid benefits received in the community than to Medicaid benefits for long term care or Home and Community Based Services (HCBS) programs.

 

          Medicaid provides much more comprehensive coverage of medical costs than does Medicare.  For instance, Medicaid beneficiaries are not required to pay deductible or co-insurance amounts.  Medicaid will also cover a broader range of medical services.  Most significantly, Medicaid, unlike Medicare, will cover unskilled attendant care and custodial care expenses, both in the home and in a long term care facility.  Thus, the ability to qualify for Medicaid is often much more valuable to a settling plaintiff than the ability to qualify for Medicare.

 

          In 32 states and the District of Columbia[2], individuals who qualify for SSI automatically qualify for Medicaid.  In 7 other states[3], individuals who qualify for SSI will also qualify for Medicaid, but must file a separate application.  In these "SSI states," the eligibility criteria for Medicaid in the community are generally the same as for eligibility under the SSI program.  Further, criteria for long term care or HCBS benefits are fairly consistent among SSI states, but with some variations.

 

          However, there are 11 states[4] which are permitted to use criteria for Medicaid eligibility that are more restrictive than SSI criteria.  These states are commonly referred to as “209(b) states” because the statutory exception which allows these states to employ stricter Medicaid eligibility criteria is contained in §209(b) of the Social Security Act. 

 

          Since the criteria for Medicaid eligibility in 209(b) states are largely state-specific, this article will only discuss eligibility criteria generally applicable in SSI states.  In addition, this article will only address general eligibility criteria under federal law applicable in SSI states.  Practitioners are strongly advised to consult with an attorney in the state where the plaintiff lives regarding the Medicaid eligibility criteria under that state’s regulations.

 

          To be eligible for Medicaid, an individual generally must pass three tests:  the medical test, the income test, and the resource test.  Further, each state has regulations regarding the treatment of trusts and transfers of assets by a beneficiary to achieve or maintain Medicaid eligibility.

 

The Medical Test

 

          To be eligible for Medicaid in general, a beneficiary must be over age 65, blind or “disabled”, as that term is defined in §1382c(a)(3) of the Social Security Act.  To be eligible for Medicaid long-term care or HCBS benefits, the beneficiary usually must also require a nursing home level of care.  This is determined according to the beneficiary's ability to perform the following "activities of daily living" (ADL's):

 

          Mobility;

          Bathing;

          Dressing;

          Eating;

          Toileting;

          Transferring; and

          Need for supervision.

 

          Generally, if the person requires significant assistance with any two ADL's, or if the person has very significant need for supervision, he or she will be considered in need of a nursing home level of care.  Whether the person requires assistance with the requisite ADL's is determined by a functional needs assessment.

 

The Income Test

 

          For an individual to qualify for Medicaid in the community, the individual’s monthly income may not exceed the maximum SSI benefit ($579 for an individual or $869 for a married couple) plus any applicable SSI state contribution amounts.  For Medicaid long term care or HCBS benefits, the income cap applicable to an individual beneficiary is 300% of the maximum SSI benefit ($1,737 per month).  The income of the individual’s spouse is not counted in determining the individual’s eligibility for Medicaid long term care or HCBS.

 

          If the individual’s monthly income exceeds $1,737 per month, his or her ability to qualify for Medicaid long term care or HCBS benefits will depend on whether or not the individual lives in an "income cap state."  In income cap states, if the individual's income exceeds the income cap amount, but is still less than the state's applicable average monthly cost of nursing home care, he or she can still qualify for Medicaid by using an “Income Trust,” or "Miller Trust."  In states which are not income cap states, the individual must spend his or her excess income down to the income cap amount on medical care each month to qualify.

 

          For individuals with excess income in income cap states, all of the individual’s current monthly income will need to go into an Income Trust each month.  From the trust, the trustee can pay the individual’s monthly income allowance (usually $50-$60); any monthly amount payable to the community spouse under applicable spousal impoverishment protection regulations; minimal trust administration costs; and pre-approved Post Eligibility Treatment of Income (PETI) deductions (if any).  The balance of the individual’s current monthly income will be paid from the Income Trust to the nursing home as the individual’s monthly patient contribution amount.  The balance of the individual’s covered nursing home costs for the month will be paid by Medicaid. 

 

          Normally, when a person qualifies for Medicaid in the nursing home or for HCBS, that person also will be entitled to full Medicaid coverage for hospitalizations, doctor visits and other expenses not necessarily associated with long term care.  However, if a person's income exceeds the income cap for long term care benefits or HCBS and the individual must use an Income Trust to qualify, Medicaid will only cover that individual's long term care or HCBS expenses.  If, for example, that person needs to go into the hospital, those additional expenses would not be covered by Medicaid.

 

          Individuals who will require an Income Trust to qualify for Medicaid long term care or HCBS benefits should maintain their coverage under Medicare Part A and Part B to cover other medical expenses.  Further, if they have a Medicare supplemental, or "Medigap" policy, or access to coverage under a group health plan, they should continue to pay the premiums to keep those policies in effect, even after they go on Medicaid.  Otherwise, a hospital visit or even routine doctor's visits outside the nursing home could present an unexpected and significant expense that Medicaid will not cover.

 

The Resource Test

 

          The general rule regarding resource eligibility is that a Medicaid recipient cannot have “countable” resources of more than $2,000.  This figure may seem unrealistically low, but please keep in mind that the following are not countable resources:

 

                    1.       Primary Residence.  A Medicaid recipient’s home is considered an exempt resource if: (a) the home was the Medicaid recipient’s principal residence; (b) the recipient (or spouse) actually lived in the home immediately prior to being institutionalized; and (c) the recipient intends to return home; or a spouse or dependent relative continues to live there.  This exemption also applies to mobile homes used as the principal residence.

 

                    2.       Vehicles.  The Medicaid recipient is entitled to one car having a market value of $4,500 or less.  This dollar limitation is eliminated if the car is used for obtaining medical treatment, is specially equipped for a handicapped person, or is used for employment.  In many states, the dollar limitation will also be eliminated where spousal impoverishment protections apply.

 

          3.       Personal Property.  Personal property is exempt to a total value of $2,000.  Wedding and engagement rings of any value are exempt, as are any items required by a physical condition.  In many states, the dollar limitation will also be eliminated where spousal impoverishment protections apply.

 

                    4.       Life Insurance.  If the total face value of all life insurance policies the Medicaid recipient owns does not exceed $1,500, then the policies are exempt regardless of their cash surrender value.  If the face value of all policies exceeds $1,500, then the total amount of the cash surrender value is countable toward the $2,000 resource limit.  Term life insurance policies with no cash surrender value are excluded from this calculation.

 

                    5.       Burial Insurance.  Irrevocable burial insurance is exempt regardless of its dollar value.   Revocable burial insurance is exempt to a maximum of $1,500, but this exemption is reduced on a dollar for dollar basis to the extent that the person has life insurance with a cash surrender value that was exempt under the rule described above.  Also, the value of burial spaces and grave markers for the applicant and immediate family are exempt. 

 

                    6.       Retirement Accounts.  Self-funded retirement accounts of the person receiving Medicaid are countable, but may be reduced for taxes and other penalties that will be charged upon withdrawing the funds.  In some states there may be an exemption for the community spouse’s self funded retirement accounts.  In other states, the spouse's self funded retirement accounts are not exempt, except under very limited circumstances.

 

          All of a married couple’s resources are considered in determining Medicaid eligibility for either spouse, regardless of how those resources may be titled.

 

Spousal Impoverishment Protections

 

          Federal law provides for special rules applicable to married couples, where only one spouse will be receiving Medicaid long term care or HCBS benefits.  These rules are designed to prevent the impoverishment of the non-beneficiary spouse.  Under the spousal impoverishment rules, the spouse receiving Medicaid long term care or HCBS is called the "institutionalized spouse."  The non-beneficiary spouse is called the "community spouse." 

 

          The spousal impoverishment rules provide both resource protection and income protection for the community spouse.  The resource protection provisions permit the community spouse to retain resources in addition to the $2,000 in non-exempt resources that can be owned by the beneficiary.  The income protection provisions allow the community spouse to maintain minimum monthly income levels, which may include contributions of monthly income from the institutionalized spouse.

 

Resource Protection: The Community Spouse Resource Allowance (CSRA)

 

          In the case of a married couple, the community spouse can retain a certain amount of countable resources without affecting the institutionalized spouse’s Medicaid eligibility.  The amount retained is called the Community Spouse Resource Allowance (CSRA).  The CSRA is in addition to both the $2,000 the institutionalized spouse is entitled to retain and the exempt resources discussed above. 

 

          The minimum and maximum CSRA amounts are typically adjusted annually on the first of the year.  The CSRA is equal to of one-half of the couple's non-exempt resources, or a minimum of $19,202, whichever is greater.  The maximum CSRA is $95,100.  In some states, the maximum CSRA of $95,100 is always permitted, regardless of the total amount of the couple’s assets.  The institutionalized spouse will be eligible for Medicaid when the couple’s total countable resources are equal to or less than the CSRA plus the $2,000 the institutionalized spouse is entitled to retain.

 

Income Protection: The Minimum Monthly Maintenance Needs Allowance (MMMNA) and the Monthly Income Allowance (MIA) :

 

          The MMMNA is the amount of monthly income the community spouse needs to pay for his or her basic needs within the community. Medicaid sets limits on this amount, which are adjusted on July 1 each year.  The current MMMNA amount limits are:

 

                    Basic Allowance                                            $1,561.25

                              (This amount will increase

                              to $1,604 on July 1, 2005)

                    Plus Excess Shelter Allowance                                                        

                              House Payment/Rent plus Maintenance Fee

                              plus Insurance plus Taxes plus Utilities

                              (actual or $209, whichever is larger),

                              minus $468.38 equals Excess Shelter Allowance

                     Equals the MMMNA                                                                       

                    (But the MMMNA cannot exceed $2,377.50)

 

          The MIA is the amount of the institutionalized spouse’s income that is contributed to the community spouse if his or her income does not equal the MMMNA (MMMNA – the community spouse’s income = MIA).

 

          Sometimes, the institutionalized spouse's income is insufficient to provide an MIA payment that will increase the community spouse's income to the MMMNA amount.  In these cases, the community spouse may be able to obtain Medicaid approval for an increase in the CSRA amount to provide the community spouse with additional resources with which to generate additional income necessary to meet his or her MMMNA.

 

Transfers Without Fair Consideration

 

          Medicaid imposes an ineligibility period for an individual who disposes of assets for less than fair consideration to achieve or maintain Medicaid eligibility at any time during the “look-back” period.  The look-back period is generally the 36 month period prior to the application for Medicaid for outright transfers (60 months for certain transfers into or out of a trust).  The term “assets” includes all income and resources of the individual.

 

          Upon the filing of a Medicaid application, Medicaid will determine if an applicant transferred assets without fair consideration within the 36 month look-back period prior to filing his or her Medicaid application.  If a transfer without fair consideration was made during the look-back period, a period of ineligibility will be imposed.

 

          The period of ineligibility is calculated as the amount of the transfer divided by the average cost of nursing home care for a privately paying individual in the state.  Under federal law, there is no limit on how long a period of ineligibility may be imposed.

 

          The following specific types of transfers will not incur a penalty period:

 

          (1)      Transfers between spouses;

 

(2)      Transfer of the home to either (a) the Medicaid recipient’s child who is under 21, blind, or permanently and totally disabled, (b) the recipient’s sibling who has an equity interest in the home and who was residing in the home for at least one year immediately before the date the individual entered the nursing home, or (c) the recipient’s son or daughter who was residing in the home for at least two years immediately before the date the individual entered the nursing home and who provided care that permitted the individual to reside at home rather than in an institution;

 

(3)      Transfers of any assets (a) either directly or to a trust established solely for the benefit of the Medicaid recipient’s child who is under age 21 or is blind or permanently and totally disabled, or (b) to a trust established solely for the benefit of an individual under 65 years of age who is disabled; 

 

(4)      Transfers of assets into an exempt disability trust, income trust or pooled trust account for the Medicaid recipient.  Transfers into a disability trust must be completed before the Medicaid recipient reaches age 65, or a period of ineligibility will be imposed.  (In many states, this same restriction applies to the funding of a pooled trust account); and

 

(5)      Transfers where the individual can justifiably show that either (a) the Medicaid recipient intended to dispose of the assets, either at fair market value or for other valuable consideration; (b) the assets were transferred exclusively for a purpose other than to qualify for Medicaid; or (c) all assets transferred for less than fair market value have been returned.

 

Treatment of Trusts

 

Self-Settled Trusts under OBRA '93

 

          The Omnibus Budget Reconciliation Act of 1993 (OBRA `93) established new Medicaid rules for treatment of both revocable and irrevocable trusts created after August 10, 1993.  These rules are codified under federal law at 42 U.S.C. §1396p(d).

 

          The general rule, as set forth in 42 U.S.C. §1396p(d)(3), is that, in determining an individual's eligibility for Medicaid benefits, trusts "established by such individual" (sometimes called "self-settled trusts") will be included in income or available resources.  A trust is "established by such individual" if the individual's assets form all or part of the corpus of a non-testamentary trust settled by the individual, his or her spouse, or a third person with legal authority to act for the individual or the spouse, or who is acting at the direction or request of the individual or the spouse.  In short, a trust created with the Medicaid applicant's funds generally cannot be used to keep the applicant under the income or available resource ceilings for Medicaid eligibility.

 

          If a self-settled trust is revocable, its corpus is included in the individual's available resources.  Payments from the trust to or for the individual's benefit are included in his or her income.  If the trust is irrevocable, any portion of the trust corpus from which a payment could be made to the individual under any circumstances is included as an available resource.  Any payment to the individual from the trust is included in his or her income. Any portion of the trust corpus that could not be made available to the individual and any payment to another person from the trust are considered to be transfers without fair consideration, resulting in a period of ineligibility.

 

          The rather uncharitable provisions of §1396p(d)(3) are ameliorated somewhat by the exceptions contained in §1396p(d)(4) (the "(d)(4) exceptions").  Under the (d)(4) exceptions, the treatment otherwise accorded to self-settled trusts does not apply to:

 

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in  §1382c(a)(3) of the Social Security Act) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual by the state. 

 

 (This exception codified into law what is commonly known as a “Special Needs Trust,” “Supplemental Needs Trust” or “Disability Trust.”);

 

(B) A trust established in a State for the benefit of an individual if the trust is composed only of pension, Social Security, and other income to the individual (and accumulated income in the trust), and the individual’s income exceeds the income cap ($1,737 per month), but does not exceed the average cost of nursing home care in the region in which the individual will be receiving nursing home care, if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual by the state.

 

(This exception codified into law what is commonly known as a “Miller Trust” or “Income Trust” and can only be used in income cap states); and

 

(C) A trust containing the assets of an individual who is disabled (as defined in  §1382c(a)(3) of the Social Security Act) that meets the following conditions: (i) The trust is established and managed by a non-profit association; (ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts; (iii) Accounts in the trust are established solely for the benefit of individuals by the individual, by the individual’s parent, grandparent, or legal guardian, or by a court; and (iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary by the state.

 

(This exception is commonly known as a “Pooled Trust.”)

 

Trusts Not Subject To The Strict Laws On Self-Settled Trusts

 

          There are two types of trusts which are excepted from the provisions of OBRA '93 applicable to self-settled trusts.  The first exception is for trusts created by a will.  These trusts are commonly known as “Testamentary Special Needs Trusts.”  Such trusts are commonly created in the will of a spouse, family member or friend of the Medicaid beneficiary.

 

          The second exception is for trusts that are not self-settled trusts at all, but rather are created and funded solely with property not belonging to the beneficiary or the beneficiary’s spouse.   Such trusts are permitted and will not be considered an available resource to the beneficiary for purposes of determining the beneficiary’s eligibility for Medicaid.  However, the trust must be created and funded fully by a third party.  If the trust ever accepts funds that are property of the beneficiary or the beneficiary’s spouse, those funds will either be considered an available resource or will constitute a transfer without fair consideration and will trigger a Medicaid ineligibility period.

 

          Both Testamentary Special Needs Trusts and Third Party Supplemental Needs Trusts must meet the following conditions to be considered exempt as a resource:

 

                    1.       The beneficiary must have no authority to compel distributions from the trust or to exercise any powers of ownership over assets in the trust;

 

                    2.       The assets in the trust must be used only for the beneficiary’s supplemental needs and not for support – otherwise, payments from the trust for support will be treated as income to the beneficiary;

 

                    3.       The trust may only have one lifetime beneficiary; and

 

                    4.       The trust must be irrevocable.

 

SSDI

 

          Social Security Disability Income (SSDI), like Medicare, is a federal  entitlement program in which eligibility does not depend upon financial need.  SSDI is an income benefit from Social Security available to blind or disabled persons under age 65 who have earned a sufficient number of qualifying quarters of work.

 

          Disability is determined according to the criteria in §1382c(a)(3) of the Social Security Act.  To be considered “disabled”, an individual must have a diagnosed medical condition (including mental illness) that is expected to last at least 12 months or to result in death.  Further, the individual must be unable to engage in substantially gainful activity due to his or her medical condition.  Generally, a person is deemed to be engaging in substantially gainful activity if he or she is able to earn at least $830 per month ($1,380 for a blind individual).

 

          The number of qualifying quarters needed to qualify for SSDI benefits depends upon the age of the person when he or she becomes disabled.  If the person is age 31 or older, he or she will need at least 20 qualifying quarters within the 10 year period immediately preceding his or her application for SSDI.  Persons under age 24 will need only 6 qualifying quarters; and persons between the ages of 24 and 31 will need enough qualifying quarters to account for having worked half of the time between age 21 and their age at the onset of disability.  There is a five-month waiting period from the date of the onset of disability before payment of SSDI benefits begins. 

 

          SSDI does not pay for medical care.  However, after an individual has maintained SSDI eligibility for at least 24 consecutive months, the individual will automatically become eligible for Medicare.

 

          An SSDI recipient who wishes to return to the work force, may earn in excess of $830 per month during a 9 month trial period without losing benefits.  After that, the beneficiary can continue to be eligible for SSDI while working for an additional 36 months.  For an SSDI beneficiary also entitled to Medicare benefits, those Medicare benefits can continue for up to 8½ years after the beneficiary returns to work.

 

          Children may also receive SSDI benefits, but only from a disabled, retired or deceased parent who was eligible for Social Security benefits.  Sometimes benefits are also available to the spouse or divorced spouse of an insured disabled person.

 

SSI

 

          Supplemental Security Income (SSI) is a financial needs-based public benefit program which provides income to persons age 65 or older or who are blind or disabled.  SSI is federally funded and governed solely by federal law.

 

        Like SSDI, SSI does not pay for medical care.  However, in the 39 SSI states and the District of Columbia, SSI beneficiaries will also qualify for Medicaid.  

 

          Disability for an adult is determined under the same criteria applicable to SSDI.  A child under age 18 will be considered disabled for SSI purposes if the child has a diagnosed medical condition (including mental illness) that is expected to last at least 12 months or to result in death; and the child’s medical condition results in marked and severe functional limitations.  An individual applying for SSI must also meet strict income and resource tests to qualify.

 

The Income Test

 

          The monthly income limits for SSI are identical to the maximum federal SSI benefit ($579 for an individual and $869 for a married couple) plus any state SSI contribution amount which may apply.  Generally, any asset that is spent or disposed of by the individual in the same month as it is received is considered “income.”  Income under SSI regulations consists of both earned and unearned income. 

 

          Earned income consists of wages and net earnings from self-employment, such as a sheltered workshop.  Unearned income consists of income from other sources, including support and maintenance furnished in cash or in kind; payments from an annuity; worker’s compensation payments; old-age, survivors and disability insurance payments; unemployment benefits; payments occasioned by the death of another (which would include payments from an inheritance, payments from a life insurance policy, or payments from a wrongful death action); support and alimony payments; and earnings of and additions to the corpus of a non-exempt trust of which the individual is a beneficiary.

 

          SSI exempts the first $20 per month of unearned income; and the first $65 of earned income plus one-half of monthly earned income over $65.  In some states, SSI beneficiaries will also receive state benefits in addition to their federal SSI benefits.  These state payments are also exempt, as are certain other types of income enumerated in the regulations.  These exemptions are often referred to as “income disregards.” 

 

          Distributions of cash to the individual will be counted as income on a dollar-for-dollar basis.  Distributions for the beneficiary’s support, other than distributions of cash to directly to the beneficiary, (i.e., distributions to third parties to purchase the beneficiary’s food or shelter, including essential utilities, such as gas, electric, water and sewer services), will be treated as in-kind income.

 

          SSI regulations provide that the value of in-kind income for support will be determined either under the “one-third reduction rule”[5] or the “presumed value rule.”[6]  Generally, the reduction in the beneficiary’s SSI benefits will be exactly the same, whether the individual receives $5000 or $500 of in-kind income each month.  However, if the value of in-kind income received by a beneficiary each month is less than the benefit reduction calculated under the one-third reduction rule or the presumed value rule, whichever is applicable, the beneficiary’s benefit will only be reduced by the actual value of the in-kind income received. 

 

          If an individual on SSI is living in another person’s household and receives both food and shelter from that person, the value of in-kind income for support provided to the individual will be computed according to the “one-third reduction rule.”  However, if the individual lives in his or her own household, or in the household of another person, but does not receive both food and shelter from that other person, the “presumed value rule” applies.

 

          Income can also be “deemed” under SSI regulations.  That is, an individual living at home with his or her ineligible spouse will be deemed to have access to a portion of the spouse’s income.  Generally, an individual under age 18 living with his or her family will also be deemed to have access to a portion of his or her ineligible parents’ incomes.  However, for individuals who do not live in the same home as their families, the income of a spouse or parent is not deemed available. 

 

          With some exceptions, individuals qualifying for SSI must have nonexempt income below $579.  Income from other sources, after income disregards, will offset an individual’s SSI benefit.  An offset for other income that reduces an individual’s SSI benefit to $0 will render the individual ineligible.

 

The Resource Test

 

        The regulations also place restrictions on resources.  “Resources” are assets consisting of cash or other liquid assets that could be converted to cash and which are not spent or disposed of in the month received.  

 

        The resource rules for SSI are essentially the same as the resource rules for Medicaid.  Certain exempt resources, such as a house, a car, personal property, household goods, a burial space or agreement, and certain other limited exempt resources are not counted.  Non-exempt resources are restricted to a total of no more than $2,000 for individuals and $3,000 for married couples. 

 

Transfers Without Fair Consideration

 

          Like Medicaid, SSI imposes penalty periods for certain transfers without valuable consideration during the “look back period” of 36 months prior to the filing of the SSI application.  During a penalty period, the individual may not qualify for SSI. 

 

          To calculate the penalty period for any transfers of resources, the total, uncompensated value of all transfers made during the look back period is divided by the maximum SSI benefit plus any corresponding state payment.  This differs from Medicaid law, under which the penalty period is calculated by dividing the uncompensated value of the transfer by the average monthly cost of nursing home care for an individual in the state in which the individual lives. 

 

          The average monthly costs of nursing home care for an individual in every state will substantially exceed the maximum SSI benefit.  Thus, any transfer without fair consideration will usually result in a longer penalty period under SSI law than that which would be calculated under state Medicaid regulations.  However, the SSI transfer provisions, unlike the Medicaid transfer provisions, state that no penalty period can exceed 36 months. 

 

          While transfers of resources are generally penalized under SSI law, the following transfers of resources will not incur a penalty period:

 

(1)      Transfer of the home to a) the transferor’s spouse; b) the transferor’s blind or disabled child under 21 years old; c) the transferor’s sibling who has an equity interest in the home and resided in the home for 1 year immediately before the transferor becomes institutionalized; or d) a child of the transferor who resided in the transferor’s home for 2 years immediately before the transferor becomes institutionalized and who provide care to the transferor which permitted him to reside at home rather than in an institution or facility;

 

          (2)      Resources transferred to a) the transferor’s spouse or to another for the sole benefit of the transferor’s spouse; and b) from the transferor’s spouse to another for the sole benefit of the transferor’s spouse;

 

          (3)      Transfers of any assets (a) either directly or to a trust established solely for the benefit of the Medicaid recipient’s child who is under age 21 or is blind or permanently and totally disabled, or (b) to a trust established solely for the benefit of an individual under 65 years of age who is disabled;

 

          (4)      Transfers which were a) intended to be made at fair market value or for other valuable consideration; or b) exclusively for a purpose other than to qualify for SSI benefits; or c) where all resources transferred have been returned to the transferor; and

         

          (5)      Transfers in cases where the Commissioner determines that denial of benefits would work an undue hardship.

         

These transfer exclusions are essentially the same as those for Medicaid. 

 

Treatment of Trusts Under SSI

 

FCIA Supplemental Needs Trusts and Pooled Trusts: SSI Requirements Under 42 U.S.C. §1382b(e)

 

          In December of 1999, Congress passed the Foster Care Independence Act (FCIA), containing new anti-fraud provisions applicable to the SSI program.  The FCIA enacted all new provisions regarding treatment of trusts for SSI eligibility purposes.  These provisions are contained in 42 U.S.C. §1382b(e).

 

          The FCIA generally disfavors trusts established by individuals with their own funds and treats the corpus of these trusts as “available resources” to the individual.  The FCIA provides that an individual is determined to have established a trust if any assets of the individual are transferred to the trust.  Trusts created in a will are exempt from the provisions of the FCIA.

 

          Under the FCIA, the corpus of a revocable trust established by the individual is considered an available resource.  In the case of an irrevocable trust established by the individual, that portion of the corpus that could be distributed to or for the benefit of the individual or the individual’s spouse in any circumstance is also considered an available resource.  Further, distributions from the corpus of any of these trusts, other than to or for the benefit of the individual, will incur a transfer penalty, (as will foreclosure of the ability to make distributions from the corpus of these trusts to or for the benefit of the individual altogether). 

 

          The FCIA specifically exempts OBRA ‘93 supplemental needs trusts and pooled trusts from being considered available resources and provides that transfers to fund such trusts by individuals under age 65 will not incur a penalty period.  Thus, the FCIA provides that a trust will be exempt from the general rules regarding self-settled trusts if it complies with all of the criteria in 42 U.S.C. §1396p(d)(4)(A) or (C) applicable to OBRA ‘93 trusts for Medicaid.  Income trusts under 42 U.S.C. §1396p(d)(4)(B) are not exempt for SSI purposes.

 

          Even a trust that complies with all of the requirements of 42 U.S.C. §1396p(d)(4)(A) or (C) might not be recognized as a valid exempt trust if it does not also comply with Social Security Administration policies, some of which are not enumerated in the FCIA.  These policies are embodied in the Program Operations Manual System (POMS) at POMS SI 01120.203.  In particular, the trust must comply with all of the following key requirements, as summarized in POMS SI 01120.203.D.1:

 

 

                    1.    The trust will be established with the assets of the beneficiary, who is under age 65;

 

                    2.    The beneficiary is disabled as that term is defined in the Social Security Act;

 

                    3.    The beneficiary is the sole beneficiary of the trust.  (Further, the trust does not allow any Prohibited Expenses or Payments under POMS SI 01120.203.B.3);

 

                    4.    The trust was established by the beneficiary’s parent, grandparent, legal guardian or a court, if the beneficiary is a minor.  If the beneficiary is not a minor, the trust was established by someone who has legal authority to act with regard to the beneficiary’s assets, as required by POMS SI 01120.203.B.1.e, which would mean that the trust must have been established by the beneficiary’s legal guardian or a Court, or by the individual in the case of a pooled trust account;

 

                    5.    The Trust provides specific language providing that, upon the death of the beneficiary, the trust must first reimburse the State for medical assistance paid for the beneficiary;

 

                    6.    The Trust will be fully funded before beneficiary reaches age 65; and

 

                    7.    The Trust is irrevocable.  (The Trust must contain a specific provision making the Trust irrevocable; and the Trust must name specific individuals as contingent beneficiaries upon the beneficiary’s death, after repayment to the State for medical assistance benefits paid).

         

          Failure of the trust to comply both with OBRA ‘93 and with any additional requirements in the POMS could result in trust assets being considered an available resource or in transfers to fund the trust being considered transfers without fair consideration, resulting in a penalty period.

 

Trusts Not Subject To The Strict Laws On Self-Settled Trusts

 

          The FCIA, like OBRA ‘93, exempts Testamentary Special Needs Trusts and Third Party Supplemental Needs Trusts from the rules on treatment of self-settled trusts.  To be exempt under the FCIA, Testamentary Special Needs Trusts and Third Party Supplemental Needs Trusts must meet the same criteria as applicable to these trusts for Medicaid purposes.

 

Conclusion

 

          Part I of this article discussed the features and eligibility criteria applicable to the 4 major public benefit programs: Medicare, Medicaid, SSDI and SSI.  Clearly, these programs differ in what benefits they provide and in their respective criteria for eligibility.  Medicare and Medicaid both provide coverage for medical expenses, but do not provide coverage of all of the same types of medical services, such as nursing care in the home or in a long term care facility.  SSDI and SSI both provide income benefits, but also can result in eligibility for Medicare or Medicaid.  Finally, Medicare and SSDI are entitlement programs, while eligibility for Medicaid and SSI depends on financial need.

 

          In the context of WC and TPL settlements, Medicare will require that its interests be reasonably protected.  This may require CMS review and approval of a Medicare Set-Aside Arrangement in WC cases.  Prudence may also dictate serious consideration of the use of a similar type of arrangement in many TPL settlements.  However, many such arrangements that are routinely used to preserve future Medicare benefits will not effectively preserve eligibility for Medicaid or SSI. 

 

          In WC or TPL settlements where the plaintiff needs or wishes to preserve the ability to qualify for multiple public benefit programs, special planning considerations will apply.  Part II of this article will discuss some of these considerations.  

 

End Notes