More and more I see folks who were ‘helped’ to get the Aid and Attendance (A&A) pension by a financial advisor only to have the plan blow up in their faces when they need skilled nursing care.
These plans use a number of techniques to achieve eligibility. While some styles vary, the two most common elements are divesting (i.e., giving away) assets to achieve financial eligibility and doing a personal service contract with a family member to show that the expenses for care eat up the regular income. As effective as these techniques can be, if done improperly they can be like setting the timer on a bomb that goes off years later and causes financial devastation.
While there has been much debate about making it harder to qualify for A&A, the VA rules currently allow gifting of assets in order to reach the financial limits for eligibility. So when an advisor instructs the veteran (and/or his or her spouse) to give away an asset it can work like a charm to establish the A&A; however, Medicaid put severe restrictions on gifting two decades ago that got even stricter in 2006.
A veteran has to receive care and show the continuing costs in order to receive the A&A. If no additional care was ever needed, this would not become a problem. But invariably their care level rises to the need for real Home and Community Based Services (HCBS) or in-facility skilled care. When the time comes to pay the bill, the ordinary income and the A&A pension are usually not nearly enough by far. So then the veteran spends down his or her remaining assets until the financial limit is met – except Medicaid still won’t let them qualify. Why? Because the penalties for the gifts made do not start running until the patient is below the financial limits, has the medical need for the skilled care, and applies for Medicaid. So now they’re broke and ineligible for Medicaid.
On the care contract side of things, it’s not much prettier. It is a viable and legitimate technique to use a personal service contract to pay a family member for care. That has the advantage of increasing the care expense bill so that the veteran is “upside down” on income (i.e., paying out more than they take in). But the problem here is that the care contract used to establish that can cause huge problems if not done correctly.
VA is not particular about the terms of a care contract and usually a very simple version is provided that suffices for A&A eligibility. But state Medicaid rules can be VERY strict as to what they allow or disallow in a care contract:
- Texas, for instance, states in § I-4140 in its Medicaid Handbook that: “Compensation [in a personal service contract] is not allowed for services that would normally be provided by a family member (such as house painting or repairs, mowing lawns, grocery shopping, cleaning, laundry, preparing meals, transportation to medical care).”
- Georgia’s Medicaid Manual, § 2349-1, places a plethora of limits on the contract and even states that the patient’s authorized representative (i.e., power-of-attorney, guardian or conservator) may not be a beneficiary from a care contract.
- Most states require proof that payments were made and require that the payments be reported to the IRS for income tax purposes by both the applicant and the caregiver. Very few families are equipped to handle this which is why a payroll or staffing company is often used to legitimize the care contract.
So what’s the big deal? Any care contracts done for VA purposes that don’t meet the Medicaid rules can cause the treatment of each payment made in the last five years to be counted towards a prospective penalty. The penalty becomes a waiting period for how long the patient must wait to get Medicaid coverage after they have met the financial and medical requirements and applied for care.
Most state rules don’t let you go back and fix the problem, either. Payments that avoid a penalty are only allowed to be made after a proper care contract is in place and many states require the contracts to be notarized so as to obviate back-dating the contract. So what you end up with is a total mess – one that is difficult for the Medicaid Planner to clean up and is likely cost the veteran a boat load of money to fix.
Don’t get me wrong. I’m all for helping someone to legally get VA benefits. I even applaud those who consistently use creative strategies to achieve this outcome – and do it right. But any advisor planning for the VA pension that fails to take into account the ramification of Medicaid eligibility is dong their client a disservice and is likely to get sued. The VA approves over 30,000 cases for A&A a year. No doubt the timer has been set and these will likely blow up in the faces of unsuspecting veterans and their myopic advisors.
The good news is that VA planners do not have to create their A&A plans ignorant of Medicaid planning rules. When done right, VA planning and Medicaid pre-planning can be done in perfect harmony. Through our Medicaid Planning course or a copy of my Medicaid Planning Guidebook (recently updated with all current figures) an advisor can better learn and appreciate the Medicaid rules and the interplay between Medicaid and VA benefits. Additionally, this course and the textbook are designed to prepare you for taking the examination to become a Certified Medicaid Planner™.
One of my favorite VA Planners is always quick to say: “Every VA Pension planning case is a Medicaid planning case.” If you do any planning in the VA pension arena, you do not want to leave yourself exposed to the liability that could come from incomplete planning. Ignorance of the Medicaid rules will not be an excuse. If you need individual help to make your VA case Medicaid-compliant, contact [email protected] for the one-on-one help you won’t find anywhere else.