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Overcoming Denials and Fair Hearing Support
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Overcoming Denials and Fair Hearing Support
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Fair Hearing and Medicaid Denial Case Studies

Join us for episode 4 of Industry Insights, a new video series where we discuss the latest from the elder law community!

In this installment, our Corporate Counsel, Scott Engstrom, J.D., discusses recent Medicaid denial and Fair Hearing cases our office has encountered. Scott highlights the issues involved and discusses how we worked with the attorney and their client to find a solution. Most importantly, he discusses tips to help attorneys avoid similar issues in their own cases.

Amy: Hello, I’m Amy Beacham, Communications Director for Krause Financial Services. Welcome to episode four of our Industry Insights series. In this series, we aim to discuss news, updates, and hot discussion topics that affect the elder law space and that are relevant to you as an elder law attorney. Working on hundreds of cases per month and working with attorneys from across the country, we see trends that affect elder law planning, and we want to share some of those insights with you today. Today, we have our Corporate Counsel, Scott Engstrom, to provide us an update on the recent fair hearing and Medicaid denial trends we’ve been seeing. You might recognize Scott as he’s been featured in Industry Insights before. He’s also been a presenter on our KrauseCAST webinar series and has recently been traveling to and speaking at events across the country. Welcome, Scott.

Scott: Thanks, Amy. Glad to be here.

Amy: Okay, so what do you have for us today?

Scott: The first case I have is a “Name on the Check” case out of the state of Ohio. So, in that case, the applicant–they had an IRA. And what they did was they annuitized that IRA, and they irrevocably assigned that income to the community spouse. In this case, though we’ve had some success with it across the country–this strategy–it wasn’t something that had been challenged and then gone through yet in Ohio. So, what happened was the state said, “Well, we believe this should actually be attributed to the institutionalized spouse, and, thus, they’re over income.” And then, they received a denial. Ultimately, this was challenged. We worked with the attorney a bit on this matter, but the attorney did a great job litigating the case and ultimately got a great result for her client. The administrative law judge did look at what federal law said on it and did agree that, under these circumstances, that the income should have been attributed to the community spouse. Thus, the institutionalized spouse was not over income and was ultimately approved for Medicaid.

Amy: Okay. Now, is it common in states where maybe the Medicaid agency isn’t familiar with this strategy or it’s the first time we’re maybe attempting the “Name on the Check Rule” in that state–is it common to receive pushback or receive a denial?

Scott: Yeah, I think pushback can come in a couple of different ways. One, you can be working with either a new caseworker–somebody who hasn’t gotten their feet wet with these Medicaid issues–or you can have somebody who hasn’t experienced or seen this particular strategy before. In those cases, it’s best not to take as much of an adversarial approach. But see it as an opportunity to educate that caseworker–say, “This is what the law says. Are you aware of this strategy, that this has been used?” For example, now in Ohio, you can say, “This has been used with success.” You can point to this administrative case. In other cases, you will encounter an agency that just doesn’t like the strategy. They don’t like the outcome, and ultimately, they challenge it on that basis. And in those cases, you do have to get your ducks in a row, get ready to litigate. And that’s where I come in. If you have a denial, you can come to me, use me as a resource. I can help you with research or craft arguments, things like that. But in those cases where you are being challenged and geared up for a fair hearing, there are those instances where there’s just more pushback, and you have to litigate the matter.

Amy: Okay. Alright. What else do you have for us?

Scott: We have an interesting annuity valuation case. So, this wasn’t a case where we did the planning. We actually took over this case because it went through another company, and ultimately, the applicant had received a denial. This is an annuity valuation case out of the state of Wisconsin, our home state here. And so, what we did is instead of doing the planning and getting involved there, the case involved an annuity being valued by a third party. So, what the state had done is they took the annuity that was part of this Medicaid application, and they took it to market, and they got a third party who said, “We look at this, and we believe that we could make a purchase for this.” And, thus, you have an assignability issue for Medicaid compliance purposes. So, once that happened, the attorney came to us and said, “Well, could you take a look at this annuity contract? Do you believe that it has value? Do you believe it can be purchased on the secondary market?” Our office took a look at the annuity contract, looked at the assignability language, looked through the endorsements, and we did not believe that this could be purchased based on the language in that contract. Ultimately, our office did provide expert testimony in the case, and the attorney was successful and did a great job litigating the matter. It was ultimately successful at the administrative level. The state has appealed this, so this is still pending. But we’re confident–we do feel that the administrative decision was correct.

Amy: Okay. So, it sounds like we’ll probably hear more about this case as we go along here. One point of clarification–now, how do we know if an annuity has value? How do we determine that?

Scott: So, you’re looking at that assignability language in the annuity contract. Now, if it’s looser or if it says that it can expressly be assigned, then you have that non-assignability issue with Medicaid compliance. If it’s taken to market and that language is broad or it says it can be assigned, then a company can essentially come in, purchase that income stream, and say, “We’re stepping into the shoes of the annuitant or owner or payee. And we’re going to take that income stream in exchange for this money.” So, when there’s that restrictive non-assignability language that says, “This contract cannot be assigned to any other party,” that’s where you’re looking at a situation where the contract and the annuity can’t be valued or sold on the secondary market and is, thus, non-assignable.

Amy: Okay. And, of course, that’s required for a Medicaid Compliant Annuity, the ones that we specialized in. Great. As a side note, I want to make sure you all know that we do offer a complimentary annuity valuation service, so you can send us your contract if your client has an existing annuity and you’re not sure how it’s going to affect their Medicaid eligibility. We can let you know if it’s going to be an asset or a divestment, and if it’s a problem, we can purchase it for cash, allowing your client to pursue crisis planning. Alright, back to it, Scott.

Scott: Alright, so, the next case I have for you is out of the state of Michigan. This was an issue that a number of attorneys had had. It relates to the penalty period start date. So, the penalty period, for review–that begins when a person is otherwise eligible. So, they’re in a Medicaid-approved facility; they’re in a Medicaid-approved bed; they are income-eligible, and they are asset-eligible. So, what happened in this particular case is that the agency had made an error in the processing of the application. They sent a subsequent notice of negative action, and they looked at a regulation in their Medicaid manual. And that language said that the penalty period would start at a certain time in relation to that negative notice. Now, that’s inconsistent with what we know about the otherwise eligible date like I talked about–that Medicaid bed at a Medicaid facility based on your income and asset eligibility. Ultimately, this was challenged by the attorney, and they were successful at the hearing. And the penalty period was ordered to begin at the correct date when they were otherwise eligible. It was not based on this language that the state had brought forth for their argument.

Amy: Okay, great. And of course, that penalty period start date is extremely important for the economic results for the Gift/MCA plan to play out like they’re supposed to.

Scott: Absolutely. That’s what it is contingent–that’s what it hinges on. That’s where you, exactly like you said, you get the benefit of that plan based on when that penalty period is starting.

Amy: Great. And I understand we have another potential issue in Illinois regarding the penalty period, right?

Scott: Yes, we do. But that ultimately, again, resolved in the favor of the applicant. So, this was a little bit different of an issue. It did impact and discussed the start date of that penalty period, but it was based on February being a shorter month. That 28-day month, that had an impact on whether or not the person was over income. So, basically, this case involved the penalty period starting; they went through to February; it being a shorter month, the income was over that cost of care for that month based on the state’s determination. And they said, “Oh, well, you’re over income. We’re going to suspend this penalty period, put you in a spend-down process.” As we all know, or as we should know…

Amy: They shouldn’t be doing that.

Scott: They should not be doing that. The penalty period, once it starts, it runs. It does not stop. You cannot suspend it, except for previously undisclosed gifts and things like that. In this event, the gift was disclosed. It was properly put on the application. And it was just not properly handled. Ultimately, the applicant was successful, again, in this case. So, it is no longer an issue there either.

Amy: Okay. And now, in cases where it’s an income shortfall issue, are there ways during the planning phases of these cases that we can just avoid this down the road?

Scott: Right. Yes, there are. So, you would want to take a more conservative approach. You want to leave a little bit more room. You want to have a bigger shortfall. Even though there was nothing incorrect in this case–the penalty period should have just continued to run–you’re going to experience fewer problems, you’ll have less scrutiny placed on it. If you plan a little bit more conservatively if you have a bigger shortfall, you’re not going to run into those issues where there’s not as much of a buffer, or almost no buffer, or that buffer goes away based on some sort of unexpected increase in income.

Amy: Sure. Yes. Planning in February–it’s a tricky month.

Scott: Very much so, yes. And that’s why it’s important to work with one of our planners who are great at handling that issue.

Amy: So, if an attorney is facing a denial or they have any pushback from the caseworker on their Medicaid Compliant Annuity case, what should they do?

Scott: The first thing they should do is take a breath, not panic, realize that there are resources out there. I’m a resource for you. You can email me; you can pick up the phone, give me a call, say, “Hey Scott, I’m having an issue with this case. Can you let me know what you know about this planning strategy in our state?” If you want me to help and get more involved in the case and if you want me to help you craft arguments, if you want me to do some research for you, I’m here. So, don’t hesitate to pick up the phone. I’m here to be a resource, just like everyone else here at Krause is, to be a resource to you.

Amy: Okay, great. Well, thank you so much for being on the show today.

Scott: Thank you very much.

Amy: For the latest information on strategies, issues, and planning questions in your state, be sure to contact your Benefits Planner. And if you have a denial that you need help with, remember that Scott and our legal team are here to help you. If you have any other questions on how Krause can help you in your practice, just give us a call at 855-552-5893. I’m Amy Beacham, and thanks for watching


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