Aging Options

Giving Financial Help to a Loved One on Medicaid: Know the Rules!

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When a loved one goes on Medicaid for long-term care, the assumption (especially if that person is widowed or otherwise single) is that their resources are meager. Since family and friends may want to help out with “a little extra” to make the Medicaid beneficiary’s life a bit more pleasant, the question immediately arises: is that legal? Can you provide some extra financial support to someone on Medicaid without damaging their eligibility status – or getting yourself in hot water?

The concept is often referred to as “supplementing Medicaid,” or “Medicaid supplementation.” It can take many forms, and the degree of legality depends on a variety of factors such the laws of individual states. Sometimes Medicaid supplementation is perfectly allowable. Under other circumstances, though, it can be a felony. So, how can you know if your generous impulses might create problems for yourself or someone else?

For a look at Medicaid supplementation, we’re checking out two sources. The first one is this article that appeared in 2022 on a website called Paying for Senior Care. The second is a research paper prepared for a Washington State bar publication by Aaron Paker, attorney and Medicaid expert at Life Point Law.

As we dive into this potentially complex topic, remember that Medicaid rules can be tricky, so if you want to assist a loved one who is receiving Medicaid support, proceed with caution. We lack the space here to cover all the rules and particulars so consider this an overview.

Supplementing Medicaid Can Compromise Eligibility

Let’s start with the article on the Paying for Senior Care website. “Well-meaning family members may want to provide financial support to an elderly relative to help supplement the care they are currently receiving,” the article begins. “However, when that family member receives Medicaid assistance, such as assisted living care, there is a legitimate concern that giving them money may compromise their Medicaid eligibility.”

The basic reason why this is an issue is that Medicaid eligibility is primarily determined by the beneficiary’s financial need. “At the basic level,” the article explains, “there are a variety of asset and income limits for eligibility. In many instances, providing additional funding could be seen as supplemental income that might result in the loss of Medicaid eligibility.” In other words, your desire to help out Aunt Edna could jeopardize her financial status by making it appear she has more income than Medicaid thought she had.

Fortunately, there are generally ways to provide additional support without risking the loss of Medicaid eligibility. We’ll cover those below.

Supplementing Medicaid: One Scenario, Three Approaches

The article lays out a sample scenario in which a daughter wants to help her elderly mother who has early onset Alzheimer’s and lives in a Medicaid-funded assisted living facility. “Her mother’s Social Security and Supplemental Security Income (SSI) isn’t enough to cover the cost of a private room in the residence,” says the article, “much less the type of clothes she’s accustomed to, or for a computer to keep in touch with friends and family.”

Depending on the state in which her mother resides, the daughter has three options, each of which might affect her mother’s eligibility differently.

Giving Money Directly to Mom: “If the daughter decides to give the money directly to her mother and allows her mother to purchase items and pay bills herself, the money will count as unearned income,” the article warns. This increase in unearned income will trigger a proportionate cut in the mother’s SSI payments.

But it gets worse. “Furthermore, depending how much additional money the daughter gifts her mother, she could disqualify her mother for Medicaid,” says the article. This is true in all states, even states (like Washington State, home to AgingOptions and Life Point Law) where Medicaid supplementation is allowed. “In short, the daughter is, at best, wasting her money,” the article concludes, “since any money she gives will lessen the public assistance her mother receives and, at worst, [endanger] her mother’s Medicaid eligibility.”

Purchasing Items and Paying Bills on Mom’s Behalf: What if the daughter tries a less direct approach, paying Mom’s bills herself?  For example, what if the daughter pays the assisted living community directly for an upgrade to a private room?  In that scenario, says the article, “the money will be considered an in-kind payment. In-kind payments impact Supplemental Security Income and could lower public assistance payments made to the mother by up to one-third.”

But there are some states, referred to as “family supplementation” states, where family assistance is allowed and has no impact on someone’s Medicaid eligibility. “Family supplementation was created to enable families to help in these situations without jeopardizing the elderly family member’s Medicaid eligibility,” the article explains. However, allowed payments vary by state. “It is best to check with a Medicaid expert in your state before purchasing items or paying bills for a loved one who is receiving Medicaid-funded care,” the article advises. (Please contact us for some good sources of relevant information.)

Using a Supplemental Needs Trust: If both these strategies – giving money directly to Mom and paying Mom’s bills for her – can create eligibility issues, the third strategy may be the wisest: a Supplemental Needs Trust.

“If the daughter sets up a third-party Supplemental Needs Trust for her mom,” the article explains, “then the daughter can put money into the trust, and the trust can pay for any goods or services not covered by Medicaid, such as clothing and technology, and it will have no effect on the Mom’s Medicaid eligibility.” Again, however, state laws will determine whether the Trust can be used for the cost of a private room.

Again, we lack adequate space to explain a third-party Supplemental Needs Trust, or SNT, in detail. Broadly, it’s a legal trust created for the benefit of a disabled person, typically over 65 years old, intended to enhance quality of life while maintaining eligibility for government benefits. The trust is funded by a person other than the beneficiary, such as a family member. Assets in a Supplemental Needs Trust are traditionally not included as countable assets for Medicaid eligibility purposes. “Thus, SNTs are an excellent option for those looking to help an elderly family member,” the article concludes.

Limitations of a Supplemental Needs Trust

Of course, these trusts do have a variety of limitations.  As the article states, “Funds are distributed by a trustee (the person in charge of the trust) and are paid directly to the third parties who provide the goods or services” – not to the Medicaid beneficiary. What’s more, funds from the trust can only be used for supplemental items such as clothing, transportation, technology, and travel. “SNT funds cannot be used to buy food, toward shelter costs, or for medical care that Medicaid would otherwise cover,” the article warns.

The final caveat is a crucial one: the “remainder beneficiary” of a Supplemental Needs Trust (the entity that receives the remaining funds once the beneficiary passes away) must be Medicaid, not the family of the loved one. Is it worth considering? Absolutely – but get the right legal advice first.

Medicaid Supplementation: A Little-Known Felony

The second article, from a position paper authored by Life Point Law’s Aaron Paker, takes a look – and a sobering one at that – at a different aspect of Medicaid supplementation. Under the scenarios Aaron describes, both beneficiaries and senior living residences can find themselves facing a host of very costly legal risks.

“When my clients learn that their spouse or parent has been approved for Medicaid benefits, it is often a time to celebrate and breathe deeply for the first time in a long time,” Aaron writes. But sometimes, the relief can turn to frustration when the operator of the residence where their loved one is living starts pressuring them to supplement Medicaid with extra payments to which the operator is not entitled.

“The basic premise,” says Aaron, “is this: once Medicaid starts paying for care, the care provider cannot charge the client or their family extra for the same care, only for add-on services that are not covered.” He gives two common examples.

A Room Upgrade: “In an adult family home (AFH) that has both private and shared rooms, Medicaid pays for a shared room,” Aaron writes.  “If the family wants their loved one to stay in a private room, then the AFH can charge a reasonable fee for the upgrade to a private room” – even if they do not currently have any shared rooms available. However, if the residence only has private rooms, then no surcharge is allowed.

Extra Personal Services: “Similarly,” Aaron states, “an assisted living facility (ALF) might have a written policy that they bathe Medicaid clients twice per week but families can pay for a bath aid to bathe them more often. This would be permissible if state law permits the practice.” Here, the family is paying for add-on services beyond those allowed by Medicaid.

Medicaid Supplementation Must be Documented and Approved

The rules are clear, Aaron explains. “Any supplementation that a facility or care provider wants to charge extra for should be outlined in the resident contract and must be submitted to the DSHS case worker for approval,” he writes.  “Violation of the Medicaid supplementation rules, if found to be intentional, can result in prosecution.” This falls under the Consumer Protection Act as a Class C felony and can cost the facility their Medicaid contract.

Aaron goes on in his article to explain two other scenarios involving the practice of Medicaid supplementation that families might encounter.

Medicaid Supplementation: “The Beloved In-Home Provider”

“I frequently have clients who have been receiving care in their own homes,” Aaron relates, “and they need to start Medicaid because it is not feasible to continue privately paying for the care, often at $30-50 per hour.  They love the care provider that they have been using and ask them to become Medicaid certified.”

Once the worker is approved by Medicaid, they likely will see hourly pay slashed to $16-20 per hour. The family wants to give them more pay so the worker will keep on providing care – but this can get tricky. “If Medicaid approves them for 100 hours and the provider works 100 hours, then the family cannot compensate them more than Medicaid says,” Aaron writes. But families that can afford it might have the provider work 120 hours – 100 at the Medicaid-approved rate and 20 at $40-60 per hour.

“They end up still saving a lot of money and the care provider is more likely to stay with them,” says Aaron.  What’s more, this practice is perfectly legal. “The extra payment is for hours that are not paid for by Medicaid, so this is not supplementation; it is an up-grade or add-on service.”

Medicaid Supplementation: “Make Us Whole”

In Aaron’s second scenario, Medicaid’s response will be harsher. “The second most common practice, sometimes completely through non-understanding of the rules and sometimes to take advantage of unknowing families, has to do with ‘making the care community whole,’” Aaron writes. He says this practice is more common in adult family homes than in assisted living facilities which are generally more closely monitored. Also, these smaller homes “are often run by individuals who do not fully understand the laws rather than by large companies with legal teams.”

Aaron puts forth this situation: a husband pays $6,500 per month privately for his wife’s care “and, after two years of paying privately, per the contract, he applies to start his wife on Medicaid.” Medicaid approves her for care but at a much lower rate of $3,000 per month from Medicaid ($150 per day) augmented by the wife’s participation set at $1,500 per month, for a total of $4,500 per month.  Naturally, the owner of the adult family home is displeased.

“The [adult family home owner] comes to the husband and says, ‘You agreed to pay us $6,500 per month.  Medicaid says that your wife will pay $1,500 and they will pay another $3,000.  That is only $4,500 so you need to pay the additional $2,000.’  For many of these owners, that just makes sense,” Aaron writes. The client might think it makes sense, too, since they would be paying $3,500 out of pocket rather than the $6,500 they were paying before.


But this so-called logic is against the rules. “Unless the [residence] is providing $2,000 per month worth of services that are not covered by Medicaid, they risk losing their ability to take Medicaid payments,” says Aaron. This could mean all of their residents losing their benefits or having to move. On top of that, the owner could face up to 5 years in jail and/or $10,000 in fines.

If you or your family falls victim to this financial pressure, Aaron suggests contacting the  State Long-term Care Ombudsman (if you live in Washington) or an elder law attorney. “In most cases,” he writes, “once the laws are explained care providers comply, sometimes with loud objections, but they comply nonetheless.”   

(originally reported at www.PayingforSeniorCare.com)

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