Considerations in Drafting Medicaid-Compliant Personal Services Contracts

Abstract

More than half of all patients entering U.S. nursing homes will rely Medicaid to pay for their care. Before enter- ing a nursing facility, many patients at some point will pay a relative to care for them at home. Some nursing home resi- dents are paying (or would like to pay) a relative to provide them with additional services or supplemental care. But when a Med- icaid applicant or recipient has made or is making payments to a relative, those payments can trigger a period of Medicaid ineligibil- ity. A carefully drafted care contract (or personal services contract [PSC] ) executed before initiation of services can prevent Medicaid ineligibility.This article introduces PSCs and discusses common consid- erations for drafting Medicaid-compliant agreements, comparing and contrasting the provisions from the Medicaid manuals of four states, and noting some related appellate decisions from various state courts. Last, a sample PSC (see Appendix) for use in Min- nesota is attached, with the caveat that each state applies its own statutes and interpretation manuals to these contracts, and there- fore drafters should consult applicable laws.INTRODUCTIONMedicaid is a federal program1 that uses a state and federal partner- ship to provide comprehensive medical insurance for persons with low incomes and very limited assets. The rules for eligibility and type of assistance available vary somewhat from state to state2; but a universal rule in Medicaid is that applicant is not permitted to make uncompensated for less than fair market value, and then obtain assistance.3 In other words, one may not give away assets to become eligible for Medicaid.THE CASE OF BARB AND HER FATHER TEDWhen Barbs 83-year-old father, Ted, fell and broke his hip, Barb knew her life was about to change dramatically. Barb was only child, and her mother had died a year earlier. Her parents were of modest means, living Social Security in a small rented apartment and clutching tightly to a small nest egg they had built. Their dream had been to pass some inheritance onto their grand- children through Barb.Ted hated the idea of life in a nursing home and shuddered at the thought of a complete stranger providing care in his home. So Barb and Ted developed a plan-in exchange for most of her folks' little nest egg, Barb would quit her job and devote herself to Ted's care.When Ted was discharged from rehab to go home, the social worker warned Barb that Ted might end up requiring nursing home care and that, given Ted's modest means, he would likely end up on Medicaid. The social worker told Barb that to keep Ted eligible for Medicaid, she should enter into a contract for his care. Without a contract, money paid from Ted to Barb would have all the appearance of an uncompensated transfer or gift.Barb wrote up a simple nontransferable PSC with Ted. It stated that in return for a $65,000 up-front lump sum payment, Barb would agree to provide to Ted home care for the rest of Ted's life. Then she signed it, using her power of attorney to execute Ted's signature as his attorney-in-fact.After 9 months of caring for Ted, it was apparent to Barb that she simply could not continue-her dad was declining rapidly, and he needed more care than she could devote. Furthermore, Barb had not realized how expensive her family's health insurance was and how her out-of-pocket costs would add up when taking care of Ted. Having quit her job, most of the money she received from Ted was gone. Barb needed to go back to work.On the advice of Ted's doctors and to the relief of her own fam- ily, Barb arranged for Ted to move to the local nursing home. She continued to visit him every day, taking him out occasionally, and managing his finances. But Ted's care costs far exceeded his income, and soon the balance of his modest savings was gone. Barb had no choice but to apply for Medicaid behalf ofTed. …