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Medicaid Eligibility

In order to qualify for Medicaid, an individual must generally be "poor" and have dependent children, be disabled or elderly and be "poor", or must spend down assets substantially in advance of the time when Medicaid-funded services are required. The term "poor" is often defined, for Medicaid eligibility purposes as well as for other assistance programs, in relation to Federal Poverty Level guidelines, or FPL. Federal poverty level guidelines relate to family income and are a simplified version of the statistical poverty thresholds used by the U.S. Census Bureau to prepare its estimates of the number of persons and families living in poverty. The guidelines vary by size of the family unit and are updated annually based on changes in the Consumer Price Index. The following table provides the 2004 FPL income limits by size of family unit (1 to 4 persons).

Size of Family Unit 1 2 3 4

100% Federal Poverty Level (FPL) (48 Contiguous States and D.C.) $9,310 12,490 15,670 18,850

Source: 2004 Federal Poverty Levels, United States Department of Health and Human Services. For family units greater than 4 persons, add $3,180 per person.

Mandatory Groups Every state Medicaid program covers certain population groups that are defined in federal law as mandatory. The mandatory coverage groups are primarily: · · Low-income families with children; Persons receiving Supplemental Security Income (SSI), although a few states have more restrictive requirements than the SSI program (Michigan is not one of those states);

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Infants born to Medicaid-eligible women whose family income is at or below 185 percent of the FPL ­ Medicaid eligibility must continue throughout the first year of life as long as the infant remains in the mother's household and she remains eligible, or would be eligible if she were still pregnant;


Children under age 6 and pregnant women whose family income is at or below 133 percent of the FPL and children age 6 through 18 in families with income at or below 100 percent of the FPL ­ as explained below, Michigan covers children in families with higher income;


Recipients of adoption assistance and foster care under Title IV-E of the Social Security Act; and


"Dual eligible" Medicare beneficiaries.

Low-Income Families with Children Prior to 1996, families receiving cash assistance through the Aid to Families with Dependent Children (AFDC) program were entitled to Medicaid, and were automatically enrolled. In 1996, Congress passed welfare reform (the Personal Responsibility and Work Opportunity Reconciliation Act, or PRWORA), which "de-linked" welfare cash assistance from Medicaid. The law added Section 1931 to the Social Security Act, requiring states to provide Temporary Assistance to Needy Families (TANF) (Broaddus, 2002). This cash assistance is called the Family Independence Program (FIP) in Michigan. Although Michigan recipients of FIP cash assistance benefits are still automatically eligible for Medicaid, families no longer need to receive or even apply for welfare in order to qualify for Medicaid. Families that qualify for Medicaid but not TANF/FIP are said to be receiving Low-Income Families (LIF) coverage in Michigan. Section 1931 allowed states to set different eligibility levels for welfare and Medicaid. Medicaid became a stand-alone health program, with the ability to set its own

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eligibility rules (though states are still required to maintain minimum eligibility levels at no less than they were in 1996). To encourage the TANF/FIP population to seek employment and independence from cash assistance, and to encourage the LIF population to improve its employment and financial situation, the federal law also requires states to continue Medicaid coverage for this group for a period of time following the date when earned income through employment exceeds financial eligibility criteria and in the case of TANF/FIP results in a termination of cash assistance benefits. Medicaid is available under a program called Transitional Medical Assistance (TMA) for 6 months following termination of TANF/FIP/LIF irrespective of earned income and for another 6 months if income does not exceed 185 percent of the FPL. The federal requirements for TMA state that TANF/FIP/LIF benefits must have been received for at least 3 of the previous 6 months. Michigan also permits families to purchase continued health care coverage for adults, after TMA coverage ends and as long as family income does not exceed 185 percent of the FPL, through its Transitional Medical Assistance Plus (TMA Plus) program.8 Coverage under this program (as of June 2004) costs $50 per person per month for the first 6 months and incrementally increases to and remains at $110 per person per month after the fourth 6-month period. Section 1931 also permitted states to expand coverage for parents of dependent children and to cover children at even higher levels. By 2001, 33 states (but not Michigan) had made Medicaid available to single parents with incomes up to 100 percent of the FPL. Four states used an income limit of 200 percent of the FPL or higher. Coverage for children in poor families has been expanded dramatically since 1996, with 40 states now providing Medicaid to children in families with incomes at or above 200 percent of the FPL

TMA Plus coverage is limited to adults because coverage for children is available through either the Healthy Kids or MIChild programs.

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(although eligibility requirements may vary by the age of the child) (FamiliesUSA, 2002). As further detailed below, Michigan has raised the income level for children to 185 percent of the FPL up to age 1 and to 150 percent of the FPL up to age 19. Childless adults or adults with no dependent children who are not disabled, no matter how poor they are, do not qualify for Medicaid under the mandatory coverage groups. However, under special waivers, discussed in another section of this document, there are a few exceptions to this rule. Children There are several categories of mandatory Medicaid eligibility for children. Eligibility is available for children in low-income families as discussed above, and coverage for adopted children, children in foster care and disabled children is addressed below. Federal Medicaid law requires states to cover children in families with income up to 185 percent of the FPL until they reach age 1. Thereafter, the law requires coverage of children until they reach age 6 if family income is no greater than 133 percent of the FPL and children until they reach age 19 if family income is no greater than 100 percent of the FPL. States have the option to cover children from age 1 up to age 19 at higher percentages of the FPL; Michigan provides coverage for children in families with income up to 150 percent of the FPL in its Healthy Kids Medicaid program. Information is provided about coverage of children in families with higher income in the Other Health Care Programs section. Pregnant Women Women who meet other categorical requirements for Medicaid, e.g., by receiving cash assistance, continue to be eligible for Medicaid benefits should they become pregnant. However, federal law also makes Medicaid available to low-income women on the basis of pregnancy if their family income is at or below 133 percent of the FPL. Such coverage extends through the pregnancy and two months thereafter. As with children,

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states have the option to cover pregnant women at higher percentages of the FPL; Michigan provides coverage for pregnant women with income up to 185 percent of the FPL in its Healthy Kids Medicaid program. Adoption Assistance and Foster Care Federal law also makes Medicaid available for certain children for whom Title IV-E9 adoption agreements have been executed, for children with special needs who require a guarantee of medical services in order to obtain an adoption assistance agreement and for children who have been removed from their homes because they have been abused or neglected and made wards of the state until they are adopted. In all instances, the children must have been receiving TANF cash assistance or meet the criteria for cash assistance that was in effect prior to the enactment of TANF or be eligible for SSI. Children who have been removed from their homes and placed in foster care and for whom Title IV-E foster care maintenance agreements have been issued are also eligible for Medicaid. As with the other children in this group, they must have been receiving TANF cash assistance or meet the criteria for cash assistance that was in effect prior to the enactment of TANF. The SSI Group Disabled adults (and children) may also receive Medicaid coverage as a result of their receipt of SSI. States are required to provide Medicaid coverage to all SSI recipients. The SSI group consists of individuals who have been determined to be both disabled and low-income. The SSA defines disability as the inability to "engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can

Title IV-E is a section of the Social Security Act, being 42 USC 670 et seq. that makes federal funds available to states for the provision, in appropriate cases, of foster care and transitional independent living programs for children and adoption assistance for children with special needs.

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be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months". The physical or mental disability must be so severe as to prevent the person from performing their previous work. The person must be unable, considering age, education and work experience, to engage in any other kind of substantial gainful employment that exists in the national economy. Eligibility has no upper age limit. For a child the definition varies slightly. A child under age 18 is considered disabled if he or she has a medically determinable physical or mental impairment or a combination of impairments that causes marked and severe functional limitations, and that can be expected to cause death or which has lasted or can be expected to last for a continuous period of not less than 12 months. A person may also qualify for SSI benefits due to blindness. A "blind" person's vision with use of a correcting lens must be 20/200 or less in the better eye, or the person must suffer from tunnel vision of 20 degrees or less. This criterion applies irrespective of age. The SSA processes applications for SSI through its network of field offices across the country and often under contract through state agencies called Disability Determination Services offices. The Family Independence Agency is the contracted Disability Determination Services office in Michigan. A physician must provide documentation of the disabled person's physical and/or mental impairment. An applicant who receives a denial may appeal the decision to the SSA. Two-thirds of states (32, including Michigan, and the District of Columbia as of late 2003) have entered into a "Section 1634" agreement with the SSA to concurrently determine eligibility for SSI benefits and for Medicaid, a determination that is then binding

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on the state for Medicaid coverage.10 A handful of states (7 as of late 2003: Alaska, Idaho, Kansas, Nebraska, Nevada, Oregon and Utah) have chosen to use the SSA's disability criteria but require a separate application for purposes of Medicaid eligibility; these are usually called "SSI-criteria states". States also have the option to use a more restrictive definition of disability. Under this option, known as the "209(b)" option, a state may use a definition of disability as restrictive as it used in January 1972, prior to the amendments. As of late 2003, there were eleven "209(b)" states: Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma and Virginia. Income and resources are considered for purposes of SSI eligibility and must be below specified thresholds for coverage. Certain types of income are not counted in the benefit calculation, e.g., the value of food stamps, tax refunds, home energy assistance. For 2003 in other than the 209(b) states, the earnings of a blind or disabled student under age 22, up to $1,340 per month, are also not counted. In addition, expenses that are impairment-related are not counted if they enable a blind or disabled person to work. To receive the full federal SSI benefit payment, an individual/eligible couple must have no countable income. Countable income reduces the federal SSI benefit rate paid. A portion of the income of a spouse or parent (or a sponsor for an alien) who is deemed responsible in whole or in part for the individual's care may also be considered in the calculation; this is called "deemed income". The value of resources (assets), e.g., savings accounts, must be less than $2,000 for an individual or $3,000 for an eligible couple in other than the 209(b) states. Certain resources are not counted. These include but are not limited to an individual's home regardless of value if it is the principal place of residence, one automobile if it is used by


Section 1634 of the Social Security Act, being 42 USC 1383c.

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or for the benefit of the SSI recipient, and certain properties of American Indians and Alaskan Natives. In addition, the value of burial spaces for all members of the immediate family, including sites, caskets, crypts and grave markers, along with funds set aside for burial, up to $1,500 each for an individual and spouse are excluded if the funds are specifically set aside for this purpose and not combined with non-burial assets. Worthy of note, SSI is not the same as Social Security Disability Insurance (SSDI) also known as Social Security Disability (SSD) and Retirement, Survivors and Disability Insurance (RSDI). Although the two programs use the same disability criteria, SSI is financed through general tax revenues while SSDI is only available to disabled persons who qualify for cash benefits under the Act by virtue of their Federal Insurance Contributions Act (FICA) contributions to the Social Security Trust Fund. In other words, SSDI is financed with Social Security taxes paid by workers, employers and self-employed persons and is available to a disabled person who has earned sufficient credits based on taxable work. Benefits under this program may also be extended to disabled dependents of contributing persons. Further, although SSI entitles an individual to the full range of Medicaid benefits in most states, receipt of SSDI benefits does not. A recipient of SSDI benefits might not meet the financial criteria for SSI so would need to apply for Medicaid benefits, and might not qualify for them either. Dual eligibility for SSDI and SSI (and therefore Medicaid) is possible as long as the SSDI payments do not result in income exceeding SSI limits. A recipient of SSDI benefits who is under the age of 65 is automatically entitled to Medicare benefits after 24 months, and certain medical conditions may permit immediate Medicare coverage. There are several options available within the SSI program designed to support employment by persons with disabilities and ensure continuation of Medicaid even as earnings increase. One option involves the development of a "plan for achieving self-

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support" (PASS) that allows an individual to set aside income and/or resources for a specified time for a work goal. While an individual is using a PASS, income from earnings is not counted. There are also two options referred to as the Section 1619 Work Incentives. These work incentives are contained in Sections 1619(a) and (b) of the Social Security Act. Section 1619(a) incentives permit an individual to increase earnings and retain Medicaid coverage and some SSI benefits (although the amount of SSI decreases as earnings increase). Section 1619(b) permits an individual to increase earnings and retain Medicaid coverage, but not SSI. There is a cut-off point for the Section 1619(b) program when the individual reaches either the state threshold (an income level set by the federal government that varies by state) or an individually calculated "individual" threshold. Section 1619(a) and (b) provisions may be sufficient to provide for continued access to health benefits through the Medicaid program during the period a disabled individual is preparing for competitive employment, for example when an individual is engaged in pre-employment training or limited work hours with job coaching, or when the individual works for limited periods of time or for a limited number of hours. This coverage is also designed to help a disabled worker through employer-based insurance pre-existing medical condition clauses. Dually Eligible Medicare Beneficiaries ("Dual Eligibles") Medicare beneficiaries eligible for some form of assistance from Medicaid are called "dual eligibles." There are several different types of dual eligibles, each entitled to different benefits from Medicaid. The major dual eligible groups are covered in this paper.


Qualified Medicare Beneficiaries (QMBs) are entitled to Medicare Part A, have income no greater than 100 percent of the FPL and resources that do not exceed twice the limit for SSI eligibility. Medicaid pays their Medicare Part A premiums, if any, Medicare Part B premiums, and at the state's option, may also cover Medicare deductible and coinsurance amounts for Medicare

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services provided by Medicare providers. A QMB may also qualify for the full scope of Medicaid benefits, depending on the state's rules, i.e., be a QMB Plus.


Specified Low-Income Medicare Beneficiaries (SLMBs) are entitled to Medicare Part A, have income greater than 100 percent but less than 120 percent of the FPL and resources that do not exceed twice the limit for SSI eligibility. Medicaid pays their Medicare Part B premiums only. A SLMB may also qualify for the full scope of Medicaid benefits, depending on the state's rules, i.e., be a SLMB Plus.


Qualified Disabled and Working Individuals (QDWIs) lost their Medicare Part A benefits due to their return to work, are eligible to purchase Medicare Part A benefits, have income no greater than 200 percent of the FPL and resources that do not exceed twice the limit for SSI eligibility. Medicaid pays the Medicare Part A premiums only.


Medicaid-Only Dual Eligibles are entitled to Medicare Part A and/or Part B and are eligible for full Medicaid benefits. Typically, these individuals need to spend down to qualify for Medicaid or fall into a Medicaid eligibility poverty group that exceeds the limits listed above. Medicaid provides full Medicaid benefits and pays for Medicaid services provided by Medicaid providers, but Medicaid may only pay for services also covered by Medicare if the Medicaid payment rate is higher than the amount paid by Medicare, and, within this limit, will only pay to the extent necessary to pay the beneficiary's Medicare costsharing liability. States may also, at their option, pay the Medicare Part B premium. (See more about "spend-down" below.)

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Optional Coverage Groups States may also cover additional groups of individuals, referred to as optional coverage groups. Each of these groups has specific income and resource requirements.11 Note that eligibility criteria are frequently described in terms of the FPL or SSI disability criteria or benefit rates. · The Poverty Level group (also known as the Aged and Disabled group, comprised of individuals over age 65 or with a disability who have income up to 100 percent of the FPL); · The Medically Needy group (beneficiaries with higher incomes than in the mandatory coverage groups who also have very high medical expenses); · The TEFRA group (children who need institutional care who may be served in their home for less than the cost of institutional care and whose family income is not counted); · · Pregnant women with income between 133 and 185 percent of the FPL; Individuals who require hospice care (not otherwise Medicaid eligible ­ with income up to 300 percent of the SSI benefit rate); · The "special income group" (individuals who receive care in a nursing facility or ICF/MR or alternatively in HCBS Waivers and who are not otherwise Medicaid eligible ­ with income up to 300 percent of the SSI benefit rate); · · Medicaid "buy-in" program participants; and Breast and Cervical Cancer Treatment Program participants.

Note that special rules apply to immigrants. Applicants that entered the country legally prior to August 22, 1996 (or that entered after that date and have been in the country for five years) are, at the state's option, entitled to full Medicaid benefits. Applicants that entered the country on or after August 22, 1996 and have not been in the country for five years, or that are in the country illegally, are not entitled to full Medicaid benefits; they are, by federal law, able to receive emergency medical services only, including delivery services.

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There are additional optional eligibility groups, however these are the most common and will be discussed further below. The Poverty Level Group The poverty level group (included in 19 states but not Michigan) provides an opportunity for Medicaid eligibility for disabled adults, including childless adults, with slightly higher income (but generally no greater than 100 percent of the FPL). The Special Income Group The special income group (also known as the institutional care group) includes individuals with higher incomes (up to 300 percent of the SSI benefit rate at the option of the state ­ Michigan covers this group) who require institutional services (nursing facility, hospital or ICF/MR services) or community-based alternatives to these institutional services such as enrollment in a Home and Community-Based Services (HCBS) waiver program or in a Program of All-Inclusive Care for the Elderly (PACE). The HCBS Waiver program and PACE are discussed under the Medicaid Covered Services section. The TEFRA Group The TEFRA option, also called the Katie Beckett option after the child whose situation prompted it, is authorized by Section 134 of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 and permits states to provide Medicaid to children (age 18 or under) living at home who qualify as disabled using SSI criteria and who need the level of care provided in a hospital, nursing facility, or intermediate care facility for persons with mental retardation (ICF/MR) even though these children would not ordinarily be eligible for SSI benefits because of family income or resources. In order for a child to be determined Medicaid eligible under this option, a state must find that: · If the child were in a medical institution, he/she would be eligible for Medicaid;

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That the child requires the level of care provided in a hospital, skilled nursing facility, or intermediate care facility (including an ICF/MR);

· ·

That it is appropriate to provide care to the child at home; and The estimated cost of caring for the child outside of the institution will not exceed the estimated cost of treating the child within the institution.


If a state elects this option the state must provide coverage to all disabled children who meet the above requirements. As of March 2001, 21 states, including Michigan, were using this option (National Association of State Medicaid Directors, 2002).

The Medically Needy Group The Medically Needy group consists of children, pregnant women, a parent or relative caretaker of a child, an individual aged 65 or older, or a person who is disabled based on SSI criteria, with limited resources (savings, cash, etc.), higher income and very high medical costs. To be eligible for Medicaid the beneficiary must contribute to the cost of their services, called the spend-down amount, and this requirement increases as income increases. In order to meet the spend-down amount (which is generally calculated on a monthly basis), the beneficiary must incur expenses for health care services in an amount equal to the spend-down amount, i.e., the beneficiary must "spend down" to the Medicaid income threshold. Once this has occurred, Medicaid coverage is approved for the balance of the month. The spend-down requirement can be high. Because of the requirement for a monthly determination of eligibility, this group is sometimes also called the "on-again, off-again" group. Two-thirds of the states include this eligibility group in their Medicaid program, including Michigan. States that include this eligibility group in their Medicaid program also require beneficiaries to contribute to the cost of their care if they are admitted to a hospital or

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nursing facility. This contribution is often called a patient pay amount. See more on this issue in the Treatment of Income and Resources (Assets) section. The Medicaid Buy-In Groups States may use other options to expand coverage to individuals who are likely to need health care, and who have higher incomes and resources (assets) through the use of Medicaid buy-in programs and special Medicaid waivers. Medicaid buy-in programs are optional Medicaid programs that permit a state to enroll elders or adults with disabilities who have higher incomes into the Medicaid program if the individual agrees to "buy-in" to the Medicaid program. The "buy-in" may include higher premiums, copayments and deductibles than are normally permitted in a Medicaid program, subject to specific limits set by the federal government. Over half of the states, including Michigan, have implemented Medicaid buy-in programs for individuals with disabilities or for elders (Jensen, 2004). One buy-in group option for disabled adults is the Ticket to Work and Work Incentives Improvement Act (TWWIIA) buy-in option. TWWIIA (pronounced twee-ya) enacted in 1999 gave states the option of creating new Medicaid eligibility categories for disabled persons aged 16 through 64 who are able to join the workforce. The loss of healthcare coverage due to earned income frequently deterred a disabled person from pursuing employment. The TWWIIA incentive extends Medicaid coverage to those who would otherwise be ineligible as a result of earned income, thus encouraging them to join the workforce. These Medicaid beneficiaries are allowed to accumulate both earnings and assets up to $75,000 without losing Medicaid eligibility. Cost-sharing requirements vary by state for those states that have implemented programs. Annual premiums, generally established on a sliding scale, and co-payments are standard. Michigan implemented a TWWIIA option, called Medicaid Freedom to Work, on January 1, 2004. Until an enrolled beneficiary's earned income exceeds 250 percent of

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the FPL, no premium is required. Thereafter, the beneficiary's premium is based on an income-oriented sliding scale ranging from $50 per month to more than $900. Once a beneficiary's earned income exceeds $75,000 annually, should the beneficiary choose to retain coverage, the premium is 100 percent of the average disabled Medicaid beneficiary's cost of health care ($920 per month in January 2004). Co-payments applicable to other adult Medicaid beneficiaries are required and are discussed under the Medicaid Covered Services section. Breast and Cervical Cancer Prevention and Treatment Program The federal Centers for Disease Control and Prevention created a program more than a decade ago through which grants were made available to states to fund clinics that screened women for breast and cervical cancer. The program continues and screening services are available to uninsured women from age 18 through 64 with income no greater than 250 percent of the FPL. Should breast or cervical cancer be detected through screenings, the eligible women are referred to a network of health care providers willing to provide services on a reduced fee basis. Federal legislation in early 2001 gave states the option to provide Medicaid coverage for women screened through the program and for whom breast and/or cervical cancer or a pre-cancerous condition had been diagnosed, with eligibility for full Medicaid benefits continuing through treatment. Many states, including Michigan, elected this option and implemented coverage for these women. Michigan's policy became effective October 1, 2001. Expansion Groups States may also use a Section 1115 waiver, including a Health Insurance Flexibility and Accountability (HIFA) Waiver, in order to cover individuals who are not ordinarily eligible for Medicaid. These waivers most often expand coverage to parents of children enrolled in Medicaid, and less commonly, to childless adults. Because Medicaid

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waivers can be used to "waive" most Medicaid requirements established by federal law, each waiver is unique to the state. Michigan recently implemented a HIFA Waiver to provide additional coverages, including inpatient hospital care, to persons formerly receiving only ambulatory services under a state-funded program called the State Medical Program. Most of the beneficiaries under this new program, called the Adult Benefits Waiver, do not qualify for other categories of Medicaid coverage and are childless adults. The program is eligible for Federal Financial Participation (FFP) and currently (as of June 2004) requires covered beneficiaries to make co-payments on prescription drugs and emergency room services. The state Medicaid agency (the Department of Community Health) has asked for federal approval to eliminate the co-payment requirements as well as the inpatient coverage, the latter compensating for the former, but as yet has not received a response to its request. As the discussion thus far has shown, there are a number of different categories of Medicaid eligibility, each with unique characteristics. Applicants may qualify under multiple categories and it is the task of the state personnel determining eligibility to choose the category most advantageous to the applicant. Because rules and regulations may change from time to time ­ and dollar values associated with standards such as the FPL are adjusted annually ­ it is more important for advocates to have a general understanding of Medicaid eligibility requirements than to focus on the details of eligibility determination. That task is best left to state staff.12

For those wishing to delve into the intricacies of Medicaid eligibility determination, including the treatment of income and assets, the Department of Community Health publishes information regarding health care programs on its website at,1607,7-132-2943---,00.html, and the Family Independence Agency publishes Program Policy and Procedure Manuals that detail eligibility criteria on that agency's website at,1607,7-1245458_7700---,00.html.

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Treatment of Income and Resources (Assets) For the same reasons that the discussion of eligibility categories was generalized, the discussion in this section on treatment of income and assets is likewise of a general nature. There is too much variance between categories of eligibility, geography, family size and living arrangement to address the specific details. Income Eligibility All eligibility groups must meet income requirements however the income threshold may vary by group and by state. Two factors affect income eligibility: the standard, which is a dollar amount below which the applicant's income must fall in order to be determined eligible, and the methodology, which is the way that the state counts ­ or disregards ­ the components of the applicant's income. There are different types of income ­ earned, such as salaries and wages; and unearned, such as pensions and the value of food stamps or home energy assistance. Some income may be disregarded, some treated as deemed and some diverted. Income disregards vary depending on the applicant's (or beneficiary's) category of Medicaid eligibility, living arrangement and family size. For example and very generally stated, for the Low-Income Families group in Michigan, countable earnings for the month are reduced by a standard work expense amount and by $30 and then by 1/3 of the remaining earned income. The resulting amount of countable income must be below the established income limit for the family size and the county in which the family resides in order for financial eligibility to be approved. For applicants that do not meet the 30 and 1/3 test, a second test is used ­ $200 is deducted from the countable earnings and then another 20 percent is deducted. The resulting amount must be below the established income limit. Deemed income is income from an individual who is not included in the eligibility group being tested, e.g., a stepparent, but whose income provides support to one or more

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of the group members in some way. Diverted income is the reverse of deemed income. An example would be an individual in the eligibility group being tested who receives SSI; because SSI payments are for a specific person, the income cannot be considered for the group. Income is treated differently if an applicant/beneficiary, or the spouse of an applicant/beneficiary, is institutionalized. For example, a widow living alone whose income consists of a modest pension and Social Security leaves her home to enter a nursing facility. Federal Medicaid law allows her a $30 per month disregard for personal needs in the facility (although states at their option may allow a higher amount and Michigan has set its personal needs allowance at $60). She is required to share-the-cost of her care and the balance of her income must be contributed toward her care in the nursing facility. This is called a patient pay amount. Another income situation relates to a community spouse allowance. If a couple is living together with income consisting of the husband's pension and Social Security, and he enters a nursing facility, his wife is allowed, under provisions in federal law designed to prevent spousal impoverishment, to keep some or all of her husband's income with the remaining, if any (other than a personal needs allowance), contributed toward his care (as a patient pay amount) in the nursing facility. The amount she would be able to retain varies by state and is dependent upon a number of factors, e.g., the cost of living in the area where she resides, the cost of her health care needs, and whether there are children residing in the home with her. In addition, if she does not believe that the amount determined through the eligibility process is suitable for her needs, she may petition a court of appropriate jurisdiction (a Probate Court in Michigan) for a higher community needs allowance.

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Resource (Asset) Eligibility Resource eligibility also varies by group and state. Some eligibility groups are not subject to resource review while others are. For example, the special eligibility groups for children and pregnant women do not require a resource review. For most groups, however, like income, there are countable and non-countable resources for purposes of Medicaid eligibility. Countable resources include but are not limited to savings and checking accounts, annuities and retirement funds from which withdrawals may be made, stocks, bonds, and real estate. The cash surrender value of a life insurance policy is a countable resource; a term life insurance policy is not a countable resource because it has no cash surrender value. Neither is burial insurance (not to be confused with a prepaid funeral plan as discussed below) a countable resource because it produces no benefit during the applicant's lifetime. The value of an applicant's (or beneficiary's) home is not counted as a resource as long as the applicant or a member of his or her immediate family resides there (or it sits vacant if the owner has been institutionalized); this is usually called the homestead exemption. If the applicant rents the property, however, the rent payments are counted as income and if the property is sold, the proceeds that would accrue to the applicant become a resource if not used to purchase another home within a year. The value of an applicant's automobile is not counted as a resource either as long as it is still in use by or for the benefit of the applicant; this exemption is limited to one vehicle. Certain resources are not counted if they have no current market value. For example, an applicant's home or other real property that has been verified by knowledgeable sources, such as a realtor or banker, as not salable due to condition would not be counted as a resource. Funds borrowed through a bona fide loan, verbal or written, are excluded resources, although interest income earned on or purchases of real property made with borrowed money are counted.

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Payments received through reverse mortgages are also considered loans and not counted as resources as long as the applicant lives in the home. In general, a Medicaid applicant must have less than $2,000 in countable resources, in order to qualify for Medicaid ($3,000 for a couple). If one member of a couple is admitted to a nursing facility for a stay of at least 30 days and the couple has community resources, spousal impoverishment rules apply to resources in a similar manner as to income and the community spouse is entitled to keep a portion of the resources. To determine the amount of the couple's resources that the community spouse may retain, an initial assessment of the value of the couple's resources is made based on their holdings on the day of the applicant's first continuous period of care in a nursing facility or Medicaid HCBS waiver program that occurred on or after September 30, 1989. In 2004, the community spouse may keep the greater of $18,552 or one-half of the initial assessment amount up to $92,760. As with income, a court of appropriate jurisdiction may order that the community spouse retain a higher amount. The resources allocated to the applicant must be spent down to the $2,000 threshold prior to Medicaid eligibility. Transfer of Resources/Divestment Federal law, under the transfer of resources provisions, requires states to withhold payment for various long-term care (LTC) services for beneficiaries (or their spouses or others acting on their behalf) who dispose of resources for less than fair market value.13 For purposes of these provisions, LTC services could be in a facility or in a state's HCBS waiver program. Under these provisions, resources mean cash or other liquid resources or any real or personal property that could convert to cash and be used for the support or


Section 1917(c) of the Social Security Act, being 42 USC 1396p(c).

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care of the beneficiary. Of note, although a homestead and the land upon which it sits is not counted as a resource for Medicaid eligibility purposes if retained, its value is counted if it is transferred. States have the option to extend application of these provisions to other eligibility groups as well. The law permits states to "look back" for transfers (or divestment) of resources in the 36 months prior to the beneficiary's admission to a nursing facility or HCBS waiver program. If the beneficiary's admission occurred prior to the determination of Medicaid eligibility, the look-back period is the 36 months prior to application. If a transfer of resources for less than fair market value is discovered, the state must withhold payment for LTC services for a period of time commensurate with the value of the transferred resources. This is called the penalty period and is calculated by dividing the transferred resource value by the average monthly cost of nursing facility care at a private pay rate in the state. During the penalty period, the beneficiary would retain Medicaid eligibility and be entitled to payment for medically necessary services other than LTC. Reducing Countable Resources through Designated Burial Funds Federal law allows an applicant to reduce countable resources in certain ways. One way is through funds designated for burial expenses. These may include burial spaces, designated bank accounts to cover burial expenses or prepaid irrevocable funeral contracts. Trusts Another means of reducing countable income and resources is through the establishment of a trust. A trust is a legal arrangement in which one party (a trustee) holds property for the benefit of another. Trusts may be revocable or irrevocable; they may yield income for the designated beneficiaries, be used to improve their quality of life or cover

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the cost of health care services not available through Medicaid for them. How a trust is considered for Medicaid eligibility purposes depends on the characteristics of the trust. There are certain types of trusts that are treated differently for Medicaid eligibility purposes. The most significant feature of these trusts is the requirement that each include a provision that the state Medicaid agency receive any remaining funds, up to the value of Medicaid benefits paid, upon the beneficiary's death. An exception to this requirement is a trust established with the resources of and to benefit a group of disabled persons; some of these pooled trusts include provisions such that payment is not made to the state Medicaid agency upon a beneficiary's death if other members of the pool still live; instead any funds left in the beneficiary's account remain in the trust for the benefit of the other members of the pool. Trust provisions in law and in Medicaid policy are very complicated. Trusts are generally reviewed by legal counsel within or representing a state Medicaid agency prior to a determination of Medicaid eligibility to assure compliance with provisions of law. Due to the complexity of this subject, discussion here is very limited.14 Estate Recovery With passage of the Omnibus Budget Reconciliation Act (OBRA) of 1993 state Medicaid agencies were required to implement estate recovery programs that recover the cost of Medicaid-paid health care services for certain beneficiaries after they have died.15

Additional detail regarding the many different types of trusts and their treatment for Medicaid eligibility purposes is available in Part 3 of the State Medicaid Manual published by CMS at and in the Family Independence Agency's Program Policy and Procedure Manuals at the website referenced in endnote 12, above. See Section 1917(b) of the Social Security Act, being 42 USC 1396p(b) and federal regulations at 42 CFR 433.36.

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As of this writing (June 2004), Michigan is the only state in the country that has not either authorized or established an estate recovery program. It is anticipated that Michigan will authorize and implement a program in the near future. The law applies to a beneficiary of any age who is permanently institutionalized, i.e., who resides in a nursing facility, ICF/MR or other medical institution and who cannot reasonably be expected to be discharged and return home, and who must, as a condition of Medicaid payment for care in the institution, apply specified amounts of his/her income to the cost of care. State Medicaid agencies are required to seek recovery from the beneficiary's estate or upon sale of the beneficiary's property subject to a lien. The amount recovered must, at a minimum, be equal to Medicaid payments made on the beneficiary's behalf for care provided in the institution, including Medicare cost-sharing, i.e., Medicaid payment of the beneficiary's Medicare coinsurance and deductible amounts for institutional services, and any Medicare premiums paid on the beneficiary's behalf. States are not limited to recovery of payments for institutional services however. They are permitted, with federal approval, to recover payments for any services for which Medicaid payment has been made, irrespective of whether the services were before or after the beneficiary was determined to be permanently institutionalized. Imposition of such predeath liens must follow rules set out in federal law.16 In addition, the law applies to a beneficiary who was age 55 or older when he/she received services paid by Medicaid, even if not permanently institutionalized. As with payments for permanently institutionalized beneficiaries, states are permitted, with federal approval, to recover payments for any services for which Medicaid payment was made but in this instance only for those services rendered after the beneficiary reached age 55. When an affected beneficiary has been enrolled, either mandatorily or voluntarily, in a

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 set forth the rules for such liens, including appropriate notice and an opportunity for fair hearing.

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managed care organization, and services included in the state's estate recovery policy are provided by the managed care organization, the state is also required to recover the amount of the monthly premiums paid to the managed care organization. The state must give written notice to the beneficiary of this policy upon managed care enrollment. States have flexibility in defining "estate" for purposes of recovery. At a minimum, the definition must include all real and personal property and other resources included within an individual's estate as provided in the applicable state probate law. In addition, states may include in their definition any other resources in which the individual had interest. These may include resources conveyed to a survivor, heir, or other designee of the deceased through joint tenancy, tenancy in common survivorship, life estate, living trust, or other arrangement. States may also collect against an annuity that was the property of the deceased if state probate law includes annuities in its definition of estate. Adjustment or recovery can only be made after the death of a beneficiary's surviving spouse, if any, and only after there is no surviving child who is blind, disabled, or under the age of 21. If a lien is placed on a beneficiary's home, recovery must be delayed until there is no sibling residing in the home who has lived in the home continuously for at least one year immediately prior to the date the beneficiary entered an institution and there is no child of the beneficiary living in the home who has lived in the home continuously for at least two years immediately prior to the date the beneficiary entered an institution. Residents in the home must show to the state's satisfaction that they provided care to the beneficiary that delayed admission to the institution. States may waive estate recovery in instances where making the adjustment or recovery would create undue hardship. Undue hardship is generally defined as a situation where the estate subject to recovery is the sole income-producing asset of survivors, such as the family farm or business; is a homestead of modest value (such as a home valued

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much lower than the average price of homes in the county); or where other compelling circumstances exist. Long-Term Care Insurance With few exceptions, a Medicaid beneficiary's use of private long term care insurance to cover a portion of the cost of nursing facility services does not exempt him or her from estate recovery. Some states allow Medicaid beneficiaries to retain more of their resources if a portion of their nursing facility care has been reimbursed by long-term care insurance. The general policy in these states is to disregard, i.e., exempt from consideration during the Medicaid eligibility process, an amount equal to payments made by the insurance policy. In these instances, the amount recovered through estate recovery will be reduced but not eliminated. There are, however, four states where this is not the case. The states of California, Connecticut, Indiana and New York received federal approval prior to passage of OBRA 1993 to allow Medicaid beneficiaries to retain more of their resources if a portion of their nursing facility care has been reimbursed by long term care insurance. These states (known as "Partnership States") are not required to implement estate recovery but are encouraged by CMS to do so. Responsibility for Eligibility Determination The single state agency is responsible for establishing Medicaid policy and for interacting with the federal Centers for Medicare and Medicaid Services relative to the State Plan for Medical Assistance. The agency may perform Medicaid-related administrative tasks directly or through interagency agreements with other state or local governmental agencies, contracts with vendors and/or with the assistance of providers of service. As explained earlier in this document, the single state agency in Michigan is the Department of Community Health (DCH) and its Medical Services Administration, and staff in local offices of the Family Independence Agency process most eligibility determinations. Education regarding the program and application assistance is also

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provided by "outstationed" eligibility workers at certain hospitals and clinics, and through written material available in brochures or on the web sites of the 2 referenced state agencies. In addition, the DCH contracts with an "enrollment broker" that assists Medicaid beneficiaries with decisions relative to enrollment with managed care organizations. The use of managed care organizations is discussed in the Delivery of Services section. Applications for Assistance There are multiple Medicaid applications used in Michigan, largely dependent upon the category of coverage for which eligibility is sought. There is a special application (DCH-0373-D) for the Healthy Kids program, both for children and pregnant women (and a mechanism for applications to be made for these programs electronically)17, an application (FIA-4574) for Medicaid coverage for beneficiaries entering or already residing in a nursing facility, and a rather lengthy "common application" (FIA-1171), available in paper form, that is used for other coverage situations. These forms are available from the aforementioned state agencies and, depending on the form, from certain hospitals, nursing facilities, clinics and local health departments. Information about the forms and eligibility process is also available on the state agencies' web sites.


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