AHCCCS to Begin Issuing Liens
by Thomas J. Murphy, Esq.
On January 4, 2005, the Arizona Health Care Cost Containment System (AHCCCS) received federal approval to begin issuing liens on the homes of those patients receiving medical care through AHCCCS. For mo st accountants and financial advisors, this will affect clients who own their homes and are receiving nursing home care that is paid for by Arizona Long Term Care System (ALTCS), the division of AHCCCS that administers publicly-financed nursing home and other long term care.
A quick summary of estate recovery
The new liens are the means to enforce AHCCCS's estate recovery rights. To understand the liens, a practitioner must understand the nature of AHCCCS's claim that underlies those liens.
As most practitioners know, a person in a nursing home can qualify for ALTCS coverage regardless of the fair market value of their home. In other words, a person in a nursing home can own a home worth $1 million and, if that is the only asset that the person owns, then that person is fully eligible for ALTCS benefits.
So far, so good but a serious problem can exist upon the death of such individuals that many families do not know about. Once a person dies who has ever received ALTCS or other AHCCCS benefits, AHCCCS is mandated by state and federal law to recoup the cost of the person's care. This process of asserting a claim against the deceased person's estate is called estate recovery. It catches many families by surprise since nothing like this exists with other government programs such as Medicare or with insurance policies.
Most spouses and other family members assume these are costs they will never have to bear. Up until now, they did not learn of this problem until well after the death of the ALTCS patient. But, with the recent approval of AHCCCS's new liens, the patient as well as their spouse and family will learn of this peril within months of the beginning of AHCCCS/ALTCS coverage. This is going to cause considerable anguish and fright for family members, especially spouses, who will come face-to-face with an immediate threat to what is often their largest asset. The purpose of this article is to explain to practitioners when they can expect to encounter this situation and how to address it.
How much can AHCCCS claim? AHCCCS can assert a claim to recoup the net amount it has paid for services provided by medical contractors, for Medicare premiums and for insurance co-payments or deductibles. The largest of these will be the payments to medical contractors that, for most nursing home residents, will amount to approximately $2,500 per month.
What assets are subject to estate recovery? According to section 4.17 of the new State Plan, the claim will be asserted against any real estate in which the deceased person had an ownership interest and any other property subject to probate.
What assets are exempt from estate recovery? There are four main exemptions to the estate recovery process. First, federal regulations limit estate recovery to medical services rendered to persons over the age of 55. Second, estate recovery cannot be asserted against a surviving spouse. Third, it cannot be asserted if the deceased person is survived by a child under the age of 21. Finally, it cannot be asserted if the deceased person left a surviving child of any age who is blind or is disabled under the criteria set forth by Social Security. Simply put, AHCCCS can only pursue an estate recovery claim against an unmarried person with no minor or disabled children.
The New TEFRA Liens
Under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), states were authorized to issue liens on the real property of Medicaid (i.e., AHCCCS) patients who were over the age of 55 years and who were residing in a nursing home for at least 90 consecutive days. (Transfers from one care facility to another will not interrupt the 90 day period.) Under the new plan, AHCCCS has elected to issue these liens, which it had never done before.
Who is exempt? Keep in mind that these new liens are simply a new way to enforce claims that AHCCCS has always had but that were not always made known to AHCCCS patients. They do not create any new claims. As a result, the exemptions for estate recovery track the exemptions to the new liens. AHCCCS patients who have spouses, children under the age of 21 or disabled children are exempt.
There are additional exemptions to the liens. First, the liens will only apply to those persons residing in a skilled care facility. This means that persons receiving AHCCCS care at home or in many assisted living facilities are exempt. Second, there is an exemption if the AHCCCS patient has a sibling who has an equity interest in the home and who was living in the home for at least one year immediately prior to admission to the nursing home. A third exemption is if a child resided in the home for two years prior to admission to the nursing home and who provided care to the deceased person that allowed the person to remain in the home rather than be placed in a nursing home.
Hardship waiver . The new plan authorizes AHCCCS to waive its claim and release the lien if an undue hardship exists for an heir of the estate. The criteria for this are strictly defined and rather limited. It appears that this relief will require an administrative hearing. There are three scenarios were a waiver/release will be granted.
One scenario is where an heir to the deceased person owns a business located on the residential property that has been in operation for at least twelve months prior to the person's death, that provides at least 50 percent of the heir's income and that the heir would lose their livelihood if recovery was pursued.
The second scenario is where an heir currently resides in the deceased person's home, lived there for at least a 12-month period immediately prior to the deceased person's death and the heir owns no other residence.
The third scenario is where the heir's household has gross income below the federal income poverty guidelines and does not own a home or other real property.
How and when will notice of the lien be given? AHCCCS is anticipating that the first liens will issue in mid-February 2005. It will send a notice to the AHCCCS patient or the authorized representative at least 30 days before recording the lien. The person then has 30 days after receipt to provide a written request to AHCCCS for an exemption. It is not entirely clear how this will work since there will obviously be problems if the AHCCCS patient is incapacitated. Or ALTCS patients living in a nursing home may never receive it if the notice is mailed to their home.
Can a lien be released? AHCCCS is required to release its lien within 30 days of satisfaction of the lien. There are two other ways to have the lien released although the AHCCCS claim will continue to exist. One situation will be where the AHCCCS patient has been discharged from the care facility, has returned home and intends to remain there. The other situation is where the spouse (presumably married after the lien was issued) attempts to sell the home.
Thomas J. Murphy is an attorney practicing in the Ahwatukee area of Phoenix . His practice emphasizes estate planning, elder law and all probate matters. He can be reached at tom@murphylawaz.com or (480) 838-4838 .
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