Newly Posted Article -- "Reimbursement as Disqualifying Transfer: The Implications of Andrews vs. Division of Medical Assistance"
[February 21, 2007]
Donald N. Freedman
Kristin Wildman Shirahama

Elders facing long-term nursing home care often ask what they can do to protect their house or any other assets over the $2,000 allowed for MassHealth eligibility. Unfortuntately, unless the action comes within a specific exception in the law, the elder risks having the action characterized as a “transfer” by the state, resulting in a period of ineligibility. Examples of such exceptions are transfers to a spouse, to a care-providing child in certain circumstances, or to a disabled child.

Also included in the list of allowable actions is payment of a debt. In a just-issued decision, the Massachusetts Appeals Court announced rulings relevant to what MassHealth may and may not consider a debt in this context. The case is Andrews v. Division of Medical Assistance, Appeals Court No. 06-P-221 (February 14, 2007).

The specific context of the case is something we are often asked to consider. “My mother is going into the nursing home, and has $20,000 in her own name. However, I have already spent much more than that helping her pay for her assisted living and for lots of other things she needed. I have also spent a lot on travel to take care of things here, and have lost many work-days dealing with emergency and on-going care needs. Surely my mother can reimburse me now for these expenses, which I can document to the penny.”

In the circumstances of the Andrews case, just before placement, Mom paid $100,000 to her daughter and son-in-law to reimburse them for time and materials they had expended on Mom’s house to prepare it for sale. When Mom applied for MassHealth, the Division denied the application, on the basis that Mom, in reimbursing her daughter and son-in-law, had made a disqualifying transfer of assets. The action was upheld by a MassHealth Fair Hearing Officer. The family appealed the denial to the Superior Court, and ultimately to the Appeals Court. The Appeals Court found that MassHealth had acted within the law, and upheld the denial.

In reaching its decision, the Division had relied on a transmittal issued by the federal agency (HCFA) that oversees state Medicaid programs. The transmittal states that “services rendered to an elder by a family member are presumed to be gratuitous and without expectation of compensation unless the applicant can prove that he or she intended, at the time those services were rendered, to pay for them.” Under the definition of fair market value, the transmittal notes, among other things, that a “transfer for love and consideration, for example, is not considered a transfer for fair market value. Also, while relatives and family members legitimately can be paid for care they provide to the individual, HCFA presumes that services provided for free at the time were intended to be provided without compensation. Thus, a transfer to a relative for care provided for free in the past is a transfer of assets for less than fair market value. However, an individual can rebut this presumption with tangible evidence that is acceptable to the State. For example, [the State] may require that a payback arrangement had been agreed to in writing at the time services were provided.”

The lessons to be learned from this decision are several. First, recognize that anytime a parent pays a child for past services, or reimburses a child for past expenditures, a big “TRANSFER” red flag goes up at the MassHealth office.

Second, understand that you cannot effectively deal with this issue simply by claiming after the fact, however honestly, that “Mom always intended that I could pay myself the lost wages and reimburse myself for the roof repair as soon as the house was sold” or whatever. The problem is not that such a payback agreement would be ineffective for MassHealth purposes, but that, in the absence of “tangible evidence,” the State is unlikely to believe that the agreement really existed at all.

What is tangible evidence? The best evidence is a payback agreement, in writing, at the time that the services were initially provided and not after the fact.

We see related situations for which this Decision has natural implications. One is the claim by the children that they had loaned money to Mom, so that she could meet her care and living expenses, with the understanding that Mom would repay the loan when the house was sold. If Mom had borrowed money from a bank, and then re-paid the bank out of the proceeds of the sale of the house, then certainly MassHealth would not have claimed that the repayment as a gift from Mom to the bank. So what is the problem with repaying your children for a loan? There’s no problem, in principal. With the children, however, the State is asking whether there ever really was a loan. Instead, is the family now re-characterizing gratuitous support by the children as a loan for purposes of asset protection? As with reimbursement, the way to deal with this potential problem is to treat the matter formally, in advance. If one or more of the children is willing and able to loan money to Mom for her care, in anticipation of loan repayment at the sale of the house, then treat the arrangement as seriously as would a bank, with a formal promissory note and mortgage, recorded at the Registry of Deeds. (By the way, this approach, if undertaken before Mom is eligible for MassHealth, will ordinarily give the child’s claim for payment priority over the state’s claim for MassHealth reimbursement after Mom’s death.)

Another related situation for which the Andrew case has implications involves MassHealth characterization of payments by a parent to a child or other family member for care provided by the child. Payments may have been made on an on-going basis while care was provided, or as a lump-sum after the sale of the house, receipt of an anticipated inheritance, or settlement of a legal claim. If the services are fairly and reasonably valued, there is no reason in principal that MassHealth would treat such payments as gifts, any more than it would treat payments to an assisted living facility as gifts. However, given the family relationship, the assumption is that care was being provided gratuitously, out of love and affection, without expectation or understanding as to re-payment. The only effective way to counter such a result is with a formal, written care agreement, entered into at the onset of the care agreement, and with on-going behavior consistent with an employer-employee relationship, for example, in the Daughter treating payments as earned income.

The third lesson of the Andrews decision is procedural, and relates to the fundamental importance of the administrative hearing in any case involving the appeal of a MassHealth decision. While the “lowest” level of appeal, the administrative hearing, under Massachusetts law, is really the only opportunity you have to add factual evidence to what was included in the initial application, and the only opportunity you have to convince the decision-maker that your version of the facts in the case is the more convincing. Once the appeal is in the courts, the scope of review is very limited. The courts will not accept new evidence outside what was included in the hearing record; and it will not, except in extraordinary cases, second-guess the hearing officer on what are purely conclusions of fact, e.g., that a supposed loan repayment was really a disqualifying transfer. The court will act, as the decision in Andrews reiterates, only if the hearing officer made a legal error, like applying the wrong regulation, or acted “arbitrarily and capriciously” in disregarding valid tangible evidence.

What this third lesson means for the recipient of a denial of eligibility is simple. First, retain an attorney immediately to help you determine whether appeal is appropriate, bearing in mind that to be timely a request for a fair hearing must be received by the MassHealth Board of Hearings within 30 days of receipt of the denial by the applicant. In the absence of evidence or testimony to the contrary, it is presumed that the notice was received on the third day after mailing. In some cases, it is preferable to re-file rather than appeal; in other cases, you may be advised that you have little chance of succeeding either through re-filing or appeal. In any case, you have little time to make what may be a critical decision in protecting your rights.

Second, be prepared to do what is necessary to help your attorney obtain records, prepare affidavits, obtain witnesses, and do whatever your attorney feels is necessary to make the strongest possible case AT THE HEARING regarding the facts, as well as the law. This will be your last chance to convince the decision-maker that your version of the facts is more likely to be correct than the MassHealth version. It will also be your last chance to ensure that all possible facts supporting your position are a part of the record – something essential if further appeal to the courts turns out to be necessary.

As a matter of public policy, the Andrews decision is distinctly unsettling. In our practice we have encountered many instances where a child looking out for a parent has paid for services, improvements to the parent’s home and other necessities. Children have provided things that have greatly improved the quality of the parent’s life, but that the parent felt she couldn’t afford at the time. Children will pay for services the parent can afford, where to have the parent pay would leave them impoverished. Support is often difficult for a parent to accept and very rarely would a child providing financial assistance think to formalize the hope of repayment as a formal loan. To do so may be insulting to the parent, especially where oral agreements between parents and children are natural and typical. The irony here is that a child who is trying to do right by the parent may jeopardize that parent’s MassHealth eligibility. A MassHealth applicant who can show that she reimbursed a child for payment of an expense that benefited the applicant should not have to show a loan agreement as well because in fact, a loan agreement really only shows that the parent received the advice of a lawyer. An elder who accepts financial assistance from a child should not have to get a lawyer. Sworn statements at the time of a MassHealth application should suffice. Families should not be penalized for looking out for one another, or for relying on an informal unwritten agreement for reimbursement, or even an unspoken understanding, whether or not legally enforceable as a contract.

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