Ohio Medicaid Update: “Disability Determination Redesign” and STABLE Accounts

In my last article, I provided a summary on the “Achieving a Better Life Experience Act of 2014,” (the “ABLE Act”). At the time of publication, the status of ABLE Accounts in Ohio was not known. However, effective June 1, 2016, Ohio began accepting applications for STABLE investment accounts.

STABLE accounts permit disabled individuals to save and invest money without losing eligibility for their means-tested public benefits such as SSI and Medicaid. As set forth in Ohio Revised Code § 113.53, a designated beneficiary, or a trustee or guardian of a designated beneficiary who lacks capacity to enter into an account agreement, may apply to open a STABLE account. A designated beneficiary may only have one STABLE account. By definition, a designated beneficiary is an individual who is entitled to benefits based on blindness or disability under title II or XVI of the Social Security Act, and such blindness or disability occurred before the age of 26.

The cost to establish a STABLE account is free; however, there is a minimum deposit of $50.00 required to open the account. The ongoing administrative fees are minimal: $2.50 per month for Ohio residents ($5.00 for non-Ohio residents) and asset-based management fees ranging from 0.19% to 0.34% depending on the investment selection (0.45% to 0.60% for non-Ohio residents). Account holders have five (5) investment options: Vanguard LifeStrategy Growth Fund, Vanguard LifeStrategy Moderate Growth Fund, Vanguard LifeStrategy Conservative Growth Fund, Vanguard LifeStrategy Income Fund, and BankSafe, which is an FDIC-insured account through Fifth Third Bank. When a designated beneficiary opens a new STABLE account, he or she can allocate the initial contributions amongst all 5 investment options. Any new contributions will be invested according to the percentage allocation made at the time the STABLE account was opened. Changes to the investment strategy may be made twice per calendar year. There is also a loadable prepaid debit card available to STABLE account holders. A STABLE account may be opened online atwww.stableaccount.com.

STABLE accounts are available to individuals in any state, they have a lifetime cap of $426,000.00, and offer up to a $2,000.00 state income tax deduction for Ohio residents who contribute to a STABLE account. Anyone may contribute to a STABLE account; however, the maximum annual contribution may not exceed $14,000.00. Earnings made on a STABLE account are exempt from federal and Ohio state income taxes, as long as the funds are spent on Qualified Disability Expenses. Qualified Disability Expenses include home improvement and repairs, adaptive equipment and assistive technology, therapy, education, transportation, and housing. Permissible distributions for housing could be a significant benefit for individuals receiving SSI benefits as the payment of in-kind support and maintenance will typically reduce the SSI benefit by one-third. However, as long as the distribution from the STABLE account is used on housing expenses within the same calendar month as the withdrawal, the SSI benefits will not be reduced. As long as the STABLE account does not exceed the lifetime cap, the account is exempt for Medicaid purposes. Up to the first $100,000.00 is exempt for SSI purposes. Upon the death of the designated beneficiary, any remaining funds in the STABLE account may be used to pay outstanding Qualified Disability Expenses and funeral costs. Any remaining funds will then be available to repay the State of Ohio for any Medicaid benefits paid after the STABLE account was opened.

Presently there are three bills pending to modify the ABLE program: the ABLE to Work Act of 2016, the ABLE Age Adjustment Act, and the ABLE Financial Planning Act. The ABLE to Work Act proposes to allow individuals with disabilities who are working to deposit their earnings (up to the federal poverty level) in addition to the $14,000.00 annual cap. The ABLE Age Adjustment Act proposes to increase the age requirement from 26 to 46. The ABLE Financial Planning Act proposes to amend the Internal Revenue Code to permit tax-free rollovers from 529 plans to qualified ABLE programs, and vice versa.

STABLE accounts are a good option for some disabled individuals and should be used in conjunction with more traditional planning, including special needs trusts. However, the STABLE account has its shortcomings and should not replace other options available to disabled individuals who are eligible for means-tested public benefits.

In addition to STABLE accounts, practitioners should also be aware of the substantial changes affecting Ohio Medicaid consumers and their benefits. Effective August 1, 2016, Ohio has transitioned from a “209(b) state to a “Section 1634” state. This transition is being referred to as the “Ohio Disability Determination Redesign.” As part of the transition, there will now be one disability determination system for individuals applying for SSI. Those individuals will automatically be enrolled in Medicaid if they are approved for SSI based on a disability. As part of the transition, individuals enrolled in Medicaid may now retain $2,000.00, which is an increase from the $1,500.00 resource limit previously imposed on Medicaid recipients.

The most significant impact on Ohio Medicaid eligibility is the implementation of an income cap and the elimination of the “spend down.” Previously, individuals with income in excess of the eligibility limits could use medical bills to reduce their income and achieve Medicaid eligibility. The new income limit for individuals who need Medicaid long term care services is $2,199.00. Anyone with income in excess of the $2,199.00 will now be required to establish a Qualified Income Trust (“QIT” or “Miller Trust”). QITs are authorized by 42 U.S.C. § 1396p(d)(4)(B) and the requirements for a QIT to be valid in Ohio are set forth in Ohio Administrative Code § 5160:1-6-03.2.

Pursuant to the OAC, a QIT must be valid under the laws of the state of Ohio, and meet the following requirements:

1. The QIT must be irrevocable;

2. Only the primary beneficiary’s income may be placed in the QIT;

3. The source(s) of income must be identified;

4. The primary beneficiary cannot transfer or assign his or her right to receive income directly to the QIT;

5. No other property may be placed into the QIT; and,

6. The QIT must require payback to the State of Ohio upon the death of the primary beneficiary.

Distributions from the QIT can only be used for the primary beneficiary’s personal maintenance needs allowance, a maintenance allowance for the spouse or family dependents, incurred medical expenses of the primary beneficiary, which can include the patient liability, and an amount not to exceed $15.00 per month for bank fees and attorney fees. A QIT template and Certification of Trust template are available atwww.medicaid.ohio.gov. For individuals who are not represented by counsel, the State of Ohio has contracted with Automated Health Systems to identify those individuals who need a QIT to remain eligible for Medicaid and to provide assistance in setting up the QIT.

The execution of QITs may pose a problem for those individuals who lack the capacity to execute the QIT and either do not have a power of attorney or whose power of attorney does not grant the agent the specific authority to create a trust. In those instances it may be necessary to apply for a limited guardianship to establish the QIT. From an administrative standpoint, the QIT account should be opened using the primary beneficiary’s social security number. Income will continue to be deposited to the primary beneficiary’s individual account, and then excess income should be transferred to the QIT account each month. It is imperative that the funds in the QIT account be spent each month and that there is no carryover balance in the QIT account. Any funds remaining in the QIT account at the end of the month may disqualify the primary beneficiary from Medicaid eligibility.

Another noteworthy change impacting individuals requiring institutional care relates to real property. The residence is still exempt for married couples where the community spouse remains in the home. However, previously, any real estate (other than the residence) would be exempt provided it was listed for sale through a real estate broker or agent. For individuals applying for Medicaid, the residence was exempt for a period of 13 months. After the expiration of 13 months, the residence was required to be sold and the proceeds spent down to within eligibility limits. Under the new rules, there is no longer an exemption for real property, even if it is listed for sale, as OAC § 5160:1-3-05.15 was rescinded. Therefore, real estate is counted toward the $2,000.00 asset limit. Further, the 13-month grace period for the residence has been eliminated. The new regulations exempt the residence if the individual intends to return home and provides a written, signed statement to the department of Job and Family Services. See OAC § 5160:1-3-05.13.

The new rules also exempt one vehicle, regardless of value, if it is used for transportation, and further exempt spousal retirement funds in certain circumstances. The aforementioned are just a brief summary of some of the new Medicaid rules. The new changes and complexity to Ohio Medicaid rules further exemplifies the need to retain competent counsel who focuses primarily in elder law issues. These changes have a significant impact on the elderly and those dependent on Medicaid and therefore knowledge of the new rules is imperative.