VA Benefits: To Be Income, or Not to Be

DE PERE, Wis. - Sept. 9, 2014 - PRLog -- In planning that combines Medicaid benefits with Veterans Aid & Attendance benefits (http://www.benefits.va.gov/PENSION/aid_attendance_housebound.asp) (“VA benefits”) I typically see confusion occur for the single veteran or surviving spouse.  A common thought process is “if we’re making a Medicaid application, there’s really no purpose in seeking eligibility for the VA benefit as well.”  Unfortunately, this thought process could cause your client to miss an opportunity to make a bigger wealth transfer to his or her heirs.

Consider the typical gifting plan, more commonly referred to as a half-a-loaf plan (http://youtu.be/R3ZjAo4-eqc).  A gift is made, a Medicaid Compliant Annuity (https://www.medicaidannuity.com/products/medicaid-compliant-annuity/) is purchased, and a Medicaid application is made – usually all within the same month, and in that order.  The annuity purchase establishes the “otherwise eligible” factor, making the divestment penalty period associated to the gift commence accordingly.  The monthly annuity payments then assist the applicant in privately paying throughout that divestment penalty period where Medicaid does not cover the long-term care costs.  At the end of the plan the applicant is then immediately eligible for Medicaid.

Now, consider what would happen to the plan if you added an extra $1,130 for a surviving spouse or $1,758 for a single veteran (for 2014 (http://www.benefits.va.gov/pension/rates.asp)).  Their total income would increase; reducing the amount of monthly income needed from the annuity in order to meet private pay costs.  This in turn reduces the annuity investment, which only adds to the gift that is made.

Consideration of VA benefits during a divestment penalty period is rather straightforward.  The plan takes the full benefit into consideration as income, so that during the penalty period the applicant doesn’t accumulate funds – countable resources must be below the program limit by the end of the penalty period.

But what about a case with VA benefits that doesn’t include a divestment penalty period?
This is where the majority of the confusion lies, as far as combining VA benefits and Medicaid benefits are concerned.  The answer may vary based on the type of VA benefit your client is receiving, the amount of the benefit, and whether your state is an SSI state (https://secure.ssa.gov/poms.nsf/lnx/0501715020).  The rule of thumb used to be that the base pension was countable income, but the aid and attendance portion was not.

In the recent matter of Galletta v. Velez (http://www.dvanarelli.com/co-counsel-galletta-v-velez-new...) it was ruled that VA benefits were not countable income for Medicaid purposes, to the extent the benefit was a result of unusual medical expenses.  ElderCounsel (http://www.eldercounsel.com/) published a memo regarding the case (https://www.eldercounsel.com/sites/3/assets/userfiles/files/Improved-Pension-and-Medicaid.pdf), authored by attorney Rene Reixach (http://www.woodsoviattgilman.com/attorneys/43/Ren_H_Reixach_Jr_/), which provides an excellent synopsis.  Or, feel free to read the full text of the Galletta case (http://docs.justia.com/cases/federal/district-courts/new-jersey/njdce/1:2013cv00532/284386/44/0.pdf?1392812717).