ALTCS - Medicaid Planning in Arizona

What is the average cost of care in a Nursing Home in Pima County, Arizona ?

Approximately $7319.03 per month for a nursing home in 2024.

Who pays the cost of that care?

Most patients pay privately. Eventually, approximately 50% of all nursing home patients have part of their stay paid for by the ALTCS Program.

What is the ALTCS Program?

ALTCS stands for Arizona Long Term Care System. ALTCS is a part of AHCCCS, the Arizona Health Care Cost Containment System. ALTCS is the state program that implements the Federal Medicaid program within the State of Arizona.

What does ALTCS pay for?

For a person receiving nursing home care, ALTCS pays for room and board, all medical and hospital care, prescription medications.

ALTCS offers a complete array of acute medical care services, institutional services, behavioral health services, home and community based services (HCBS) and case management services for all eligible persons. ALTCS is unique in that all covered services are integrated into a single delivery package, coordinated and managed by eight program contractors in the state.

However, enrollment for ALTCS is not handled by these health plans, but rather, centrally by AHCCCS https://www.azahcccs.gov/members/ALTCSlocations.html

How does a person qualify for the ALTCS program?

Broadly, an applicant has to:

• Be a United States Citizen or a lawful resident alien

• Be a resident of the State of Arizona

• Be at significant risk for institutionalization

• Have little enough income

• Have few enough resources

A pre-admission screening test, called the PAS, is administered to every candidate for the program. The PAS assesses whether a person can maintain himself in the community or whether he needs custodial or skilled nursing care. The PAS is largely based upon assessing the applicant's ability to perform activities of daily living (ADL's), like eating, walking, toileting, bathing, and dressing. Though it is possible that a person can perform all the ADL's and still be at significant risk for institutionalization due to cognitive impairments.

What is the ALTCS income cap?

Twenty-two states require that a Medicaid applicant have less than a maximum level of income. Arizona is one of those states. This year, the income cap is $2,829.00. (2024) No deductions are allowed for expenses.

Is there a way around the income cap?

Yes. The United States Congress passed a law that effectively gets Medicaid applicants around the income cap by permitting them - or their legal representatives - to execute a trust. The trust is called an Income Only Trust. People also call it a "Miller Trust".  It is available to any Medicaid applicant whose income does not exceed the average cost of a Medicaid Bed in Pima, Maricopa or Pinal County Arizona. That cost is $7867.16 per month through September 30, 2024. That cost is $7319.03 in other Arizona counties through Sept. 30, 2024.  For detailed information about Miller Trusts, click here.

What is the resource limit for an ALTCS applicant?

For an unmarried applicant, $2,000 in the kind of resources that ALTCS counts. There are a number of assets that ALTCS will not count, such as the first $713,000.00 of equity in an applicant's personal residence (From January 1, 2024 through December 31, 2025), and others.  

For a married applicant, the story is a lot different..   The State has an interest in seeing that only patients without means can qualify for the ALTCS program. But the State also has an interest in seeing that the spouse who will remain at home in the community ("the Community Spouse") is not impoverished in the process. So the Community Spouse is permitted to retain assets according to a complex formula called the Community Spouse Resource Allowance (CSRA).

Can ALTCS/Medicaid planning help to increase the amount that the Community Spouse gets to retain?

Yes, very often, and often the amount is very significant.

What happens if my parents give me their assets so that they can qualify for ALTCS?

A person who gives away assets within five years of applying for ALTCS will face an eligibility penalty expressed in terms of the number of months that the Applicant will be denied eligibility for the ALTCS program. The penalty is computed by dividing the dollar value of the gift by the average cost of a Medicaid bed in the county in which the gift was made and in the year the gift was made.   The bed rate changes on October 1 each year.  In 2024 the bed rate in Pima, Pinal and Maricopa Counties is $7867.16 per month. So, by way of example, a gift of $75,000 in 2024 will result in an eligibility penalty of 9.5 months.

The Federal Budget Reconciliation Act of 2006 has mandated changes in the way that penalties are calculated.  The penalty will begin to run from the date that the patient has applied for ALTCS and would otherwise be eligible- except for having given away the gift.

Does ALTCS/Medicaid planning sometimes involve advice about gifting assets?

Yes.

Should I always elect to go on ALTCS if I qualify?

The answer is not clear cut.  ALTCS advises:

"Before enrolling in ALTCS, if an applicant or family member is concerned about AHCCCS’ claim that will be filed against the estate, the applicant and/or family member should evaluate the financial benefits of enrolling the applicant in ALTCS. Because ALTCS payments made on the member’s behalf can exceed the actual costs of services provided, and accrue even if no medical service is provided, it is very important that ALTCS applicants (and family members) make an informed decision about enrolling in ALTCS. This is especially true for those ALTCS applicants who elect to remain in their own home and do not enter a nursing home. The applicant and family member should review whether it is better financially and medically for the applicant to pay for his/her needed medical services out-of-pocket (what won’t be paid by Medicare and/or other insurance) rather than enrolling in ALTCS and incurring a claim against their estate."

The reason that ALTCS is giving this advice is that ALTCS may actually spend a lot less on a particular patient than it is entitled to recover from the patient at death.  This is because ALTCS is entitled to recover a capitated rate which is about $7,000 per month.  So if the patient only needs 3 or 4 hours a week of of assistance in their home, the ALTCS estate recovery could far exceed the cost of the care that the patient receives.  If the patient enters an adult care home that charges $3,000 per month and the patient has income of $2500 per month, and the patient owns a home with a lot of equity, enrolling in ALTCS may not be the best approach.

My parents own a house. Is ALTCS going to put a lien on it when my parent, who is an ALTCS patient, dies?

Federal law requires that ALTCS implement at least a minimal cost recovery program from the estates of its program participants.  Formerly, Arizona elected to pursue only probate assets, and then only if no spouse survived the ALTCS patient.   Upon the death of a single patient, ALTCS would make a claim against the patient’s probate estate for the amount that ALTCS had expended on the patient’s behalf.  If the house was titled in a way that would cause it to pass outside of probate, it avoided the ALTCS estate recovery claim.  If Mary owned her home as a joint tenant with right of survivorship with her daughter Judy, the house would pass to Judy outside of probate, and would avoid an ALTCS claim.

As of September, 2004, ALTCS has implemented, by regulations, a broader estate recovery program which will is heavily reliant upon recording of a lien upon any real property in which the patient has an ownership interest.  If the lien is recorded during the patient's lifetime, it is called a "TEFRA lien"  (R9-28-910 through R9-28-919).  TEFRA stands for Tax Equity Fiscal Responsibility Act, a federal law.  The purpose of a TEFRA lien is to guarantee to the State repayment of all of the money it will pay out for the patient's care while on the Medicaid program. 

Arizona Revised Statute Section 36-2935(a) reads in relevant part as follows:

 "The administration is also entitled to a lien on a member's property to recover paid assistance the member receives."

Given the wording of the Statute, it is hard to say if it authorizes the imposition of a lien after the patient dies, for medical assistance that was rendered during the life of the patient.  ALTCS does file such liens, after the patient dies.

Definition of a Lien

So let us define what a lien is.  A mortgage is an example of a lien.  When you borrow money against your house, you give the bank something more than just your promise to pay the money back.  Through a mortgage, you allow the bank to sell your house if you break your promise to pay.  The bank takes from the proceeds of the sale an amount equal to the unpaid loan balance plus accruing interest.  The lien gives the bank an interest in the real property that is short of an ownership interest.  When the bank records the lien with the county recorder, it goes on the public record, and it tells the world that other creditors will have to stand in line behind the bank to collect money from the house.

How a TEFRA Lien Functions

A TEFRA lien also goes on the public record (i.e. “gets recorded”) and tells the world that other creditors will have to stand in line behind ALTCS to collect money out of the house.  The lien can be recorded only if the patient is older than age 55, receiving ALTCS services and is permanently institutionalized. (R9-28-914)  ALTCS will not even seek to record the TEFRA lien during the lifetime of the patient, if the home is occupied by a spouse, a child who is blind or disabled, or by a sibling who has an ownership interest in the residence and had been occupying the residence for at least one year before the patient was admitted to a care facility. (R9-28-915)

ALTCS cannot foreclose on the lien if the patient is survived by a spouse or a child who is under 21, blind or disabled.  In fact, the regulation appears to be worded that if a sale of the property takes place by a spouse, child under 21 or a child who is blind or disabled, ALTCS cannot recover from the sale at all.  The regulation also says that ALTCS will delay recovery under its TEFRA lien for so long as the patient is survived by a sibling who resided in the home for a year before the patient was institutionalized, or by a child who lived in the home and rendered care to the parent, keeping the parent out of the nursing home for a period of at least two years.  (R9-28-918).

In the case of a caregiver child, the regulation requires 1) a physician’s statement that describes the patient’s physical condition and services provided over the two year period 2) Verification that the child actually resided in the member’s home 3) A statement by the child describing the services he provided to the parent 4) Any statement made by the patient about the child’s services and 5) A statement from a physician, friend or relative as witness to the care provided.

Recovery under the TEFRA lien can only be made after the death of the individual's surviving spouse, if any, and only at a time when the individual has no surviving child under age 21, or a blind or disabled child. The extent of the lien can be no greater than the extent of the patient's interest in the home property. (R9-28-913)  For example, if husband and wife are joint owners of the home property, and the wife dies, only the one-half interest of the institutionalized ALTCS patient will have a lien against it.

Obviously, if the patient gives away his home property, ALTCS cannot record a TEFRA lien against the property.  But by making such a gift, the patient may face a lengthy eligibility penalty.  What if the patient tries to minimize the eligibility penalty by giving away the house but retaining the right to live in the house for the rest of his lifetime?  The TEFRA regulation says that ALTCS can record its lien and enforce its lien if the patient has done that at any time before or after becoming a patient.  (R9-28-913B)

Planning Options for TEFRA Liens

The TEFRA regulations are very complex.  Let us summarize your planning options now that TEFRA liens are available in Arizona:

1. If there is a community spouse, patient should transfer the house to the community spouse at any time before ALTCS seeks to record the TEFRA lien.  Community spouse should be sure to do a new will that does NOT leave the house to the nursing home spouse.

2.If you are single and already in a nursing home, and your private finances are going to run out soon, transferring your house to the kids is probably not an option unless you have a very inexpensive house.  You can take some solace in the fact that the TEFRA lien, unlike a bank loan, does not accrue interest against the house, and so the cost of care through Medicaid is much less expensive than if you had sought a private loan to obtain the same care. 

3.If you are single and a child lives with you in your house,  the regulations provide that a TEFRA lien can be imposed even if the house is occupied by a "caregiver child", however, there will be no enforcement of the lien if the caregiver child survives the ALTCS patient.  A similar situation applies if a sibling has occupied the house for a year before the patient was institutionalized. (R9-28-918B)  The mere fact that the TEFRA lien regulations result in no lien enforcement in these situations does not mean that the house will pass to the caregiver child or to the sibling when the patient dies.  The patient’s will may provide otherwise.  A caregiver child who believes that he should be rewarded for his efforts in keeping the parent out of institutional care by receiving the entire house, contrary to the way the will is worded, should seek legal counsel immediately to talk about receiving a transfer of the property through the court.

4.         If you are single and you reasonably expect a long time to pass before you would need to apply for ALTCS, you can consider making a transfer of your house. 

If you are going to consider transferring your house, you can transfer it outright or you can transfer it into an irrevocable trust.  If you transfer the house outright, you face risks:

a.         The house may be taken by your kid’s creditors.

b.         Your kid may get divorced and the house go to your kid’s ex-spouse.

c.         The house may be tied up in a probate proceeding if your kid dies or goes under a legal guardianship.

d.         You may have a falling out with your child, and the child may evict you from the house.

e.         If you transfer the house outright to the kids, they will have to pay for all the capital gain on the house that accrued during your lifetime when they sell it, unless they have lived in the home for two out of the last five years before the sale.

Instead of gifting the house outright to a kid, giving a gift to an irrevocable trust may be a good planning option, because a properly worded irrevocable trust avoids all these risks.  It is important to seek the advice of an Elder Law attorney when you are concerned about trying to protect your house. 

Two methods of Estate Recovery

ALTCS now has two ways of recovering its expenditures after the death of the patient.  It can enforce its TEFRA lien (or perhaps post-death lien), or it can use the old system of making claims against the probate estate of the patient.  TEFRA liens are part of an automated process that does not involve having to go to court to recover the expenditures.  It enables ALTCS to go after low hanging fruit.   Probate claims are more difficult for ALTCS to make because they have to take the case to court.

If you want to save your house and other assets from estate recovery, you have to pay attention to both estate recovery systems.  This means that you should hold your house in a way that avoids probate so that ALTCS does not get a second bite at the apple.