Medicaid and the Undue Hardship Exception

By Ronald A. Fatoullah, Esq. and Stacey Meshnick, Esq.

{3:51 minutes to read} When an individual in a nursing home applies for Medicaid benefits, the Medicaid agency will examine the applicant's financial statements to determine if any assets were transferred during the five years prior to application. If assets were transferred to someone other than a spouse or a disabled child for less than fair market value, the agency will impose a period of ineligibility, i.e., a penalty period. The individual will not be eligible for Medicaid benefits and will be required to pay privately until the penalty period expires.

There are some circumstances in which individuals have reasons for believing those exceptions to the penalty should be made. Some examples might be that money was gifted, but the recipient is unable to return the money; money was withdrawn from an account, but the applicant cannot remember where the money was spent; or a family member took the money, unbeknownst to the applicant. Upon applying for Medicaid, the best method is to try to verify the explanation for transferring the assets.

Despite an applicant's best efforts, there are times when he or she is unable to provide the supporting documentation required by the Medicaid agency. The last resort is to challenge Medicaid's imposition of a penalty period by arguing that a period of ineligibility will cause the applicant undue hardship.

The law provides that an undue hardship exists if the penalty period would deprive the applicant of (1) medical care necessary to maintain health or life, or (2) food, clothing, shelter or other necessities of life. The applicant must prove to Medicaid that the hardship exists (rather than the Medicaid agency proving that the hardship does not exist). When a nursing home applies for Medicaid on behalf of a resident, the facility can also request an undue hardship waiver.

In order to prove that a hardship exists, the applicant must demonstrate that he or she cannot afford nursing home care during the penalty period and that, without such care, his or her health will decline. States have the option to define "hardship," and courts differ as to how they apply the undue hardship exception.

In the matter of Tarrytown Hall Care Ctr. v. McGuire, decided on April 16, 2014, a New York appeals court ruled that an undue hardship exception applied even though the nursing home did not attempt to evict the applicant. The rationale was that the nursing home resident was insolvent, i.e., had no assets, and was unable to get her assets back, and, as such, no other nursing home would accept her because they knew that she would not be able to pay and would be ineligible for Medicaid.

On the other hand, in R.P. v. Division of Medical Assistance and Health Services, decided on October 22, 2013, a New Jersey appeals court ruled that a Medicaid applicant whose son had transferred assets to himself was not entitled to an undue hardship exception because there was no proof that his health or life was endangered.

As a general rule, it is difficult to obtain Medicaid benefits using the undue hardship waiver. It is best to contact a knowledgeable elder care attorney for advice if an undue hardship waiver may be necessary.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Stacey Meshnick, Esq. is a senior staff attorney at the firm who has chaired the firm's Medicaid department for over 15 years. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.