Medicaid Restrictions, Personal Service Contracts

San Antonio Express-News March 21, 2006 Medicaid Restrictions and Personal Service Contracts copyright 2006, Paul Premack
Dear Mr. Premack: Two questions. First, is the new Medicaid law recently passed at the Federal level effective in Texas or does it need ratification by the Texas legislature? Second, if an adult child lives with elder parents and provides care which keeps them from having to go to a nursing home, can a "personal services contract" be used to legally transfer money to that adult child for "fair value" (i.e. 1099 reported etc.) of those services rendered, or will the money paid be a disqualifying transfer under Medicaid? – GAR The new federal law, the Deficit Reduction Act of 2005 (DRA), was signed by the President on February 8, 2006. Whether it is effective now or at a later date is not an easy question to answer. First, the new federal law itself says that if there is contradictory state law, implementation can be delayed for up to two years in a state like Texas where the legislature meets every other year. However, there has not been an official analysis of Texas law by the legislature or the Attorney General to decide whether there are any contradictory laws that need to be changed. Further, there has been no policy statement issued by the Commissioner of Health and Human Services on when Texas will implement the federal law. Second, the new federal law may be invalid. The Senate and House actually voted on different versions of the bill (S 1932). The US Constitution requires that a bill must pass both the Senate and the House before it is sent to the President. The issue here is whether voting on different wording (with billions of dollars of differences) creates law or is an invalid action. A lawsuit has been filed in federal court in Florida to answer that issue. One of the features of the DRA makes transferring assets without receipt of equal compensation a disqualifying event under Medicaid. Under the old law, some transfers could legally be made to create a cushion for the family. The new law makes that far more difficult. Creative minds are searching for ways -- like your question about a "personal services contract" -- to move money around without violating the rules. The state regulations address personal service contracts. For instance, compensation is not allowed for services that would be normally provided by a family member (such as house painting or repairs, mowing lawns, grocery shopping, cleaning, laundry, preparing meals, transportation to medical care). When appropriate services are contracted for, there must be evidence that those services were actually performed (so that the contract is not a charade). The agreement must be established on or before the date any funds are transferred, not as an afterthought, and must be intended to provide real and needed services instead of just being a way to hide money. Here is an example of a personal services contract the state would accept. Mom and daughter agree in December that if daughter will quit her job to care for mom during her illness, mom will pay daughter $10,000. In January daughter quits her job, where she was being paid $1000 per month. In July, mom goes to a nursing home. The state will allow six months of services at $1000/month as legitimate, so $6000 is not a disqualifying transfer. The balance of $4000 was not earned but was transferred, so it disqualifies mom from getting Medicaid’s help for 34 days.
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Disclaimer: This column answers a specific legal question asked by an individual in Texas. The answer may or may not match your individual situation. Be careful not to treat this column as specific legal advice, as it may not meet your individual needs. It may give you a solid basis for discussion with your own attorney. You should consult with your personal attorney before you take any action on this or any legal issue. Also, please be aware that laws change, so this column is valid only as of the date it was published. This communication does not create an attorney-client relationship between the author and the reader.