PMN18255450 Proper Use of Income Code 98-Long Term Care (LTC) Related Unearned Income November 16, 2016
In Step 1 of the LTC computation, the County Assistance Office (CAO) will determine if the individual is eligible for MA LTC. In step 2, the individual’s income is considered to determine the individual’s payment towards the cost of care. In both steps, the CAO will consider the actual monthly earned and unearned income of the individual. In step 2, the CAO will consider the income of the community spouse and dependents to determine if the individual can receive a deduction to help meet their needs in the community.
The CAO will decide whether any income can be excluded. (See Sections 450.3, 450.4, and 450.5 ). If the income cannot be excluded, in whole or in part, the CAO will count the income when determining eligibility for DPW payment towards the cost of LTC facility services.
A trust is a legal term for when one individual (the trustee) controls property or assets for another individual (the beneficiary). When an individual who is named in a trust applies for MA LTC, the (CAO) will count any money the individual or the individual’s spouse is getting from the trust. (The money can be from interest, from the principal, or from both). If the applicant is not getting money from the trust now but will get it later (for example, at age 21), the CAO will create an alert to review eligibility at that time.
If the CAO cannot figure out how much income someone is getting from a trust, the regional Office of General Counsel (OGC) can help. The CAO will send the following information to the OGC:
A copy of the trust document
A completed Request for OGC Review cover sheet
Any additional information that may be helpful
The OGC will let the CAO know the amount of income that must be counted.
The CAO will determine if the applicant and the applicant’s spouse own real property or personal property together or with anyone else.
If the property produces income, such as interest, the CAO will determine what portion of the income is available to the individual and the individual’s spouse. The CAO will count income from the property as follows:
If there is no agreement stating how much money goes to each spouse, count half of the income as going to each one.
If an agreement states the money goes to only one spouse, count it as that spouse’s income.
If an agreement states the money goes to both spouses, count half as going to each one.
If an agreement states the money goes to one or both of the spouses and to another individual, count only the amount that the spouses receive. Count each spouse's share of the income by the individual’s share of the property. If it is not clear how much of the property each spouse owns, count half of the income as going to each one.
NOTE: The individual applying for MA LTC may rebut the CAO's decision about ownership of property. See Chapter 440, Resources for guidelines for determining ownership and rebuttable presumption.
The CAO will count payments an applicant receives for working as earned income. The CAO will count the income before any deductions are taken. The CAO will verify and record all earned income in the case record.
The following are examples of earned income:
Wages (including tips)
Salaries
Commissions and bonuses
Royalties earned from publishing or an honorarium received for services
Therapeutic activity earnings
Profit from self-employment
Older Americans Act wages
NOTE: The CAO must count profit in both steps of the eligibility process. (See Section 450.231 .)
Lump sum, nonrecurring payments of earned income, such as delayed wages (See Chapter 457, Lump Sum Payments )
NOTE: The applicant can count a lump sum payment as either a resource or as income in the month it is received. If a lump sum is treated as income in Step 1, it must be treated as income in Step 2.
NOTE: The CAO will explain to the applicant how each option will affect the individual’s eligibility for MA LTC.
Sick pay, if the individual plans to return to work
The allowable costs of producing self-employment income are the expenses of operating a business.
The CAO will allow deductions for the verified costs of doing business. If the individual does not provide verification of the business expense, the CAO will compute profit without allowing a deduction for the unverified expense.
NOTE: When determining the profit for a newly self-employed individual, the CAO can estimate the amount of federal, state, and local taxes that the individual will be required to pay.
The following are examples of allowable costs for all categories of MA:
Costs of maintaining a place of business such as rent, maintenance, repairs, utilities, insurance on the business and its property, and property taxes
NOTE: If a business is operated in a home, the costs of maintaining a place of business are only those costs identified for the part of the home used exclusively for the business.
Interest on the purchase of income producing equipment and property
Employee labor costs
Costs of goods sold, supplies, and materials
Advertising costs
Accounting and legal fees
Professional licensing fees and union dues, if necessary to practice a profession or trade
Business transportation
Other expenses reported on the federal income tax return
The CAO will not allow the following additional deductions:
Depreciation
Personal business and entertainment expenses
Personal transportation
Purchase of capital equipment
Payments on the principal of loans for capital assets or durable goods
The CAO will consider the gross amount of unearned income. It will verify and record all unearned income in the case record.
NMP Step 1
In Step 1, the CAO will count the amount of unearned income before any deductions are taken.
Example: Bradley, age 40, is disabled and living in an LTC facility. He is applying for MA LTC. His Social Security Administration (SSA) disability benefit is $1,366.60 each month. SSA deducts $1,000 each month because Bradley got extra money and must pay it back.
Because Bradley's $1,366.60 gross monthly income is less than the Nonmoney Payment (NMP) limit of $2,199 Bradley can get MA for LTC services.
MNO Step 1
In Step 1 for MNO categories only: If a person’s IRS or Social Security benefit is reduced because of an overpayment that was counted as income when the person became eligible for cash or MA, the CAO will not count the portion taken out to pay back the overpayment. (See Section 450.4.)
Example: Daniel enters an LTC facility. His gross SSA income is $2,500 per month. The CAO authorizes MA LTC facility payments. Six months later, Daniel receives a letter from SSA informing him of an overpayment error. His correct monthly SSA benefit is only $2,400. His SSA check will be reduced by $100 each month for six months to pay back the overpayment. The CAO will count $2,300 as his SSA income in Step 1 for the next six months.
NOTE: An individual who is getting LTC services may not have to pay taxes owed to the Internal Revenue Service (IRS). If an individual applying for or receiving MA LTC payments owes taxes and money is being taken from the individual’s income to pay it, the individual must file a hardship claim. The individual must contact the IRS at 1-800-829-7650 and request form 433F or download the form at www.irs.gov. The CAO will set a 90-day additional work item notice for the IRS’s decision.
Step 2
In Step 2, the CAO will not count money taken from an individual’s income for back taxes or SSA overpayments.
Example: Roman, age 40, is disabled and living in an LTC facility. He is applying for MA LTC. His SSA disability benefit is $1,366 per month. SSA deducts $1,000 each month because they made overpayments before. Roman pays $144.60 per month for Medicare B.
|
Gross monthly income |
$1,366.60 |
|
SSA deduction |
- 1,000.00 |
|
Countable monthly income |
$366.60 |
|
Personal needs allowance |
- 45.00 |
|
Payment toward cost of care |
$321.60 |
Roman will pay $321.60 each month toward the cost of his care. The facility will allow $144.60 for his Medicare B premium deduction.
Exception: In Step 2, a deduction for court-ordered child support is allowed.
The following are examples of unearned income:
Retirement benefits, private pensions, and annuities, including an amount deducted for an insurance premium.
Social Security benefits (RSDI), including an amount deducted for the Medicare Part B premium.
Veterans Affairs (VA) benefits (not including VA Aid and Attendance and Housebound Allowance benefits).
Workers' Compensation (WC).
Disability insurance payments (see Section 450.247 ).
LTC insurance payments (see Section 450.247 ).
Dividends and interest.
Court ordered or voluntary support or alimony payments (see Section 450.243 ).
Gifts and contributions.
Educational assistance (see the Medical Assistance Eligibility Handbook, Chapter 314, Students).
Rental property income (see Section 450.246 ).
Lump sum payments (see Chapter 457, Lump Sum Payments). The following are examples of unearned lump sum payments:
Nonrecurring insurance benefits.
Inheritances.
Delayed RSDI, UC, or Workers' Compensation benefits.
Prizes, awards, or lottery winnings.
Court-ordered support arrears.
Prizes and awards
NOTE: A prize is a cash payment won in a contest, lottery, or game of chance. An award is usually received as a result of a legal decision. A prize or award may be received as a regular, recurring payment or as a lump sum.
Inheritances.
NOTE: A cash inheritance received as a one-time payment is treated as a lump sum.
Insurance benefits.
NOTE: An insurance payment received as a one-time benefit is treated as a lump sum. An insurance payment for medical expenses paid by the individual is excluded as income but may be counted as a resource if it is still available in the next month.
The CAO will count interest income whether it is kept in an account or taken out.
Exception: The CAO will not count interest kept in an irrevocable burial reserve account.
Interest income is based on the amount of countable interest received by the individual during the last 12 months. The average monthly interest is counted as income for each month of the 12-month period beginning when the individual applies for MA LTC.
For new interest-bearing accounts, the CAO will use the interest shown on the first statement to figure the monthly interest income.
The CAO will check interest income again at renewal. If the individual is expected to earn more interest in the next 12 months than the individual earned in the past 12 months, the CAO will compute and record a new monthly average.
NOTE: A change in interest income will not affect the individual’s payment towards cost of care for the previous 12 months.
Example: Callia has been living in an LTC facility for two years. She has been paying the cost with her Social Security income and her savings. On April 29 she applies for MA LTC payments to begin in May. In the past 12 months, Callia has been earning less interest because she has been spending her savings. The CAO will use the interest on the latest statement to figure the average interest for the next 12 months.
|
Most recent interest (shown on the March 31 quarterly statement) |
$10.11 |
|
Quarters in a year |
× 4 |
|
Estimated annual interest |
$40.44 |
|
Months in a year |
÷ 12 |
|
Average monthly interest |
$3.37 |
The CAO will count interest income of $3.37 for each month, beginning May 1.
When an SSI recipient becomes eligible for an HCBS program, the CAO will enter a waiver code and send a notice to the individual and the HCBS service provider. No further action is required.
When an SSI recipient enters an LTC facility, SSA reviews the individual’s eligibility for SSI benefits. The CAO will tell the individual or representative to let the SSA know about the individual’s change of address.
If the SSI recipient has no other income or has countable income less than the current SSI personal needs allowance, the individual can get the SSI payment of $30.00 plus a state-issued Supplement for Personal Needs (SPN) of $22.10 while in the LTC facility. The CAO will not count the income of an SSI recipient who is getting an SSI payment and SPN. The individual is eligible for MA LTC in the A, J, or M category with a program status code (PSC) of 45. The $60.00 Personal Needs Allowance (PNA) Deduction used when calculating a cost of care also applies to an SSI recipient with a PSC of 45. However, the sum of the SSI and SPN is less than the PNA deduction due to the maximum amount of SPN being equal to the maximum amount of State Supplementary Payment (SSP) $22.10.
NOTE: A 902Z must manually be entered into the case. Unless there is any other countable income other than SSI and SPN, the 902Z will be $0.00 since the combined income is less then the PNA deduction.
55 Pa. Code § 181.452 (d)(1)(i)
NOTE: If an individual’s SSI benefits are stopped, the individual is no longer eligible for MA LTC in the A, J, or M category. The CAO must see if the individual can get benefits in an Nonmoney Payment (NMP) (PAN, PJN, or PMN) or Medically Needy Only (MNO) (TAN or TJN) category.
The CAO will count only the amount of income available on the date of admission when figuring the individual’s payment towards the cost of care in Step 2. (See Section 450.25.)
The individual is not eligible for full SSI benefits beginning the first full month after admission to an LTC facility. The CAO will not count SSI benefits received after the initial month. If the individual gets another SSI payment (other than the SSI payment and), the individual must repay SSA.
NOTE: SSA may continue an LTC facility resident’s SSI benefits for up to three months if a doctor states the resident will probably stay only three months or less. The resident is automatically eligible for NMP (Step 1). The CAO will not count the SSI benefit in Step 2. (The State Data Exchange System (SDX) will alert the CAO.) The CAO may ask the individual to provide proof of eligibility from SSA.
The CAO will count any voluntary or court-ordered support that an individual gets. The individual can prove court-ordered support or alimony payments by providing a copy of the court order, a copy of a check, or a written statement from the Domestic Relations Office.
If it is received as a one-time payment, support that was due in earlier months will be considered a lump sum payment. See Chapter 457, Lump Sum. If these past-due payments are spread out and received as part of the ongoing support payments, the entire amount must be counted as income in the month received.
Payments made by family members or others directly to an LTC service provider to get additional benefits not covered by the MA program, such as a private room, are not counted as income in Step 1 or Step 2.
The CAO will count net profit (gross receipts minus expenses) from board, room and board, and room rent. Rental income reported to the IRS on Form 1040 and Schedule E (Supplemental Income and Loss) is considered unearned income.
Exception: Rental income that is reported to the IRS as a trade or business (Schedule C) is treated as earned income from self-employment. The net profit is counted as income. (See Section 450.231 for more information.)
The CAO will determine profit from unearned rental income (not reported to the IRS as a trade or business) by deducting the following from gross unearned income receipts:
Expenses related to the production or collection of the rental income. Production expenses can include property taxes, advertising for tenants, landscaping, snow removal, utilities, and the amount paid to a rental agency to handle the property.
Real estate insurance costs, whether or not the mortgage holder requires insurance.
Interest portion of a mortgage payment.
NOTE: Divide the previous year's interest by 12 to determine the monthly amount.
Incidental repair costs, such as patching a roof, patching a driveway, replacing a light switch or faucet. These expenses may be averaged and projected over the period of MA LTC coverage.
NOTE: Deductions are not allowed for the following:
Depreciation
Depletion
Personal expenses unrelated to the rental income
Capital expenditures
A capital expenditure is one which will add to or increase the value of the rental property, such as replacing a roof, constructing a new driveway, rewiring a house, or installing new plumbing. The CAO will contact the IRS if it is uncertain whether an item is a capital expenditure.
If only a portion of the rental property is designated for rent or the individual lives in the rental property, the CAO will prorate the allowable expenses as follows:
Count expenses for land rental based on the percentage of the total that is for rent.
Example: David owns 40 acres of land. He rents 20 acres of it to farmers for grazing purposes. His only expense is the real estate tax of $200 per year. Since David rents 50% of the property, only 50% of the tax is an allowable expense for rental income.
Divide the expenses covering an entire building by the number of units in the building if a spouse or dependent lives in the building and all units are approximately the same size.
Example: Isla owns a four-unit apartment building. All the units are approximately the same size. Isla lives in one unit and rents the other three. The real estate taxes are $4,000 per year. The CAO must deduct 3/4 of the tax, or $3,000 per year, to figure net profit.
Policies that provide payment directly to an individual will be counted as unearned income in the month payment is received or expected to be received.
Example: Jason is a resident in an LTC facility. He has an LTC insurance policy that pays him $1,500 each month he lives there. The $1,500 is treated as income.
Policies that are assigned to and payments made directly to the LTC facility or service provider are not counted as income. They are treated as third-party resources and are not entered into the Client Information System (CIS).
If payments from a disability/LTC policy are assigned to someone other than the policy holder or the LTC service provider, the policy will be evaluated under the fair consideration and transfer provisions in Chapter 440, Resources.
Once the case record has been verified, finalized and opened, the CAO will scan all LTC insurance policies to the recipient's case record.
The CAO will send copies of all scanned LTC insurance policies by emial to the address listed below:
NOTE: The treatment of disability/LTC insurance also applies to the individual’s spouse.
Examples:
John is a resident in an LTC facility. His wife is a resident in a personal care facility and pays $1,500 a month. Her income from Social Security is $800 a month. She has an LTC insurance policy that pays $1,000 a month directly to the personal care facility. When computing the spousal Minimum Monthly Maintenance Needs Allowance (MMMNA), the CAO finds her actual shelter cost is $500 ($1,500 minus the $1,000 insurance payment). The person must pay $500 to the personal care facility.
Andre is a resident in an LTC facility. His wife is a resident in a personal care facility and pays $1,500 a month. Her income from Social Security is $800 a month. She has an LTC insurance policy that pays $1,000 a month directly to her. When computing the spousal MMMNA, the CAO finds her actual shelter costs are $1,500 and her monthly income is $1,800 ($800 plus the $1,000 insurance payment).
When figuring the resident’s payment towards the cost of care for the first month in an LTC facility (after the first day of the calendar month), the CAO will count only the income that is actually available.
Example: Erica enters an LTC facility on October 15. On October 3, she received a Social Security benefit of $700. She paid her apartment rent of $400 on October 5 and purchased food and personal items. When she applies for benefits on October 15, she has $15 left from her Social Security check.
The CAO counts $15 as Erica's Social Security benefit for October in Step 2. After deduction of the $45 Personal Needs Allowance (PNA), Erica's income is $0. She does not have to make a payment toward the cost of LTC care for October.
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The disposing of income, in addition to resources, may be considered a transfer of an asset. When an individual’s income is given or assigned to another individual, the gift or assignment must be considered a transfer of assets for less than fair market value.
In deciding if an individual’s income was transferred, the CAO will not try to figure out every detail of the individuals spending habits in the look-back period. The CAO will assume that the individual’s income was spent on daily living unless there is proof of other spending.
For a lump sum payment treated as income in the month received, the CAO will attempt to determine whether the individual transferred a lump sum payment actually received in a month. This payment, while counted as income in the month received for eligibility purposes, is counted as a resource in the following month if it is retained. Disposal of a lump sum payment before it can be counted as a resource could be considered an uncompensated transfer of assets. The CAO will attempt to determine whether amounts of regularly scheduled income or a lump sum payment which the individual would otherwise have received has been transferred. Normally, a transfer takes the form of a transfer of the right to receive income. For example, a private pension may be diverted to a trust and no longer be paid to the individual.
When the CAO finds that income or the right to income was transferred, the CAO will impose a penalty period for the individual. For additional information see Chapter 440, Section 440.8.
When a lump sum is transferred (for example, a stock dividend check is given to another individual in the month in which it is received by the individual, the penalty period is calculated on the value of the lump sum payment. For additional information, see Chapter 440, Section 440.84.
When a stream of income (income received on a regular basis, such as a pension) or the right to a stream of income is transferred, the CAO will compute the penalty period for a single lump sum. A penalty may be imposed for each income payment depending upon when the payment is received.
When the transfer involves a right to income, as opposed to periodic transfers of income the person owns, the CAO: (1) determines the total amount of income expected to be transferred during the individual’s life, based on an actuarial projection of the person’s life expectancy; and (2) computes the penalty period on the basis of the projected total income. See Chapter 440, Appendix D, Life Expectancy Tables. 3258.6 State Medicaid Manual
Updated December 23, 2024, Replacing February 20, 2020