OK Planning Update: Oklahoma Health Care Authority Enforcing Income Cap for Institutionalized Individuals

Krause Financial has recently become aware of an income cap for institutionalized individuals in Oklahoma. Generally speaking, an institutionalized individual will not qualify for Medicaid benefits if his or her income is more than the private pay rate at the facility in which he or she resides. Certain states, however, implement a separate income cap. This is not to be confused with the income cap that requires the use of a Miller Trust or Qualified Income Trust (QIT) in certain states, in which income over $2,199.00 must flow through the trust. The income cap in question puts a maximum cap on the total monthly income a client may receive and still qualify for benefits – even if that income is in a Miller Trust.

Some counties in Pennsylvania, North Carolina, and Ohio utilize the facility’s Medicaid per diem rate as an income cap. Additionally, Colorado utilizes a set income cap based on the region of the state in which the individual lives. It appears that now Oklahoma is also enforcing an income cap. According to OHCA 317:35-5-41.6(6)(B), individuals will need to establish a Miller Trust if their income is over $2,199.00, however the total income received by the individual cannot exceed the average cost of nursing home care. As of July 1, 2016, OKDHS Appendix C-1 Schedule VIII.B, Aged, Blind, or Disabled Individuals, states the average cost of care is $4,400.00. Thus, an institutionalized individual’s total monthly income cannot exceed $4,400.00.

How does this affect Oklahoma Health Care planning?

This could cause some issues with married couples should the institutionalized individual have large monthly income, however the biggest concern with an income cap comes when conducting a gifting / MCA plan. When utilizing this type of planning, the annuity is structured so that it can provide the client sufficient income to pay for the private cost of care during the penalty period caused by divesting otherwise available assets. In that the Medicaid applicant’s income must be below the income cap of $4,400.00 in order to be considered “otherwise eligible,” and therefore begin the penalty, the applicant and his or her family may end up being responsible for a larger monthly shortfall.

For example, if a client’s monthly cost of care was $6,000.00, we would structure the annuity to provide a reasonable amount of income to continue to privately pay through the penalty period. However, in that the client is now subject to an income cap of $4,400.00, we are limited in the amount of income the annuity can provide. In this scenario, the client will at least be subject to a monthly income shortfall of $1,600.00 (the difference between the private cost of care and the income cap). It is also important to note that the smaller the annuity, the larger the divestment. Additionally, the larger the divestment, the longer the penalty period. In short, the adjustment of the income cap into the planning strategy creates a ripple effect through the rest of the plan that will affect the annuity amount, divestment amount, plan length, and total income shortfall.

Is the gifting / MCA strategy still a viable option in Oklahoma?

Absolutely! Though the income cap affects the way the plan might be structured for Oklahoma individuals, it does not change the viability of the option. As stated above, there are many other states that impose some sort of income limitation. The gifting / MCA strategy is still a successful strategy in all these states. It is important, however, to understand the impact an income cap has on this type of planning, and to work with professionals that understand it as well – such as Krause Financial. Our team of Benefits Planners are knowledgeable and ready to assist Oklahoma attorneys in light of this recent update. Call us today to learn more about specific planning techniques and guidelines in your state!