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Considerations In Drafting Medicaid Complaint Personal Services Contracts

Jeffrey W. Hane

Over half of all patients entering U.S. nursing homes will rely on Medicaid (what Minnesota refers to “Medical Assistance” or “MA”) to pay for their care. Before entering a nursing facility, many patients at some point will pay a relative to care for them at home. Some nursing home residents are paying (or would like to pay) a relative to provide them with additional services or supplemental care. But when a Medicaid applicant or recipient has made or is making payments to a relative, those payments can trigger a period of Medicaid ineligibility. A carefully drafted personal care contract (or “PSC”) executed before initiation of services can prevent Medicaid ineligibility.

The Case Of Barb And Her Father Ted

Ted hated the idea of life in a nursing home, and shuddered at the thought of a complete stranger providing personal care in his home. So Barb and Ted developed a plan—in exchange for most of her folks’ little nest egg, Barb would quit her job and devote herself to Ted’s care.

When Ted was discharged from rehab to go home, the social worker warned Barb that Ted may end up requiring nursing home care, and that given Ted’s modest means, he would likely end up “on Medicaid.” The social worker told Barb that to keep Ted eligible for Medicaid, she should enter into a contract for his care. Without a contract, money paid from Ted to Barb would have all the appearance of “an uncompensated transfer” or gift.

Barb wrote up a simple non-transferable “Personal Services Contract” with Ted. It stated that in return for a $65,000 up front lump sum payment, Barb would agree to provide to Ted home care “as needed” for the rest of Ted’s life. Then she signed it, using her power of attorney to execute Ted’s signature as his attorney-in-fact.

After nine months of caring for Ted, it was apparent to Barb that she simply could not continue—her dad was declining rapidly, and he needed more care than she could devote. Further, Barb had not realized how expensive her family’s health insurance was and how her out-of-pocket costs would add up when taking care of Ted. Having quit her job, most of the money she received from Ted was gone. Barb needed to go back to work.

On the advice of Ted’s doctors, and to the relief of her own family, Barb arranged for Ted to move to the local nursing home. She continued to visit him every day, taking him out occasionally, and managing his finances. But Ted’s care costs far exceeded his income, and soon the balance of his modest savings was gone. Barb had no choice but to apply for Medicaid on behalf of Ted.

Barb was in shock when she was told that Ted would not be eligible for Medicaid until after a “penalty period” of nine months due to an “uncompensated transfer.” Her county financial worker took the position that, without evidence to prove otherwise, at the most Barb only gave Ted $25,000 worth of value, and that the other $40,000 was gift. Barb could either pay the first nine monthly nursing home bills out of her own pocket, or make other arrangements for the first nine months of Ted’s care. Barb did the math in her head—even with Ted’s monthly Social Security, in the next nine months she would still have to come up with roughly $30,000. Stunned, Barb stated in disbelief, “But we had a contract.”

Personal Service Contracts and Medicaid

Medicaid generally does not allow a recipient to make uncompensated transfers within 60 months of application for benefits without incurring a penalty period. This rule prevents potential applicants from giving away their assets (“transferring”) during “the look-back period,” and then relying on the Medicaid program for their long-term care without consequences. For instance, Minnesota’s Health Programs Manual directs county workers to “[d]etermine the uncompensated value of the transfer. This step calculates whether a client has received adequate compensation". Stop here if the client received adequate compensation.” In other words, transfers only trigger a penalty period if the transferor received less than fair market value in exchange for the transfer.

Personal service contracts provide a mechanism to meet these needs. A well-drafted contract will protect the senior from Medicaid ineligibility and allow wealth to pass from one generation to the next. But a poorly drafted agreement may trigger a penalty period, cause interruption of much needed services, and create financial uncertainty.


As published in Care Management Journals 14(4):254-61 · December 2013.

Jeffrey W. Hane is an attorney and shareholder with BRINK LAWYERS, P.A. in Hallock, Minnesota. He was appointed by Gov. Mark Dayton to the Minnesota Board on Aging in 2011 and served for six years. He holds an LLM in Elder Law from Stetson University College of Law, a JD from the University of North Dakota School of Law, an MA from Southern California College, and a BA from Bemidji State University. He is licensed in all state and federal courts in Minnesota and North Dakota. He was admitted to the Minnesota and North Dakota bars in 1993. In addition to private practice, he has also served as an assistant county attorney since 1996.

Minn. Stat. § 256B.0595, Subd. 1(b) (2012); See also 42 U.S.C.A. § 1396p (c) (2012).

Minn. Dept. of Human Serv. Health Care Programs Manual (hereinafter “MHCP”) ¶ 19.40 (2013).


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