Fleming & Curti, P.L.C. - Truck Owned in LLC is "Unavailable" for Medicaid Eligibility

MAY 19, 2008 VOLUME 15, NUMBER 47

Truck Owned in LLC is "Unavailable" for Medicaid Eligibility

When a medical disaster overcomes your family, it is good to know that insurance is available to help provide necessary care. When no insurance coverage is in place, or when insurance is inadequate, the Medicaid "safety net" can step in and ensure that medical needs are covered. Sadly, the Medicaid eligibility rules are often too complicated and hypertechnical to allow easy navigation and prompt provision of care. Just ask Linda Timm and her husband John, of Culbertson, Montana.

Mrs. Timm was 47 years old and suffering from multiple sclerosis when her care needs became too acute to allow her to stay at home. She moved to the Roosevelt Memorial Nursing Home in 2002, and she and her husband applied for Medicaid assistance with her care.

Medicaid eligibility requires that the applicant have limited income and resources available to pay for care. When the patient is married, her (or his) spouse is permitted to retain at least some assets; the laudable purpose of the eligibility rules is to prevent a "community" spouse from having to spend all of the couple's assets and become a public charge in addition to the "institutionalized" spouse.

Among the assets the community spouse is permitted to retain are those items necessary for him or her to continue to earn a living. John Timm, a contract truck driver, wanted to use that provision to allow him to retain his truck and to keep working. The State of Montana had other ideas.

Like many small business owners, Mr. Timm had created a limited liability company (an LLC) to operate his truck-driving business. The LLC, J&R Transportation, actually owned Mr. Timm's truck -- what he owned was one-third of the stock in what lawyers usually call a "closely-held" corporation. That meant that the truck itself, the actual tool used in Mr. Timm's business, was not "his."

Montana's Medicaid agency initially decided that the corporate ownership of the truck meant that the "tools of the trade" exception should not apply. Mr. Timm was not "using" his LLC interest to earn his living, the agency reasoned, and the truck he was using to earn a living did not belong to him. Accordingly, the agency ruled that Mr. and Mrs. Timm had too much in available resources, and refused to assist with Mrs. Timm's nursing home care. It took the agency almost a year and a half to come to that conclusion, incidentally -- during which time Mrs. Timm was incurring nursing home expenses each month.

The Timms' solution was two-fold. First, Mr. Timm traded in his one-third interest in J&R Transportation, taking direct ownership of his truck instead. Then he simultaneously reapplied for Medicaid and appealed the earlier denial.

This time the Medicaid agency had no difficulty finding Mrs. Timm eligible for Medicaid. Then it established the amount of her income that should be paid to the nursing home each month -- the agency directed that virtually all of her income be paid to the nursing home. No provision was made for the $35,000 in unpaid nursing home expenses incurred during the months of ineligibility.

After each level of appeal before the agency resulted in the same denial of the Timms' application, the couple appealed to the Montana courts. The state Supreme Court ultimately agreed with them, ruling that the state had no business denying Mrs. Timm eligibility just because her husband's truck was owned by the closely-held corporation.

The high court also addressed the accumulated nursing home bill. Medicaid regulations provide an allowance for payment of medical bills not covered by Medicaid, which Mrs. Timm argued should allow her to use her income to pay off the old nursing home bill before having to contribute to her current nursing home expenses. The Medicaid agency had relied on the requirement that bills be "not covered by Medicaid," which it interpreted to mean that the old nursing home expenses would have to have been of a type that would not have been covered if Mrs. Timms had been eligible. Not so, ruled the court -- Mrs. Timm's bills were not covered by Medicaid, albeit because of the agency's eligibility determination, and that was all that was required. Timm v. Montana Department of Public Health and Human Services, April 21, 2008.

The Timm case is interesting for another reason, incidentally. The National Academy of Elder Law Attorneys, a national organization of attorneys who practice elder law, participated in the litigation by filing an "amicus curiae" brief in the case. The brief, which argued for the very result adopted by the state Supreme Court, was authored and filed by NAELA members Nancy Gibson (from Montana), Rene Reixach, Jr. (New York) and Ron Landsman (Maryland).