Craig B. is a Vietnam War veteran who receives a pension benefit of $1,076 from the Department of Veteran’s Affairs (VA) due to a non-service related disability. Craig needs assistance feeding and dressing, so for the past year, he has also been receiving VA Aid and Attendance benefits of $719 monthly. Craig has recently entered a long-term nursing home facility under doctor’s orders. Medicaid has approved Craig as a recipient of benefits to pay for this care. Craig is concerned about the planning needed to coordinate his VA and the Medicaid benefits.

The Benefit Reduction Conundrum

According to federal law, as a resident of a Medicaid-approved facility with no dependents, Craig’s VA benefits are supposed to be reduced to $90 after the month of admission to the facility. Although that would seem to be no problem since Medicaid will pay for Craig’s needs, there is a catch. It takes months - even years at times - before the VA takes the action to reduce the benefits. This delay could lead to problems for Craig. He could potentially lose Medicaid eligibility. Furthermore, federal law gives the Secretary of the VA the right to bring suit to recover the “overpayments” made in the interim before the VA reduces benefits to $90 a month.

First Action Needed: Notice to the VA

To address his concerns, Craig should immediately give notice to the VA of his Medicaid eligibility. If he does so, he cannot be found to have willfully concealed information necessary to make the reduction.  The law provides that absent willful concealment, the veteran will not be liable to the US government because the VA Secretary failed to timely reduce benefits. Therefore, by giving notice, Craig can eliminate any potential liability.

Planning for VA Funds Received Until Pension Reduction

The payments by the VA for aid and attention allowances, housebound allowances and reimbursement of unusual medical expenses are not counted as income which would prevent eligibility for Medicaid. However, if Craig continues to receive the VA payments and doesn’t spend the funds because he is in the nursing home, these amounts will accumulate such that he will exceed the limit of $2,000 in resources Medicaid imposes. If that happens, he will lose his eligibility for Medicaid.

Elder law lawyers are not in agreement about the best approach for Craig to take. Some would have Craig create a Qualified Income Trust (QIT), also known as a Miller Trust, and deposit both the pension benefit and the additional VA benefit amount into it. (A full explanation of the results of establishing the Miller Trust is beyond the scope of this article.) Other elder law lawyers would have Craig to spend the $719 a month to pay bills, or make non-penalized transfers to stay below the $2,000 resource level. (An explanation of non-penalty transfers is also beyond the scope of this column).

Those in Craig’s position who are eligible for both VA and Medicaid benefits should seek the advice of an elder law lawyer to assist in coordinating these benefits in a way that best suits the individual’s circumstances.

 Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives and practices in beautiful Somervell County, near Chalk Mountain.