The Journal of The DuPage County Bar Association

Back Issues > Vol. 17 (2004-05)

A Practical Guide to Medicaid and Medicare
By Eliot Abarbanel

I. Introduction

A long standing client walks into your office and informs you his wife has just gone into a nursing home and is likely to remain there long-term. He seeks your advice on how he can finance this. Another client lost his job because of a severe mental illness and is having a hard time obtaining medical treatment. He is hoping you can help him find medical assistance. A third client is being sued by a hospital for huge medical bills, which he thought had been covered by Medicaid. He seeks your assistance. Many situations may come up as a routine part of your daily practice that involve issues relating to Medicaid or Medicare law. What follows is a basic primer and some practical pointers to help you guide your clients in these areas.

II. Medicaid

Medicaid is a joint federal-state program of medical assistance for low income persons. It is administered by the Illinois Department of Human Services (DHS) and the Illinois Department of Public Aid (IDPA), with the latter having primary responsibility. Every county has at least one local office of these state agencies. This is where most clients fill out applications and where their cases are processed by caseworkers. Information on local offices, including addresses, telephone numbers, etc., can be obtained at the DHS’s web site: This web site also provides general information about the various programs administered by DHS, including an application which can be downloaded and mailed in to DHS.

Medicaid is a comprehensive health benefit program which provides coverage for most medically necessary services for persons who meet the financial and non-financial criteria of the program. The program is intended for low-income disabled and elderly persons, and families receiving cash under the Temporary Assistance to Needy Families (TANF) program. Assets may not exceed $2000 for a single person or $3000 for two persons, with an additional $50 for each additional person in the assistance unit. The home in which the client resides is exempt from consideration as an asset, as are the value of one motor vehicle necessary for employment or health purposes, one life insurance policy up to $1500 in value, personal effects and household goods of less than $2000 value, burial funds and burial spaces, resources needed for self-support, among other items. See DHS Policy Manual 07-02-00 et seq. for more details. (The DHS Policy Manual can be found on-line at

Two of the more important medical programs administered by IDPA are KidCare and Family Care. These programs are directed at dependent children and their families. There are no asset limits for children and adults receiving benefits under the KidCare/Family Care programs. The income limits are higher for these programs than for Medicaid. Complete medical coverage is provided to children with incomes below 133% of the federal poverty level (FPL). Somewhat more limited coverage is provided to children with incomes as high as 200% FPL. For example, under these programs, there is a $2 or $5 co-pay per doctor visit depending on income, and a $2 to $5 co-pay per prescription medication depending on income. The parents of children with incomes below 133% FPL also receive limited medical coverage. Complete medical coverage is provided to the parents of children who have incomes below the TANF payment level [e.g. $396 for a family of 3]. Finally, pregnant women or women with children below the age of one are eligible for complete medical coverage without co-pays if their income is below 200% FPL.

What do you do if a client’s Medicaid application is denied and s/he seeks your representation? The first thing to do is to advise your client to appeal immediately. There is only a 60 day appeal period, which begins on the day after the date of the written notice of denial. The client has even less time —10 days — to file an appeal if s/he wishes to keep benefits from being terminated or reduced while the appeal is pending. The client may request an appeal with DHS by telephone at 800-435-0774, but it is better to appeal in writing to preserve a record of the appeal. If time is of the essence, a telephone appeal followed by a written notice of appeal is the preferred method. Appeals should be sent to the local DHS office or to the Bureau of Assistance Hearings, Illinois Department of Human Services, 401 South Clinton Street, Chicago, IL 60607.

Most Medicaid appeals involve the issue of disability. (Children, pregnant women, and persons supporting minor children may receive medical assistance without a showing of disability.) Thus, it is important to help your client establish or prove disability. The standard for disability is the same as that used by the Social Security Administration: a severe medical impairment or combination of impairments which prevents the person from engaging in "substantial gainful activity" (i.e. work) and can be expected to result in death or has lasted or can be expected to last at least twelve months. The first thing you need to ascertain is how well (or poorly) documented your client’s medical condition is. Medicaid cases are intensively focused on the medical record. You can quickly determine the status of the medical record by viewing it at the local DHS office. It is freely available to the client or client’s representative (or at least it should be). If there are gaps in the record, you should quickly attempt to obtain the missing records. Medical providers are often slow in producing records, so it is important to get started on this task immediately. Also, the Medicaid appeals process moves quickly, much more quickly than the social security appeals process, for example, so it can be detrimental to your client if you delay obtaining the medical records. If your client does not have any recent medical documentation because s/he cannot afford medical care or for other reasons, IDPA is required to pay for a medical evaluation. Many caseworkers appear to be unaware of this requirement, so be prepared to reference the authorizing rule at DHS Workers’ Action Guide 03-08-01.

If you are unable to obtain the medical records you need prior to the hearing, you should request a continuance from the appeals department of DHS, called the Bureau of Assistance Hearings, 401 South Clinton Street, Chicago 60607, fax number: 312-793-3387. Under DHS rules, the first request for postponement of a hearing will be granted automatically if submitted at least 2 work days before the hearing. For subsequent requests for postponement, there must be a showing of good cause, which consists of death in the family, injury or illness, or sudden or unexpected emergency that reasonably prevents the appellant from attending the hearing. Usually if you cite inability to obtain necessary medical records as the reason for the continuance, that is enough to obtain a postponement. If the appellant misses the hearing, s/he can request a re-scheduling of the hearing if the request is made within 10 days of the hearing and there is good cause for missing the hearing. It is best to request the continuance by fax (312-793-3387) within two working days of the hearing so as to avoid having to attend the hearing to make the request. You can waste a lot of time at the local office waiting for your hearing to begin. You may also request a telephone hearing or some other accommodation if your client is disabled.

The decision on disability is made by the Client Assessment Unit (CAU) in Springfield, not the local office. The local office transmits any medical evidence you submit to the CAU, which then decides whether your client is disabled under the above definition. The CAU theoretically uses the same "sequential evaluation" to decide disability as that used by the Social Security Administration. This analysis is set out in the social security regulations at 20 C.F.R. Parts 404 & 416. However, in practice it is questionable whether the CAU actually or properly applies the social security analysis. When sending in additional medical records, it is useful to include a cover letter in which you analyze the medical evidence and fit it into the framework of the social security "sequential evaluation." You should make your strongest argument as to why your client should be found disabled based on the medical record and any other relevant evidence. This is similar in purpose to a closing argument at trial.

In the event the CAU continues to deny the application, despite your best efforts, your only recourse is to proceed to a formal hearing. This is not a desirable path because it is rare that you will be able to reverse the CAU’s decision at a hearing. The vast majority of hearing decisions merely rubber stamp the original denial. However, the hearing decision is a final administrative decision, which can be reviewed in the circuit court on administrative review, where you are likely to receive a more impartial review. 735 ILCS 5/3-101 et seq. In anticipation of the appellate-like administrative review proceeding, care should be taken to establish a good administrative record, including laying out in some detail your theory of disability.

What happens if your client has missed an appeal deadline? In many cases, just advise your client to re-apply. This will have no adverse consequences because benefits can be backdated three months from the date of application. So, for example, if your client has medical bills stemming from March 2005, these bills will be covered so long as the application is made no later than June 2005, assuming the client was otherwise eligible for Medicaid when the medical services were provided.

A frequent issue that comes up concerning Medicaid is the "spenddown" program. Just what is a spenddown and how does it work? A spenddown is like a health insurance deductible. The amount of the spenddown is determined by the client’s income and assets. It is the amount of a medical bill(s) the client is legally responsible for. In order for the client to receive Medicaid coverage in a given month, s/he must present medical bills showing s/he owes or has paid the amount of the spenddown. Once that spenddown has been met, IDPA will pay for any remaining bills for that month. Bills can be accumulated from more than one month to meet spenddown. So, for example, a client may save his or her bills for several months and then submit them in a particular month when s/he is expecting an expensive medical procedure. It is also worthwhile for the client to meet spenddown as early in the month as possible because Medicaid coverage is provided for a particular calendar month only. For example, if client meets spenddown on the 25th of the month, s/he will have less than a week’s worth of Medicaid coverage for that month. If s/he meets spenddown on the first of the month, almost the entire month will be covered.

Many clients are concerned about what will happen to them if their spouse enters a nursing home and they can’t afford to pay without assistance from the state. This is a legitimate concern. The good news is that IDPA has more liberal policies for the spouses of clients requiring long-term care than for those not requiring long-term care. The "community spouse" is allowed to retain assets of up to $95,100. If the nursing home spouse has most of the assets in his or her name, s/he can transfer those assets to the community spouse without running afoul of Medicaid rules. The nursing home spouse must still adhere to the standard $2000 asset limit for individuals. In addition the community spouse is permitted to have income as high as $2378 per month without affecting the nursing home spouse’s Medicaid eligibility. Again, the nursing home spouse may legitimately transfer income to the community spouse to reach the $2378 figure without jeopardizing Medicaid eligibility.

When someone is applying for Medicaid, IDPA looks at transfers of property made within 36 months of application in long-term care and in-home care cases. If the transfer was made for less than fair market value, IDPA presumes it was made for the purpose of qualifying for Medicaid. However, client may present evidence to rebut that presumption. If the transfer was made in order to qualify for Medicaid, the person will be disqualified from receiving Medicaid coverage for the period of time the uncompensated transfer equals the cost of long-term or in-home care services. If the transfer occurred more than 36 months prior to application, IDPA will assume the transfer was proper.

Many practitioners receive questions from worried clients about liens and other recovery methods used by IDPA. The Department may place liens on real property or attempt recovery from the estates of clients under limited circumstances. The Department may place a lien on real property for cash benefits paid under the AABD program (this involves only a relative handful of clients) and for medical benefits for clients who have been in an institution for at least 120 days. This includes "exempt" homestead real property after the client has been institutionalized at least 120 days. If the client later returns to the homestead property, the lien will be removed. Also, the Department will not place a lien on the homestead property if it continues to be occupied by the client’s spouse, minor or disabled child, or sibling who has lived there at least one year and has an equity interest in the property.

IDPA may also attempt recovery of benefits from the estates of the following deceased persons: recipients of AABD cash benefits; institutionalized persons where the Department has a lien on their property; persons over age 65 who received medical assistance before October 1, 1993; persons over age 55 who received medical assistance after October 1, 1993; and the spouse of any of the above. The Department will not seek recovery from the estates of recipients if a surviving spouse, a minor or disabled child live in the client’s home, or if recovery would cause the heir(s) undue hardship. DHS Policy Manual, 23-09-02-e.

An important planning tool for disabled clients and their relatives is the Medicaid qualifying trust or self-sufficiency trust, which permit funds to be placed in trust by or on behalf of disabled persons without jeopardizing Medicaid eligibility. (Some of these trusts also maintain SSI eligibility.) Thus, a parent or guardian may place funds in trust to supplement an adult disabled child’s income and still preserve the child’s Medicaid benefits. These trusts must be irrevocable and must contain language providing for repayment of Medicaid benefits to the state upon the ward’s death. See DHS Policy Manual 07-02-15-b for more details. Another useful device is the special needs trust which permits the creation of trusts by third parties on behalf of disabled persons without affecting Medicaid eligibility. These trusts require that the trustee have full discretion to distribute and accumulate income and principal and that the disabled beneficiary have no ability to compel distribution of income or principal. These latter trusts do not require repayment to the state for Medicaid benefits provided to the disabled person. See 760 ILCS 5/15.1.

A little known program that began in January 2002 provides Medicaid coverage for disabled persons returning to work. Called the Health Benefits for Workers with Disabilities (HBWD) program, it encourages disabled persons to return to work by providing health insurance benefits. Lack of health benefits is often an obstacle to disabled persons entering the work force. Depending on the person’s income, the premium is between 0 and $100 per month in addition to small co-pays for prescriptions and services. The program is not available to persons with incomes higher than 200% of the federal poverty level.

IDPA also helps lower income clients to pay for Medicare premiums and co-payment/deductibles. For persons with income below 100% FPL IDPA will pay Medicare Part B premiums as well as any co-pays or deductibles under either Parts A or B. For persons with incomes between 100% and 120% FPL IDPA will pay Medicare Part B premiums as well as other medical benefits if the person qualifies for Medicaid. For those with income between 120% and 135% FPL, IDPA will pay the Medicare Part B premium only. This can be very helpful for people with very low incomes as the Medicare Part B premium is currently $78.20 per month.

If your client is being sued or otherwise pursued by a medical provider for payment of medical bills for which you suspect the Department of Public Aid should have paid, you or your client can make formal inquiry with the Department by calling their toll-free number, 800-252-8635. They will send you an inquiry form in which you supply relevant information about the claim. The Department must investigate your claim and notify you in writing of the reasons if there was a denial. Your client has 30 days in which to appeal. This procedure was set up through a consent decree in the Collins v.

Bradley lawsuit, a copy of which can be obtained through the Illinois Legal Aid website at, in the health care section in the article on "Medicaid and General Assistance Medical Assistance", in the chapter on "Disputed Bill Inquiry Process". It should be kept in mind that payment by Medicaid of the client’s bill, even if less than the full amount billed, constitutes payment in full and the provider may not seek the balance from the client.

III. Medicare

The Medicare program is the principal health insurance program for the nation’s retirees. But it is also an important health insurance program for the disabled as well. Unlike Medicaid, it is entirely funded by the federal government and it is not focused exclusively on low income persons. In order to receive Medicare health insurance benefits, a person must be 65 years of age or older, be under the age of 65 and have received disability benefits for at least 24 months, or have kidney disease requiring dialysis or a transplant. (In reality, the total waiting period for disabled persons is 29 months because there is a 5 month delay between certification of disability and receipt of SSDI benefits.) Persons who have not earned enough work credits to qualify for social security benefits are not eligible for Medicare, although they may purchase Medicare coverage by the payment of fairly costly premiums. If such persons are disabled and receive SSI benefits, they would qualify for Medicaid which provides broader coverage than Medicare.

The Medicare program has four parts. Part A is the traditional hospital coverage, including lab tests, physical therapy and the like. It also includes skilled nursing care and some home health services. Part B covers physician and outpatient services, durable medical equipment, and ambulance services. Part C provides coverage for managed care services. And Part D, the newest Medicare program, enacted in 2003, provides limited coverage for prescription medications. The formal prescription medication program begins in January 2006 but interim coverage is already available. All Medicare recipients are enrolled in the Part A program, but participation in the other three programs is voluntary. Clients must pay a monthly premium ($78.20 in 2005, usually deducted from the recipient’s social security check) to receive Part B benefits. When the permanent prescription drug program (Part D) goes into effect in January 2006, there will be a monthly premium of approximately $35.00 (varies by particular plan chosen). The drug benefits will be administered by private companies.

A provider may choose to accept "assignment" of claims for goods or services under the Medicare program. This means that the provider agrees to charge the amount approved by the Medicare program as payment in full. The recipient is responsible for a 20% co-payment of the bill with the remaining 80% paid by Medicare. If the provider refuses to accept assignment, they cannot charge the patient more than 115% of the Medicare-approved amount. The patient would then be responsible for the 20% co-payment of the Medicare-approved amount plus any charge in excess of the approved amount. It is helpful to find out in advance if the physician or other provider agrees to accept assignment.

The appeals process under Medicare is significantly different from that of Medicaid. Claims under Medicare are administered by private companies which contract with the federal government to process client claims. The appeals process varies with the program under which a claim is being appealed. Under Medicare Part A recipients have 120 days in which to appeal a denial of, or inadequate payment for, service, without regard to the amount in controversy. This is called a reconsideration. If denied on reconsideration, the recipient may request an in-person hearing with an administrative law judge (ALJ). This request must be made within 60 days of the reconsideration decision. The minimal amount in controversy for an ALJ hearing is $100. The ALJ hearing is a full evidentiary hearing in which all relevant evidence and testimony may be submitted. If the hearing is adverse to the recipient, s/he has 60 days to appeal to the Departmental Appeals Board. This is a paper appeal of the ALJ hearing. If this is also adverse, the recipient may file a federal court action challenging the decision. This must be done within 60 days and the disputed claim must be at least $1000 ($2000 in hospital cases).1

For Part B denials and inadequate payment levels, the appeals process is similar but the time lines and amounts in controversy differ. A recipient has 120 days in which to appeal an initial determination, without regard to the amount in controversy. A review will be conducted by the carrier and a review determination will be issued. If adverse, the recipient may request a carrier hearing. The minimum amount in controversy must be at least $100. This is a full evidentiary hearing conducted by the carrier. If this is also adverse to the recipient, s/he may request an ALJ hearing within 60 days of the hearing decision. The minimum amount in controversy for an ALJ hearing is $500. The remaining levels of appeal are the same as for Part A.

Under Part C the appeals procedure is similar to those under A and B. The main difference is that participants in managed care programs have additional issues which may be appealed, such as denials of "out of network" services. If these involve potentially life threatening situations, an expedited review process is available. If a participant is unhappy with an organization’s determination, s/he may request a reconsideration within 60 days of the determination. If the organization upholds its decision, it automatically goes to a review by an independent contractor. An adverse decision at this stage can be appealed for an ALJ hearing within 60 days if the claim involves at least $100. From there it goes to the Departmental Appeals Board and finally to federal court if the amount in controversy is at least $1000. The same time frames apply as in Parts A and B.

The appeals process for Part D is very similar to that for Part C. An adverse review determination can be appealed to an ALJ hearing if the amount in controversy is at least $100. It is then appealed to a Medicare Appeals Council and finally can be brought in federal court if the amount in controversy is at least $1000.

A common area of appeal under Medicare involves the usage of skilled nursing care benefits under Medicare Part A. Under Medicare’s rules, a recipient is entitled to up to 100 days of benefits in a skilled nursing facility for each "spell of illness". To be eligible for this benefit, the recipient must require skilled nursing care, not merely custodial care. Skilled nursing care is that level of care required in order to improve the recipient’s medical condition or to prevent deterioration in his or her medical condition. The care must be prescribed by a physician and the patient must require the skills of technical or professional personnel such as registered nurses, physical therapists, audiologists, etc. The nursing facility’s determination that the patient does not require skilled nursing care can have negative consequences in that the patient will not receive Medicare reimbursement for the nursing home services. The patient may contest this determination by the nursing facility by requesting a "demand bill". This means that the nursing home must bill Medicare for services rendered. This then triggers a review by the Medicare intermediary, which will then invoke the Medicare appeals process described above. The patient may present whatever evidence s/he or her representative deems appropriate to establish that the patient does require skilled nursing care.

IV. Conclusion

The Medicaid and Medicare programs are quite complex. Particularly in the Medicaid program, the advice you give your clients may have important financial planning implications. Care should be taken to consider the numerous rules on income and assets in order to enhance your clients’ financial situation to the greatest extent possible. Familiarity with the rules and process will also allow you to help your client obtain valuable health insurance coverage under these two programs.

1 Beginning in May 2005 most Medicare Part A claims and some Part B claims will add a further layer of review by an independent contractor before reaching the ALJ hearing stage. Beginning in January 2006 this additional level of review will extend to most other Part B claims.

DCBA Brief