This is the third and final installment of a three-part series on the recently released final regulations that impact the Veterans Aid & Attendance pension benefit ("Aid & Attendance"). In the prior blog posts, I discussed the look-back period and transfer penalties that are now being imposed on certain transfers of assets within the 36-month period immediately prior to the aid & attendance application and the new net worth rules. This installment will focus on the expanded definition of deductible medical expenses and how it will be beneficial in allowing many veterans and their surviving spouses to qualify for Aid & Attendance.
Deductible Medical Expenses
Another major change in the final regulations concerns the deductibility of unreimbursed medical expenses from income for purposes of determining net worth. Pursuant to 38 U.S.C. 1503(a)(8), certain unreimbursed medical expenses paid by the veteran, the veteran's spouse or surviving spouse, or by the veteran's child in excess of 5% of the maximum annual rate of pension are deductible. The rule itself has not changed; however, the expenses that may be claimed as medical expenses have.
The term "medical expenses" is not defined by statute. For many years, the primary guidance on the issue was the October 2012 Fast Letter 12-23, Room and Board as a Deductible Unreimbursed Medical Expense. The new regulations attempt to provide more definitive guidance on what constitutes deductible medical expenses. Section 3.278(c) provides that medical expenses are generally defined as "payments for items or services that are medically necessary, that improve a disabled individual's functioning or that prevent, slow or ease an individual's functional decline." The regulations then detail seven types of expenses that are included in the term "medical expenses": Importantly, not all medical expenses require a licensed provider to be deductible.
Note that certain items are specifically excluded from deductible medical expenses: payments for items or services that maintain general health (such as vacations and dance classes), cosmetic procedures, meals and lodging, and assistance with instrumental activities of daily living ("IADL"s), except as otherwise provided in the regulations. §3.278(e). The VA indicates that the list of excluded items is not exhaustive so additional items could be found to be non-deductible. The list is not particularly surprising and includes many not strictly medical costs, such as gym costs.
Allowable Medical Expenses
- Payments to a health care provider for services within the scope of the provider's professional capacity, including cosmetic procedures to improve a congenital or accidental deformity or related to treatment for a diagnosed medical condition. "Health care provider" means an individual licensed by a State or county to provide health care in the State or county in which the individual provides the health care or a nursing assistant or home health aide supervised by a licensed health care provider. §3.278(b)(1).
- Payments for prescription and non-prescription medication procured lawfully under Federal Law (i.e., no medical marijuana) and payments for medical supplies or equipment. Medically necessary food, vitamins, and supplements as prescribed or directed by a health care provider authorized to write prescriptions are included.
- Payments for adaptive devices or service animals, including veterinary care, used to assist with an ongoing disability, but not including non-prescription food, boarding, grooming or other routine expenses of owning an animal.
- Payments for transportation for medical purposes (including taxi, bus, or other public transportation). This includes mileage (limited to the reimbursement rate specified by the U.S. General Services Administration less any amounts reimbursed by the VA or other agency), parking and tolls for privately owned vehicles.
- Payments for health, medical, hospitalization, and long-term care insurance premiums, including payments for Medicare Parts A, B and D.
- Payments for smoking cessation products and services
- Institutional care and in-home care.
- Expanded Deductibility for Long-Term Care expenses
The VA has expanded the payments for institutional care and in-home care that it will allow as medical expenses in nursing homes, hospitals, in-home and other institutional settings. However, the rules surrounding when such expenses are deductible vary. §3. 278(d).
Hospitals, Nursing Homes, In-Patient Treatment Centers
Payments to hospitals, nursing homes, medical foster homes and inpatient treatment centers (including for drug or alcohol addiction), including the costs of meals and lodging charged by such facilities, are medical expenses.
Payments for in-home assistance with activities of daily living (ADLs) and instrumental activities of daily living (IADLs)1 are medical expenses so long as the disabled individual is provided with health care or custodial care. The service provider need not be a licensed health care provider if the disabled individual "needs A&A or is housebound2 "or a physician, physician assistance, certified nurse practitioner or clinical nurse specialist states in writing that, due to a physical, mental, developmental, or cognitive disorder, the individual requires the health care or custodial care that the in-home attendant provides. Custodial care means regular assistance with two or more ADLs (bathing or showering, dressing, eating, toileting, transferring, and ambulating) or supervision because an individual with physical, mental, developmental or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment. Payments must be commensurate with the number of hours the provider attends to the disabled individual.
Care Facilities Other than Nursing Homes
Payments to facilities other than nursing homes, which includes assisted living facilities, can be medical expenses. The VA is focused primarily on the kind of care being received in the facility rather than the "type" of facility in which the individual receives care. Thus, care can be provided by the facility, contracted by a third-party provider, or provided by family and friends. All payments for health care provided by health care providers are medical expenses. Payments for assistance with ADLs and IADLs are medical expenses and the provider does not need to be a licensed health care provider if the individual is receiving health care or custodial care at the facility and the disabled individual needs A &A or is housebound or needs to be in a protected environment due to a physical, mental, developmental, or cognitive disorder as stated by a physician (or other specified medical providers) in writing. In addition, payments for meals and lodging (and other facility expenses not directly related to health care or custodial care) are medical expenses if the facility provides or contract for health care or custodial care for the disabled individual or a physician (or other specified medical providers) states in writing that the individual must reside in the facility to separately contract with a third-party provider to receive health care or custodial care or to receive (paid or unpaid) health care or custodial care from family or friends.
The ability of the claimant to obtain a medical certification that the claimant is in need of custodial care for supervision because an individual with physical, mental, developmental or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment will likely greatly ease the ability of practitioners to use the costs of assisted and independent living facility expenses to reduce income to zero. It is not uncommon for people to move to such facilities at least in part on the advice of their doctors and for claimants in need of aid & attendance, getting a medical certification of the need for care is not likely to be a difficult hurdle. Because licensed health care providers are not required in all cases, there may be an increased ability to reduce medical expenses by paying family members for care or to reduce income by paying an independent living facility.
The new VA regulations are going to take some time to master. There will need to be an increased emphasis on non-crisis planning and a rethinking of the place of annuities in the planning process for veterans. For those who must also balance the potential impact of veterans' planning on Medicaid planning, there may be an increased emphasis on five-year planning with trusts which would subsume the veterans' three-year look-back period. Even annuities which are purchased well in advance of the three-year look-back period will need to be thought through because the income is a component of net worth. For those living in states where the Medicaid maximum community spousal resource allowance is determined with reference to assets on hand at application, VA planning may well reduce the assets available to allow a maximum community spousal resource allowance. In addition, practitioners are going to need to educate their clients in connection with the new transfer penalties to ensure that accidental transfers are not made that will push the penalty period start date back unexpectedly and to emphasize the need for planning before a crisis occurs for the best results.
1IADLs are independent living activities such as "shopping, food preparation, housekeeping, laundry, management of finances, handling medication, using the telephone and transportation for non-medical purposes." §3.278(b)(3).
2"Needs A&A or is housebound" means a disabled individual who otherwise qualifies under §3.351 for needing regular aid and attendance or being housebound and is a veteran, surviving spouse, parent (for parents' DIC) or the spouse of a living veteran with a service-connected disability rated at least 30 percent who is receiving pension. §3.378(b)(8).
Elizabeth ("Beth") Boehmcke, Esq.
Attorney, Content Specialist, InterActive Legal
Elizabeth (“Beth”) Boehmcke graduated cum laude from the University of Michigan Law School in 1993. After graduation from law school through 2003, she specialized in high net worth estate planning, with an emphasis on cross-border and asset protection planning, and the representation of fiduciaries managing complex trusts and family businesses.
During her career in New York, she was an associate attorney at both Rogers & Wells (now Clifford Chance) and Hodgson Russ in New York City. After a hiatus in her legal career to care for her children, she resumed her legal career by passing the Virginia bar in 2014 and began working for the Hook Law Center, P.C., where she expanded her estate planning practice to include elder law, specifically focusing on asset protection planning for Medicaid and Veteran’s benefits.
She is a proud graduate of the University of Virginia where she received a B.A. with distinction in Psychology in 1988 and is also a graduate of SUNY-Buffalo where she received an M.A. in Clinical Psychology in 1990.