For years, nursing home residents have had the option of telling the Social Security Administration (SSA) to direct-deposit their social security benefits into master accounts at the resident’s nursing home, for management on behalf of the resident by the facility. Now, in a move that got very little public attention, the SSA has indicated that it may stop this practice.

The Social Security Act, in section 205(i), directs the commissioner of the SSA to certify to the U.S. Department of the Treasury the name and address of beneficiaries, or their representative payees; the amount of benefits to which a resident is entitled; and the time at which such payments should be made to the beneficiary. The Treasury then makes payments according to the SSA’s certification of those facts. Section 207 of the Social Security Act prohibits “transfer or assignment” of any person’s right under the Act to future benefit payments and also protects those benefits from levy, attachment, garnishment or other legal process. In addition, a Treasury regulation requires that any direct deposit of a beneficiary’s payments be made only to an account at a financial institution established in the name of the beneficiary.

For many years, the SSA has allowed beneficiaries to have their benefits paid, by direct deposit, to a master account, where the master account holder establishes subaccounts for individual beneficiaries—in essence, a pooled account with subaccounts for each person’s funds. This was originally designed to allow direct deposits into beneficiaries’ investment accounts.
 
The practice was later expanded to allow Social Security beneficiaries to authorize the direct deposit of Social Security funds into nursing home master accounts with subaccounts for each resident, as a convenience to facility residents. This practice was permitted as long as the individual subaccounts were carefully maintained, beneficiaries had complete access to the funds held in those accounts and the arrangement could be revoked at any time by the resident beneficiary.

According to a notice published in the Federal Register in April 2008, the SSA is now concerned that some “payday lenders” have solicited Social Security beneficiaries to have their benefits direct-deposited into funds with the lender, as part of a loan agreement. The payday lender then deducts loan payments, interest and fees from the beneficiary’s account. The SSA has identified certain abusive practices with this arrangement, and with similar arrangements by certain check-cashing services, and is considering whether to stop the practice altogether.

The Federal Register notice asked for public comments on this issue. The SSA specifically asked for comments on the impact on nursing home residents of precluding the practice for nursing homes and asked, “Would nursing homes be able to receive and manage benefit payments without the use of master subaccounts for residents who are either incompetent to handle their own finances or simply choose to have their funds managed by the facility?”

Earlier this year, the American Health Care Association filed detailed comments with the SSA, pointing out that 1) the abuses identified did not involve long term care facilities at all; 2) the systems used by nursing homes to track, monitor, reconcile and distribute resident funds are detailed and have sufficient safeguards; 3) the federal survey and complaint systems ensure that these safeguards are working; 4) the accounts are protected by surety bonds that the facility must maintain; and 5) by federal law (both statute and regulation), nursing homes are required to manage the personal funds of residents if requested to do so by  the resident or his/her legal representative. The American Health Care Association also stressed that the practice of residents having their funds deposited with the facility is not a “transfer or assignment of future benefits,” which the Treasury regulation would prohibit, but simply a deposit into a fund established and controlled by the resident. Personal funds held by nursing homes for residents cannot, by law, be distributed to any person or entity, including the facility for payment of its charges, without express authorization by the resident or his/her legal representative.

We should stress that the SSA’s final decision, whatever it may be, will not affect those situations where the resident or legal representative has made the facility the representative payee for the resident. This involves a separate process and designation; these are not under review by the SSA. However, there is still a large category of residents for whom the facility is not a representative payee, but who prefer direct deposit of their funds into a facility account to be managed under the guidelines and restrictions that exist under federal nursing home statutes and regulations.

The SSA is still studying the issue and the comments it received. From our conversations with many nursing home providers, it appears that the SSA’s re-examination of this issue and the potential that the SSA could preclude the use of master subaccounts in nursing homes have gone largely unnoticed. So we thought we’d bring it to our readers’ attention.

We will continue to monitor this issue and let you know as soon as we hear anything, formally or otherwise, about how the SSA will finally come down on this issue. Should the agency preclude the practice as it currently exists in nursing homes, the next question will be “How do nursing homes manage their residents’ personal funds without this mechanism?” More on that issue later.