Kelly lives a comfortable life. As she gets older, she sees more and more of her friends entering nursing homes and losing everything they worked so hard for all those years. A friend told her that if she gave away all of her assets to her children, she could go on Medicaid. Then she would not have to pay for a nursing home. Kelly thinks this is a good idea. Is it?
Congress created the Medicaid program in 1965. It is part of Social Security. The purpose of Medicaid is to pay for medical care for people who are very poor. It is, plain and simple, a welfare program. Congress makes the general rules for Medicaid, but each state is given some flexibility to adjust the program. The nursing home benefit is especially valuable because Medicaid is the only program that covers significant amounts of nursing home care.
If you pay for your nursing home care yourself (or through long-term-care insurance), you will have much more control over the location of your nursing home and the type of care you receive. Remember that Medicaid is a government program, and, like all government programs, your benefits may be limited and could be cut back. There is also the belief of many people that the care you will receive in a Medicaid facility is not as good as the care you would receive in a more expensive, private nursing home.
Many persons qualify for Medicaid; others can qualify by taking certain steps. These steps—known generally as Medicaid Planning—must be taken in advance. This chapter will try to provide some guidance, but be aware that almost every generalization in this complex area has several exceptions. You’d be well advised to get the advice of a lawyer who knows this area and is familiar with the facts of your particular case.
Medicaid is a program run jointly by the federal government and the states. Medicaid providers send their bills directly to Medicaid, rather than to you. The state Medicaid program reimburses providers. An increasing number of states are contracting with managed care organizations to serve all their Medicaid beneficiaries. Providers cannot charge you additional amounts for covered services. Medicaid will not reimburse you for the charges you paid. If a person qualifies for it, Medicaid will pay the full cost of most services. The cost of prescription drugs is an exception; for those, there may be a nominal copay. When it comes to nursing home care, Medicaid will pay the part of the bill that the poor person cannot pay.
To find out if you are “poor enough” for Medicaid, the state will look at your monthly income and the fair market value of your resources. A resource is the term for the property that you own. To qualify for Medicaid in most states, your resources—certain property but not all of the property that you own—must not be valued at more than $2,000. Some states have a slightly higher minimum. Even a person who is one dollar over the income gap is ineligible, no matter how high the medical bills. Fortunately, certain assets are not counted, such as the home you own, which makes the program available to more people than you would otherwise think.
As noted earlier, Medicaid pays very nearly the full cost of medical care, but the story is different for nursing homes, where you will be expected to use the money you have coming in, such as Social Security, to help pay for the bill. Medicaid covers the portion of the bill that your income will not pay. You may receive both Medicare and Medicaid. In that case, Medicaid usually pays the portion of the expenses under Medicare for which you would normally be responsible.
If you do not qualify for Medicaid, but your income is low and meets special income and resource tests discussed later, you may qualify for help from Medicaid in paying your share of Medicare costs as a Qualified Medicare Beneficiary (QMB) or a Specified Low-Income Medicare Beneficiary (SLMB).
Medicaid programs in each state have different eligibility standards. All states require that adults without dependent children must be at least 65, blind, or disabled and that they meet income and asset tests.
The income tests are linked to the federal Supplementary Security Income (SSI) program or, for younger applicants, to Temporary Assistance to Needy Families (TANF). In most states, persons eligible for SSI or TANF are automatically covered. These are categorically eligible individuals.
In nineteen states, there is a gross-income cap for certain benefits—specifically, nursing home care—set at three times the maximum SSI benefit for a single individual. These states are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Idaho, Iowa, Louisiana, Mississippi, Nevada, New Mexico, Oklahoma, Oregon, South Carolina, South Dakota, Texas, and Wyoming. This cap changes yearly, because the SSI maximum benefit is adjusted yearly for inflation. See the sidebar for how this works in a representative state.
HOW THE INCOME CAP WORKS
In Florida (one of the income-cap states), the income cap for a nonmarried person was $1,590 per month. To be eligible for Medicaid, therefore, a nonmarried person’s income had to be $1,590 per month or less. Income from all sources, before deductions, is counted.
If the person has $1,590 or less in income and lives in a nursing home, he or she can keep a certain amount for items such as clothing, toiletries, and books. Other income must be paid to the nursing home.
In some states, medical neediness is an exception to the Medicaid income criteria. If your medical expenses (after you subtract payments made by other insurance) are more than your monthly income, you may be considered medically needy and you might qualify for Medicaid. To qualify for medical neediness, in most states you cannot have resources worth more than $2,000, though once again remember that your home, car, and other specified assets aren’t counted in this figure.
HOW MEDICAL NEEDINESS WORKS
An example of medical neediness would be a nursing home resident who receives an income of $2,000 per month, which is not enough to cover the nursing home fee of, say, $4,000 per month.
As noted earlier, in addition to these provisions regarding income, you must meet certain standards regarding resources.
No. As noted earlier in Chapter 5, there are certain things that are not considered countable resources for Medicaid purposes:
Medicaid will use the fair market value from the day you were admitted to the nursing home. If you are married, in some states the value of your resources will be split in half, with half going to the community spouse and the other half to the spouse in the nursing home. In about a dozen states, the community spouse will be allocated an amount equal to the federal maximum (currently $84,120); so if a couple had assets of $80,000, the community spouse would be credited with all of this property, the nursing home spouse with none.
When your spouse enters a nursing home, you are called a “community spouse” because you still live in the community. Until the late 1980s, the community spouse’s income was taken into account when qualifying for Medicaid. The community spouse would be left almost penniless because all of the family’s income and resources were required to go to pay for nursing home expenses. The effect of this is that both spouses would end up on welfare, rather than just one. Today the community spouse is allowed to keep a certain level of income and resources.
WHO OWNS THE ASSETS?
The community spouse can keep all income, no matter how much, that belongs exclusively to the community spouse. When deciding who owns which income between spouses, Medicaid looks at whose name is on the check. If a pension check is written only to your spouse, that income is considered to belong only to your spouse and not to you. If your spouse enters a nursing home, this could leave you without a significant portion of your income.
Medicaid will, however, allow you a minimum living allowance and enough income to pay your mortgage, insurance, and taxes. Under the minimum monthly maintenance needs allowance program, part of the nursing home spouse’s income may be used by the community spouse if the community spouse’s income is below an amount set by the state. (For more detail, see a companion book in this series, the ABA Legal Guide for Older Americans, pages 85–86.)
In most states, children do not have a legal obligation to pay for their parents’ care. Children, though, often feel a moral or personal obligation to help pay for a parent’s nursing home. A shortage of Medicaid-eligible nursing home beds puts this to the test. Some nursing homes admit private-pay patients before Medicaid patients because private-pay rates are higher than what Medicaid pays. Giving priority to private-pay patients is allowed in many states but is illegal in others.
In all states, federal law prohibits nursing homes from requiring private payments from families of a resident or from requiring a period of private payment prior to applying for Medicaid coverage. That includes asking for deposits from beneficiaries who are approved for Medicaid but who are not yet receiving it at the time of admission. Nursing homes cannot obligate an adult child or other third party to guarantee to pay the nursing home’s charges. The child’s obligation extends only as far as his or her authority over the parent’s assets. For example, the child who is an agent under the durable power of attorney of a parent may be obligated, as the agent, to pay the nursing home bill out of the parent’s assets (but not out of his or her own personal assets). Federal law also prohibits nursing homes from requiring patients to waive or even delay their right to apply to Medicare and/or Medicaid.
Most Medicaid planning begins with dealing with countable assets. These are those resources that are considered by the state when you apply for Medicaid. In most states, you are only allowed to have $2,000 in countable assets if you want to qualify for Medicaid.
No. One of Medicaid’s strictest rules is on transfer of assets. This rule states that you cannot give property away for less than its fair market value if you are giving away the property just to qualify for Medicaid. (Transfers between spouses are permitted, however.) If you are giving your property away for some other reason, you are not violating the transfer of assets rule. However, it’s not easy to verify that you were indeed giving the property away for some other reason; and in any event you have to show that you have enough left to meet expected needs.
You always want to be careful to abide by this rule. If the state decides that you gave away your property just to qualify for Medicaid, it can refuse to give you Medicaid coverage for a period of time, as explained in the next section.
As you can imagine, it can be very difficult to determine why someone is transferring assets, especially because a transfer might have several equally compelling reasons—to “spend-down” for Medicaid eligibility and to help a child. That is why Medicaid has set up certain rules, as explained next.
The state will assume that you gave away your resources in order to qualify for Medicaid if you transferred your assets within three years of applying for Medicaid or entering the nursing home, whichever is later. This is known as the “look-back” period, which can result in a period of ineligibility for Medicaid. The length of the ineligibility period is found by dividing the value of the assets given away by the average monthly cost of a nursing home in your area. For example, let’s say you live in an area where the average monthly cost of nursing home care is $3,000 per month, and you gave away $90,000 on January 1, 2001. The ineligibility period is $90,000 divided by $3,000, or 30 months. You are disqualified from Medicaid until July 1, 2003. Thus you must wait at least 30 months to apply for Medicaid in order to avoid a penalty.
The purpose of the rule is to prevent people from making such transfers when in a nursing home or when moving to a home seems imminent. If you plan far enough ahead, there is less of a problem. For example, let’s say you give all your assets to your children on January 1, 2000, and enter a nursing home on January 1, 2004. On January 2, 2004, you apply for Medicaid. The state will look-back three years to January 2, 2001, to see what resources you had then and any transfers you may have made. The resources you gave away in 2000 will not pose a problem because you gave them away before the look-back period.
You can transfer some assets within the look-back period that will not affect your eligibility for Medicaid. These include:
Like all good rules, the look-back rule has an exception. If you transferred your assets within the look-back period and do not qualify for Medicaid, you may still be able to get Medicaid if you can show undue hardship—that without Medicaid you would not be able to get medical care and your health or life would be at risk. You can also show undue hardship by showing that you would not be able to get food, clothing, or shelter if Medicaid is withheld, regardless of when you transferred your assets. This exception is seldom used successfully.
When you get rid of your resources now in order to qualify for Medicaid later (at least 36 months later, under the look-back rule), you are spending down your assets. If you want to spend down your assets now to qualify for Medicaid later, you should consider:
Because the states all have their own rules, you may find in your state that other techniques could be effective.
QUALIFYING FOR MEDICAID
Medicaid is a medical assistance program for low-income older or disabled persons. People automatically qualify in most states if they meet the income test of the federal Supplemental Security Income (SSI) program. The program also covers certain younger persons receiving welfare payments under Temporary Assistance to Needy Families (TANF).
AN EXAMPLE OF SPENDING DOWN AFTER YOU’RE IN A NURSING HOME
If you don’t plan ahead and divest yourself of assets before the look-back period, you will have to spend down your assets while in the nursing home to eventually become eligible for Medicaid. Here’s how this works. Ms. Smith enters a nursing home, having an income of $1,200 per month and $50,000 in savings. The nursing home private-pay rate is $3,000 per month, and Ms. Smith’s additional incidental expenses amount to $100 per month. She must spend down her savings at a rate of $1,900 per month (i.e., $1,200 in income + $1,900 in savings are needed to meet the monthly total expense of $3,100). At this rate, Ms. Smith’s savings are depleted down to the Medicaid asset level ($2,000) in just over two years if she only spends her money on nursing home expenses, sooner if she can spend it to cover certain other expenses.
Many persons who are not eligible for Medicaid become eligible, like Ms. Smith, after a period of time in a nursing home. The rules in this situation vary considerably from state to state.
Remember that you should not give your countable resources to your children as gifts if you think you will be entering a nursing home or applying for Medicaid within the next three years. There are some exceptions to this rule, though.
You can transfer your home to:
LIMITATIONS ON HOME TRANSFER
Except for minor children or those who are blind or disabled, only a child who cared for you in your home for at least two years can receive that asset within the look-back period without causing problems. The rule does not apply to grandchildren, in-laws, or other relatives. This can be a shock when a son and a daughter-in-law care for an ailing mother and then the son dies first. The house cannot be transferred to the daughter-in-law because the mother would become ineligible for Medicaid.
It is very important that you change your will when your spouse enters a nursing home. You probably plan to leave most of your assets to your spouse. Let’s suppose that your spouse enters a nursing home and qualifies for Medicaid. You die while your spouse is still living in the nursing home. Your spouse just inherited your house and all of your assets and no longer qualifies for Medicaid. Your spouse will be forced to spend everything you left behind in order to qualify for Medicaid again and the rest of your family will receive nothing.
The same goes for property that has both of your names on the title. If your spouse enters a nursing home, the title to your property should be transferred to you (the community spouse) alone. That way it won’t pass automatically to the nursing home spouse on your death, and it will be out of the nursing home spouse’s estate, so that the state can’t attempt to take it to recover the cost of the nursing home care.
When you own property jointly with your spouse, both of you must sign the documents to transfer the property to the other. If you become incompetent, you will not be allowed to sign the transfer, and the property will stay in both your names. This is where a durable power of attorney comes in. With a durable power of attorney, you or your spouse will be able to transfer assets into one name.
Durable powers of attorney are also very useful for disability planning in general. And, given the number of younger people who become unable to manage their affairs because of accident or illness, they are recommended for people of every age.
When you or your spouse apply for Medicaid, the state puts all of your assets into one pool. In many states, the community spouse gets to keep half of that, up to a set amount. In other states, the community spouse is allowed to keep the full amount. The amount is set by the state, which can go as high as $84,120. The amount is adjusted each year for inflation. The half or more that you get to keep is called the “community spouse resource allowance.” If the amount you get to keep is not enough to live on, you can appeal this allowance and try to get it increased, or you can try to get a court order.
A regular trust may be revoked by the person who created it and is considered an asset by Medicaid. On the other hand, an irrevocable trust, if it is created at least 60 months (five years) prior to applying for Medicaid, may slow down the depletion of your estate while helping you become eligible for Medicaid. The key is that the trustee’s discretion to distribute income and principal must be sharply limited.
An irrevocable Miller trust (named for a legal case) may be useful if you live in an income-cap state. In an income-cap state, you cannot get Medicaid coverage of nursing home care if your monthly income is even a dollar over the cap. A Miller trust provides a legally-recognized way to lower your income below the cap. In an income-cap state, your income may be just over the Medicaid income cap but less than the amount needed to pay for a nursing home bed. Federal law requires that income-cap states exempt trusts created for your benefit if the trust is composed only of your pension, Social Security, or other income and, if at your death, the state is reimbursed by the trust for all Medicaid assistance paid on behalf of you. These trusts work by paying out a monthly income just under the Medicaid cap and retaining the rest. The result is that most of your income, supplemented by Medicaid, goes toward payment of the nursing home. The remainder of your income remains in the trust until your death. The accumulated residue is then paid to Medicaid.
Medicaid in your state may cover a variety of home or community-based services. Many states have instituted Medicaid “waiver” programs that allow the state to use Medicaid dollars for home- and community-based services that normally would not be covered by Medicaid. These programs usually target persons who might otherwise have to live in a nursing home. Services may include personal care, adult day care, housekeeping, care management, chores and companionship, and respite care that enables caregivers to take a break from their responsibilities. Check with your local office on aging or department of human services about the options available in your state.
Each county has a social services office. This office processes applications for Medicaid. You can fill out the application yourself; or your family, your agent under a durable power of attorney, or another guardian may fill it out for you. Before you will be given Medicaid, you are required to provide enough information to verify that you are unable to pay for your care.
Each state requires some basic information for a Medicaid application:
Your state may require more information than what is listed here.
The type of appraisal you will need for your property will depend on the type of property you own. Medicaid does not require that you get certified appraisal on all property, but you will not be able to rely on your own value estimates either.
Once you have provided all the necessary information, the state has 45 days to make a decision on your application. When a decision is made, the state will notify you.
States are required by federal law to try to recover the cost of nursing home care, home- and community-based services, and related services provided to individuals and paid by Medicaid. No recovery can occur from the person’s estate until after the death of the Medicaid beneficiary and the beneficiary’s spouse and only if there is no child who is under the age of 21 or who is blind or disabled. Every state must have a procedure to give information about estate recovery to all Medicaid applicants. One way a state can assume recovery against an estate is to place a lien on the property of the Medicaid beneficiary. A lien is a legal document filed in the court clerk’s office that gives notice that there is a charge against the property. The usual target of the lien is your home. Liens may be used only to recover for the cost of care of persons permanently residing in a nursing home. The state cannot impose the lien if you have a spouse or a child who is under age 21 or who is blind or disabled living in the home. In certain cases the same will apply if your sibling co-owns the house and lives there.
The rules change somewhat upon your death. During probate the state’s claim for recovery of Medicaid benefits may be converted to a lien against your property even when one of the above-mentioned persons still lives there. However, the state may not seek to enforce the lien while the surviving spouse is alive or while a child who is under age 21 or who is blind or disabled is living, even if they are not living in the house. In addition, the state cannot enforce the lien under limited circumstances if your brother or sister lives there or if your adult (nondisabled) child lives there if that child was your caregiver under certain conditions defined by Medicaid.
Two 1996 laws restrict the eligibility of noncitizens for federal benefits such as Medicaid. These laws ban eligibility for these benefits for most legal immigrants who are not citizens. People who are in this country illegally are not eligible for benefits. The following groups, however, are still eligible:
You have the right to appeal all decisions that affect your Medicaid eligibility or services. You should receive prompt written notice of any decision about your Medicaid coverage. This will include an explanation of how you can appeal. The appeal process differs slightly from state to state, but it always includes a right to a fair hearing before a hearing officer.