Perhaps no federal and state program is more misunderstood than Medicaid. Misconceptions about this complex program's eligibility requirements, especially as they relate to long-term nursing home care, abound. Medicaid is a federal program that each state administers through multiple, state-sanctioned subsidiary programs. As the largest public payer of long-term care services in the United States, Medicaid is for anyone who would otherwise be potentially impoverished by expensive health care and long-term nursing home care.
While Medicaid is often thought to be just for those with low income or disabilities, it is in fact not restricted solely to those groups of people. Medicaid is available to anyone 65 and over who needs long-term care but whose personal or family finances would be devastated by its high costs. In this article, the elder law attorneys of Applegate & Dillman Elder Law address five of the most common misconceptions about Medicaid and reveal how anyone can qualify for nursing home Medicaid, even those with significant assets who want to protect themselves to the fullest extent possible.
1. Do my parents have to spend all of their assets down to $0 in order to be eligible for nursing home Medicaid?
No, is the short and quick answer. Simply put, your parents do not have to spend down all of their assets to qualify for nursing home Medicaid. Here are the facts:
- Medicaid’s spousal impoverishment law protects couples from financial ruin by enabling 100% of their assets to be preserved for the healthy spouse staying at home or living in an assisted living facility.
- For a single applicant, Medicaid provisions allow at least 50% of assets to be preserved. But more often than not, 75% to 80% can be. What’s more, with proper planning done far enough ahead, 100% of a single person’s assets can be fully protected.
In both instances, planning well in advance offers the best options. How far ahead? Planning at least five years before an anticipated need for long-term nursing home care can mean saving 100% of your assets via a combination of strategies, most often involving the establishment of an asset protection trust. But even when a crisis planning approach has to be taken—as with an applicant needing nursing home care immediately but without the benefit of planning for it years previously – it is still possible to protect a significant percentage of assets.
While the circumstances surrounding the need for long-term nursing home care can vary greatly, the core truth remains that you can keep a significant portion of your assets safe, potentially up to 100%. But this best-case scenario depends on knowing what to do, how to do it, and when. That is why consulting an experienced elder law attorney who focuses on Medicaid planning is so important.
2. Will my parents lose their home if they accept nursing home Medicaid benefits?
The fear of losing one’s home most often stems from the belief that once the applicant dies, the state will use estate recovery to put a lien on his or her house, sell it, and thus be reimbursed for the cost of care received. There are several exceptions to lifetime liens on property, but for estate recovery, there are only deferrals for surviving spouses and hardship waivers. Planning techniques used by an elder law attorney can greatly reduce the threat of estate recovery by the state.
Also note that Medicaid deems a primary residence (with equity under a certain amount) to be an exempt asset. Other assets exempt from loss due to Medicaid spend down rules include personal effects, household goods, one car, term life insurance, prepaid funeral expenses (up to a specific value), property directly connected to the applicant’s self-support, and income-producing property (with some restrictions). Each state’s Medicaid program has the final say-so on which assets are exempt and to what degree – and this determination occurs on an individual-applicant basis.
Countable assets subject to Medicaid spend-down requirements include cash, checking and savings accounts, certificates of deposit, savings bonds, investments (e.g., stocks and mutual funds), certain IRAs and other retirement accounts, vacation or second homes and investment properties, second cars, and some kinds of real estate and personal property not in use. However, spending down does not prohibit beneficial spending on exempt assets. Some examples of this technique are prepaying funeral expenses, paying off a mortgage or other legitimate debt, making home repairs, replacing an old car, updating household furnishings, paying for additional in-home care services, or buying a new primary residence.
The exempt and countable asset examples given here are for illustrative purposes only. To guard against spending down incorrectly, consult an elder law attorney who knows the ins and outs of Medicaid rules and how best to manage assets considering your personal circumstances. Medicaid rules change frequently, so it’s best to be informed by someone who knows about these changes before they go into effect.
3. Can my parents just give away their assets and still qualify for Medicaid nursing home benefits?
Medicaid has a five-year look-back period on asset transfers. This means any transfers you make within five years of wanting to apply for Medicaid nursing home benefits must be reported to Medicaid. A penalty may be assessed. Thus, hastily giving money away to meet eligibility requirements does not work – plus it can cause harsh tax consequences. Commingling an elderly parent’s money with yours doesn’t protect it from Medicaid scrutiny, either. Having power of attorney also will not help your parents avoid the look-back. While safe harbor provisions built into Medicaid make certain transfers smart – these include transfers to disabled children, caretaker children or certain siblings; transfers into a trust for a disabled person under 65 or to pay back a trust for a person under 65; and transfers to a pooled disability trust for someone of any age – precipitous transfers on behalf of Medicaid eligibility rarely, if ever, do.
On the one hand, assets transferred too early can mean forfeiting the use of that money for the applicant’s benefit, possibly even putting the applicant’s financial security at risk. On the other hand, assets transferred too late, as in less than five years from application to Medicaid, can result in a penalty period, losing those months of Medicaid eligibility. During a penalty period, personal assets must be used to pay for long-term care.
Long-term care insurance (LTCI) can soften the financial blow of a penalty period. But it’s not the only solution. There are several other ways to deal with a penalty period. One should not assume that a LTCI policy alone means that all that can and should be done has been. An elder law attorney with in-depth Medicaid experience can explain the options and which ones make the most sense in your situation. If you are already managing your parent’s money, a penalty period would mean you have to manage the spend-down process correctly for your parents to become eligible and start receiving benefits. The do’s and don’ts of a Medicaid spend-down add a layer of extreme complexity to the process because both federal and state requirements must be met. It is easy to do something wrong without realizing it, especially given how frequently the rules can change. Taking over the finances for an aging, ailing parent can be a tough but necessary step. To be certain that all the options available to you, or you and your loved one, have been considered, consult with an experienced elder law attorney. Of all the steps you might take regarding a parent’s Medicaid application, getting the right advice on what to do and how to do it is by far the most important for obtaining the care needed at the least possible financial impact to your family.
4. When do my parents need to begin planning in order to protect their assets from Medicaid’s nursing home spend down rules?
Most Medicaid applicants want to protect 100% of their assets and, needless to say, they want to do so now. The earlier planning occurs, the greater the chances become of achieving the goal of 100% preservation. But while it’s always best to plan well ahead for Medicaid eligibility, know this: it is never too late to plan. There is always a plan of some efficacy that can be put into place to maximize protection of vulnerable assets, at the same time minimizing the amount of spend-down liability. This is true for even crisis situations, as in when an elderly parent needs nursing home care immediately – or is already in a nursing home. Whatever the degree of urgency, getting the best possible care with the least negative financial impact for your loved one can be achieved in some measure, and perhaps more than you might think.
The best-case-scenario for planning well ahead is to do so more than five years before a likely need for Medicaid by establishing a trust that provides 100% protection of assets. But even a crisis situation can become a planning opportunity. When the five-year look-back rule results in a spend down penalty, any LTCI policy will help pay for the cost of nursing home care during the wait for Medicaid coverage, greatly easing the burden on private assets.
Medicaid LTCI partnership plans do even better. Sanctioned by the state of Indiana, LTCI partnership policies enable some assets – cash, real property, CDs, and funds in IRAs and checking and savings accounts – to avoid Medicaid’s spend-down requirements, thereby protecting a greater percentage of what has been saved for retirement. This special asset protection feature against some Medicaid limits on ownership is a benefit provided by the state of Indiana at no charge. It comes only with Medicaid partnership plans; it cannot be added as a rider to a traditional plan. Without LTCI coverage, there are still planning opportunities that can be explored to make the most out of a less than ideal situation.
Every applicant’s situation is different. Determining the planning parameters for your parent is where an elder law attorney with Medicaid expertise can prove invaluable.
5. My parents don’t believe in accepting welfare. How is nursing home Medicaid different than welfare?
One of the greatest myths about nursing home (or long-term care) Medicaid is that it is only for low income, disadvantaged people, and is thus a form of welfare. On both counts, that is not true. You do not have to be poor to qualify for Medicaid. Federal and state governments have passed laws and enforced rules designed to help safeguard people’s life savings from the exorbitant costs of medical and long-term care routinely encountered late in life. Medicaid is part of that protection, and a big part of that. Medicaid is the largest single-payer source of long-term nursing home care in the United States.
Nursing home Medicaid is not welfare. Medicaid funding comes from an altogether different grant of money. Medicaid is run differently from welfare, it has different eligibility requirements, and its rules and regulations are also different from those of welfare. While Medicaid is a complex program, with proper planning anyone, married or single, with minimal assets or significant ones, can be eligible for its benefits. To reiterate, Medicaid is not welfare. Medicaid is a program designed for you and your situation.
In conclusion…
The importance of Medicaid as our national program for crucial healthcare and long-term care services for seniors is undeniable. Medicaid is not reserved for only the most needy. Medicaid is there for all of us. That said, Medicaid is complex and consequently difficult to understand. While Medicaid can appear to be hard to qualify for, an elder law attorney can help you find your way through the qualification maze. The more you know, and the sooner you know it, the better you and your parent’s chances are of making the most of early planning or of a difficult situation, should that be where you find yourselves.
If there is a universal truth about managing personal assets, it’s this: the most vexing and complicated financial problems are those on which it makes the most sense to seek experienced, knowledgeable help. Whether to pursue Medicaid eligibility, when to pursue it, how to pursue it, steps to be sure to take, mistakes to be sure to avoid – all of these questions and more certainly qualify. And an elder law attorney who focuses on helping Medicaid applicants is the best source of impartial advice.
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