Consumers Guide to Medicaid Planning and Asset Preservation (Updated for 2020)
How to Pay for Nursing Home Care
Why Seek Legal Advice for Medicaid?
Medicare vs. Medicaid
Qualifying for Medicaid
Frequently Asked Questions about Medicaid
Case Study: Medicaid Planning for Married People
Case Study: A Trust for Disabled Child
Case Study: Financial Gifts to Children
Americans are living longer than ever before. At the turn of the 20th century, the average life expectancy was about 47 years. As we have entered the 21st century, life expectancy has almost doubled. As a result, we face more challenges and transitions in our lives than those who came before us.
One of the most difficult transitions people face is the change from independent living in their own home or apartment to living in a long-term care facility or “nursing home.” There are many reasons why this transition is so difficult. One is the loss of home…a home where the person lived for many years with a lifetime of memories. Another is the loss of independence. Still another is the loss of the level of privacy we enjoy at home, since nursing home living is typically shared with a roommate.
Most people who make the decision to move to a nursing home do so during a time of great stress. Some have been hospitalized after a stroke, some have fallen and broken a hip, still others have progressive dementia, like Alzheimer’s disease, and can no longer be cared for in their own homes.
Whatever the reason, the spouse, relative, or friend who helps a person transition into a nursing home during a time of stress faces the immediate dilemma of how to find the right nursing home. The task is no small one, and a huge sigh of relief can be heard when the right home is found and the loved one is moved into the nursing home. For many, however, the most difficult task is just beginning: How to cope with nursing home bills that may total $9,000 to $10,000 per month or more?
How to Pay for Nursing Home Care
One of the things that concerns people most about nursing home care is how to pay for that care. There are basically four ways that you can pay the cost of a nursing home:
1. Long-Term Care Insurance – Long-term care insurance is becoming an important element in income and asset protection / preservation planning. If you are fortunate enough to have this type of coverage, it may go a long way toward paying the costs of a nursing home. Policies are usually issued for a specific number of years of coverage and, depending on the particular policy, may provide coverage for services in addition to nursing home care, such as for home health care, adult day care, assisted living, respite care, etc. As with any insurance policy, the premium costs are related to variables such as age, the term, deductibles, policy limits, benefits, etc. If investigating this area, make sure to use a reputable broker who, preferably, represents a broad line of financially strong insurance companies, and who is certified. Certifications include those provided by the non-profit Health Insurance Association and American Association for Long-Term Care Insurance (“LTCP”); the Corporation for Long-Term Care Certification (“CLTC”) and the Society of Certified Senior Advisors (“CSA”). You can also check with the state insurance commissioner. Note that this insurance is very difficult to obtain if the applicant is in a medical crisis situation or is already suffering from dementia. Individuals should therefore plan well in advance to take advantage of this opportunity to protect and preserve income and assets. Unfortunately, most people facing a nursing home stay do not have this coverage.
2. Pay with Your Own Funds – This is the method many people are required to use initially. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging between $9,000 and $10,000 per month in our area, few people can afford a long-term stay in a nursing home.
3. Medicare – This is the national health insurance program primarily for people 65 years of age and older, certain younger disabled people, and people with kidney failure. Medicare provides short-term assistance with nursing home costs (maximum 100 days), but only if you meet the strict qualification rules. Medicare’s coverage of nursing home costs is minimal.
4. Medicaid – This is a federal and state funded and state administered medical benefit program which can pay for the cost of the nursing home if certain asset and income tests are met.
Since the first two methods of private pay (i.e., using your own funds) and long-term care insurance are self-explanatory, our discussion will concentrate on Medicare and Medicaid.
Why Seek Legal Advice for Medicaid?
As life expectancies and long-term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $9,000 per month or more for the cost of a nursing home, and those who can pay for a while may find their life savings wiped out in a matter of months, rather than years.
Fortunately, the Medicaid program is there to help. In fact, in our lifetime, Medicaid has become the long-term care insurance of the middle class. But to receive Medicaid benefits, you must pass certain tests concerning the amount of income and assets you have. The reason for Medicaid planning is simple. First, you need to provide enough assets for the security of your loved ones. Second, you may want to pass something on to your children. Third, the rules are extremely complicated and confusing. The result is that, without planning and advice, many people spend more than they should and their family security is jeopardized.
Aging persons and their family members face many unique legal issues. As you can tell from our discussion of the Medicaid program, the legal, financial and care planning issues facing the prospective nursing home resident and family can be particularly complex. If you or a family member need nursing home care, it is clear that you need expert legal help. Where can you turn for that help? It is difficult for the consumer to be able to identify lawyers who have the training and experience required to provide expert guidance during this most difficult time.
Generally, nursing home planning and Medicaid planning is an aspect of the services provided by Elder Law attorneys. Consumers must be cautious in choosing a lawyer and carefully investigate the lawyer’s credentials.
How do you find a law office that has the knowledge and experience you need? You may want to start with recommendations from friends who have received professional help with nursing home issues. Whom did they use? Were they satisfied with the services they received? Hospital social workers, Alzheimer and other support groups, accountants and other financial professionals can also be good sources of recommendations.
In general, a lawyer who devotes a substantial part of his or her practice to nursing home planning should have more knowledge and experience to address the issues properly. Don’t hesitate to ask the lawyer what percentage of his or her practice involves nursing home planning. Or you may want to ask how many new nursing home planning cases the law office handles each month. There is no correct answer. But there is a good chance that a law office that assists with three nursing home placements a month is likely to be more up-to-date and knowledgeable than an office that helps with three placements a year. Ask whether the lawyer is a member of any Elder Law planning organizations. Is the lawyer involved with committees or local or state bar organizations that have to do with nursing home planning? If so, has the lawyer held a position of authority on the committee? Does the lawyer lecture on nursing home planning? If so, to whom? (For example, if the lawyer is asked to teach other lawyers about Elder Law and nursing home planning, that is a very good sign that the lawyer is considered to be knowledgeable by people who should know.) If the lawyer lectures to the public, you might try to attend one of the seminars. You might also ask whether the lawyer is “certified” as an Elder Law Attorney. Although Colorado does not certify specialists in any field, the National Elder Law Foundation certifies attorneys who have demonstrated substantial involvement and experience in elder law. Certification requires the attorney pass an extensive examination and have considerable experience in the sub-specialty of elder law. This should help you decide if this is the lawyer for you.
The leading national organization of Elder Law attorneys is the National Academy of Elder Law Attorneys, Inc. (NAELA), 1604 North Country Club Road, Tucson, Arizona. While mere membership in the Academy is open to any lawyer and is no sure sign that the attorney is an experienced Elder Law practitioner, membership does at least show that the lawyer has some interest in the field. In addition, the Academy runs three-day educational sessions twice each year to help lawyers stay current on the latest aspects of elder law and nursing home planning. Attending these sessions takes time and commitment on the part of the lawyer and is a good sign that the lawyer is attempting to stay up to date on nursing home issues. You may want to look for an attorney who is a member of NAELA and has recently attended one or more of its educational sessions.
In the end, follow your instincts and choose an attorney who knows this area of the law, who is committed to helping others, and who will listen to you and the unique wants and needs of you and your family.
Medicare vs. Medicaid
There is a great deal of confusion about Medicare and Medicaid.
Medicare is the federally funded and state administered health insurance program primarily designed for older individuals (i.e., those over age 65). There are some very limited long-term care benefits that can be available under Medicare. In general, if you are enrolled in the traditional Medicare plan and you’ve had a hospital stay of at least three days and you are then admitted into a skilled nursing facility (often for rehabilitation or skilled nursing care), Medicare may pay for a while. (If you are a Medicare Managed Care Plan beneficiary, a three day hospital stay may not be required to qualify.)
If you qualify, traditional Medicare may pay the full cost of the nursing home stay for the first 20 days and can continue to pay the cost of the nursing home stay for the next 80 days, but with a large deductible. Some Medicare supplement insurance policies will pay the cost of that deductible. For Medicare Managed Care Plan enrollees, there is no deductible for days 21 through 100, as long as the strict qualifying rules continue to be met. So, in the best case scenario, the traditional Medicare or the Medicare Managed Care Plan may pay up to 100 days for each “spell of illness.” In order to qualify for this 100 days of coverage, however, the nursing home resident must be receiving daily “skilled care” and generally must continue to “improve.” (Note: Once the Medicare and Managed Care beneficiary has not received a Medicare covered level of care for 60 consecutive days, the beneficiary may again be eligible for the 100 days of skilled nursing coverage for the next spell of illness.)
While it’s never possible to predict at the outset how long Medicare will cover the rehabilitation, from our experience, it usually falls far short of the 100 day maximum. Even if Medicare does cover the 100 day period, what then? What happens after the 100 days of coverage have been used?
At that point, in either case you’re back to one of the other alternatives: long-term care insurance, paying the bills with your own assets, or qualifying for Medicaid.
Medicaid is a benefits program which is funded approximately 50% each by the federal and state governments and is administered by each state. Typically, the eligibility rules vary somewhat from state to state.
One primary benefit of Medicaid is that, unlike Medicare, the Medicaid program will pay for long-term care in a nursing home once you’ve qualified. Medicare does not pay for treatment for all diseases or conditions. For example, a long-term stay in a nursing home may be caused by Alzheimer’s or Parkinson’s disease, and even though the patient receives medical care, the treatment will not be paid for by Medicare. These stays are called custodial nursing stays. Medicare does not pay for custodial nursing home stays. In that instance, you’ll either have to pay privately (i.e., use long-term care insurance or your own funds), or you’ll have to qualify for Medicaid.
Qualifying for Medicaid
Exempt Assets and Countable Assets: What Must Be Spent?
To qualify for Medicaid, applicants must pass some fairly strict tests concerning the amount of assets they can keep. In Colorado, a Medicaid applicant can own countable resources of $2,000.00. To understand what this means, we first need to review what are known as exempt and non-exempt (or countable) assets. Exempt assets are those which Medicaid will not take into account (at least for the time being) in determining the $2,000.00 resource limit. In general, the following are the primary exempt assets:
1. A person’s home, including contiguous property, regardless of its value, is exempt for a married couple, so long as the Medicaid recipient intends to return home or a spouse or dependent relative continues to reside in the home. As a practical matter, a Medicaid applicant, or someone acting on his or her behalf, always intends to return home. Up to $595,000 in equity is exempt for a single person.
2. One motor vehicle, regardless of value, is exempt if it is used transportation of the individual or a member of the individuals’ household.
3. Household goods and personal property are exempt.
4. Wedding and engagement rings of any value are exempt.
5. Required medical equipment of any value is exempt.
6. Life insurance is exempt if the total face value of all policies is $1,500.00 or less, regardless of the cash surrender value. However, if the aggregate face value of all policies exceeds $1,500.00, then the total cash surrender value of all policies is counted toward the $2,000.00 resource limit.
7. An irrevocable prepaid funeral and burial plan of any value is exempt.
8. Certain narrowly construed unavailable assets (i.e., those which the applicant cannot access for support and maintenance) are exempt.
All other assets are generally non-exempt and are countable. Basically, all money and property and any item that can be valued and turned into cash is a countable resource unless it is one of those assets listed above as exempt. These include:
- Cash, savings, and checking accounts, credit union share and draft accounts
- Certificates of deposit
- U.S. savings bonds
- Individual Retirement Accounts (IRA), Keogh plans (401K, 403B)
- Nursing home accounts
- Prepaid funeral contracts which can be canceled
- Trusts (depending on the terms of the trust)
- Real estate (other than the residence)
- More than one car
- Boats or recreational vehicles
- Stocks, bonds, or mutual funds
- Land contracts or mortgages held on real estate sold
In addition to asset tests, the Medicaid applicant’s monthly income cannot exceed the average regional monthly cost of care for nursing homes, as established by the state Medicaid agency (currently $9,780 in 2020 for the Boulder/Denver region).
While the Medicaid rules themselves are complicated and tricky, it’s safe to say that a single person may qualify for Medicaid as long as he or she has only exempt assets plus a small amount of cash and/or money in the bank, not more than $2,000 in Colorado, and monthly income of less than $9,780. If a Medicaid applicant has countable resources of more than $2,000 (or $128,000 for married couples), he or she will have to engage in Medicaid planning in order to become eligible for benefits.
Frequently Asked Questions
I’ve added my kids’ names to our bank account. Do they still count?
Yes. The entire amount is counted as your asset unless you can prove some or all of the money was contributed by the other person who is on the account. This is also true for assets titled in the name of the spouse. This rule applies to cash assets such as:
- Savings and checking accounts
- Credit union share and draft accounts
- Certificates of deposit
- U.S. Savings Bonds
Can’t I just give my assets away?
Many people wonder, can’t I just give my assets away? The answer is, maybe, but only if it’s done just right and with extreme care. The law has penalties for people who simply give away their assets to create Medicaid eligibility. In Colorado, for example, every $8,758 given away during the five years prior to a Medicaid application creates a one-month period of ineligibility.
Although some families do spend virtually all of their savings on nursing home care, Medicaid often does not require it. There are a number of strategies which can be used to protect family financial security.
I heard I can give away $15,000 per year. Can’t I?
As discussed above, many people have heard of the federal gift tax provision that allows them to give away $15,000 per year without filing a gift tax return. What they do not know is that this refers to a gift tax filing exemption, not to a Medicaid planning exemption. Having heard of the exemption, they wonder, “Can’t I give my assets away?” The answer is, yes, but only if it’s done within the strict allowances of the law.
So even though the federal gift tax law allows you to give away up to $15,000 per year without triggering a gift tax return, those gifts could result in a period of Medicaid ineligibility for months, even years. Still, some parents want to make gifts to their children before their life savings are all gone.
Will I lose my home?
Many people who apply for Medicaid benefits to pay for nursing home care ask this question. For many, the home constitutes much or most of their life savings. Often, it’s the only asset that a person has to pass on to his or her children.
Under the Medicaid regulations, the home is an unavailable asset. This means that it is not taken into account when calculating eligibility for Medicaid. But in 1993, Congress passed a little-debated law that affects hundreds of thousands of families with a spouse or elderly parent in a nursing home. That law, known as Estate Recovery, requires states to try to recover the value of Medicaid payments made to nursing home residents.
Estate recovery does not take place until the recipient of the benefits dies and their spouse no longer lives there. Then, federal law requires that states attempt to recover the benefits paid by placing a lien against the real estate owned by the Medicaid recipient or by filing a claim in the recipient’s probate estate. Generally, the probate estate consists of assets that the deceased owned in his or her name alone without beneficiary designation. Some states go even further and recover from non-probate assets, including assets owned jointly or payable to a beneficiary. However, Colorado has not yet taken this position.
About two-thirds of the nation’s nursing home residents have their costs paid in part by Medicaid. Obviously, the Estate Recovery law affects many families. The asset most frequently caught in the Estate Recovery web is the home of the Medicaid recipient. A nursing home resident can own a home and receive Medicaid benefits without having to sell the home. But, upon death, if the home is owned solely in the name of the Medicaid beneficiary and the state has placed a lien upon it, or if it is part of the probate estate, the state will likely seek to force the sale of the home in order to reimburse the state for the Medicaid payments that were made.
Since Medicaid rules are constantly changing, you will need assistance from an attorney knowledgeable about these rules. With proper planning, estate recovery may possibly be avoided and the home can be preserved.
What about Medicaid planning for married couples and the division of assets?
Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. It applies only to married couples. The intent of the law was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e., at home. The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
The spousal impoverishment law is divided into two parts: resources and income. Under the resource provisions of the law, the couple gathers all their countable assets together regardless of whose name they are in. Exempt assets, such as the home, automobile, personal property, etc. discussed above, are not considered.
The countable assets are then divided, with the at-home or “community spouse” allowed to keep countable assets to a maximum of approximately $128,640 in 2020. The remainder of the countable assets are attributed to the nursing home or “institutionalized spouse” and must be “spent down” to $2,000. With proper planning, the excess assets can often be preserved through various Medicaid planning strategies. The amount of the countable resources which the community spouse gets to keep is called the Community Spouse Resource Allowance (CSRA).
The income provisions of the law provide a guaranteed minimum income for the community spouse. This is called the Minimum Monthly Maintenance Needs Allowance. This permits the community spouse to keep a minimum monthly income ranging from about $2,113 to $3,216.
If the community spouse does not have at least $2,113 in income, then he or she is allowed to take the income of the institutionalized spouse in an amount large enough to reach the Minimum Monthly Maintenance Needs Allowance (i.e., up to at least $2,113). The institutionalized spouse’s remaining income goes to the nursing home. This hopefully avoids the necessity for the at-home spouse to dip into savings each month, which would result in gradual impoverishment.
To illustrate, the community spouse has income of $1,113 per month. The institutionalized spouse has income of $1,500 per month. The first $89 of the institutionalized spouse’s income is set aside for his personal needs allowance (an amount provided to all Medicaid recipients). The next $1,000 of the institutionalized spouse’s income is set aside to the community spouse to bring her up to the Minimum Monthly Maintenance Needs Allowance. The balance, $298, is applied toward the institutionalized spouse’s nursing home bill. Medicaid pays the balance of the nursing home bill.
Despite this illustration, however, there may be planning alternatives which the couple can pursue with the assistance of an attorney knowledgeable about the Medicaid regulations which can increase the community spouse’s income further.
Case Study: Medicaid Planning for a Married Couple
Ralph and Nancy were high school sweethearts who lived in Denver, Colorado their entire adult lives. Two weeks ago, Ralph and Nancy celebrated their 51st anniversary. Yesterday, Ralph, who has Alzheimer’s, wandered away from home. The police found him, hours later, sitting on a street curb, talking incoherently. They took him to a hospital. Now the family doctor has told Nancy that she needs to place Ralph in a nursing home. Ralph and Nancy grew up during the Depression. They always tried to save something each month. Their assets, totaling $160,000, not including their house, which is paid for, are as follows:
|Money Market account||$27,000|
Ralph gets a Social Security check for $900 each month; Nancy’s check is $600. Her eyes fill with tears as she says, “At $9,000 to the nursing home every month, our entire life savings will be gone in less than two years!” What’s more, she’s afraid she won’t be able to pay her monthly bills, because a neighbor told her that the nursing home will be entitled to all of Ralph’s Social Security check.
There is good news for Nancy. Through proper Medicaid Planning, it’s possible she will get to keep nearly all of their assets and all of the income…and still have the state Medicaid program pay Ralph’s nursing home costs. The process may take a little while, but the end result will be worth it.
To apply for Medicaid, she will have to go through the local Department of Social Services in her county of residence. Typically, according to DSS, she will only be able to keep her Community Spouse Resource Allowance and a minimum monthly income to pay her expenses. But the results can actually be much better than that with proper planning.
This is possible because the law does not intend to impoverish one spouse because the other needs care in a nursing home. This is certainly an example where knowledge of the rules, and how to apply them, can be used to resolve Nancy’s dilemma.
Of course, proper Medicaid planning differs according to the relevant facts and circumstances of each situation as well as the current state law. For example, some children never gain independence — they remain dependent on their parents. What can be done in such a case?
Case Study: A Trust for a Disabled Child
Margaret and Sam have always taken care of their daughter, Elizabeth. She is 45, has never worked, and has never left home. She is developmentally disabled and receives SSI (Supplemental Security Income). They have always worried about who would take care of her after they die. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Now she has placed Sam in a nursing home and is paying $9,000 per month out of savings. Margaret is even more worried that there will not be any money left for the care of Elizabeth.
Margaret is satisfied with Sam’s current nursing home. The facility has a Medicaid bed available that Sam could have if he were eligible. Medicaid would pay his bill. However, according to the information she got from the social worker, Sam is $48,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $48,000 for Elizabeth after she and Sam are gone. There is.
Margaret can consult an Elder Law attorney to set up a “special needs trust” with the $48,000 to provide for Elizabeth. As soon as she does, Sam will be eligible for Medicaid. Elizabeth won’t lose her benefits, and her security is assured.
Of course, all trusts must be reviewed for compliance with Medicaid rules. Also, failure to report assets is fraud and, when discovered, will cause loss of eligibility and repayment of benefits.
Case Study: Financial Gifts to Children
After her 73-year-old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, need advice.
“The doctor says Harold needs long-term care in a nursing home,” Mildred says. “I have some money in savings, but not enough. I don’t want to lose my house and all our hard-earned money. I don’t know what to do.”
Joan has heard about Medicaid benefits for nursing homes but doesn’t want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father’s medical needs are met, but she also wants to preserve Mildred’s assets.
“Can’t Mom just give her money to me as a gift?” she asks. “Can’t she give away $15,000 a year? I could keep the money for her so she doesn’t lose it when Dad applies for Medicaid.”
Joan has confused federal gift tax law with the issue of transfers and Medicaid eligibility. A “gift” to a child in this case is actually a transfer, and Medicaid has very specific rules about transfers.
At the time Harold applies for Medicaid, the state will “look back” five years to see if any gifts have been made. Any gifts or transfers for less than fair market value that are uncovered in the look-back period may cause a delay in Harold’s eligibility for Medicaid.
So what can Harold and Mildred do? They can institute a plan, possibly save a good portion of their estate, and still qualify for Medicaid. The plan may involve transfers of money for value, such as a special type of annuity, and it may involve gifts.
But remember, when it’s given away, it’s given away. Studies have shown that “windfall” money received by gift, prize, or lawsuit settlement is often gone within three years. In other words, even when the children promise that money will be available when needed, their own “emergencies” may cause them to spend the money. You must consult a knowledgeable advisor on how to set up a plan that complies with the law and achieves your goals.