The Basics of Medicaid

In order to understand Medicaid qualification, you first need to know how Medicaid treats your assets.
Basically, Medicaid breaks your assets down into two separate categories.
Exempt assets are those which Medicaid will not take into account at this time. Generally, the following assets are exempt:

Home: up to $506,000 in equity value. The home must be the principal place of residence and the resident may be required to show some interest to “return home” even if this never actually takes place.
Household and personal belongings: such as furniture, appliances, jewelry and clothing.
One vehicle: a car or truck or van.
Pre-paid funeral plans and burial plots
Cash value of life insurance policies: up to $10,000 in cash surrender values may be exempt, along with term life insurance, depending on your situation.
Cash: e.g. a small checking or savings account, not to exceed $2,000.

The assets which are not exempt are then considered countable. This typically includes checking accounts, savings accounts, certificates of deposit, money market accounts, stocks, mutual funds, bonds, IRA’s, some pension plans, second cars, and so on.

Division of assets is a name commonly used for the Spousal Impoverishment provision 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 in situations where one spouse needs nursing home care, while the other spouse remains in the community (i.e. at home or in an assisted living facility). Since then, changes in the law have now allowed spouses who are at home to somehow qualify for Medicaid assistance for certain home and community-based services.
     Basically, in a division of assets, a couple gathers all of their nonexempt (i.e. countable) assets together in a review. The exempt assets are the ones described earlier, such as the home, one vehicle, and so on. The non-exempt assets are then divided in two, with the community (or at home) spouse allowed to keep one-half of all of the countable assets, up to a maximum of $109, 560 (in 2011).
     In other words, there is a married couple who has $100,000 in countable assets, then through a division of assets, the well spouse, or community spouse, will be able to keep one-half of those assets (i.e. $50,000 in this example) and the ill spouse would be allowed to keep his or her $2,000.
     The laws are very tricky as to exactly how the spend down is completed. Suffice it to say, that someone who is pursuing Medicaid eligibility should consider the following types of spend-down items: These are listed in no particular order:

Purchase pre-paid funeral plans
Purchase a new car
Payment of healthcare costs (including nursing home if needed)
Purchase of a new home
Make home improvements
Buy household goods or personal effects
Repay debt

These are not the only appropriate items for a spend-down. There are other expenses which would also qualify. The main rule to keep in mind is that whatever goods or services are purchased must be done at fair market value and must be for the benefit of the patient and/or spouse.

Some Frequently Asked Questions

Q: Is a married couple always required to spend down one half of their assets before qualifying for Medicaid?
A: Not always. In fact, oftentimes, couples have over $100,000 and qualify for Medicaid benefits without spending down. Although there are income and asset criteria a couple must meet before one of them qualifies for benefits, federal and state laws were written to protect individuals from being impoverished if their spouse needs care. Medicaid planning is like tax planning in that the laws provide certain “safe harbors” that, with expert advice from a knowledgeable professional, can save Medicaid applicants and their families thousands of dollars. An experienced elder law attorney can help you determine if there are ways to protect additional assets in your particular situation.

Q: Will I lose my home?
A: Many people who apply for Medicaid ask this question. For many people, 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 generally an unavailable asset. That means it is not taken into account when calculating eligibility for Medicaid. (There may be certain issues regarding an “intent to return home” which make the home unavailable for only a certain period of time).

Q&A continued

In 1993, Congress passed a law which requires the state to try to recover the value of Medicaid payments made to recipients. This process is called estate recovery.

Estate recovery does not take place until the recipient of the benefits dies. In the case of a married couple, it occurs after the death of both spouses under the current laws. At that point, the law requires state to attempt to recover the benefits paid from the recipient’s (or spouse’s) estate. In recent years, as state budgets have gotten tighter, many states have become more aggressive about their estate recovery programs. There may be changes in North Carolina in the coming months. For that reason, you will need assistance from someone knowledgeable about the rules and regulations to determine whether or not there will be estate recovery, and whether it can be avoided in any particular situation.

Q: Is it true that under current Medicaid laws, a parent cannot make gifts to their children once they are contemplating Medicaid or have even entered a nursing home?
A: No. In fact, a proper gifting program can be a great Medicaid planning technique. At the time an applicant applies for Medicaid, that state will “look back” five years to see if any gifts have been made. Any financial gifts or transfers for less than fair market value during the five year look back may cause a delay in an applicant’s eligibility. Also, just because the state may ask about gifts made during the prior five years, does not mean that all of those gifts will be considered. You do need to be aware of a new law which became effective February 8, 2006. Under the terms of the new law, the gifting rules have become far more complicated. There may be some special opportunities for asset transfers for hospice patients.

Q: I’ve heard that $10,000 is the most an individual can give away if they are going to apply for Medicaid.
A: No, the $10,000 figure (which recently went up to $13,000 per year) is a gift tax figure, and not relevant with respect to Medicaid’s specific asset transfer rules. The maximum monetary figure Medicaid applicants need to concern themselves with is the “penalty divisor” for their state. The penalty divisor is the state-assessed average cost for nursing home care by which the state assesses Medicaid penalties. The penalty divisor for NC is currently $5,250. Therefore, a gift will cause a penalty of one month for each $5,250 given away.

Q: A Medicaid applicant’s house is considered “exempt” under current Medicaid laws. Can an applicant give away the house without incurring penalties?
A: No, any assets which are given away are considered transfers for less than fair market value. If an applicant gives the house away, the state will assess a penalty based on the fair market value of the house at the time the property was transferred.

Suffice it to say that the Medicaid laws are complicated. There are a number of steps which smart families can take to preserve their assets and to qualify for benefits. These can range from gifting strategies to personal care contracts to annuities to increasing the amount of money which the at home spouse is allowed to protect. It’s important to keep in mind that these laws are constantly changing, and that the advice which was given to a friend or neighbor last year may no longer relevant, or even appropriate. With expert advice you may be able to protect yourself and your loved ones while qualifying for all the benefits the law allows.