MEDICAID PLANNING
By Ralph J. Conrad, Esq.
Many of our older clients face very difficult decisions, sometimes with very little information concerning possible options available to them. With regard to long-term nursing care, it is important to have some understanding of the Medicaid program and how it might help ease the financial burden of long-term care.
First, it is important to understand the difference between Medicare and Medicaid. Medicare is a joint federal/state program that provides health insurance for everyone age 65 and older, regardless of income or net worth. Medicaid, on the other hand, is available for the aged and disabled who can't afford to pay for long-term nursing care.
Basic Medicaid Eligibility Requirements
1. Level of Care. In order for someone to be eligible for Medicaid, he or she must require some level of nursing care. Medicaid does not pay for assisted living--only nursing care.
2. Income Level. Before Medicaid will pay for a person's nursing care, the individual's monthly income must be insufficient to pay for it. Once a person is on Medicaid, all of that person's monthly income must be applied to pay for his or her care. The only exceptions to this are that the Medicaid recipient may keep up to $40.00 per month for spending money and, if the Medicaid recipient has a spouse living at home, that spouse may be entitled to keep a portion of the "Institutionalized Spouse's" ("IS") income.
3. Asset Level. Finally, the Medicaid applicant's resources, or assets, must be less than $1,500. If the Medicaid applicant has a spouse who is still healthy enough to live at home, this "Community Spouse" ("CS") is entitled to keep one-half of the couples "countable resources" (all of the couple's assets except certain exempt assets, such as the home, one car, irrevocable funeral arrangements, cemetery plots and term life insurance), up to a maximum which is currently $90,660. This figure, known as the "Community Spousal Resource Allowance" ("CSRA"), is updated annually.
Medicaid Spend-Down Planning
1. Exemption Planning. Once a person is facing a long-term nursing home stay, it is advisable to spend some of his or her funds in ways other than simply by paying the nursing home until all of the person's assets are gone. First, he or she should invest in an irrevocable funeral arrangement. These can cost from $4,000 to $8,000. Next, if there is a CS, a portion of the amount which needs to be spent down can be spent on exempt assets for the CS, such as the home or car. Although spending a lot of money on the home or a new car can be a hard sell for older, frugal clients, it is some of the best planning which can be done.
Example. Harry and Maude own their own home, one car and have about $150,000 in stocks and cash. Harry entered a nursing home on February 15, 2004. Maude, who is still healthy, is able to keep a CSRA of $75,000 and Harry is able to keep up to $1,500 of their countable assets. Harry will qualify for Medicaid assistance when the couple's countable resources are below $76,500. Accordingly, within a few months, Maude spends down their assets to this level by paying for two months of care at the nursing home ($10,000), funeral arrangements ($15,000), a new car ($22,000 after trade-in) and home improvements ($26,500) (a total of $73,500 in spending). NOTE: Where a married couple is involved, it is important to wait to do significant spending until AFTER one spouse enters a nursing home.
2. Income Planning. Another way to accomplish the Medicaid asset spend-down is to convert resources to income. An individual may purchase annuities to create an additional income stream for him/herself, or for his or her spouse. This is a narrow strategy and should only be done before one of the spouses enters a nursing home.
3. Gifting. Finally, a person should consider gifting their assets away. Some transfers are considered "proper", such as: (a) transfer of a home to a spouse or a resident sibling with an equity interest; (b) transfer of a home to a resident child who has provided at least two years of care for the parent; and (c) transfers for the benefit of a disabled child (any assets, not just the home and these transfers can be made to a trust for the benefit of the child).
Additionally, judicious "improper" transfers can be made. When a Medicaid application is filed, all gifts within the prior 36 months (60 months where trusts are involved) must be reported. It is important to understand that improper transfers are legal; they just carry with them penalty periods during which a person will not be eligible for Medicaid. All of these transfers must be reported as a failure to report an improper transfer is fraud. The period of ineligibility from an improper transfer is calculated by dividing the amount of the transfer by the average monthly cost of nursing care for your state. The average cost of care per month in Ohio is currently $4,512.
Example. Ezra, a widower, enters a nursing home and his son applies for Medicaid for him when his assets are all spent. At his application, his son discloses that Ezra gave away a total of $45,000 to his children 30 months before the application was filed. Even though the gift falls within the 36-month look-back period, it was small enough that it no longer affects Ezra's Medicaid eligibility and Ezra qualifies. The gift made Ezra ineligible for Medicaid for about 10 months from the month of the gift forward and that period of ineligibility expired 20 months before the date of application.
Estate Recovery
When a Medicaid recipient passes away (or, if later, at the death of the Medicaid recipient's surviving spouse), the state can recover what it paid out in Medicaid benefits from the probate estate of the Medicaid recipient or his or her spouse. It is important to remember that Medicaid estate recovery does NOT apply to assets which pass outside of probate. Accordingly, it is very important to avoid a probate administration for any assets owned at death by either the Medicaid recipient or his or her spouse.
Medicaid law is very complex and sometimes hard to understand. However, the benefits from good planning can be substantial.
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