Whether you are nearing retirement age or you are the loved one or family member of a senior, you have likely begun to understand the enormous costs of long-term care for the elderly. On top of that, the laws and rules in place for determining how to manage those costs are complex. Costs vary by region and location, but annual costs approach $100,000 for nursing home care, and $50,000 for an assisted living residence. About one-third of nursing home residents pay out of pocket for those costs. The remaining two-thirds of nursing facility pay for their care through Medicaid. With so many people reliant on Medicaid to pay for care, it’s likely you or a loved one will need to understand the rules of Medicaid.
Who Qualifies for Medicaid?
Medicaid is different from Medicare. Medicare covers health insurance for seniors aged 65 and older and generally pays for hospitalization and medical expenses. Medicaid services assist those with low income, including many seniors, for housing costs—including long-term care services in nursing homes and assisted living facilities. Medicaid is administered through the Health Authority. To be eligible for financial assistance with nursing, in-home or assisted living care, seniors must demonstrate a need for the care or service and meet financial eligibility and asset limits. These limits change often. As of 2018, to receive Medicaid coverage an individual is limited to $2,000 in assets and $2,250 in monthly income ($27,000 annually). For married couples, the rules are more complex and depend on whether the spouse remains in the community (“community spouse”) or is also applying for Medicaid.
Assets typically consist of the applicant’s countable assets from banking and investment accounts. But some assets are exempt from being included in the calculations for Medicaid eligibility. The largest exemption is for real estate used as the applicant’s or applicant’s spouse’s residence. The value of the home can be excluded (not counted) toward Medicaid eligibility if the “equity value” in the home is $572,000 or less (again an amount subject to change often). Other assets that are considered exempt from being counted toward Medicaid eligibility include:
- Pre-paid burial and funeral arrangements
- One vehicle
- Household items
- Personal effects
Planning for Medicaid
Seniors often have income or assets over and above the income limit. However, numerous methods have developed over the years to help seniors gain Medicaid eligibility requirements. Applicants often get themselves in trouble by making decisions without expert advice. A elder law attorney can provide information about qualifying for a Medicaid program and submitting a Medicaid application.
One area for problems is the transfer of assets—especially if it appears the transfer was to gain eligibility. Applicants are subject to a five-year look-back period for the transfer of any asset for less than fair market value. If the transfer does not comply with Medicaid rules, the applicant or Medicaid beneficiary could be disqualified from coverage for a period of time. Applicants with income over the limit can use a popular technique termed the Income Cap Trust.
The beneficiary is the applicant, who chooses someone to serve as their trustee. The trustee distributes the beneficiary’s allowable income each month to the beneficiary. Through the trust, certain other expenses may be paid, like health care expenses and taxes. The remainder is paid to the care facility for nursing home costs. A requirement of this type of trust and other Medicaid planning methods is that the state must be named the remainder beneficiary. This is because the estates of Medicaid recipients are often required to reimburse costs covered by Medicaid.
Applicants must keep this in mind when estate planning. The rules regarding assets, income and how to calculate Medicaid eligibility are complex. There are many planning strategies and hurdles to qualify, and anyone attempting to figure out the rules should first contact us with any questions.