Understanding Medicaid

Medicaid is a difficult system to understand.  Most people have to figure it out at the same time they’re having to deal with placing an incapacitated or disabled loved one in a nursing home.

But you don’t have to do this alone.  We can help you.

Health Insurance Medicaid v. Long-term Care Medicaid: There is a Difference

Let’s begin by understanding the difference between regular Medicaid (health insurance for the poor) and the Long-term Care Medicaid program (also known as “Aged, Blind and Disabled Medicaid”).  These are two fundamentally different programs.  The health insurance side of Medicaid is what most people think of when they hear the term.  This has also become associated with Obamacare which dramatically expanded Medicaid to provide health insurance to poor and low-income families.

With that said, the LTC Medicaid program is still a means-tested program.  That means that it does require a spend down before an applicant can be eligible for help with long-term care.  As the program has evolved, most states provide direct assistance for nursing homes; however, to reduce costs, many state programs have been expanded to provide Medicaid assistance in assisted living facilities and even at home through programs called Home and Community Based Services (“HCBS”) which are also referred to as “Waiver” programs since the states used to have to get a waiver from the federal government to expand the amount of services they paid for.Long-term Care Medicaid is a completely different animal altogether.

Long-term care Medicaid is clearly not a program only for the poor, as evidenced by the fact that asset limits for spouses top out at $115,920 (in 2013) and home equity caps top out at $536,000 in some states and $802,000 in some states like California.  Anyone with $115,920 in the bank and a $802,000 house is not considered “poor” or “indigent” in any sense of the words, but the could still qualify for Long-term Care Medicaid benefits.

Monthly Cost-Sharing

Even when the Medicaid program provides assistance, it rarely picks up the entire tab.  The goal is to help supplement what the patient can already pay for themselves.  For a single patient, the calculations are fairly straight forward since the state usually requires all of the patient’s income to go towards care but lets the patient pay for out-of-pocket insurance premiums and leaves the patient with a small monthly personal needs allowance (PNA) to give them some personal spending money.

For married couples, the amount that must be spent monthly is a far more complicated formula, which takes into account the needs of the community spouse for their own food, clothing, shelter and healthcare.

Asset Spend Down

Before the cost-sharing even begins, there is the asset spend down.  Medicaid has asset limits.  It requires you to spend your assets down to a pre-set amount before the state will step in and help with the cost of care.

Most people just assume they can only spend the assets on the nursing home.  Not so!

Medicaid approves a laundry list of personal assets which can be purchased as well as funeral expenses and other items.  In most states, a person can set aside as much as $15,000 into a funeral trust which can be protected from the Medicaid spend down.  But more than that, Medicaid also allows for assets to be shifted into certain investments such as trusts or annuities.  To satisfy the spend down, assets can be converted into income that may or may not need to be contributed towards the cost of care depending on ther person’s circumstances.

Strict Gifting Rules and the Look Back Period

Unlike the regular Medicaid program, Long-term Care Medicaid does not allow gifting of assets to get below the resource limits.  Gifts or uncompensated transfers are penalized.  As with most issues, this is not a hard and fast rule.  There are numerous exceptions when it is possible to gift.

Medicaid assesses a penalty for the total amount of transfers.  The penalty is assessed in terms of how long the person is ineligible for state assistance with the cost of their long-term care.  This period of ineligibility is based upon the amount of money given or transferred for less than fair-market-value in the last five years.  This waiting period is known as the Look Back Period.

Timing is very important.  Medicaid will look back five years prior to making an application for assistance.  If someone has given away assets in such a way that could cause a penalty period, it is possible to apply for Medicaid too early.  Typically, the look-back must be waited out on all transfers before making application.  There are some strategies, however, where you might apply early and intentionally trigger a penalty period.  This is usually coupled with techniques like buying a short-term annuity or returning a portion of the gifted asset to pay for care so as to reduce the penalty period.

Because gifting is such a tricky subject, if someone is dealing with a family member in need of care they should always seek an analysis of the gifting/transfer penalty issues before filing the application so as to not accidentally trigger a penalty period that could last a whole lot longer than then look back period.

For example, dad gives away $100,000 4.5 years ago.  The kids he gave it to have long since spent it.  He goes into a nursing home. Because he’s broke, the nursing home recommends filing for Medicaid. If an application is filed today, he would not be eligible for state assistance with his long-term care bills for at least 16 months (depending on which state he’s in, since the calculation is based on the average cost of care in a state). However, if he waits 6 months to apply, then not only will Mediaid start paying the bills but they a will also use his monthly cost-sharing amount to pay off the accrued balance at the nursing home. A dramatic difference!

Navigating the Terrain

Our team of Medicaid planning professionals are both helpful and knowledgeable about Medicaid planning tools and techniques available to help you maximize your asset protection.  Our team actually teaches others how to do Medicaid planning.  Each of our advisors is a Certified Medicaid Planner™ who is able to assist you with your long-term care Medicaid issues and help you avoid having to spend any more on the cost of your care than the law requires.