For all practical purposes in the United States the only “insurance” plan for long-term institutional care is Medicaid. Medicare only pays for approximately 7 percent of skilled nursing care in the United States. Private insurance pays for even less. The result is that most people pay out of their own pockets for long-term care until they become eligible for Medicaid While Medicare is an entitlement program, Medicaid is a form of welfare-or at least that’s how it began. So to be eligible, you must become “impoverished” under the program’s guidelines.
Despite the costs, there are advantages to paying privately for nursing home care. The foremost is that by paying privately an individual is more likely to gain entrance to a better quality facility. The obvious disadvantage is the expense; on Boston’s North Shore nursing home fees can be as high as $10,000 or even $12,000 a month. Without proper planning, nursing home residents can lose the bulk of their savings.
For most individuals, the object of long-term care planning is to protect savings (by avoiding paying them to a nursing home) while simultaneously qualifying for nursing home Medicaid benefits. This can be done within the following rules of Medicaid eligibility.
In Massachusetts, Medicaid is administered by the Division of Medical Assistance (the “DMA”). However, in order to qualify for federal reimbursement, the state program must comply with applicable federal statutes and regulations. So the following explanation includes both Massachusetts and federal law as applicable.
THE ASSET RULES
The basic rule of nursing home Medicaid eligibility is that an applicant, whether single or married, may have no more than $2,000 in “countable” assets in his or her name. “Countable” assets generally include all belongings except for (1) personal possessions, such as clothing, furniture, and jewelry; (2) one motor vehicle (valued up to $4,500 for unmarried recipients and of any value for community spouses); (3) the applicant’s principal residence (if it is in Massachusetts); and (4) assets that are considered inaccessible for one reason or another.
The home will not be considered a countable asset and, therefore, will not be counted against the asset limits for Medicaid eligibility purposes as long as the nursing home resident intends to return home or his or her spouse or another dependent relative lives there. It does not matter if it does not appear likely that the nursing home resident will ever be able to return home; the intent to return home by itself preserves the property’s character as the person’s principal place of residence and thus as a non-countable resource. In Massachusetts there is a limit on the equity value that is permitted to be maintained with respect to the principal residence. The limit is adjusted for inflation anually. In 2012, an equity interest in the principal place of residence exceeding $786,000 renders an individual ineligible for payment of nursing facility and other long-term-care services, unless the spouse of such individual or the individual’s child who is under the age 21 or who is blind or permanently and totally disabled resides in the individual’s home.
As a result, for those persons with less than $786,000 in equity value in their home for all practical purposes do not have to sell their homes in order to qualify for Medicaid.
THE TRANSFER PENALTY
The other major rule of Medicaid eligibility is the penalty for transferring assets. If an applicant (or his or her spouse) transfers assets, he or she will be ineligible for Medicaid for a period of time beginning on the date of the transfer. The actual number of months of ineligibility is determined by dividing the amount transferred by $8,730 (the average monthly cost to a patient paying privately for services in the Commonwealth). Periodically, this figure is revised to reflect increased costs. The figure was most recently adjusted as of March 1, 2012. For instance, if an applicant made gifts totaling $167,400, he or she would be ineligible for Medicaid for 20 months ($167,400 ÷ $8,320 = 20). Another way to look at this is that for every $8,370 transferred, an applicant will be ineligible for nursing home Medicaid benefits for one month.
Technically, there is no cap on the period of ineligibility. So, for instance, the period of ineligibility for the transfer of property worth $585,700 is 70 months ($585,700 ÷ $8,370 = 70). However, DMA may only consider transfers made during the 60-month period preceding an application for Medicaid, the “look-back” period. Effectively, then, there is now a 60-month cap on periods of ineligibility resulting from transfers. People who make large transfers have to be careful not to apply for Medicaid before the 60-month look-back period passes.
Exceptions to the Transfer Penalty
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include:
- A spouse (or anyone else for the spouse’s benefit);
- A blind or disabled child;
- A trust for the benefit of the blind or disabled child;
- A trust for the benefit of a disabled individual under age 65 (even for the benefit of the applicant under certain circumstances).
Special rules apply with respect to the transfer of a home. In addition to being able to make the transfer without penalty to one’s spouse or blind or disabled child, or into trust for other disabled beneficiaries, the applicant may freely transfer his or her home to:
- A child under age 21;
- A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
- A “caretaker child” who is defined as a child of the applicant who lived in the home for at least two years prior to the applicant’s institutionalization and who during that period provided such care that the applicant did not need to move to a nursing home.
The law provides a very important escape hatch for those who find they must qualify for Medicaid during a period of ineligibility. A transfer can be cured by the return of the transferred asset, either partially or in its entirety.
The state has the right to recover whatever benefits it paid for the care of the Medicaid recipient from his or her probate estate. Given the rules for Medicaid eligibility, the only property of substantial value that a Medicaid recipient is likely to own at death is his or her home. Under current law, the state may make a claim against the decedent’s home only if it is in his or her probate estate. Property that is jointly owned, in a life estate, or in a trust, is not included in the probate estate and thus escapes estate recovery. Congress has given the state the right to seek estate recovery against such non-probate property; so far Massachusetts has not acted on this new provision.
In most circumstances, if a Medicaid recipient sells a home during his or her life, the state will make a claim for reimbursement for whatever care it has paid for after the recipient reached age 55, or for the cost of institutional care at any age.
TREATMENT OF INCOME
When a nursing home resident becomes eligible for Medicaid, all of his or her income, less certain deductions, must be paid to the nursing home. The deductions include a $60-a-month personal needs allowance, a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance he or she must pay to the spouse that continues to live at home.
Medicaid law provides for special protections for the spouse of a nursing home resident, known in the law as the “community” spouse. For 2013, the spouse of a married applicant is permitted to keep up to $115,920. So, for example, if a couple owns $100,000 in countable assets, he or she will be eligible for Medicaid immediately. If the couple owned $130,000 in countable assets he or she will be eligible for Medicaid once their assets have been reduced to a combined figure of $117,920-$2,000 for the applicant and $115,920 for the at-home spouse.
The determination of the couple’s assets is made as of the date of the institutionalization of the nursing home spouse. That date is the day on which he or she enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days. It is advantageous for the couple to try to have as much money as possible in their names on that date up to about $180,000, so that the amount the community spouse is allowed to keep will be as high as possible (see the discussion on Increased Resources for the Community Spouse below).
In all circumstances, the income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits. In some cases, the community spouse is also entitled to share in all or a portion of the monthly income of the nursing home spouse. The DMA determines an income floor for the community spouse, known as the minimum monthly maintenance needs allowance or MMMNA, which, under a complicated formula, is calculated for each community spouse based on his or her housing costs. (Where the community spouse can show hardship, the DMA may award a larger MMMNA, but only after an appeal to fair hearings.) The MMMNA may range from a low of $1,407 to a high of $2,898 a month. If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income.
Increased Resources for the Community Spouse
Those community spouses whose own income is less than their MMMNA have an alternative to receiving the shortfall from the income of the nursing home spouse. These community spouses can petition the DMA for an increase in the standard resource allowance so that the additional funds can be invested in order to generate income to make up the shortfall. Given current low rates of return, this often permits the community spouse to retain a substantial level of savings above $115,920, while maintaining eligibility for the nursing home spouse.
THE MEDICAID APPLICATION
Applying for Medicaid is cumbersome and tedious. Every fact asserted in the application must be verified with documentation. The application process can drag on for several months as the DMA demands more and more verifications regarding such issues as the amount of assets and dates of transfers. If the applicant does not comply with these requests and deadlines on a timely basis, DMA will deny the application. In addition, after Medicaid eligibility is achieved, it must be re-determined every year.
This newsletter is designed for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. For further information please contact one of our attorneys. Information contained herein has been abridged from laws, court decisions and administrative rulings, and should not be construed as legal advice or legal opinions on specific facts. The enclosed material is provided for education and information purposes by MacLean Holloway Doherty Ardiff & Morse, P.C. to clients and others who may be interested in the subject matter.