Posted inLong Term Care Planning

How Medicaid Works With Nursing Homes

It is crucial that all of us at or nearing our retirement years take the time to educate ourselves and then implement a plan that will address long-term care costs:

  • Of people turning 65, 69 percent will need some form of long-term care and Women are more at risk (79 percent).
  • More than half of the U.S. population will require some type of long-term care during their lives (nursing home care, home health care, assisted living, or rehabilitative facility care).
  • The average nursing home stay is approximately two and a half years, however 20 percent will need more than five years of care.

The corner stone to this education and planning process is to understand the roll Medicare and Medicaid will play.

What About Medicare?

There is a great deal of confusion about Medicare and Medicaid.  Medicare is the federally funded health insurance program primarily designed for older individuals (i.e. those over age 65). There are some limited long-term care benefits that can be available under Medicare.  In general, if you are enrolled in the traditional Medicare plan, and were admitted to a hospital with “inpatient” status (rather than “observation” status) for at least three days, and then you are subsequently admitted into a skilled nursing facility (often for rehabilitation or skilled nursing care), Medicare may pay for a while. (If you are a Medicare Managed Care Plan beneficiary, a three-day hospital stay may not be required to qualify.)

If you qualify, traditional Medicare may pay the full cost of the nursing home stay for the first 20 days and can continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible that’s $157.50 per day (in 2015).  Some Medicare supplement insurance policies will pay the cost of that deductible.  For Medicare Managed Care Plan enrollees, there is no deductible for days 21 through 100, as long as the strict qualifying rules continue to be met.

So, in the best-case scenario, the traditional Medicare or the Medicare Managed Care Plan may pay up to 100 days for each “spell of illness.”  In order to qualify for this 100 days of coverage, however, the nursing home resident must be receiving daily “skilled care” and generally must continue to “improve.”

(Note: Once the Medicare and Managed Care beneficiary has not received a Medicare covered level of care for 60 consecutive days, the beneficiary may again be eligible for the 100 days of skilled nursing coverage for the next spell of illness.)

Also, Medicare does not pay for treatment for all diseases or conditions. For example, if a long-term stay in a skilled nursing facility becomes necessary because of Alzheimer’s or Parkinson’s disease, Medicare will typically not pay because these stays are called custodial nursing stays.  Medicare doesn’t cover custodial care, if that’s the only care you need. In that instance, you’ll either have to pay privately (i.e. use long term care insurance or your own funds), for custodial nursing home stays unless you qualify for Medicaid.

While it’s never possible to predict at the onset how long Medicare will cover the rehabilitation, many times it falls far short of the 100 day maximum.  Even if Medicare does cover the full 100-day period, what happens after the 100 days of coverage have been used?

At that point, in either case you’re back to one of the other alternatives – long-term care insurance, paying the bills with your own assets, or qualifying for Medicaid.

What is Medicaid?

Medicaid is a benefits program that is funded by both the federal and state governments and administered by each state. Sometimes the rules can vary from state to state. One primary benefit of Medicaid is that the Medicaid program will pay for long-term care in a nursing home beyond Medicare’s 100-day limitation and Medicaid will pay for custodial care for Alzheimer’s and Parkinson’s disease. However, to be eligible to receive Medicaid long-term care assistance you must pass certain tests on the amount of income and assets that you have.

Exempt Assets & Countable Assets: What Must Be Spent?

To qualify for Medicaid, applicants must pass some fairly strict tests on the amount of assets they can keep. To understand how Medicaid works, you first need to understand the difference between “exempt” and “non-exempt” (or countable) assets. Exempt assets are those that Medicaid will not take into account (at least for the time being) when determining whether someone qualifies for long-term care assistance. In general, the following are the most common exempt assets:

  • Real property, which the individual owns and occupies as his or her home, subject to a $536.000 equity limitation. The home must be the principal place of residence. The nursing home applicant may be required to show some “intent to return home” unless the applicant’s spouse is still living in the home:
  • Household goods and personal effects of moderate value used in the home
  • One (1) motor vehicle (used for employment or medical transportation)
  • Burial spaces and certain related burial items and arrangements for the applicant and spouse
  • Irrevocable burial trust and/or an insurance policy irrevocably assigned for the purpose of burial – up to a specified dollar maximum
  • Cash surrender value of life insurance policies with combined face values of $1,500 or less per individual
  • All other property and assets are generally treated as non-exempt and are countable. Basically, all money and property, and any item that can be converted into cash, is a countable asset unless it is one of those assets listed previously as exempt.

While the Medicaid rules themselves are complicated, typically a single person will qualify for long-term care Medicaid assistance (as long as they meet all of the other requirements) if they only have exempt assets and a small amount of cash and/or money in the bank – not to exceed $4,000 in Nebraska.

Division of Assets: Medicaid Planning for Married Couples

Division of Assets is the name commonly used for the Spousal Impoverishment provisions and only applies to married couples. The intent of the Spousal Impoverishment rules was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e., at home. The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care. As a result of this recognition, division of assets was born.

Basically, in a division of assets situation, the couple gathers all their countable assets together in a review. Exempt assets, discussed previously, are not counted. The countable assets are then divided in two, with the at-home or “community spouse” allowed to keep the greater of one-half of all countable assets up to (in 2014) a maximum of $117,240 (the maximum amount) or $23,448 (the minimum amount). The other half of the countable assets must be “spent down” until less than $4,000 remains. The amount of the countable assets that the at-home spouse gets to keep is called the Community Spouse Resource Allowance (CSRA). Next month I will present some case studies to demonstrate how these Medicaid asset qualification rules work with different situations.

FAQs About Medicaid and the Countable Resources Limitation

I’ve added my children’s’ names to my bank account(s), will they still count for Medicaid?

Yes. The entire amount of the joint account is treated as a countable resource for Medicaid except to the extent you can prove the money in the account was actually contributed by the children.

Will putting my home in joint tenancy with my children, or transferring the home to my children keeping a life estate protect it from Medicaid?

Generally, adding names to the title of assets or transferring a future interest and retaining a life estate will be deemed a transfer and may cause a transfer penalty under Medicaid laws.

Can’t I just give my assets away?

The answer is, maybe, but only if it’s done with an understanding of how to structure the gift. The law has severe penalties for people who simply give away their assets to create Medicaid eligibility. Gifts made within five years of the Medicaid application date will be subject to the five-year look back rules. The state won’t let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value that are uncovered in the five-year look back period will cause a delay in eligibility for Medicaid.

In addition, the “penalty period” on asset transfers will not begin until the Medicaid applicant is in the nursing home and already spent down (or otherwise eligible) for Medicaid. This will frustrate the gifting plans of most people.

In Nebraska, if the private-pay cost for nursing home care is $7,000, then every $7,000 given away during the five (5) years prior to a Medicaid application creates a one-month period of ineligibility. So even though the Federal Gift Tax laws allow you to give away up to $14,000 per year without gift tax consequences, that same $14,000 gift could result in a period of 2 months of ineligibility for Medicaid in Nebraska.

Will I lose my home?

Many people who apply for medical assistance benefits to pay for nursing home care ask this question. Under the Medicaid regulations, the home is an exempt asset (so long as equity is less than $536,000). This means that it is not taken into account when determining Medicaid eligibility. But Congress passed a law that requires all states to try to recover the value of Medicaid payments made to nursing home residents.

Generally, estate recovery does not take place until the recipient of the Medicaid benefits dies (or until both spouses are deceased if it is a married couple). Then, the state will attempt to recover the Medicaid benefits paid from the recipient’s probate and potentially non-probate estate.

Just remember, the rules surrounding Medicaid are complex and continuously changing. However, when it comes to Medicaid assistance, there are planning opportunities available if you know where to find them.