August 18, 2010
What You Should Know About Medicaid Eligibility
by NY Chapter of the National Academy of Elder Law Attorneys, Bernard A. Krooks
Long-term care costs can devastate a family. The national average for nursing home costs is approximately $75,000 per year and can go as high as $150,000 if you live in a larger metropolitan area such as New York. Funding home care and assisted living care can also be astronomical.
Many families are rightly concerned about how they will finance long-term care if a loved one becomes ill. Unfortunately, at this time, our country has no health insurance system for long-term care. Seniors who worked hard their entire lives to accumulate a modest nest egg may be forced to spend all their assets, including selling their home, to pay for the cost of their long-term care.
Long-term care insurance provides a valuable planning alternative and should be considered as part of an overall estate plan.
Since most seniors cannot afford long-term care insurance or are not insurable due to various infirmities, they must apply for Medicaid to underwrite this type of care. Medicaid presently provides 48 percent of all long-term care in this country.
I should note here that I am talking about Medicaid not Medicare. Since the names are so similar, there can be confusion between the two programs, but each is very different. Medicare is the federal insurance program covering all those 65 and older and certain persons with disabilities. Medicare is not set up to provide for extended long-term care. Medicare provides for very limited amounts of nursing home care and does so only if the patient requires skilled nursing care. It gets even more complicated as we go on. Medicare will pay for up to 100 days of skilled nursing care, provided that the patient was hospitalized for 3 days during the 30-day period preceding the nursing home admission. But, Medicare will only pay for the first 20 days in full; thereafter (days 21-100) a co-payment of $124 per day is required. A person who has long-term care needs due to Alzheimer’s disease or other chronic illness will soon discover that Medicare is simply not a viable alternative for those in need of long-term care.
Medicaid, on the other hand, is the only government program that pays for long-term care costs for seniors including both nursing home and home care. However, unlike Medicare, Medicaid is a “means-tested” program. This means there are strict income and asset guidelines which must be met in order to become eligible for benefits. Medicaid is a state program funded in part by the federal government. As such, each state has its own Medicaid rules and regulations; there are 51 different Medicaid programs when you include the District of Columbia.
It is critical that you become familiar with Medicaid’s complex rules along with the policies and procedures of your particular state. Because Medicaid eligibility can be confusing, many Medicaid myths abound. I would like to clear up some of these common misconceptions.
• Once I enter a nursing home as a private-pay resident, I must use up all my assets before I can qualify for Medicaid. This is not true. It is never too late to plan. Although it is better to plan ahead, it is still possible to protect a significant portion of your assets even if you are already in a nursing home.
• I can only “spend down” my assets on medical or nursing home bills. Incurring medical expenses is just one way to effectuate a Medicaid “spend down.” There are many other ways, including purchasing or improving exempt assets, establishing a pre-paid irrevocable funeral contract, or purchasing a burial plot, among others.
• My agent under my power of attorney has the power to transfer assets out of my name in order to qualify me for Medicaid. It is critical for you to appoint someone as your agent under a durable power of attorney so you can avoid the unnecessary expense of a guardianship. However, there are many different types of powers of attorney and you will be able to protect your assets only if you have the proper one. In order to have the power to transfer your assets for tax and Medicaid planning purposes, your power of attorney must have very specific language authorizing these types of transactions. Unfortunately, the vast majority of powers of attorney do not have these provisions; they have to be specifically added to the document.
• I should transfer my home to my children to get it out of my name. Many people believe that if they do this prior to entering a nursing home, they have done the right thing. But there are problems with this. You may have created unnecessary gift and capital gains taxes. Moreover, you would no longer have the legal right to live in your home. The better way to transfer your home to your children is by retaining a life estate. This will ensure that you have a legal right to live in your home and will also maximize tax and long-term care benefits.
• I should give away all my assets to my children. People believe that unless they give all their assets to their children, they will not be eligible for Medicaid. However, gifts can result in tax and Medicaid problems, particularly with the changes in the law resulting from the Deficit Reduction Act of 2005 (the DRA). Fortunately, Congress has enacted laws to protect against spousal impoverishment when one spouse enters a nursing home. Far too few middle-income Americans know about these rules that permit certain transfers of assets. For single individuals, other planning techniques are also available that will allow you to protect your assets while maintaining some control over them.
• All transfers of assets are subject to a Medicaid “look-back period” and are penalized under the Medicaid laws. Some transfers do not result in periods of Medicaid ineligibility. These transfers include certain transfers to children with disabilities, caretaker children, some siblings, certain exempt trusts for persons with disabilities under the age of 65, and pooled trusts for persons with disabilities.
• My home is exempt, so I do not need to worry if I go on Medicaid. Although for many the home is an exempt asset for Medicaid purposes, Medicaid still may have the right to place a lien on the home and force its sale. Even if a lien is not placed on the home, Medicaid may have the right to recover benefits paid on your behalf against your estate when you die. In addition, the DRA limits the equity value of a home to $500,000 ($750,000 in some states). If the equity in your home is worth more than that amount, your house will not be exempt unless certain exceptions apply.
These are just a few of the Medicaid misconceptions you may hear.
With proper planning, you can get the quality health care you need and not deplete your entire estate. You should take steps today to do what is necessary to protect yours and your family’s assets should you one day require long-term care. Consult with Medicaid or elder law and estate planning attorneys in your area.
From: Bernard A. Krooks, JD, CPA, LLM (in taxation), CELA, is president and founding member of the NY Chapter of the National Academy of Elder Law Attorneys and a nationally known and widely quoted expert on elder law. For more information, visit www.littmankrooks.com.