Assisted living or nursing care is expensive and many older adults will need to use Medicaid to pay for it. To qualify for Medicaid benefits, many older adults “spend down” or try to reduce their assets to meet the requirements. But the rules are complex, so doing this without help from an elder law attorney could lead to penalties or denial of benefits for months. Lawyers from ARAG answer 4 top questions about how Medicaid spend down works and common mistakes to avoid.
Chances are if you’re finding long-term care for a senior, you’ll need to familiarize yourself with Medicaid, a government-funded health insurance program that’s the number one source of payment for long-term care.
Each state’s Medicaid program has specific eligibility requirements to be able to qualify for long-term care coverage, but the general rule is that an applicant can have no more than $2,000 in assets.
There is a strategy that can help people qualify that’s often referred to as “Medicaid spend down.” This is the spending or giving away of assets in order to meet Medicaid’s financial requirements.
It can be a good strategy as long as it’s done properly. The problem is, some people tend to start transferring or selling assets before they truly understand all the requirements.
What assets can someone “spend down” to qualify for Medicaid long-term care coverage?
Jancosek’s answer: In order to meet the maximum $2,000 cash reserve requirement, you can “spend down” assets through home repair or remodel, purchase of new furniture, paying off a mortgage, car loan or other debt, or purchasing clothing or medical equipment.
You can also shield cash reserves by transferring them into an asset that would be “exempt” under Medicaid, such as buying a burial plot or creating a pre-paid funeral fund. Keep in mind that when applying for Medicaid you’ll need to provide evidence regarding these expenditures, so save receipts and records of all transactions.
Ramirez’s answer: Not all assets are included in Medicaid’s official calculation to get to the maximum $2,000 (check with your state to verify the maximum amount of assets allowed).
Assets that are classified as exempt can include:
- Primary residence
- Rental property (if you meet a certain annual income)
- Business property
- One vehicle
- Household goods and personal items
- Term and whole life insurance policies
- Burial plots
- Individual Retirement Accounts and pensions (as long as the potential Medicaid recipient is receiving required minimum distributions)
- Cash reserves (generally up to $2,000)
But keep in mind that you may still want to consider exempt assets when you’re thinking about Medicaid eligibility. If you sell one of those exempt assets or one of those assets creates income, then it would no longer be considered “exempt” and would be counted for Medicaid.
Are there rules about income as well?
Ramirez’s answer: Medicaid allows an unmarried individual to keep a personal needs allowance of $35 per month. The rest of any income (from Social Security, for example) must go toward long-term care costs.
What about married couples when only one person is entering long-term care?
Jancosek’s answer: When only one spouse is entering long-term care or a nursing home facility and the other remains at home, the spouse remaining at home is given a greater allowance for assets and monthly income than a single individual. This helps prevent a healthy spouse from being forced to live in poverty simply because his or her partner needs high-cost care.
Ramirez’s answer: The specifics will vary by state. In California, for example, the spouse staying in the home is currently allowed to keep $120,900 in assets (and the same assets exempt for an individual are also exempt for the spouse), plus a maximum monthly “allowance” of $3,023 (and the spouse may retain all of his or her income).
What are the most common mistakes you see people make with Medicaid spend-downs?
Ramirez’s answer: The first mistake people make is spending all of their money. This leads not only to the individual having no money left but also to penalties within the Medicaid system.
For example, a person in California who gives away $55,000 just to qualify can be penalized and not be able to receive Medi-Cal (California’s version of Medicaid) for six months.
Another common mistake is parents adding their children on titles as joint owners of assets such as homes, vehicles and bank accounts. Not only does this not help for Medicaid purposes, but it increases your liability, can have severe tax consequences, and may be seen as an ineligible transfer, which leads to a penalty waiting period.
Perhaps the biggest mistake I see people make is to try to do all of this without seeking the advice of an elder law attorney. There are so many rules about assets, income, gifting, applying, redetermination, and estate recovery that many clients create major problems for themselves that could have been easily avoided by a trip to see an elder law attorney before doing anything.
Jancosek’s answer: People tend to assume that they are allowed to simply give away their assets in order to gain Medicaid eligibility. However, if you’ve given away assets during the last five years (or 30 months in California) before you apply (including property gifted to family members), your coverage can be temporarily denied.
I think the worst mistake people can make is not planning ahead. Consult with an elder law attorney as soon as possible to create a strategy. Rules and regulations are in a constant state of flux and vary based on your location.
Meeting with an elder law attorney early on in the process will help make sure your senior has access to medical care when he or she needs it and reduce stress for everyone down the road.
Recommended for you:
- Medicare vs. Medicaid: What You Need to Know
- How an Elder Law Attorney Can Help Seniors and Caregivers
- Medicaid May Reclaim Money from Your Senior’s Estate
Guest contributor: Dennis Healy is a member of the ARAG® executive team. Dennis is a passionate advocate for legal insurance and caregiving services because he has seen firsthand how they help people, especially older adults, receive the care and protection they need. He has more than 25 years of insurance industry experience, with a primary focus on the sale of group voluntary benefit products to employer groups of all sizes through brokers, consultants and employee benefit exchanges.
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