While there are some limited Medicaid programs that offer assistance to those in need of home caregivers and assisted living facilities, those typically most interested in Medicaid benefits are clients in need of nursing home care. General Medicaid rules require recipients of the benefit to contribute most of their own monthly income to the cost of nursing home care, and Medicaid pays the balance of the facility charges. With the average cost of nursing home care now at or over $5,000 per month, Medicaid is an essential benefit to almost anyone in need of 24-hour skilled care.
To qualify for Medicaid assistance, applicants must pass both an income test and an asset test. Medicaid’s income rules require applicants to have monthly income below a certain level. The limit changes every year, but it is currently slightly over $2,000 per month. However, no one with proper guidance should ever be denied Medicaid benefits based on the income test. Medicaid rules allow for use of an Irrevocable Income Trust, more commonly known as a Miller Trust, to bypass the income rules and allow those with higher income levels to qualify for Medicaid assistance.
The asset test for Medicaid assistance varies dramatically depending on whether the applicant is married or single.
Asset Restrictions for Single Applicants
Single applicants for Medicaid assistance can own one home, one vehicle, a prepaid burial plan, and $2,000 in total additional assets. Very few exceptions exist to this basic rule. Some applicants have very limited assets when they enter a nursing home and already meet this rule, but most are over this asset limit need to know about Medicaid’s transfer penalty and look back period.
The Department of Human Services has a right to look back at an applicant’s financial situation for the five years preceding his or her application for assistance, and if the applicant gave away or transferred any assets during that five year period, Medicaid will penalize that applicant before providing any assistance. The penalty is calculated in terms of months, not dollars. In other words, for every $5,000 in assets transferred by an applicant during the look back period, a one month penalty will apply. If an applicant transferred or gave away $100,000 in assets during the look back period, he or she will incur a 20 month transfer penalty before Medicaid will provide any assistance with the nursing home bill.
Although this sounds like a harsh rule, having a good understanding of how the gifting penalty works creates a number of exciting planning opportunities that can help clients obtain Medicaid benefits without simply paying the nursing home private pay rates until all of the applicant’s assets have been exhausted, even when preplanning is no longer an option.
With regard to the home – although Medicaid rules allow applicants to qualify for Medicaid assistance while owning a home if the applicant has virtually no other assets, it is often unwise to keep the home. The Department of Human Services is permitted to place a lien on the home of any Medicaid recipient who dies still owning the home. The means the home cannot be sold or passed down to the heirs of a Medicaid recipient without first paying back the Department of Human services every penny that was spent on the Medicaid recipient’s care during his or her lifetime. For this reason, we usually advise that our clients sell or transfer their homes before applying for Medicaid, and we strive to minimize any negative consequences of that sale or transfer through a solid understanding of the rules regarding the transfer penalty.
Asset Restrictions for Married Applicants
Most clients are surprised to learn how much of their marital assets they can shelter under current Medicaid rules. The Department of Human Services is required to count all assets owned by both spouses, not just the assets in the name of the applicant spouse, as of the date of entry into the nursing home. But Medicaid rules protect the home plus one-half of those assets, within certain minimum and maximum limits, in addition to the $2,000 in assets allowed to a single Medicaid applicant.
Medicaid rules also offer some limited income protection to married couples. First, while all assets in either spouses name count under the asset tests, Medicaid rules always protect the income of the non-nursing home spouse when the spouse in the nursing home qualifies for Medicaid. In other words, Medicaid rules only require payment of the income of the nursing home spouse towards the facility charges, never the income of the non-nursing home spouse. Second, when the income of the non-nursing home spouse does not reach a certain minimum level determined annually, some of the income of the nursing home spouse can be retained by the non-nursing home spouse to help meet daily expenses at home.
As with single applicants, some exciting planning opportunities exist for married applicants with a good understanding of Medicaid rules, even when preplanning is no longer option.
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