Medicaid
Topics Covered:
Introduction
Resource (Asset) Rules
The Home
The Transfer Penalty
Exceptions to the Transfer Penalty
Is Transferring Assets Against the Law?
Treatment of Income
Protections for the Healthy Spouse
Estate Recovery and Liens
Introduction
Medicaid (called "Medi-Cal" in California and
"MassHealth" in Massachusetts) is a joint federal-state
program that provides health insurance coverage to low-income
children, seniors and people with disabilities. In addition, it covers
care in a nursing home for those who qualify. In the absence of any
other public program covering long-term care, Medicaid has become the
default nursing home insurance of the middle class. As for home care,
Medicaid offers very little except in New York State, which provides
home care to all Medicaid recipients who need it. Recognizing that
home care costs far less than nursing home care, a few other
states—notably Hawaii, Oregon and Wisconsin--are pioneering
efforts to provide Medicaid-covered services to those who remain in
their homes.
While Congress and the federal Centers for Medicare and Medicaid
Services (formerly the Health Care Financing Administration) set out
the main rules under which Medicaid operates, each state runs its own
program. As a result, the rules are somewhat different in every state,
although the framework is the same throughout the country. The
following describes those basic rules, but check your state for the
specific application where you live.
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Resource (Asset) Rules
These are general federal guidelines. The specific rules in your state
may differ somewhat.
In order to be eligible for Medicaid benefits a nursing home resident
may have no more than $2,000 in "countable" assets.
The spouse of a nursing home resident--called the 'community
spouse'-- is limited to one half of the couple's joint assets
up to $99,540 (in 2006) in "countable" assets (see Medicaid,
Protections for the Healthy Spouse). This figure
changes each year to reflect inflation. In addition, the community
spouse may keep the first $19,908 (in 2006), even if that is more than
half of the couple's assets. This figure is higher in some states.
All assets are counted against these limits unless the assets fall
within the short list of "noncountable" assets. These
include:
(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 the healthy (community) spouse;
(3) the applicant's principal residence, provided it is in the
same state in which the individual is applying for coverage (the
states vary in whether the Medicaid applicant must prove a
reasonable likelihood of being able to return home);
(4) prepaid funeral plans and a small amount of life insurance; and
(5) assets that are considered "inaccessible" for one
reason or another.
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The Home
Depending on the state, nursing home residents do not have to sell
their homes in order to qualify for Medicaid. In some states, the home
will not be considered a countable asset for Medicaid eligibility
purposes as long as the nursing home resident intends to return
home; in other states, the nursing home resident must prove a
likelihood of returning home. In all states, the house may be
kept if the Medicaid applicant's spouse or another dependent
relative lives there.
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The Transfer Penalty
NOTE: The Medicaid transfer rules are about to change. You may want to
consult with a qualified elder law attorney before they do.
Click here for more information.
The second major rule of Medicaid eligibility is the penalty for
transferring assets. Congress does not want you to move into a nursing
home on Monday, give all your money to your children (or whomever) on
Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a
penalty on people who transfer assets without receiving fair value in
return.
This penalty is a period of time during which the person transferring
the assets will be ineligible for Medicaid. The penalty period is
determined by dividing the amount transferred by what Medicaid
determines to be the average private pay cost of a nursing home in
your state. The period of ineligibility starts on the first day of the
month of the transfer.
Example:
If a Medicaid applicant made gifts totaling $90,000 in a state where
the average nursing home bill is $5,000 a month, he or she would be
ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18).
Another way to look at the above example is that for every $5,000
transferred, an applicant would be ineligible for Medicaid nursing
home benefits for one month.
In theory, there is no limit on the number of months a person can be
ineligible.
Example:
The period of ineligibility for the transfer of property worth
$400,000 would be 80 months ($400,000 ÷ $5,000 = 80).
However, the state Medicaid agency may look only at transfers made
during the 36 months preceding an application for Medicaid (or 60
months if the transfer was made to certain trusts). This is called the
"look-back period." Effectively, then, there is now a
36-month limit on periods of ineligibility resulting from transfers.
This means that people who make large transfers must be careful not to
apply for Medicaid before the 36-month look-back period passes.
Example:
To use the above example of the $400,000 transfer, if the individual
made the transfer on January 1, 2002, and waited until February 1,
2005, to apply for Medicaid -- 37 months later -- the transfer would
not affect his or her Medicaid eligibility. However, if the individual
applied for benefits in December 2004, only 35 months after
transferring the property, he or she would have to wait the full 80
months before becoming eligible for benefits.
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Exceptions to the Transfer Penalty
Transferring assets to certain recipients will not trigger a period of
Medicaid ineligibility. These exempt recipients include:
(1) A spouse (or a transfer to anyone else as long as it is for the
spouse's benefit);
(2) A blind or disabled child;
(3) A trust for the benefit of a blind or disabled child;
(4) A trust for the sole benefit of a disabled individual under age 65
(even if the trust is for the benefit of the Medicaid applicant, under
certain circumstances).
In addition, special exceptions apply to the transfer of a home. The
Medicaid applicant may freely transfer his or her home to the
following individuals without incurring a transfer penalty:
(1) The applicant's spouse;
(2) A child who is under age 21 or who is blind or disabled;
(3) Into a trust for the sole benefit of a disabled individual under
age 65 (even if the trust is for the benefit of the Medicaid
applicant, under certain circumstances);
(4) 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
(5) A "caretaker child," who is defined as a child of the
applicant who lived in the house for at least two years prior to the
applicant's institutionalization and who during that period
provided care that allowed the applicant to avoid a nursing home stay.
Congress has created a very important escape hatch from the transfer
penalty: the penalty will be "cured" if the transferred
asset is returned in its entirety, or it will be reduced if the
transferred asset is partially returned.
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Is Transferring Assets Against the Law?
You may have heard that transferring assets, or helping someone to
transfer assets, to achieve Medicaid eligibility is a crime. Is this
true? The short answer is that for a brief period it was, and it's
possible, although unlikely under current law, that it will be in the
future.
As part of a 1996 Kennedy-Kassebaum health care bill, Congress made it
a crime to transfer assets for purposes of achieving Medicaid
eligibility. Congress repealed the law as part of the 1997 Balanced
Budget bill, but replaced it with a statute that made it a crime to
advise or counsel someone for a fee regarding transferring assets for
purposes of obtaining Medicaid. This meant that although transferring
assets was again legal, explaining the law to clients could have been
a criminal act.
In 1998, Attorney General Janet Reno determined that the law was
unconstitutional because it violated the First Amendment protection of
free speech, and she told Congress that the Justice Department would
not enforce the law. Around the same time, a U.S. District Court judge
in New York said that the law could not be enforced for the same
reason. Accordingly, the law remains on the books, but it will not be
enforced. Since it is possible that these rulings may change, you
should contact your elder law attorney before filing a Medicaid
application. This will enable the attorney to advise you about the
current status of the law and to avoid criminal liability for the
attorney or anyone else involved in your case.
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Treatment of Income
The basic Medicaid rule for nursing home residents is that they must
pay all of their income, minus certain deductions, to the nursing
home. The deductions include a $60-a-month personal needs allowance
(this amount may be somewhat higher or lower in particular states), a
deduction for any uncovered medical costs (including medical insurance
premiums), and, in the case of a married applicant, an allowance for
the spouse who continues to live at home if he or she needs income
support. A deduction may also be allowed for a dependent child living
at home.
In some states, known as "income cap" states, eligibility
for Medicaid benefits is barred if the nursing home resident's
income exceeds $1,809 a month (for 2006), unless the excess above this
amount is paid into a "(d)(4)(B)" or "Miller"
trust. If you live in an income cap state and require more information
on such trusts, consult an elder law specialist in your state.
For Medicaid applicants who are married, the income of the community
spouse is not counted in determining the Medicaid applicant's
eligibility. Only income in the applicant's name is counted in
determining his or her eligibility. Thus, even if the community spouse
is still working and earning $5,000 a month, she will not have to
contribute to the cost of caring for her spouse in a nursing home if
he is covered by Medicaid.
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Protections for the Healthy Spouse
The Medicaid law provides special protections for the spouse of a
nursing home resident to make sure she has the minimum support needed
to continue to live in the community.
The so-called "spousal protections" work this way: if the
Medicaid applicant is married, the countable assets of both the
community spouse and the institutionalized spouse are totaled as of
the date of "institutionalization," the day on which the ill
spouse enters either a hospital or a long-term care facility in which
he or she then stays for at least 30 days. (This is sometimes called
the "snapshot" date because Medicaid is taking a picture of
the couple's assets as of this date.)
In general, the community spouse may keep one half of the couple's
total "countable" assets up to a maximum of $99,540 (in
2006). Called the "community spouse resource allowance,"
this is the most that a state may allow a community spouse to retain
without a hearing or a court order. The least that a state may allow a
community spouse to retain is $19,980 (in 2006).
Example:
If a couple has $100,000 in countable assets on the date the applicant
enters a nursing home, he or she will be eligible for Medicaid once
the couple's assets have been reduced to a combined figure of
$52,000 -- $2,000 for the applicant and $50,000 for the community
spouse.
Some states, however, are more generous toward the community spouse.
In these states, the community spouse may keep up to $99,540 (in
2006), regardless of whether or not this represents half the
couple's assets.
Example:
If the couple had $60,000 in countable assets on the
"snapshot" date, the community spouse could keep the entire
amount, instead of being limited to $30,000.
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. But what
if most of the couple's income is in the name of the
institutionalized spouse, and the community spouse's income is not
enough to live on? In such cases, the community spouse is entitled to
some or all of the monthly income of the institutionalized spouse. How
much the community spouse is entitled to depends on what the Medicaid
agency determines to be a minimum income level for the community
spouse. This figure, known as the minimum monthly maintenance needs
allowance or MMMNA, is calculated for each community spouse according
to a complicated formula based on his or her housing costs. The MMMNA
may range from a low of $1,604 (in 2006) to a high of $2,488.50 a
month (in 2006). 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. (In some states, the community spouse is
permitted to increase the MMMNA by retaining more resources, as
discussed in Long-Term Care Planning,
"Increased CSRA".)
Example:
Mr. and Mrs. Smith have a joint income of $3,000 a month, $1,700 of
which is in Mr. Smith's name and $700 is in Mrs. Smith's name.
Mr. Smith enters a nursing home and applies for Medicaid. The Medicaid
agency determines that Mrs. Smith's MMMNA is $1,700 (based on her
housing costs). Since Mrs. Smith's own income is only $700 a
month, the Medicaid agency allocates $1,000 of Mr. Smith's income
to her support. Since Mr. Smith also may keep a $60 a month personal
needs allowance, his obligation to pay the nursing home is only $640 a
month ($1,700 - $1,000 - $60 = $640).
In exceptional circumstances, community spouses may seek an increase
in their MMMNAs either by appealing to the state Medicaid agency or by
obtaining a court order of spousal support.
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Estate Recovery and Liens
Under Medicaid law, following the death of the Medicaid recipient a
state must attempt to recover from his or her estate whatever benefits
it paid for the recipient's care. However, no recovery can take
place until the death of the recipient's spouse, or as long as
there is a child of the deceased who is under 21 or who is blind or
disabled.
While states must attempt to recover funds from the Medicaid
recipient's probate estate, meaning property that is held
in the beneficiary's name only, they have the option of seeking
recovery against property in which the recipient had an interest but
which passes outside of probate. This includes jointly held assets,
assets in a living trust, or life estates. Given the rules for
Medicaid eligibility, the only probate property of substantial value
that a Medicaid recipient is likely to own at death is his or her
home. However, states that have not opted to broaden their estate
recovery to include non-probate assets may not make a claim against
the Medicaid recipient's home if it is not in his or her probate
estate.
In addition to the right to recover from the estate of the Medicaid
beneficiary, state Medicaid agencies must place a lien on real estate
owned by a Medicaid beneficiary during her life unless certain
dependent relatives are living in the property. If the property is
sold while the Medicaid beneficiary is living, not only will she cease
to be eligible for Medicaid due to the cash she would net from the
sale, but she would have to satisfy the lien by paying back the state
for its coverage of her care to date. The exceptions to this rule are
cases where a spouse, a disabled or blind child, a child under age 21,
or a sibling with an equity interest in the house is living there.
Whether or not a lien is placed on the house, the lien's purpose
should only be for recovery of Medicaid expenses if the house is sold
during the beneficiary's life. The lien should be removed upon the
beneficiary's death. However, check with an elder law specialist
in your state to see how your local agency applies this federal rule.
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