Introduction
There are really only three (3) ways to pay for long-term care expenses and nursing costs.
The first general way is with the proceeds from insurance policies. These might be long-term care policies, whether they are qualified policies or non-tax-qualified policies. It could be through short-term care policies; it might even be through hybrid, life-insurance / long-term care combinations.
For people who do not have insurance policies to cover their long-term care costs, the remaining payment options are, second, privately paying from your own income and assets and – for people who do have insufficient income or assets to pay for their care – the final option, third, is applying for government aid. Of course, the most relevant government-aid program is Medicaid.
So, the questions then become: How does one specifically qualify for Medicaid? Or, to put it another way: How does Medicaid determine eligibility?
Caveats
It is important to bear in mind that this is a complex conversation, in part because Medicaid-eligibility requirements are going to vary slightly (and, in some cases, significantly) from state to state. Because of this, you’re going to want to consult with an expert who is knowledgeable about your particular state.
Note: This post tracks along with a YouTube video I have on the same subject.
Medicaid Eligibility
There are two overarching considerations.
Number one, there are financial qualifications.
Number two, there are medical-eligibility requirements.
Most of what I’m going to say is going to have to do with the financial eligibility requirements (because they are so complicated). But let me say a bit about the medical requirements just right off the bat.
Medical Requirements
Generally speaking, Alzheimer’s-level cognitive impairments are going to be enough to qualify you – provided, of course, that they are sufficiently advanced in their severity.
In some literature, you will encounter phrases like “nursing-home-level care.”
The specifics of this are going to vary from state to state. So, once again, you need to seek advice.
However, often, this nursing-home level of care is going to be calibrated to the type of supervision that a person requires, if they have cognitive impairments. Or, it may be calibrated to the various Activities of Daily Living (ADLs) that they are lacking.
Financial Requirements
But what I’m mainly going to be concerned with is going to be the financial eligibility. That’s essentially determined by two (2) calculations or “tests”: an asset test, and an income test.
The question of assets is going to preoccupy us in this article. In a subsequent article, I’ll talk about the income test. (They are both intricate conversations, and so it is probably best to break the conversation up into two pieces.)
Why Are There Financial Qualifications?
The basic reason that these tests exist at all hearkens back to the stated purpose of Medicaid – as I sketched, previously. (For my written article, see HERE; for the companion YouTube video, see HERE.)
In a nutshell, Medicaid provides financial assistance, to help pay medical expenses for people who are impoverished.
And so, the obvious follow-up question is: Who qualifies as “impoverished”?
The answer to that question is determined by these two tests. Basically, the idea is if a person’s assets fall below a certain level, and their income falls below a certain level, then they count as impoverished.
So, as I said: Let’s now consider assets.
Medicaid Asset Requirements
Quick Answer
Essentially, a person has to have $2000 or less in order to qualify for Medicaid, from an asset standpoint.
Two Types of Assets
Now assets themselves are classified into two (2) categories.
The first are “countable assets,” or those that are nonexempt. The second are exempt assets, or those that are not “countable.”
The precise scope of the exemptions and countability will vary from state to state. So, once again, this underscores the need for you to have a conservation with an expert in your area.
Typical Exempt (Non-Countable) Assets
But, usually, an exempt asset is going to be something like these: basic pieces of property, such as the Medicaid recipient’s primary residence,[1] a car, and so on.
Another Caveat
You have to bear in mind that Medicaid can cover people of various ages; it’s not just for people who have Alzheimer’s Disease, dementia, and other cognitive impairments. Medicaid is more broadly applicable than that.
So, for example, it might happen that a 30-year-old Medicaid recipient has a primary residence, has a car, and can get around with no problem.
Now, while it is unlikely – not to say, ill-advised – for a person with advanced Alzheimer’s to be living alone or have a car, those restrictions are not imposed by Medicaid. They are simply result of the advancement of their disease.
What About the Non–Afflicted Spouse?
But the real question occurs when an Alzheimer’s afflicted individual has a spouse who has no affliction. What happens with the assets in that case?
The answer is that the non-afflicted spouse – sometimes referred to as the “noninstitutional spouse,” or the “community spouse” – will also have some assets that are usually going to be exempt.
Those exempt assets will be similar to what was just surveyed for the recipient him- or herself and will usually include a primary residence[2] and a single vehicle.
Medicaid May Seek ‘Recovery’
You should be mindful of the fact that Medicaid will sometimes claim reimbursement for the sale of the home after the Medicaid recipient has died.
You should also be aware that Medicaid is supposed to seek recovery from money that it spends on a recipient’s care.
Because of its strict monetary eligibility requirements, a Medicaid recipient is unlikely to have had any property apart from a home. For this reason, Medicaid often becomes a lien holder against the primary residence, and it may seek to collect money that was generated from the sale of the home.
In a few cases, a home may be required to be sold in order to settle with Medicaid.
However, there are many exceptions to this. In some cases where the noninstitutional spouse or minor child or some other dependent is still living in the home, Medicaid may either be unable or unwilling to seek recovery.
This is complicated territory and, not to sound like a broken record, but you will need to discuss your situation with licensed professionals who are familiar with these kinds of cases.
Countable (Non-Exempt) Assets
For the most part, assets beyond personal effects – like furniture and clothing – will be counted. This includes cash and banking assets, whether they are liquid or “semi-liquid.”
For example, it will include unsettled annuities, bank accounts (like checking accounts, money markets, and savings accounts), as well as certificates of deposit, (or CDs).
Countable assets will also include brokerage and other investment accounts as well as myriad “funds” (such as ETFs, hedge funds, mutual funds, and so on).
It will include cash-value life insurance (whether adjustable life, universal life, whole life, variable life, etc.).
And, importantly, it will include retirement accounts – including 401(k)s and other employer-sponsored defined contribution plans like 403(b)s, 457(b)s, and other employer-sponsored, defined-contribution-type plans. But it will also include Individual Retirement Accounts / Annuities – such as the Traditional IRA and the Roth IRA.
Real-estate and other property, beyond the primary residence and the main vehicle, are also generally non-exempt.
For example, if you have a family cabin or vacation home, then that would be a countable asset.
If you have a boat or a recreational vehicle (RV), then these would be countable assets as well in most cases.
$2,000 Limit
And as I said before, a person having more than $2000 in countable assets will usually be considered (asset) ineligible for Medicaid – although some states like New York have set other asset limits.
What About Property Owned Jointly?
How does it work if assets are shared in common with the spouse?
There are two (2) sorts of state: a “50%” state and a “100%” state.
Each of these types of estates handles assets a little bit differently and I will run through each of these, in turn.
My unofficial count was that approximately 35 states are of the 50-percent type. So, I’ll start with that.
‘50-Percent’ (50%) States
Although the details vary, usually, it happens something like this: All the countable assets are totaled.
So, consider a married couple. Let’s call them “John and Jane.”
The couple’s countable assets will include (1) those that are owned entirely by John, (2) assets owned entirely by Jane, as well as (3) assets that they own together.
The current values or Fair Market Values (FMVs) for these are summed, and then the result is divided by two – hence the name, “50-percent state.”
In general, the non-Afflicted spouse is going to be able to keep half – that is, 50% – of the total, within certain limits.
Two (2) limits are of greatest pertinence: a lower asset limit (or, minimum amount), and the upper asset limit (or, maximum amount).
Minimum & Maximum Asset Limits
These amounts are likely to vary year to year, just like the Internal Revenue Service (IRS) varies the amount of tax deductions, or varies the amount of retirement contributions that you can make.
In 2020, the lower limit was $25,728, and the upper limit was $128,640.[3]
In theory, a person could ask Medicaid to keep an amount outside of those limits. This would be established through a Medicaid “Fair Hearing.” But, in practice, the stated limits are usually final.
50%-State Examples
Case #1
This is complicated stuff, so an example or two might be helpful. I will run through three different scenarios, just for illustration purposes.[4]
Let’s take a middle-of-the-road example to begin.
Step One
Total the assets. Let’s suppose that John’s assets and Jane’s assets, together, are worth $100,000.
Step Two
In a 50% state, we just learned that we take that total and divide it by 2 which (of course) gives us $50,000.
Step Three
Compare the answer to that division problem (the quotient) to the lower and upper limits.
Results
Since our quotient – $50,000 – falls somewhere between the lower limit of $25,xxx, and the upper limit of $128,xxx, in this case, the noninstitutional spouse would get to keep all $50,000.
(This is because $50,000 is less than the maximum-allowable amount, and more than the statutory minimum.)
On the other hand, the institutional spouse, can only have $2000. So, he or she would need to “spend down” $48,000 (on this example), in order to qualify for Medicaid.
(Warning: This is only considering assets! There’s also an income test, as well.)
Case #2
Let’s consider a case now where the assets are a little bit more substantial.
Step One
Let’s suppose that Jane and John both together have $300,000 in assets.
Step Two
Once again, applying the 50% calculation we would take $300,000 and divide it by two. The resultant amount is $150,000.
Step Three
Comparing $150,000 to our stated limits, we notice that it exceeds the 2020 upper limit of $128,640.
Results
This means that, in our second example, the noninstitutionalized spouse will only be able to keep up to the limit, or $128,640.
As always, the institutionalized spouse can only keep $2000. So, once again, the institutional spouse must spend down the rest of his or her “half.” So… that’s $148,000 (or, $150,000 – $2,000).
But, all the money that is over the limit must be spent down.
In this case, even the noninstitutional spouse was not permitted to keep the entirety of his or her “half” of the money. So, the noninstitutional spouse must also spend down the remainder of his or her share of the couple’s assets. Here, that amounts to $21,360 (or, $150,000 – $128,640).
Therefore, in this second case, the total spend-down amount is $169,360.
($148,000 from the institutional spouse plus $21,360 from the noninstitutional one).
Case #3
For our third example, let’s consider a case where the assets are far less significant.
Step One
Suppose that Jane and John have a total of $30,000 to their names.
Step Two
When we divide that number by two, we get $15,000.
Step Three
Comparing it to our limits, we observe that $15,000 is less than the minimum amount of $25,728.
Results
That means, in a 50% state, the noninstitutional spouse will get to keep all $25,728, despite the fact that that amount exceeds 50% of the asset total.
On the other hand, since the institutional spouse can only keep $2000, the remaining $2,272 would have to be spent down.
($30,000 of total assets minus $25,728 kept by the noninstitutional spouse minus $2,000 kept by the institutional spouse.)
Takeaway
We see that there is an asset “spend down” that occurs when one’s countable assets exceeds the allowable amounts.
100% States
As I said, not all states operate on a 50% basis. Some are what are called “100% states.” In these states, the noninstitutional spouse may keep all the assets, up to the prescribed limit.
100%-State Examples
In some cases, the practical difference is very slight.
Case #4
Step One
For example, again suppose that Jane and John have $300,000 of total assets.
Step Two
Compare the total assts to stated limits.
Results
In a 100% state, the noninstitutional spouse keeps up to the maximum-allowable amount. In 2020, this is $128,640.
Therefore, the noninstitutional spouse will keep $128,640. This is the same amount that the noninstitutional spouse got to keep in the comparable 50%-state example.
As always, the institutional spouse keeps $2,000, and the rest is spent down.
Case #5
On the other hand, if the assets are less significant, the 100% state approach starts to make a bigger difference.
Step One
So, suppose that Jane and John had a total of $100,000 of assets.
Step Two
$100,000 is less than the 2020 limit of $128,640.
Result
Therefore, in a 100% state, the noninstitutional spouse would keep all $100,000.[5]
Case #6
Step One
Similarly, suppose the assets totaled $30,000.
Step Two
$30,000 is less than the $128,640 limit.
Result
In a 100% state, the noninstitutional spouse would keep all $30,000.
Takeaway
Essentially, in a 100% state, the noninstitutional spouse gets to keep all the assets up to the limit, which is $128,640 in the year 2020.
‘Spend Down’ Doesn’t Mean ‘Give Away’!
Here we run into a potential pitfall.
Upon learning about Medicaid’s austere requirements, and upon surveying their financial situation, couples might be tempted to start giving away assets – whether it be to relatives, to friends or to charities.
This would be a bad idea and very dangerous course of action!
Medicaid’s ‘Penalty Period’
We’ll need to be exceptionally careful.
Medicaid asset transfer rules are every bit as stringent as its other requirements.
Running afoul of Medicaid asset transfer regulations can result in the imposition of what is termed a “penalty.” This is a period of time when the applicant would be ineligible for Medicaid because of procedural violations.
You should also be aware that the penalty period only begins once the applicant would otherwise qualify for Medicaid and often once the applicant is already in a long-term care environment and receiving care.
That means that the Medicaid applicant would be in need of the assistance but would be unable to get it because they are being penalized. In other words, you would be up a creek without a paddle!
The ‘Look-Back Period’
In general, at least for long-term-care scenarios, Medicaid can – and will – review an applicant’s financial history and financial reports going back a full 60 months, or five years.
This “scrutinizing interval” is referred to as the “Medicaid look back.”
What are they looking for?
Medicaid is looking for transfers that are inadmissible from the standpoint of its regulations.
Improper Gifting
Illicit transfers might include things that you might call “improper gifting” and also inappropriate sales.
Illicit gifting would be giving gifts apart from what would be reasonable to celebrate usual occasions (like birthdays and anniversaries) or beyond what would be expected and reasonable in terms of holidays (that is, holidays that your family normally observes).
So, for example, giving little Johnny $50 on his birthday, or buying him a video game might not raise any red flags. (Although, if you are in the process of Medicaid planning, you need to consult with an attorney about every move that you make!)
On the other hand, giving the family cabin to your brother and calling it “an Arbor-Day gift” will almost certainly land you in hot water.
So, don’t make that kind of a mistake!
But, seriously, even inadvertent violations of asset-transfer requirements can be penalized severely.
Your best bet is to consult with an attorney who is knowledgeable about Medicaid transfers.
Firstly, lawyers are liable for the advice that they give to you.
And secondly, it’s against federal law to advise anybody to make asset transfers in such ways to try and hide assets or to cheat Medicaid. If a person’s advice results in the imposition of a penalty, the person giving the advice can be criminally liable.
Caveat
Naturally, this article is not intended to be construed as advice of any kind. It is for general informational, or entertainment, purposes only. You need to consult with experts in your area – perhaps more in this case than others. This is because qualifying for Medicaid is serious business.
Improper Selling
You can get in a lot of trouble, even if you aren’t gifting assets, but if you’re selling them incorrectly.
This is especially the case if the sale price is below the fair market value (FMV) of whatever the item is.
For example, if your car’s blue book value is $10,000. You sell it to your granddaughter for 25 bucks.
This is going to do more than just raise eyebrows. It could get you into a lot of trouble!
Is Every Asset Transfer Illicit?
Now, that isn’t to say that no asset transfers or sales are permissible.
This is an important point because it’s to be expected that a person is transitioning into a new era of their life when going into a long-term care facility, or a nursing home, and they are going to be downsizing, and they’re going to be getting rid of some of their property almost for sure.
The point is that you would be far better getting competent advice when you make these changes, than you would be otherwise.
Permissible asset transfers might include: retitling the home in the name of a spouse or in the name of a caretaking child, or selling items at their fair market value – provided, of course, that the proceeds from the sales are duly noted, tracked, and then reported as part of the countable asset calculation.
Once again, asset transfer rules are state specific, and any Medicaid planning and preparation should be done only under the express advice of an attorney.
Life Insurance
The real difficulty with life insurance is the cash value.
Not every life-insurance policy has cash value. This is going to apply (mainly) to policies that are built on a whole-life or universal-life chassis.
Most term-life policies[6] have no cash value and can (generally) be retained at any face amount.
The “face amount” is the big dollar amount written on the front page of most life-insurance policies. It’s the amount that you would expect to the beneficiary to receive in the event of the insured person’s death.
On the other hand, permanent policies are usually the ones that have cash values. These policies must be limited to $1,500 face values.
That means they can pay out $1,500, at most, in the event that the insured dies. If the face value is $1500, then the cash value is expected to be less than that.
Any contract exceeding these values most likely will need to be “surrendered,” or “cashed out.” (But do not do anything without consulting a competent Medicaid expert or planner!)
Cash-value policies also need to be tracked carefully, even if they are retained.
So, if a policy falls under that $1,500 threshold, it is still going to need to be carefully tracked because: (1) the cash value is still part of the countable assets, and (2) if the policy’s cash value increases or changes year to year, or if the face value goes up, then the policy may qualify this year but not qualify next year.
Final Words
Take a deep breathe.
Because… the income requirements are every bit as complex as the asset requirements!
We’ll tackle those next time.[7]
(Featured-image credit: ‘Robbie Owen-Wahl’ Link: animalaidunlimited.org
https://images.freeimages.com/images/large-previews/916/calculator-and-pen-indicating-work-study-1632106.jpg.)
Notes:
[1] You should also be aware that there are sometimes limits imposed in terms of how much equity can be inside the house and whether this is applicable or not often depends on whether it is the Medicaid recipient him or herself, who is in the home or whether it is the noninstitutional spouse where equity limits do apply. They tend to vary year to year. In 2020, the amount of allowable equity in a home is about $600,000. Technically about $595,000. In some states it can go all the way up to closer to $900,000 or about $893,000 in 2020.
Intuitively, the reason for the equity limit is so that a person sitting on a $2 million mansion could not qualify for Medicaid when the sale of the home would be enough to discharge both their medical expenses and more modest housing costs. Cases where the spouse is willing in the home equity.
Limits may or may not apply. Consult your Medicaid planner.
[2] See, again, the previous footnote.
[3] These limits may have changed, though; so, don’t too get too hung up on the specific amounts. Just try to get a grasp of the concepts. Your trusted Medicaid expert or planner will be “up” on the relevant limits.
[4] My numbers are entirely hypothetical.
[5] Conceivably, the institutional spouse could keep $2,000 and the noninstitutional could retain $98,000. Consult your Medicaid planner.
[6] Term insurance is usually regarded as “temporary,” since it is purchased for intervals called “terms.” Intervals may be 1 year, 10 years, 20 years, 30 years, etc. The insurance expires if the insured hasn’t died during the interval.
[7] I want to stress that this has been my good-faith effort to provide people with an accessible summary of the contours of Medicaid asset eligibility. However, I make no claims to completeness or expertise. I do not warrant that this information is accurate, error-free, or up to date. So, please, consult with a qualified expert to help you!