Medicaid Planning for Nursing Home Stays

I. WHY SHOULD YOU CARE ABOUT MEDICAID?

The chance of an elderly individual between 65 and 69 years of age entering a nursing home is almost one in two. The average nursing home stay for these individuals is approximately 2-1/2 years. Everyone, not just the elderly, needs to be concerned with payment of high nursing home costs. The cost for nursing home care in the state of Ohio is $7,000 to $10,000 per month. Costs around the country can range as high as $100,000 per year for nursing home care. Fifty percent of all couples with one spouse in a nursing home have lost everything within a year! YOU MUST CARE!

II. HOW WILL YOU PAY FOR SUCH COSTLY NURSING HOME CARE?

A. Self-pay with Private Long-Term Care Insurance

A growing number of insurance companies offer long-term nursing home care insurance policies. However, these policies can be very expensive and restrictive. The government is now providing some incentives for people to purchase Long-Tern Care Insurance rather than applying for Medicaid.

B. Why Medicare Really is NOT Helpful (Even though Everyone Thinks it is)!

Medicare coverage for nursing homes is extremely limited. Medicare will cover the first 20 days of skilled nursing care and up to 80 additional days of skilled nursing care after you pay your co-pay amount, only if you meet the stringent requirements.

D. MEDICAID--the ONLY Government Plan that is Available to Help Most Folks

Medicaid pays the nursing home bills for approximately 40% of nursing home patients. Qualification is difficult.

III. BASIC MEDICAID RULES-IT'S TOUGH TO QUALIFY

A. Medical Eligibility

In order for the applicant to qualify, Medicaid requires that the nursing home patient need an intermediate or skilled level of care, and a physician must complete a form to prove medical need. Thus, Medicaid generally will not cover individuals in assisted living facilities.

B. Income Eligibility Criteria

Generally, the only income limitation is that the applicant's monthly income be less than the nursing home's monthly charges. If the applicant is married, the healthy spouse's income does not count for Medicaid purposes. All of the monthly income of the ill spouse, with some minor exceptions, is paid to the nursing home, and Medicaid pays the remaining cost.

C. Asset Eligibility Criteria

1. Non-exempt Assets include liquid assets such as bank accounts, the cash value of whole life insurance policies, some trusts, retirement plans and real estate (except the applicant's residence under certain circumstances).

2. Exempt Assets include one car, cemetery plots and irrevocable funeral contracts and the sometimes the residence property

3. Single applicants can keep only $1500 in cash or other liquid assets. Married applicants generally can keep 1/2 of the couple's assets, up to a maximum of slightly under $110,000 in cash and liquid assets (the amount is indexed annually).

IV. GIFTING AND PENALTY PERIODS.

A. The gifting rules are very harsh. If you simply give away money or assets in an attempt to impoverish yourself and obtain Medicaid benefits, IT WILL NOT WORK! If you give away any assets within the look back period of FIVE YEARS prior to making a Medicaid application, Medicaid will impose a penalty period during which you WILL NOT BE ELIGIBLE FOR MEDICAID. The penalty period corresponds to the number of months for which could have paid for the nursing home if you had kept the assets instead of giving them away.

B. For example, if you gave away $50,000 within the look back period, Medicaid would divide the $50,000 gift by the average cost of one month in the nursing home (as determined by Medicaid) to determine how many months of ineligibility it would cause. The current number is $5247 (this number changes periodically), so a $50,000 gift would cause a 9.5 month penalty period ($50,000/$5247 = 9.5). Even worse, the penalty period only starts after you are out of money and would otherwise be eligible for Medicaid, and you apply for benefits. Then, for the NEXT 9.5 months you can't get medicaid AND you have no money to pay for the nursing home. This is a very big problem, and you must plan for it.

C. The nursing home can discharge you if you have no money and Medicaid refuses to cover your costs because of a penalty period.

V. MEDICAID ASSISTANCE PLANS (MAP's) TO obtain MEDICAID BENEFITS

A. If you don't undertake a MAP when going to the nursing home, all of your hard-earned money will be spent paying for nursing home care. That is what the nursing home wants and that is what Medicaid wants. But, that is NOT what you have to do!

B. Spending your assets. First, you can pay off debts or income taxes incurred on liquidation of your assets. You can spend money purchasing the exempt assets noted above plus personal items or medical items.

C. What Else Can I Do to Protect Some of My Hard-earned Money?

1. One MAP (the gift/loan plan) allows you to protect a portion of your assets, even after you enter the nursing home. You can legally gift a portion of your money to your children or others. Yes, there will be a penalty period created. But, by carefully calculating the gift and combining the gift with a loan of the balance of you money, you can preserve the gifted portion of your assets by using the repayment of the loaned money to help pay the nursing home bill during the penalty period. A MAP like this is very complicated and must comply exactly with the Medicaid rules in order to work; it is NOT a do-it-yourself plan!

2. Another MAP (the gift/annuity plan) is similar to the MAP above, except that instead of a loan, the excess assets are used to purchase a Commercial Immediate Payout Annuity. This MAP also can be used after someone enters the nursing home, and may be useful if a gift to children is not advisable. The annuity payments are used to pay the nursing home during the penalty period. Just like for all of these MAP plans, you need professional assistance.

3. Another MAP (Rental and Care Agreements) can be used when a potential Medicaid applicant is ill, but is not yet in the nursing home. Often, a parent wants to pay a child for the care and help provided to the parent. Or, a parent moves in with a child and wants to pay for the room and board. Without careful planning, these "payments" are considered gifts and cause a penalty period. A specially drafted Rental and/or Care Agreement can be used to make sure the payments are not gifts, but are a legal obligation to pay.

4. A MAP variation is to use an Irrevocable Trust to hold the gifted money. The rules for a penalty period are the same as for a gift to a person. However, there are risks to gifting assets to children or others. They could spend your money, they could have creditors attach your money, they could get divorced and the ex-spouse end up with your money. You have to be very careful with the terms of the Irrevocable Trust, but it can provide protection from these risks.

5. Even when a MAP has provided a means to protect some assets and then achieve Medicaid eligibility, Medicaid will STILL try to get assets if possible. Medicaid uses the Estate Recovery Rules to take back any assets remaining in the Medicaid recipient's or the spouse's name at death, to repay themselves. This can include cars, money in the bank, annuity payments, life insurance proceeds, even the residence! If the MAP is not carefully crafted, even assets that were protected while obtaining eligibility could be lost at the end. You need a comprehensive MAP to protect your money. And, you need a professional to assist you.

6. There are many more planning techniques, but a personal evaluation of YOUR assets, family and health is needed to prepare an appropriate MAP.