This article originally appeared in the September/October 2020 edition of Boomer and Beyond Magazine.
Medicaid is the main government benefit available to help pay for long-term nursing home stays, which can be as high as $10,000 per month. Without it, many people can’t otherwise pay for care.
There are many pitfalls to avoid when applying for Medicaid benefits; the rules to qualify are harsh.
A home is most peoples’ single biggest asset, and it holds so much meaning and memories. If a single person enters a nursing home with a house but no money, many people don’t know that the new regulations say that the house is a countable asset, and the person won’t qualify for assistance.
Medicaid will be denied unless that person or their power of attorney prepares and files a letter with Medicaid that says he or she intends to return home and asks Medicaid to exempt the house. If that happens, the caseworker can exempt the house and Medicaid can cover nursing home expenses.
The downside of seeking an exemption of the house is that when the owner dies, the State of Ohio will demand the value of that home when it’s sold, with the proceeds paid to the state through Medicaid Estate Recovery, up to the amount of Medicaid benefits paid. The beneficiaries could inherit nothing from the home sale.
As a result, it doesn’t make sense to keep the house until death. It should have been sold when possible, and planning undertaken to protect some of the sale proceeds. No one at the nursing home or at Medicaid is going to tell you how to protect the house value.
IRAs and other retirement accounts are also complicated assets for Medicaid eligibility. In another recent change to the interpretation of the law, an IRA could be counted as an asset that would disqualify you from Medicaid eligibility. Liquidation of an IRA to spend the money means income taxes must be paid, which diminishes the value.
However, under the new rules, if the IRA is being paid out to you under the Required Minimum Distribution (RMD) rules (now at age 72), Medicaid will not count the IRA as an asset but will count the RMD amount as income. The underlying asset doesn’t count while you are alive, but the income received is part of the monthly income you have to pay to the facility as a part of your “Share of Cost.”
Similar to the house, if the IRA is exempt while you are alive, then at your death, the State of Ohio will demand the value of that account as Medicaid Estate Recovery, up to the amount of benefits paid out. In order to avoid this outcome, there are other planning options with IRA money that are available. Medicaid isn’t easy, and these are just two of the program’s pitfalls. Good estate planning is vital. See a certified elder law attorney for help with Medicaid asset protection planning and application.