Medicaid Crisis Planning
When a loved one has to go into a nursing home, it can be a very stressful situation. While the family is dealing with the issue of finding the right care, there is also the issue of how to pay for it. There are many myths and misconceptions out there about how to do so, but ultimately, there are only three ways to pay for long term care:
You pay out of pocket.
You have long term care insurance.
The government pays through the Medicaid program.
Most people have no plan to pay for their long term care. Long term care insurance is the best way to pay for nursing home care, but most people do not have it and wait too long to try to get it. Without a long term care insurance policy, there are really only two ways to pay for care.
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Many people think that Medicare will pay for the nursing home, but that is not the case.
Medicare is a health insurance program. It does pay for the first 100 days for a rehab program, which may be in a nursing facility. But beyond 100 days, it does not pay. Additionally, it only pays 100% for the first 20 days, and after that, days 21-100, there is a daily copay of approximately $180.
Medicaid is the government program that pays for long term nursing home care.
However, it can be very difficult to qualify for Medicaid. Because most people do not qualify, they wind up spending their life savings and sometimes losing their homes to pay for their long term care before Medicaid will pay.
There are basically two requirements or issues to deal with when applying for Medicaid:
First of all, the state Medicaid agency looks to see how many assets you have.
The second issue is how much income you have. If your income or assets exceed a certain amount, then you do not qualify for Medicaid and will have to pay out of pocket.
The income test: If you are an individual, you can only have about $2,300 in income. If your income exceeds that amount, then you do not qualify. The good news is that even if your income exceeds the limit, we can help you get qualified by using a Qualified Income Trust or Miller Trust. These trusts are just simple basic “agreements” that you set up with the bank that basically says, all of your income goes into an account, and the bank is required to pay that to the nursing home and then Medicaid pays the rest of the cost if you otherwise qualify.
If you are married and your spouse has to go to a nursing home, you can keep all of your income, but all of your spouse’s income has to go to pay for care.
So the income test is not a hard problem to fix. The real problem comes in when people have too many assets.
The asset test: An individual going to a nursing home cannot have more than $2,000 in assets if they want to qualify for Medicaid. If you are married and your spouse is going into the nursing home, you can keep one half of the total assets up to $128,640. Everything above and beyond that would have to be spent down until you get to that limit. As a result, this drastically limits the assets that the community spouse can keep.
It is also important to keep in mind that all of the assets of the couple count. It does not matter whose name the assets are in. Whether the asset is in your name, your spouses name or jointly held, they all count towards that limit of ONE HALF up to $128,640 max.
One issue that many people worry about is what happens to their marital home if someone has to go to a nursing home.
The good news is that if you are married and living in the home, then Medicaid does not count it toward the asset limit. You can keep the house and one half of the assets up to $128,640. They do not take it and do not put a lien on it since you have to have a place to live. However, if you are single and you otherwise qualify for Medicaid, they will put a lien on your home for the amount of money they pay for care on your behalf and your children may not inherit the home.
Because of these strict rules, people may take actions to “protect” assets before they actually need care, and these actions usually come back to haunt them.
These actions are often very costly and can often prevent them from getting the care that they need down the road. Some of the most common mistakes that people make are:
Giving away assets to loved ones
Converting exempt resources into countable resources
Spending all their money down before they apply for Medicaid
The problem with giving away assets is that Medicaid has a 60-month look back from the time you apply or file your application. The 60-month look back is known as the look back period. So once you qualify for Medicaid, they are also going to look back 60-months to see how much has been given away. If you have given away assets or sold them for less than fair market value, then Medicaid is going to implement a penalty. The penalty is based on the amount of money given away divided by an annual divisor put out by Medicaid, which is $6,400 in 2021.
As an example, if you have ve given away $64,000 within the last 60 months before filing a Medicaid application, Medicaid is going to impose a 10-month penalty. That means that Medicaid would approve your application, but you would have to pay for the first 10 months of care before Medicaid would pay. The problem with this is that by the time you apply, you are already out of money, and there is no money to pay through that penalty period, so your children or other loved ones often have to incur that cost in order for you to get the care that you need.
Another mistake people make is converting exempt resources into countable resources.
I’ve seen families sell the marital home, which would have been an exempt resource and not countable by Medicaid. Once the home is sold and turned into cash, then that money counts and has to be spent on care or spent down before Medicaid will pay. I have also seen families sell an automobile, which is also an exempt resource, and then that cash has to be used to pay for care.
The good news is that there are strategies out there you can use—even if your loved one is already in a nursing home—to protect some of your assets, or at least to maximize the resources they have so that they get the proper care they need.
These strategies can also be very beneficial to a community spouse who may have very limited income and now limited assets without some planning. We work with families on a regular basis who are facing a nursing home crisis situation. We help them with the application, which can be very daunting for them. We can also help them maximize the resources of the spouse going into the nursing home and also help protect and maximize the resources of the community spouse.