My experience with the complexity of Medicaid began when my uncle called me one day and said, “Your aunt just got lost again and I can’t take it anymore.” The time had come to place her in a long-term care facility. Even though my aunt and uncle had accumulated a little nest egg, we knew these funds wouldn’t last long due to the costly care she required. That is where Medicaid planning came in.
Medicaid was created by Title XIX of the federal Social Security Act and is a program designed to provide assistance to individuals who have significant medical needs but minimal assets and inadequate income to cover care costs. Most people, like my aunt and uncle, have too much income and/or assets to qualify initially, but they know that paying out of pocket for long-term care will eventually cause them to run out of money. In such scenarios, applicants must carefully “spend down” or use up their own money to meet the financial eligibility requirements and trigger Medicaid coverage as soon as possible. Below, I will explain how we financially qualified my aunt for Medicaid without impoverishing my uncle.
Medicaid Planning Is Not a Do-It-Yourself Project
Although I had been a financial planner and advisor for years, I had not had any previous personal or professional experience with the Medicaid program until my uncle asked for help. However, I had learned through reading and seminars that planning before acting is VERY important and that eligibility requirements vary from state to state.
The most important piece of advice I have to offer is that professionals who specialize in this area, such as elder law attorneys, medical social workers and state-employed case workers are an applicant’s greatest resource. They will help to avoid delays and creating periods of ineligibility that require re-certification. They can also keep you from running afoul of the more stringent divestiture rules, including the five-year look-back period during which transfers/gifts of assets are not allowed.
Because this matter is so complex and can have such serious consequences if handled incorrectly, I decided that my uncle and I had to meet with an elder law attorney to help us map out a game plan first. The attorney carefully reviewed both the asset and income requirements with us for the Medicaid program in our state. After that consult, we got to work on pulling all my aunt and uncle’s fiscal information from the last five years to compare their financial status with the requirements.
Below are a few of the fundamental rules for assets and income that we learned about and worked towards. Keep in mind that these numbers may differ slightly from state to state.
Eligible applicants (in this case my aunt) cannot retain more than $2,000 in liquid assets. However, the following assets are exempt from this limitation:
- A home is exempt if the single applicant intends to return there or if a spouse, disabled child or family caregiver lives there. (Time limits and equity limits may apply.)
- Furnishings and other personal belongings.
- One car.
- A pre-paid irrevocable burial trust. (Limits range from $5,000 to $15,000.)
- A whole life insurance policy with a face value under $1,500. (Face value limits may vary.)
To prevent spousal impoverishment, Medicaid allows the community spouse living outside a nursing facility (my uncle in this case), to retain the exempt assets listed above as well as:
- Their own retirement accounts.
- A community spouse resource allowance (CSRA) that amounts to either 50 percent or 100 percent of the couple’s “countable” assets totaling no more than $123,600 in 2018. The percentage of this figure varies from state to state, and the CSRA amount is determined for each couple using asset values on the date of the applicant’s admission to a facility. Community/marital property laws are disregarded. (In my aunt and uncle’s case, the CSRA included some CDs and mutual funds.)
Asset Spend Down
Like many other Medicaid applicants, Auntie had to “spend down” her share of the countable assets. They had saved for a rainy day, and it was suddenly pouring! In her case, we estimated that it would take less than a year to reach eligibility and we were right. Eight months later, she fell just below the asset threshold. During that time, we had pre-paid her burial expenses, canceled a life insurance policy with a face value of $5,000 and decreased coverage on another policy to the $1,500 limit. Other acceptable expenses included medical needs, equipment like eyeglasses, hearing aids, and mobility aids, and a few purchases to make her room at the nursing home cozy and inviting.
Income for the Community Spouse
Since Medicaid looks at a couple’s income separately, the community spouse is allowed to keep all income they receive up to a certain point. However, if the community spouse’s monthly income falls below a certain threshold (ranging anywhere from $2,057.50 to $3,090 in 2018), then the institutionalized spouse’s income can be redirected to the community spouse to make up the difference. Because of these spousal impoverishment rules, my uncle was allowed to keep a portion of my aunt’s income, which amounted to more than half of their combined monthly income.
Income Spend Down for the Medically Needy
In 2018, the monthly income limit for the institutionalized spouse is generally $2,205. Some people might qualify from an asset standpoint but still receive too much income. Depending on the state, there may still be benefits available for persons in this financial situation who reside in care facilities as well as those who do not.
The latter group may have monthly income that exceeds the limits, but the “excess” funds are quickly consumed by medical or remedial expenses. These individuals must prove that their excess income is spent down on medical bills to qualify for Medicaid. It is a similar concept to a deductible. For example, if an individual’s income is $250 over the limit, once that amount is spent on qualifying expenses, Medicaid kicks in to pay the rest.
That is the situation that my uncle found himself in several years after my aunt was placed. He had depleted most of his assets and met that requirement, but his income was still too high. All we had to do was show that his medical expenses cancelled out that surplus. Eventually my uncle sold his house and bought into a continuing care retirement community (CCRC).
Navigating Medicaid isn’t easy, and neither is caregiving. But in both cases, knowing what you’re up against and asking for help when you need it can save you a lot of time and stress.
June Schroeder is a Certified Financial Planner (CFP®) with Liberty Financial Group.