Medicaid
Medicaid is a federal—state entitlement program for low—income citizens of the United States. The Medicaid program is part of Title XIX of the Social Security Act Amendment that became law in 1965. Medicaid offers federal matching funds to states for costs incurred in paying health care providers for serving covered individuals. State participation is voluntary, but since 1982, all 50 states have chosen to participate in Medicaid.
- Introduction
- Resource (Asset) Rules
- The Home
- The Transfer Penalty
- Exceptions to the Transfer Penalty
- Is Transferring Assets Against the Law?
- Treatment of Income
- Protections for the Healthy Spouse
- Estate Recovery and Liens
Introduction
Medicaid (called "Medi—Cal" in California and "MassHealth" in Massachusetts) is a joint federal—state program that provides health insurance coverage to low—income children, seniors and people with disabilities. In addition, it covers care in a nursing home for those who qualify. In the absence of any other public program covering long—term care, Medicaid has become the default nursing home insurance of the middle class. As for home care, Medicaid offers very little except in New York State, which provides home care to all Medicaid recipients who need it. Recognizing that home care costs far less than nursing home care, a few other states—notably Hawaii, Oregon and Wisconsin—are pioneering efforts to provide Medicaid—covered services to those who remain in their homes.
While Congress and the federal Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration) set out the main rules under which Medicaid operates, each state runs its own program. As a result, the rules are somewhat different in every state, although the framework is the same throughout the country. The following describes those basic rules, but check your state for the specific application where you live.
Resource (Asset) Rules
These are general federal guidelines. The specific rules in your state may differ somewhat.
In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in "countable" assets.
The spouse of a nursing home resident—called the ‘community spouse’— is limited to one half of the couple’s joint assets up to $99,540 (in 2006) in "countable" assets (see Medicaid, Protections for the Healthy Spouse). This figure changes each year to reflect inflation. In addition, the community spouse may keep the first $19,908 (in 2006), even if that is more than half of the couple’s assets. This figure is higher in some states.
All assets are counted against these limits unless the assets fall within the short list of "noncountable" assets. These include:
(1) personal possessions, such as clothing, furniture, and jewelry;
(2) one motor vehicle, valued up to $4,500 for unmarried recipients and of any value for the healthy (community) spouse;
(3) the applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage (the states vary in whether the Medicaid applicant must prove a reasonable likelihood of being able to return home);
(4) prepaid funeral plans and a small amount of life insurance; and
(5) assets that are considered "inaccessible" for one reason or another.
For most people, the durable power of attorney is the most important estate planning instrument available—even more useful than a will. A power of attorney allows a person you appoint — your "attorney—in—fact" — to act in your place for financial purposes when and if you ever become incapacitated.
In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.
A power of attorney may be limited or general. A limited power of attorney may give someone the right to sign a deed to property on a day when you are out of town. Or it may allow someone to sign checks for you. A general power is comprehensive and gives your attorney—in—fact all the powers and rights that you have yourself.
A power of attorney may also be either current or "springing." Most powers of attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the grantor becomes incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.
However, attorneys report that their clients are experiencing increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the attorney—in—fact indeed has the authority to act for the principal. Still, some institutions go overboard, for example requiring that the attorney—in—fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, many attorneys counsel their clients to create living trusts in part to avoid this sort of problem with powers of attorney.
While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination "except for good cause or disqualification."
The Home
Depending on the state, nursing home residents do not have to sell their homes in order to qualify for Medicaid. In some states, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home; in other states, the nursing home resident must prove a likelihood of returning home. In all states, the house may be kept if the Medicaid applicant’s spouse or another dependent relative lives there.
The Transfer Penalty
NOTE: The Medicaid transfer rules are about to change. You may want to consult with a qualified elder law attorney before they do. Learn More.
The second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.
This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state. The period of ineligibility starts on the first day of the month of the transfer.
Example: If a Medicaid applicant made gifts totaling $90,000 in a state where the average nursing home bill is $5,000 a month, he or she would be ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18).
Another way to look at this example, is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible.
Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80).
However, the state Medicaid agency may look only at transfers made during the 36 months preceding an application for Medicaid (or 60 months if the transfer was made to certain trusts). This is called the "look—back period." Effectively, then, there is now a 36—month limit on periods of ineligibility resulting from transfers. This means that people who make large transfers must be careful not to apply for Medicaid before the 36—month look—back period passes.
Example: To use the above example of the $400,000 transfer, if the individual made the transfer on January 1, 2002, and waited until February 1, 2005, to apply for Medicaid — 37 months later — the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2004, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits.
Exceptions to the Transfer Penalty
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include:
(1) A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit);
(2) A blind or disabled child;
(3) A trust for the benefit of a blind or disabled child;
(4) A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:
(1) The applicant’s spouse;
(2) A child who is under age 21 or who is blind or disabled;
(3) Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);
(4) A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or
(5) A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
Congress has created a very important escape hatch from the transfer penalty: the penalty will be "cured" if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned.
Is Transferring Assets Against the Law?
You may have heard that transferring assets, or helping someone to transfer assets, to achieve Medicaid eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it’s possible, although unlikely under current law, that it will be in the future.
As part of a 1996 Kennedy—Kassebaum health care bill, Congress made it a crime to transfer assets for purposes of achieving Medicaid eligibility. Congress repealed the law as part of the 1997 Balanced Budget bill, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.
In 1998, Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced. Since it is possible that these rulings may change, you should contact your elder law attorney before filing a Medicaid application. This will enable the attorney to advise you about the current status of the law and to avoid criminal liability for the attorney or anyone else involved in your case.
Treatment of Income
The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $60—a—month personal needs allowance (this amount may be somewhat higher or lower in particular states), a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance for the spouse who continues to live at home if he or she needs income support. A deduction may also be allowed for a dependent child living at home.
In some states, known as "income cap" states, eligibility for Medicaid benefits is barred if the nursing home resident’s income exceeds $1,809 a month (for 2006), unless the excess above this amount is paid into a "(d)(4)(B)" or "Miller" trust. If you live in an income cap state and require more information on such trusts, consult an elder law specialist in your state.
For Medicaid applicants who are married, the income of the community spouse is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if he is covered by Medicaid.
Protections for the Healthy Spouse
The Medicaid law provides special protections for the spouse of a nursing home resident to make sure she has the minimum support needed to continue to live in the community.
The so—called "spousal protections" work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of "institutionalization," the day on which the ill spouse enters either a hospital or a long—term care facility in which he or she then stays for at least 30 days. (This is sometimes called the "snapshot" date because Medicaid is taking a picture of the couple’s assets as of this date.)
In general, the community spouse may keep one half of the couple’s total "countable" assets up to a maximum of $99,540 (in 2006). Called the "community spouse resource allowance," this is the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is $19,980 (in 2006).
Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse.
Some states, however, are more generous toward the community spouse. In these states, the community spouse may keep up to $99,540 (in 2006), regardless of whether or not this represents half the couple’s assets.
Example: If the couple had $60,000 in countable assets on the "snapshot" date, the community spouse could keep the entire amount, instead of being limited to $30,000.
In all circumstances, the income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits. But what if most of the couple’s income is in the name of the institutionalized spouse, and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse. How much the community spouse is entitled to depends on what the Medicaid agency determines to be a minimum income level for the community spouse.
This figure, known as the minimum monthly maintenance needs allowance or MMMNA, is calculated for each community spouse according to a complicated formula based on his or her housing costs. The MMMNA may range from a low of $1,604 (in 2006) to a high of $2,488.50 a month (in 2006). If the community spouse’s own income falls below his or her MMMNA, the shortfall is made up from the nursing home spouse’s income. (In some states, the community spouse is permitted to increase the MMMNA by retaining more resources or "Increased CSRA".)
Example: Mr. and Mrs. Smith have a joint income of $3,000 a month, $1,700 of which is in Mr. Smith’s name and $700 is in Mrs. Smith’s name. Mr. Smith enters a nursing home and applies for Medicaid. The Medicaid agency determines that Mrs. Smith’s MMMNA is $1,700 (based on her housing costs). Since Mrs. Smith’s own income is only $700 a month, the Medicaid agency allocates $1,000 of Mr. Smith’s income to her support. Since Mr. Smith also may keep a $60 a month personal needs allowance, his obligation to pay the nursing home is only $640 a month ($1,700 — $1,000 — $60 = $640).
In exceptional circumstances, community spouses may seek an increase in their MMMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support.
Estate Recovery and Liens
Under Medicaid law, following the death of the Medicaid recipient a state must attempt to recover from his or her estate whatever benefits it paid for the recipient’s care. However, no recovery can take place until the death of the recipient’s spouse, or as long as there is a child of the deceased who is under 21 or who is blind or disabled.
While states must attempt to recover funds from the Medicaid recipient’s probate estate, meaning property that is held in the beneficiary’s name only, they have the option of seeking recovery against property in which the recipient had an interest but which passes outside of probate. This includes jointly held assets, assets in a living trust, or life estates. Given the rules for Medicaid eligibility, the only probate property of substantial value that a Medicaid recipient is likely to own at death is his or her home. However, states that have not opted to broaden their estate recovery to include non—probate assets may not make a claim against the Medicaid recipient’s home if it is not in his or her probate estate.
In addition to the right to recover from the estate of the Medicaid beneficiary, state Medicaid agencies must place a lien on real estate owned by a Medicaid beneficiary during her life unless certain dependent relatives are living in the property. If the property is sold while the Medicaid beneficiary is living, not only will she cease to be eligible for Medicaid due to the cash she would net from the sale, but she would have to satisfy the lien by paying back the state for its coverage of her care to date. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there.
Whether or not a lien is placed on the house, the lien’s purpose should only be for recovery of Medicaid expenses if the house is sold during the beneficiary’s life. The lien should be removed upon the beneficiary’s death. However, check with an elder law specialist in your state to see how your local agency applies this federal rule.
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