About Medicaid and Nursing Homes
Medicaid Financing of Nursing Home Care
by Thomas D. Begley, Jr.
1. Introduction
According to a study published by the New England Journal of Medicine almost half of all Americans will spend some time in a nursing home. The average cost of a nursing home in the United State is approximately $9,000 per month, and in some areas it exceeds $10,000 per month.
There are five ways to pay for a nursing home: private pay, long-term care insurance, Medicare, Veterans benefits, and Medicaid. Only about 5% of Americans have long-term care insurance. Many are uninsurable or cannot afford such insurance. At most, Medicare pays part of 100 days. Less than 1% of nursing home residents are receiving Veterans benefits.
The major alternative to private pay is, therefore, Medicaid. By carefully designing a thorough Medicaid plan, security can be ensured for the Community Spouse and a legacy can be preserved for children. Failure to design a sophisticated plan may result in the Community Spouse being unable to maintain his or her standard of living. In some instances, the family home may have to be abandoned. The rules of eligibility for Medicaid are strict.
The applicant must be a U.S. citizen or a resident alien and a resident of the state in which he or she applies. It must be medically necessary that the person be placed in the nursing home. Some state are Income Cap states. This means if a person’s income exceeds the cap, he or she is ineligible for Medicaid. Other states are Medically Needy states. If the person’s income is less than the cost of the nursing home, they are eligible from an income standpoint.
There are also asset limits. A Medicaid recipient is usually allowed to retain a small amount of assets, usually in the neighborhood of $2,000. If the person is married, the Community Spouse is allowed to retain a portion of the couple’s assets. Some states permit the Community Spouse to retain one-half of the countable assets with a ceiling of $101,640 for calendar year 2008 and a floor of $20,880. In other states, the Community Spouse is able to retain all of the countable assets not to exceed $104,400.
Certain assets are not counted, such as a home, under certain circumstances, personal effects, wedding and engagement rings, medical equipment, and certain types of burial funds. In a situation where there is a married couple, the assets of both the husband and wife are combined. This is true notwithstanding the fact that a prenuptial agreement may have been signed.
For Medicaid penalty purposes there is a 60 month lookback for transfers of assets. That means Medicaid will review the applicant’s relevant financial records going back five years to determine whether funds have been transferred during that time period. If assets were transferred during the lookback period, Medicaid imposes a penalty. That penalty, which is a period of ineligibility for Medicaid, is calculated by dividing the amount transferred by the average cost of a nursing home in New Jersey as determined by the Division of Medical Assistance and Health Services. The penalty may be for a period of months or partial months. The larger the transfer, the longer the period of ineligibility. The penalty does not begin until the applicant is eligible for an institutional level of care, is otherwise financially eligible (i.e. has spent down assets to $2,000.00) and has no other period of ineligibility outstanding. Transfers by either Institutional Spouse or the Community Spouse are penalized, however, transfers between Spouses are not penalized. Certain additional transfers are exempt from Medicaid transfer penalty. These include transfers of a house, in certain circumstances, and transfers to certain disabled persons.
Medicaid planning involves a number of tax considerations. These relate to income tax, gift tax, and, possibly, federal estate tax. Failure to comply with the tax law in designing a Medicaid plan usually results in the payment of significant extra taxes. By designing a Medicaid plan taking advantage of the tax law, significant savings can be achieved.
2. Conclusion
The key to Medicaid planning is to act quickly. Failure to act eventually costs a considerable amount of money. If a nursing home cost in a particular state is $9,000 per month, then that is the cost of additional months of nursing home care that the family must pay. In those cases where planning was not done and the person is already in a nursing home assets can also be protected, but the earlier the planning is done, the more money is saved. Married persons care about their spouses, children care about their parents, parents care about their children. By proper planning, the security of the Community Spouse can be maintained and a legacy can be preserved for the children.