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.
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