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Medicaid: The Behind the Myths
People want to know at what point Medicaid will cover nursing home costs, which can run from $72,000.00 to $84,000.00 a year or more. Few people, or their families, can afford those costs from their regular income and, as a consequence, it doesn’t take long to lose all one’s savings. Long-term care insurance is too expensive for many older people. And, if the person is already sick, he or she may be uninsurable.
As a result, folks ask friends and neighbors how to get Medicaid to pay the cost for nursing home care. The answers they receive are usually wrong as most people, lawyers included, do not understand the Medicaid program and how it works. Medicaid is a complicated area of law and should only be handled by an attorney who knows the subject.
There are some common “myths” that can get you in trouble. Often, they are somewhat correct, but mainly just plain wrong! You may be surprised to learn just how little most people know and yet, at the same time, most people are willing to believe every incorrect fact they are fed. Let’s explore the myths and the realities.
Myth: “I have to give away everything I own to get Medicaid.”
The Truth: A person is permitted to own some assets (property) and still be eligible for Medicaid. The trick comes in knowing what is “countable” and what is “non-countable” under the Medicaid rules. For a married couple, for example, the marital home that is occupied by the “community” spouse is a non-countable, or exempt, resource. Also, prepaid burial contracts placed into irrevocable trusts are non-countable. There are other types of “non-countable property” which may apply to appropriate situations. The bottom line is, you don’t need to be completely without assets to be Medicaid eligible.
Myth: “I can’t give anything away and get Medicaid.”
The Truth: Medicaid rules provide that a person can be penalized for giving property away. But, by working within the rules, an asset protection plan can be developed which will allow a person to transfer (gift) funds and protect a significant amount of assets.
Myth: “I have to wait 3 years after giving anything away to qualify for Medicaid.”
The Truth: The disqualification isn’t always 3 years long and sometimes there is no disqualification at all. True, Medicaid employs a 3-year “lookback” when considering an application for benefits. This means that the Medicaid agency will “look back” 36 months at all transfers of property, including sales for less than market value, to determine the effects of the transactions. For transfers to trusts the “lookback” is 60 months (5 years). The question to be resolved is, “what is the significance of the transfer.” In many cases the transfers are of no significance and the applicant can qualify immediately.
Myth: “I can keep all our marital property when my spouse gets Medicaid.”
The Truth: When a married person applies for Medicaid, assets in either or both spouses’ names are considered by the Medicaid agency. Some assets, however, won’t be “countable” and you may keep some as an asset allowance if your spouse enters a nursing home. The law provides allowances for the “community” spouse in order to prevent impoverishment.
Myth: “If I put my property in my spouse’s name, I will be eligible for Medicaid.”
The Truth: Assets are counted regardless of which spouse’s name they are in. A transfer to the community spouse will not automatically qualify the ill spouse for Medicaid. An assessment of the couple’s financial situation will be made to determine appropriate spend down, if any, and the allowances to which the community spouse will be entitled.
Myth: “Medicare will cover my nursing home bill.”
The Truth: Medicare only covers a small amount of the nursing home care provided in this country. Many older people are surprised to learn this. In general, there are 20 days of full coverage if you go into a nursing home after at least three days in the hospital and are receiving skilled nursing care in the facility (not custodial or long term care). Then, if you continue to need skilled care, you can get up to 80 additional days of partial coverage from Medicare. After that, you will either pay out-of-pocket, or get Medicaid if you qualify, unless you have private long-term care insurance.
Myth: “If I enter a nursing home as a private pay resident, I must use up all my assets before I can get Medicaid.”
The Truth: Before you can qualify for Medicaid you must “spend down” your funds in keeping with Medicaid requirements. You are not required, however, to use your funds to pay for nursing home care only. You can use your funds for any purchase so long as it is for “fair market value.” Some nursing homes might try to make you believe that you do have to use your funds to pay them but you just don’t have to. Proper asset protection planning can assist you in proper spend down, result in savings for your family, and then qualify you for Medicaid. Consult an elder law attorney for assistance in this area.
Myth: “I can only ‘spend-down’ my assets on medical or nursing home bills.”
The Truth: Assets may be spent for any obligation you have. And, with an asset protection plan you can engage in gifting to family and loved ones. Nursing homes may tell you that you have to spend your savings on the private pay rate, before applying for Medicaid, but this is not true. In fact, it’s against the law for them to tell you this!
Myth: “My attorney in fact, under my power of attorney, automatically has the power to take property out of my name if I ever need Medicaid.”
The Truth: Your best tool to be able to plan for Medicaid eligibility, should you ever need it, is to sign a general, durable power of attorney that includes a “gifting” power. Your agent under the power of attorney will only be able to retitle your assets if your power of attorney contains a “power to make gifts.” And, if you want your attorney in fact to be able to make gifts to himself then the power of attorney must include this specific power.
The court procedures, either an action for guardianship or conservatorship, for permission to transfer assets when there is no power of attorney exists or it does not provide the necessary authority to make transfers, can be expensive and time-consuming, and may not allow the type of asset protection that many people would like to accomplish.
Without a “gifting power” your agent, under your power of attorney, is generally limited to spending your money on your bills and selling your assets to generate cash to pay your bills. A “gifting power” is recommended for people who want to become eligible for Medicaid and not be limited to the “non-countable” assets allowed under that program.
Some powers of attorney contain this “gifting” provision, but it’s limited to $10,000 or $11,000 per year. This figure is too limited to do effective Medicaid planning, and is related to a completely different type of legal issue, i.e. tax planning which is an appropriate limitation when engaging in Medicaid/asset protection planning.
Myth: “All property transfers will cause me to be disqualified from Medicaid.”
The Truth: Transfers pursuant to a properly prepared asset protection plan will enable a person to transfer assets and still qualify for Medicaid after a certain period of time. The waiting period is a function of the amount of the transfer(s).
Myth: “I can only give away $10,000 per year under Medicaid rules.”
The Truth: This is a rule under federal estate and gift tax law, not under Medicaid law. Actually, the amount has changed to $11,000, for federal gift tax purposes. Additionally, this only applies to people who have over $1 million in assets with which to make gifts.
Myth: “My income may have to be used to pay my spouse’s nursing home bill.”
The Truth: This is not true. Only the income of the nursing home spouse is used to pay the nursing home. The “community” spouse keeps his or her entire income for his or her needs.
Myth: “All of my spouse’s income must be used to pay the bill if my spouse is on Medicaid in a nursing home.”
The Truth: The law allows the community spouse to keep a portion of the ill spouse’s income if your income is below certain limits. In addition to this allowance, you may be entitled to a greater allowance if the cost of maintaining your home exceeds a certain amount or if a state hearing officer or a judge orders a greater allowance.
Myth: “I can hide my assets and get eligible for Medicaid.”
The Truth: Intentional misrepresentation of assets in a Medicaid application is a crime and can be costly. The IRS shares any information concerning income or assets you have with the county department of social services. You or whoever applied may have to pay Medicaid back to avoid prosecution.
Myth: “Medicaid rules that applied to my neighbor when he went in a nursing home will also apply to me.”
The Truth: Medicaid rules change, so don’t count on the law that applied to your neighbor still applying to you. Also, there may have been facts about your neighbor’s situation that you just don’t know. It’s best to have your situation analyzed by a competent elder law attorney.