RALPH S. ROBBINS, CFP^©

A CERTIFIED FINANCIAL PLANNING PRACTITIONER

specializing in

elder care and special needs planning

Medicaid eligibility planning

The key to successful Medicaid crisis planning is to begin as soon as the need for care or potential need for care becomes apparent.  The sooner planning begins, the more opportunities exist to obtain maximum results (see The Top Eight Medicaid Mistakes).

The rules regarding Medicaid eligibility are complex and ever changing (we usually see changes twice a year - each January and July) and most families will need health care, financial, tax, and legal advice.  It is unlikely that a current advisor will have the over-arching background to adequately assist you.  Also keep in mind that, though very helpful and dedicated, Medicaid case workers are specifically instructed not to provide assistance beyond completion of the Medicaid application.

A qualified Medicaid planning practitioner will help you provide for the right venue (home, independent living, assisted living, or nursing facility)thoroughly analyze your financial circumstances, refer you to other experienced professionals where required, complete the application approval process, and assist you with your annual review.

A qualified Elder Law attorney can be an indispensable member of your team and if a strategy employed requires legal document preparation such counsel should be obtained.  We work closely with several very well qualified attorneys who offer special pricing to our clients.  The Medicaid application itself, however, and the general process surrounding it, does not require the participation of a lawyer.  Attorney services are generally used for contracts, wills, trusts, and other estate planning documents that may need to be updated or created to meet your loved one's requirements.

STRATEGIES

For most families, the primary goal of Medicaid planning is to provide the best and most comfortable level of care for their loved one.  The primary dilemma is that such care is expensive and family resources are exhaustible. 

How will the spouse at home remain financially secure?  Where will the money come from for additional expenses once Medicaid approval is received?  What will happen when the Medicaid recipient passes away?  What if the well spouse predeceases?  How will assets be inherited by other family members?  All of these questions will be addressed by a well thought out plan.

Essentially, since Medicaid establishes explicit guidelines as to income and assets, Medicaid planning strategies principally revolve around minimizing the income and assets of the applicant and preserving or increasing the income and assets available to the community spouse and/or other family members.

This is first accomplished by making sure that all available asset/income exemptions have been utilized and non-countable asset categories have been funded.  Secondly, most strategies look to convert countable assets into non-countable income streams.

The biggest mistake a family can make, particularly after implementation of DRA '06 (the most recent Federal legislation pertaining to Medicaid eligibility), is to begin giving anything away without seeking counsel first!  Make sure to read "The Top 8 Medicaid Mistakes" on this web site. 

A family might begin crisis planning by pre-paying upcoming bills such as insurance premiums or condo fees.  Home repairs or pre-payments to a mortgage can be made.  A pre-paid burial plan and/or an irrevocable funeral trust can be funded.  Car repairs can be made or a new car purchased.  Clothes and personal items can be purchased.

Income Strategies

To meet the income test, the applicant's gross income must be below $2,022.  If the applicant's income exceeds this amount, it may still be possible to qualify if a), the asset test is met and b), excess income is deposited to an Irrevocable Qualified Income Trust (QIT).

Income deposited in a QIT will be after the $35 monthly personal allowance and after diversion to the Community Spouse's monthly needs allowance.  It will then flow through the trust and be paid to the facility as part of patient responsibility.

Protecting the Spouse: Income

A key element of successful planning is maximizing the opportunities to preserve income and assets for spouses remaining in the community and this is always a primary concern of our firm.

Spouses are granted specific rights when it comes to how marital income and assets will treated when one spouse is receiving institutional care benefits.

1. The Spouse at home may retain a minimum of $1,822 and a maximum of $2,739 in joint marital income.  In other words, if the community spouse's income is less than $1,822 per month she is entitled to her husband's income up to an amount that will make up the shortfall. 

Example:  Shirley has Social Security income of $966 per month.  Her husband, who is applying for Medicaid, has Social Security income of $1,234.  All of her husband's income is required to go to his cost of care, his "patient responsibility", but because Shirley's income is below the $1,822 threshold she is permitted to receive $856 per month of her husband's Social Security to make up the difference. 

2. If she can demonstrate that her expenses are higher, she can apply to Medicaid to receive up to $2,739 per month in income total. 

Example:  Shirley can receive $856 per month of her husband's income automatically because her income is under the threshold.  But her actual expenses are much higher.  If she can demonstrate that she needs at least $2,739 per month to meet her needs she would continue to receive almost all of her husband's Social Security income of $1,234 instead of $856 per month.

3. If her husbands income is insufficient to make up the shortfall, she can ask to retain assets, if available, above the community spouse resource allowance (the amount the spouse is allowed to keep in assets) of $109,950 to generate greater income.

4. If the community spouse has their own income sources e.g., IRA, pension, annuity, Social Security, it is not subject to her husband's cost of care.  The community spouse is permitted unlimited income.

Asset Strategies

Meeting the asset test poses the greatest challenge for most families.  The transferring/gifting of assets that used to be permissible has been severely curtailed by recent legislative changes. 

 Gifting and Medicaid Penalties

The most important thing to know about asset strategies is that, with the exception of transfers between spouses, any gift made without fair market compensation to the applicant may result in a denial of benefits and the imposition of a penalty period during which time the applicant will continue to be ineligible for benefits.

What this means, very simply, is that the applicant cannot give anything away during the five year period prior to applying for Medicaid benefits.

If the applicant does so, the Department of Children and Families has the authority to sum up the value of those gifts and impose a penalty based on that value beginning from the date of application...not the date of the gift!

For example:  George has been gifting $1,000 per year to his two children and three grandchildren for the past 5 years for a total of $25,000.  George suffers a stroke and needs care.  He applies for Medicaid and meets all other criteria for acceptance.  George is denied benefits based on his divestiture of $25,000 and a penalty period is imposed.

The penalty is based on the state's Medicaid monthly nursing home reimbursement rate (currently set at $5,000) and is expressed in months. 

Continuing with the example above, the penalty calculation would be: 25,000 (cumulative gift amount) divided by 5,000 (the state reimbursement rate) giving a result of 5 which would be the number of months George will be deemed ineligible for Medicaid nursing home or home and community based services (he still may be eligible for medical services).

Many confuse Medicaid's strict asset gifting policies with Federal Gift and Estate Tax rules which permit the annually gifting of small amounts without the requirement to file a gift tax return or for the amount to be countable as to lifetime gift and estate tax exemption amounts.  One has nothing to do with the other and, in fact, gifts given under this notion are counted as potentially penalizing gifts with respect to Medicaid eligibility.

Protecting the Spouse: Assets

As with income, important protections are afforded the community spouse:

1. Transfers between spouse's do not cause a penalty.  This is a very basic asset preservation strategy.  The applicant spouse is only permitted to retain $2,000 in countable assets.  Any amounts above that can be transferred to the community spouse without imposition of an ineligibility penalty.

2. Community Spouse Resource Allowance - The community spouse is permitted to retain $109,560 in otherwise countable assets.

3. Unlimited spousal transfers and the community spouse's ability to receive unlimited income presents further spousal protection possibilities.

A Word about IRA's

Individual Retirement Arrangements (IRA's) receive special treatment.  The IRA asset or account itself is not considered countable as long as regular periodic distributions are being made.  Any IRA income proceeds received by the applicant will be applied to patient responsibility (cost of care). 

Community Spouse IRA assets are not countable and are not included in the $109,560 Community Spouse Resource Allowance (as long as income is being distributed) but income distributed will be considered in calculating the spouse's monthly income requirements.

It is possible, by obtaining a court ruling, to have IRA assets of the applicant, or a portion thereof, transferred to the community spouse via a Qualified Domestic Relations Order; a strategy which may make sense in some circumstances.

More Asset Strategies

If you have come this far it may very well be that more questions have been raised than answered with respect to your specific circumstances and, believe it or not, there is still more to go. 

What happens, for instance, when the person receiving Medicaid ICP benefits passes away?  Can the state look to the estate for compensation?  What assets can they seek and which can they not?  Is the home protected?  And what about Veteran's Benefits!?

Let's just pause for a moment, though, to consider all that we have looked at so far.  The good news is that there are resources available that very well may assist you with the cost of care for your loved one. 

The not-so-good-news is that the time and attention it will take getting through this this process may just be too much. 

Well, here is some more good news for you:  A well qualified professional can handle the entire process for you for thousands (yes, literally thousands) less than most elder law attorneys charge.

Want to learn more about engaging our services?

CLICK HERE:

To see examples of planning strategies at work, click the links below for case studies.

The Top Eight Medicaid Eligibility Mistakes.

 Don't miss one of our informative Medicaid Eligibility seminars!

Have a Medicaid Eligibility or Long-Term Care Question?

 Just for Fun!