How does Medicaid Work?
Medicaid is a state and federally funded program designed to assist low income people who cannot afford to pay for medical care (in California the program is called Medi-Cal and in Massachusetts MassHealth). In order to qualify one must meet certain income and asset requirements. If you exceed these certain monthly income or asset requirements, you will not be eligible to receive Medicaid benefits. If you are unable to meet Medicaid asset limits at the time you need care, you may do what is known as a “spend-down” in order to meet the required limits. This means you spend your assets on long-term care services until you exhaust your assets and meet qualifying limits.
Note: This is for informational purposes only and not intended as definitive legal advice. It is intended only to be a brief general description on how Medicaid qualifications work in most states. Your state qualifications and financial requirements may differ from these examples. Please consult a local office for Medicaid in your state for specific details.
Monthly income limits differ depending on whether you are single or married. For a married couple the spouse remaining in the community (community spouse) can retain all of his or her income. The community spouse’s income would not be counted in determining the applicant’s eligibility for Medicaid. However, all of the applicant’s income will go toward his or her long-term care except for certain deductions. These deductions may include a personal need allowance not to exceed $60 per month (less in some states), an allowance for a dependent child living at home and, depending on the community spouse’s income, a portion of the spouse’s income for living expenses known as the Minimum Monthly Maintenance Needs Allowance (MMMNA). In 2020, this amount ranges from $2,113 to a high of $3,216 per month. If the community spouse’s income is less than the MMMNA, a portion of the spouse’s income may be used to meet that minimum. The balance will go to the nursing home providing care.
If you are single you cannot exceed Medicaid income limits. The limit for 2020 is approximately $2,349 per month but varies from state to state. If you exceed the income limits, some states make available a “Miller Trust” or “Qualified Income Trust” which are instruments designed for those within excess of the limit, but who do not receive enough monthly income to pay for their nursing care facility costs. These are complicated legal instruments and are best handled by attorneys who specialize in elder law or Medicaid planning.
Assets are divided into two categories; countable and non-countable. Countable assets consist of all investments such as stocks, bonds, mutual funds, checking and savings accounts and CDs. Countable assets also include any personal or real property as well as any art and collectibles.
Non-countable assets consist of personal possessions such as clothing, jewelry and furniture and the applicant’s primary residence. Further, non-countable assets include one vehicle not to exceed $4500 for unmarried applicants (there is no value limit for a vehicle for married applicants). Non-countable assets also include prepaid funeral plans, certain amounts of life insurance and retirement funds which cannot be cashed in because they are in payment status (however the latter will be considered under the income limits).
To qualify for nursing home coverage, the recipient’s countable assets cannot exceed $2000. The spouse of the Medicaid recipient may keep half of the couple’s joint assets up to $128,640 (in 2020). The community spouse may keep the first $25,728 (in 2020), even if it exceeds half of the couple’s assets. These figures vary from state to state.
Look-Back Periods and Asset Transfers
In an attempt to make it more difficult for people who can afford to pay for care but try to qualify for Medicaid, Congress has passed several laws addressing Medicaid Planning. The first of which, passed in 1993, was called the Omnibus Budget Reconciliation Act.
This law created long “look-back” periods into the financial history of the Medicaid applicant. Specifically, if an individual divested himself of assets within a certain period (regardless of intent), it would affect his or her ability to qualify for benefits. The “look-back” penalty would create a period of ineligibility which must be met before he or she can apply again.
Below are the asset transfer “look back” periods:
- Cash assets or assets in a Revocable Living Trust: 60 months.
- Assets in an Irrevocable Living Trust: 60 months.
In addition to the “look-back” periods, any income the individual receives, including that which the individual simply has access to for an Irrevocable Living Trust, will be included when determining the income qualifying limits. If a person applies for Medicaid and it is determined that assets were transferred within the “look-back” period, then a penalty will be imposed.
The penalty is calculated by taking the average monthly cost of the nursing home stay (for example $5,000) and dividing it into the value of the distributed assets. For example, if a person transferred $350,000, you would divide $5,000 into $350,000 for a total of 70. Therefore, Medicaid would not pay benefits for a total of 70 months.
There are exceptions to the transfer penalty for a disabled child or disabled individual under the age of 65.
In addition Congress passed an Estate Recovery Mandate to offset the cost incurred by Medicaid. This Mandate requires each state to provide for recovery from any of the recipient’s remaining property (such as a home) after the recipient has died. The proceeds are used to offset the benefits paid on behalf of the recipient. However, the recovery cannot be set in motion until the death of the community spouse or while a child of the deceased, who is either under 21, blind or disabled, still resides in the home. Assets may include jointly held assets, assets in a Living Trust or life estate. The estate recovery process may vary by state.
Source: Centers for Medicare & Medicaid Services