Government Programs-Part Two
How can Medicaid pay for your parents’ extensive health care costs? Medicaid is a program jointly funded by the federal and state governments. Each state manages its own program. Medicaid is designed to provide assistance to the indigent. A third of the payments from Medicaid provide payments for the elderly who are in nursing homes. Other funds are provided for those who are disabled or without financial resources. Medicaid does not currently provide any benefits for assisted living or home care. It is strictly for those individuals who are in a nursing home.
In the past, a number of families transferred assets from their parents to other family members to qualify them for Medicaid assistance. Parents transferred their homes, investments, and savings accounts to their children and then applied to Medicaid. Unfortunately, the number of the elderly applying for Medicaid has increased so much in recent years that it has become a very substantial part of most states’ budgets.
Restrictions on Qualification
As a result, the federal government has put severe restrictions on qualification for Medicaid. Monthly income limits differ depending on whether the applicant is 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 must be counted for 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 dependant 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 2008, this amount ranges from $1,711 to a high of $2,610 per month.
If the community spouse’s income is less than the MMMNA, a portion of the applicant’s income may be used to meet that minimum. The balance will go to the nursing home providing care. If the applicant is single, he or she cannot exceed Medicaid income limits and qualify. The limit for 2008 is approximately $1,911 per month but varies from state to state.
To qualify for medicaid coverage, the recipient’s countable assets cannot exceed $2000. The community spouse of the Medicaid recipient may keep half of the couple’s joint assets up to $104,400 (in 2008). In any case the community spouse may keep the first $20,880 (in 2008), even if it exceeds half of the couple’s assets. These figures vary from state to state.
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).
Based on these restrictions, it is very difficult for most people to qualify for Medicaid unless they have already used up their assets to pay for care. But the income restrictions usually exclude most people from being accepted into the program.
Be Careful With Gifts
The federal government has made it extremely difficult for a family to attempt to transfer assets away from their parents to qualify for Medicaid. The sick parent must apply for Medicaid at the time they wish to enter the nursing home. The government first calculates the family’s assets and income. If these meet the qualifications, Medicaid then checks to see if the parents have made any gifts to their children or others within the last five years. If the parents have made any gifts that delay their qualification for Medicaid, the government uses a very simple formula. They are very thorough in checking all your parents’ financial records bank accounts and investment reports. Let’s assume your parents transferred $100,000 from their bank accounts to you four years ago and your father has just entered a nursing home. The nursing home then applies for Medicaid to cover his costs.
The Feds then look over his records and determine that four years prior to entering the home, he gave you $100,000. They then divide this gift by the average monthly cost of a stay in the nursing home in your father’s state to determine the number of months your dad is disqualified from getting Medicaid. In Massachusetts, in 2008, that number was $7380. $100,000 divided by 7380 is 13.5. That means Medicaid will not pay for his care for 13.5 months even though he qualifies based on current income and assets.
Gifts of all different kinds can disqualify you. Some families have tried some very subtle techniques to transfer assets from their parents to others. Setting up a joint account with a son or daughter and then removing the parent’s account is one technique that is no longer allowed. Putting a home in the name of a son or daughter or other family member or friend fits into the same category. Purchasing a “life estate” in an adult child’s home by paying off their mortgage is also disallowed.
Use of Annuities
A technique that often worked in the past was for your parents to transfer their assets to an insurance company for an immediate annuity to pay a monthly income. They planned that this would no longer count the lump sum as a countable asset. The state has countered that by comparing the amount of the annuity with the life expectancy of the recipient. If the projected payout exceeds their life expectancy, this difference will trigger a period of ineligibility. Even if the annuity is taken on the life of the healthy spouse, the state will require that the government be listed as the beneficiary of the annuity.
In the Tax Relief and Health Care Act of 2006, the government made it clear that they are eliminating all the loopholes that families can use to qualify their parents for Medicaid unless they are truly destitute. Medicaid has become a very large part of each state’s budget and they know that they must control its growth in the future.