Medicaid (called "MediCal"
in California and "MassHealth" in Massachusetts) is a joint
federal-state program that provides health insurance coverage to
low-income children, seniors and people with disabilities. In addition,
it covers care in a nursing home for those who qualify. In the absence
of any other public program covering long-term nursing home care,
Medicaid has become the default nursing home insurance of the middle
class.
While Congress and the
federal Health Care Financing Administration set out the main rules
under which Medicaid operates, each state runs its own program. As a
result, the rules are somewhat different in every state, although the
framework is the same throughout the country. The following describes
those basic rules, but check your state for the specific application
where you live.
These are general federal guidelines. The specific
rules in your state may differ somewhat.
In order to be eligible for
Medicaid benefits a nursing home resident may have no more than $2,000
in "countable" assets.
The spouse of a nursing home
resident--called the 'community spouse'-- is limited to one half of the
couple's joint assets up to $89,280 (in 2002) in "countable" assets (see
Medicaid, Protections for
the Healthy Spouse). The $89,280 figure changes each year to reflect
inflation. In addition, the community spouse may keep the first $17,856
(in 2002), even if that is more than half of the couple's assets. This
figure is higher in some states.
All assets are counted
against these limits unless the assets fall within the short list of "noncountable"
assets. These include:
(1) personal possessions,
such as clothing, furniture, and jewelry;
(2) one motor vehicle,
valued up to $4,500 for unmarried recipients and of any value for the
healthy (community) spouse;
(3) the applicant's
principal residence, provided it is in the same state in which the
individual is applying for coverage (the states vary in whether the
Medicaid applicant must prove a reasonable likelihood of being able to
return home);
(4) prepaid funeral plans
and a small amount of life insurance; and
(5) assets that are
considered "inaccessible" for one reason or another.
Depending on the state,
nursing home residents do not have to sell their homes in order to
qualify for Medicaid. In some states, the home will not be considered a
countable asset for Medicaid eligibility purposes as long as the nursing
home resident intends to return home; in other states, the
nursing home resident must prove a likelihood of returning home.
In all states, the house may be kept if the Medicaid applicant's spouse
or another dependent relative lives there.
The second major rule of
Medicaid eligibility is the penalty for transferring assets. Congress
does not want you to move into a nursing home on Monday, give all your
money to your children (or whomever) on Tuesday, and qualify for
Medicaid on Wednesday. So it has imposed a penalty on people who
transfer assets without receiving fair value in return.
This penalty is a period of
time during which the person transferring the assets will be ineligible
for Medicaid. The penalty period is determined by dividing the amount
transferred by what Medicaid determines to be the average private pay
cost of a nursing home in your state. The period of ineligibility starts
on the first day of the month of the transfer.
Example: If a
Medicaid applicant made gifts totaling $90,000 in a state where the
average nursing home bill is $5,000 a month, he or she would be
ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18).
Another way to look at the
above example is that for every $5,000 transferred, an applicant would
be ineligible for Medicaid nursing home benefits for one month.
In theory, there is no limit
on the number of months a person can be ineligible.
Example: The
period of ineligibility for the transfer of property worth $400,000
would be 80 months ($400,000 ÷ $5,000 = 80).
However, the state Medicaid
agency may look only at transfers made during the 36 months preceding an
application for Medicaid (or 60 months if the transfer was made to
certain trusts). This is called the "look-back period." Effectively,
then, there is now a 36-month limit on periods of ineligibility
resulting from transfers. This means that people who make large
transfers must be careful not to apply for Medicaid before the 36-month
look-back period passes.
Example: To
use the above example of the $400,000 transfer, if the individual made
the transfer on January 1, 1999, and waited until February 1, 2002, to
apply for Medicaid -- 37 months later -- the transfer would not affect
his or her Medicaid eligibility. However, if the individual applied for
benefits in December 2001, only 35 months after transferring the
property, he or she would have to wait the full 80 months before
becoming eligible for benefits.
Transferring assets to
certain recipients will not trigger a period of Medicaid ineligibility.
These exempt recipients include:
(1) A spouse (or a transfer
to anyone else as long as it is for the spouse's benefit);
(2) A blind or disabled
child;
(3) A trust for the benefit
of a blind or disabled child;
(4) A trust for the sole
benefit of a disabled individual under age 65 (even if the trust is for
the benefit of the Medicaid applicant, under certain circumstances).
In addition, special
exceptions apply to the transfer of a home. The Medicaid applicant may
freely transfer his or her home to the following individuals without
incurring a transfer penalty:
(1) The applicant's spouse;
(2) A child who is under age
21 or who is blind or disabled;
(3) Into a trust for the
sole benefit of a disabled individual under age 65 (even if the trust is
for the benefit of the Medicaid applicant, under certain circumstances);
(4) A sibling who has lived
in the home during the year preceding the applicant's
institutionalization and who already holds an equity interest in the
home; or
(5) A "caretaker child," who
is defined as a child of the applicant who lived in the house for at
least two years prior to the applicant's institutionalization and who
during that period provided care that allowed the applicant to avoid a
nursing home stay.
Congress has created a very
important escape hatch from the transfer penalty: the penalty will be
"cured" if the transferred asset is returned in its entirety, or it will
be reduced if the transferred asset is partially returned.
You may have heard that
transferring assets, or helping someone to transfer assets, to achieve
Medicaid eligibility is a crime. Is this true? The short answer is that
for a brief period it was, and it's possible, although unlikely under
current law, that it will be in the future.
As part of a 1996 Kennedy-Kassebaum
health care bill, Congress made it a crime to transfer assets for
purposes of achieving Medicaid eligibility. Congress repealed the law as
part of the 1997 Balanced Budget bill, but replaced it with a statute
that made it a crime to advise or counsel someone for a fee regarding
transferring assets for purposes of obtaining Medicaid. This meant that
although transferring assets was again legal, explaining the law to
clients could have been a criminal act.
In 1998, Attorney General
Janet Reno determined that the law was unconstitutional because it
violated the First Amendment protection of free speech, and she told
Congress that the Justice Department would not enforce the law. Around
the same time, a U.S. District Court judge in New York said that the law
could not be enforced for the same reason. Accordingly, the law remains
on the books, but it will not be enforced. Since it is possible that
these rulings may change, you should contact your elder law attorney
before filing a Medicaid application. This will enable the attorney to
advise you about the current status of the law and to avoid criminal
liability for the attorney or anyone else involved in your case.
The basic Medicaid rule for nursing home
residents is that they must pay all of their income, minus certain
deductions, to the nursing home. The deductions include a $60-a-month
personal needs allowance (this amount may be somewhat higher or lower in
particular states), a deduction for any uncovered medical costs
(including medical insurance premiums), and, in the case of a married
applicant, an allowance for the spouse who continues to live at home if
he or she needs income support. A deduction may also be allowed for a
dependent child living at home.
In some states, known as "income cap"
states, eligibility for Medicaid benefits is barred if the nursing home
resident's income exceeds $1,635 a month (for 2002), unless the excess
above this amount is paid into a "(d)(4)(B)" or "Miller" trust. If you
live in an income cap state and require more information on such trusts,
consult an elder law specialist in your state.
For Medicaid applicants who are married,
the income of the community spouse is not counted in determining the
Medicaid applicant's eligibility. Only income in the applicant's name is
counted in determining his or her eligibility. Thus, even if the
community spouse is still working and earning $5,000 a month, she will
not have to contribute to the cost of caring for her spouse in a nursing
home if he is covered by Medicaid.
The Medicaid law provides special
protections for the spouse of a nursing home resident to make sure she
has the minimum support needed to continue to live in the community.
The so-called "spousal protections" work
this way: if the Medicaid applicant is married, the countable assets of
both the community spouse and the institutionalized spouse are totaled
as of the date of "institutionalization," the day on which the ill
spouse enters either a hospital or a long-term care facility in which he
or she then stays for at least 30 days.
In general, the community
spouse may keep one half of the couple's total "countable" assets up to
a maximum of $89,280 (in 2002). Called the "community spouse resource
allowance," this is the most that a state may allow a community spouse
to retain without a hearing or a court order. The least that a state may
allow a community spouse to retain is $17,856 (in 2002).
Example: If a
couple has $100,000 in countable assets on the date the applicant enters
a nursing home, he or she will be eligible for Medicaid once the
couple's assets have been reduced to a combined figure of $52,000 --
$2,000 for the applicant and $50,000 for the community spouse.
(Some states have raised
this amount to as much as $89,280, meaning that in those states the
community spouse can keep the first $89,280 of the couple's combined
countable assets. For instance, if the couple had $60,000 in countable
assets on the "snapshot" date, the community spouse could keep the
entire amount, instead of being limited to $30,000.)
In all circumstances, the
income of the community spouse will continue undisturbed; he or she will
not have to use his or her income to support the nursing home spouse
receiving Medicaid benefits. But what if most of the couple's income is
in the name of the institutionalized spouse, and the community spouse's
income is not enough to live on? In such cases, the community spouse is
entitled to some or all of the monthly income of the institutionalized
spouse. How much the community spouse is entitled to depends on what the
Medicaid agency determines to be a minimum income level for the
community spouse. This figure, known as the minimum monthly maintenance
needs allowance or MMMNA, is calculated for each community spouse
according to a complicated formula based on his or her housing costs.
The MMMNA may range from a low of $1,451.25 to a high of $2,232 a month
(in 2002). If the community spouse's own income falls below his or her
MMMNA, the shortfall is made up from the nursing home spouse's income.
(In some states, the community spouse is permitted to increase the MMMNA
by retaining more resources.)
Example: Mr.
and Mrs. Smith have a joint income of $2,000 a month, $1,500 of which is
in Mr. Smith's name and $500 is in Mrs. Smith's name. Mr. Smith enters a
nursing home and applies for Medicaid. The Medicaid agency determines
that Mrs. Smith's MMMNA is $1,500 (based on her housing costs). Since
Mrs. Smith's own income is only $500 a month, the Medicaid agency
allocates $1,000 of Mr. Smith's income to her support. Since Mr. Smith
also may keep a $60 a month personal needs allowance, his obligation to
pay the nursing home is only $440 a month ($1,500 - $1,000 - $60 =
$440).
In exceptional
circumstances, community spouses may seek an increase in their MMMNAs
either by appealing to the state Medicaid agency or by obtaining a court
order of spousal support.
Under Medicaid law,
following the death of the Medicaid recipient a state must attempt to
recover from his or her estate whatever benefits it paid for the
recipient's care. However, no recovery can take place until the death of
the recipient's spouse, or as long as there is a child of the deceased
who is under 21 or who is blind or disabled.
While states must attempt to
recover funds from the Medicaid recipient's probate estate,
meaning property that is held in the beneficiary's name only, they have
the option of seeking recovery against property in which the recipient
had an interest but which passes outside of probate. This includes
jointly held assets, assets in a living trust, or life estates. Given
the rules for Medicaid eligibility, the only probate property of
substantial value that a Medicaid recipient is likely to own at death is
his or her home. However, states that have not opted to broaden their
estate recovery to include non-probate assets may not make a claim
against the Medicaid recipient's home if it is not in his or her probate
estate.
In addition to the right to
recover from the estate of the Medicaid beneficiary, state Medicaid
agencies must place a lien on real estate owned by a Medicaid
beneficiary during her life unless certain dependent relatives are
living in the property. If the property is sold while the Medicaid
beneficiary is living, not only will she cease to be eligible for
Medicaid due to the cash she would net from the sale, but she would have
to satisfy the lien by paying back the state for its coverage of her
care to date. The exceptions to this rule are cases where a spouse, a
disabled or blind child, a child under age 21, or a sibling with an
equity interest in the house is living there.
Whether or not a lien is
placed on the house, the lien's purpose should only be for recovery of
Medicaid expenses if the house is sold during the beneficiary's life.
The lien should be removed upon the beneficiary's death. However, check
with an elder law specialist in your state to see how your local agency
applies this federal rule.
