Medicaid was created in 1965 as a social healthcare program to help people with low incomes receive medical attention. Many seniors rely on Medicaid to pay for long-term nursing home care.
“Most people pay out of their own pockets for long-term care until they become eligible for Medicaid. While Medicare is an entitlement program, Medicaid is a form of welfare—or at least that’s how it began. So to be eligible, you must become ‘impoverished’ under the program’s guidelines,” says Laura M. Krohn, a Rhode Island-based elder law attorney.
Let's look at how the economics work, and how Medicaid can be used to pay for a nursing home.
- Medicaid is for individuals and families living on a limited income; many seniors use it to pay for long-term care in nursing homes.
- In order to be eligible for Medicaid, you must meet specific income and asset requirements.
- To become eligible, seniors may choose to "pay down" or transfer their assets in order to meet Medicaid guidelines in their state.
- The transfer of assets must have occurred at least five years before applying to Medicaid in order to avoid the program's look-back period.
Medicare vs. Medicaid Roles in Nursing Home Care
Medicare does cover nursing home care—up to a point. If you are sent to a skilled nursing facility for care after a three-day in-patient hospital stay, Medicare will pay the full cost for the first 20 days. For the next 100 days, Medicare covers most of the charges, but patients must pay $176.00 per day (in 2020) unless they have a supplemental insurance policy.
These rules apply to traditional Medicare. People on Medicare Advantage plans likely have different benefits
Some nursing homes won’t accept Medicaid patients outright, but the law forbids them from throwing you out if you become dependent on Medicaid once you are in their care.
Qualifying for Medicaid
In all states, Medicaid is available to low-income individuals and families, pregnant women, people with disabilities, and the elderly. Medicaid programs vary from state to state, and the Affordable Care Act (ACA) allows states to provide Medicaid to adults (under the age of 65) without minor children or a disability.
Income standards are usually based on the Federal Poverty Level. Each state has its own guidelines and eligibility requirements. For example In New York state, there is an income limit of $15,750 (in 2020) for individuals, but in Mississippi, the limit is much lower—$4,000.
Because these rules vary by state, it may be best to speak directly to a regional office to obtain the correct set of guidelines for your home state. You can find a link to connect you via the Medicaid website.
How Your Assets Impact Eligibility
Besides income, your assets will be counted towards meeting eligibility requirements. Countable assets include checking and savings account balances, CDs, stocks, and bonds.
In most states, you can retain up to $2,000 as an individual and $3,000 for a married couple outside of your countable assets. However, these amounts may vary depending on the state you reside in.
Your home, your car, personal belongings, or your savings for funeral expenses remain outside of countable assets. If you can prove other assets are not accessible (because they are in an irrevocable trust, for example), they too are exempt. A house must be a principal residence and does not count as long as the nursing home resident or their spouse lives there or intends to return there.
Upon becoming eligible for Medicaid, all of the applicant's income must be used to pay for the nursing home, where the applicant resides. However, you may be allowed to keep a monthly "allowance" and a deduction for medical needs, such as private health insurance. The amount of allowance varies depending on your living arrangements, type of nursing facility, and state rules. If you are married, an allowance may be made for the spouse still living in the home.
Eligibility and Asset Transfer Rules
In the past, to avoid exceeding Medicaid's income limits, some families would transfer a patient's assets into the name of other relatives, such as the children. The Deficit Reduction Act of 2005 made such maneuvers much harder to do. Now, when you apply for Medicaid, there is a five-year “look-back” at all asset transfers. If Medicaid finds money transferred within the last five years, a penalty period is imposed, delaying the onset of Medicaid coverage.
Medicaid calculates the penalty by dividing the amount transferred by what Medicaid determines is the average price of nursing home care in your state.
For example, suppose Medicaid determines your state's average nursing home costs $6,000 per month, and you had transferred assets worth $120,000. You will not be eligible for Medicaid assistance until you pay the cost of the nursing home for 20 months ($120,000 ÷ $6,000 = 20). There is no limit to the number of months for which someone can be declared ineligible. The penalty period begins on the day the patient enters a nursing home.
Not all transfers are counted in the look-back period. Arrangements that are allowed include transfers to:
- Spouse of the applicant
- A child under the age of 21
- A child who is permanently disabled or blind
- An adult child who has been living in the home and provided care to the patient for at least two years prior to the application for Medicaid
- A sibling with an equity interest in the house who also has been living there for at least one year before the patient applied for Medicaid
Medicaid programs are paid for out of both federal and state funds.
When a State Can Recoup Benefits
After the Medicaid recipient dies, the state can try to recoup whatever benefits it has paid out. The home is usually the only major claimable asset. Currently, the state can only put a lien on it (or any other asset) if it is part of the deceased's probate estate. If the asset is jointly owned with a spouse or in a life estate or trust, then it can escape recovery.
In most states, the government can place a lien on the home after the death of both spouses, unless a dependent child resides on the property.
The Bottom Line
Depending on Medicaid as your long-term care insurance can be risky if you have a sizeable estate. And even if you don't, it may not meet all your needs. But if you anticipate wanting to qualify, review your financial situation as soon as possible, and have an elder- or senior-care attorney set up your affairs in a way that will give you the money you need for now, while rendering your assets ineligible to count against you in the future.
Don't forget that asset transfers must be in place at least five years prior to your application to avoid Medicaid's look-back period. Even so, plan to have enough assets to pay a facility privately or through private long-term care insurance, at least for the initial six months to a year.