Most likely you have received information about Medicaid qualification from family, friends, nursing homes, annuity peddlers or others. Usually, this information is well intentioned, but that is only partly true. Medicaid laws are complex and confusing. I do not recommend that you try to plan for Medicaid by yourself. One mistake may cost you thousands or tens of thousands of dollars and, it may result in months of Medicaid ineligibility. It is important to get good legal counsel from a knowledgeable legal specialist.
Misconception No. 1: “I don’t need Medicaid, I have Medicare.”
The Truth: Medicare is a Federal catastrophic major medical insurance program primarily for hospitalization, rehabilitation and other medical care. Medicare does not pay for long-term nursing home custodial care. Medicaid is a State and Federal funded and State-run assistance program. For seniors, Medicaid is primarily for long-term care in Medicaid qualifying nursing homes, and in certain circumstances, long-term care outside of a nursing home.
Misconception No. 2: “If I put my assets in joint names with my children, the assets will be exempt for nursing home purposes.”
The Truth: You are considered the owner of any assets that you put in joint names with anyone, even assets that were put in joint names decades ago. Certain creations of joint assets may result in divestments, disqualifying you from receiving Medicaid benefits for a period of time.
Misconception No. 3: “If I give assets away, I have to wait 60 months to qualify for Medicaid.”
The Truth: The Department of Human Services looks back 60 months for transfers that are “divestments.” If your transfer is not a divestment, it is ignored, even if it is made the day before you apply for Medicaid, and even if it is tens of thousands of dollars.
To determine the number of months your divestment disqualifies you for Medicaid benefits after your Medicaid application is approved, you divide the amount of the divestment by the penalty divisor, which is $8,084 in 2015. For example, a $20,000 gift divestment will disqualify you from receiving Medicaid benefits for about 2.5 months after your application is approved.
Misconception No. 4: “I can give away $14,000 (previously $10,000) per person per year without any penalty.”
The Truth: This is a Federal gift tax limitation. It has nothing to do with Medicaid eligibility. Medicaid gifting rules are completely different. All gifts that are divestments, no matter what amount, will create a penalty.
Misconception No. 5: “If my spouse or I go into a nursing home, the State will take my assets away.”
The Truth: The State takes nothing. Medicaid simply will not pay anything until you “spend down” all of your available or “countable” assets. If you are single or your spouse is also in a nursing home, you would have to spend down to $2,000 or less in cash or other countable assets. If your spouse lives at home, he or she can also keep at least $23,844 in 2015 or if greater, one-half of the countable assets up to $119,220, and also an income allowance of at least $1,966 per month.
One way to qualify for Medicaid is to convert countable assets into certain exempt assets or income. Also, after your death, a properly titled asset would also avoid probate and not be an available asset under the State’s Medicaid estate recovery program to pay back the State for Medicaid benefits paid.
Misconception No. 6: “If my spouse or I go into a nursing home, I will lose my home.”
The Truth: During your lifetime, your home is an exempt asset if it is owned correctly. It can stay an exempt asset during your entire nursing home stay. The home must be used and titled properly. A home that is not titled or used properly is not exempt and is available for nursing home expenses. There are other exempt assets in addition to the home and include one automobile, certain pre-paid funeral arrangements and certain life insurance policies. After your death, a properly-titled home would also avoid probate and not be an available asset under the State’s Medicaid estate recovery program to pay back the State for Medicaid benefits paid.
Misconception No. 7: “I have protected my assets by purchasing a ‘Medicaid friendly’ annuity.”
The Truth: Annuities were once popular and effective Medicaid pre-planning tools. However, changes in both Federal and State Medicaid laws have dramatically limited their usefulness in pre-planning and qualifying for Medicaid. Most annuities that are currently marketed as Medicaid friendly annuities are just regular deferred annuities, which are convertible when needed into monthly Medicaid qualifying payments over your lifetime. Since the payments are considered income, they are not considered countable assets but an income stream for Medicaid purposes.
The drawback with these Medicaid-friendly annuities is that they give you few options when qualifying for Medicaid. After Medicaid qualification, these annuities require that the income be used to pay the nursing home and the death benefit used to pay back the State for nursing home expenses. Also you may have to cash them in, resulting in substantial surrender charge penalties, which I have seen as high as 50 percent. These annuities typically limit your options and significantly limit the amount of your assets that can be protected if you or your spouse enter a nursing home. However, certain Medicaid-compliant annuities purchased after a nursing home stay begins and as part of a comprehensive asset protection plan can be effective planning tools.
Misconception No. 8: “There is a small chance that I will end up in a nursing home anyway.”
The Truth: According to studies reported in the New England Journal of Medicine, 43 percent of 65-year-old persons will spend time in a nursing home at some point during their lifetimes. Of those entering a nursing home, 55 percent will spend more than one year in the nursing home and 21 percent will stay more than five years. So if you are a senior, you have about an one-in-four chance of spending one year or more in a nursing home.
Misconception No. 9: “If Medicaid will cover my nursing home expenses, I do not need long-term care insurance.”
The Truth: Many people benefit from long-term care insurance. Most of the time, Medicaid only covers long-term care expenses in certain nursing homes. Most recent long-term care insurance policies are much more flexible and will pay for assistance expenses while you are in your home, an adult foster care home, an assisted living facility or a nursing home.
Misconception No. 10: “If I am already in a nursing home, it is too late to protect my assets.”
The Truth: You can protect assets no matter how long you have been in a nursing home. We have assisted clients to protect assets and qualify for Medicaid even after years of private paying the nursing home expenses. If you or your spouse are in a nursing home and the other lives at home, usually you can protect almost all of your assets for the stay-at-home spouse. If you are not married and in a nursing home, or both you and your spouse are in a nursing home, in many cases you can still protect a substantial portion of your assets.
Medicaid and asset protection planning is not for do-it-yourselfers. Often this results Medicaid ineligibility for many months and additional costs and expenses. Do not attempt to do this on your own. Consult with a knowledgeable elder law specialist, who can advise you properly.
Matthew M. Wallace is an attorney and CPA with the Wallace Law Firm, PC in Port Huron and can be reached at 810-985-4320 or at [email protected]