Medicaid Introduction
The Social Security Act is the basis for the laws involving Medicaid. The program is administered on the state and federal level. It provides health insurance assistance to those with disabilities, the elderly, and those with low incomes. It also provides funds for the costs of a nursing home.
In Michigan, Medicaid assistance can be available to those who choose to remain in their homes through the Home and Community based Waiver program.
Congress sets the rules for Medicaid. Those rules are listed in the United States Code. However, the State of Michigan implements its own version of those rules in its “Program Eligibility Manual.” Because of this double framework, the laws are complex and difficult to interpret. The help of an attorney who practices in this area is essential as the rules can change quickly. What follows is a general outline of some of the rules.
Resource Rules
We are providing a general outline of the federal rules. Each state has its own version and it would be advisable to consult with a qualified attorney in your state.
In order to be eligible for Medicaid benefits, a nursing home resident may have no more than $2,000 in “countable” assets.
If the nursing home resident has a spouse, that person is called the ‘community spouse’. The community spouse is limited to one-half of the couple’s joint assets up to $101,100 (in 2007) in “countable” assets (see Medicaid, Protections for the Healthy Spouse). The $101,100 figure changes each year to reflect inflation. In addition, the community spouse may keep the first $19, 856 (in 2007), 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:
- personal possessions, such as clothing, furniture, and jewelry;
- one motor vehicle, any value;
- the applicant's principal residence, provided the applicant has an “intent to return home.”
- One pre-paid irrevocable funeral;
- Life insurance, if the total face value doesn’t exceed $1500;
- Certain “unavailable” assets—those that are not easily accessible.
Treatment of Income
Medicaid requires that nursing home residents contribute whatever income they have, minus a sixty dollar per month “personal needs allowance” and any health insurance premiums and other medical costs not otherwise covered. If the applicant is married there is an allowance for part of the income to go to the at-home spouse if that spouse is below a certain minimum monthly income allowance (currently about $1700 per month in 2007).
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 sixty dollar per 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.
For married Medicaid applicants, the income of the at-home spouse (“community spouse”) is not counted in figuring the eligibility of the spouse applying for Medicaid. Only the income in the name of the Medicaid applicant spouse is considered when determining that person’s eligibility. For instance, if the community spouse was still employed and had $4000 per month in income that spouse would not have to contribute any income toward the bill of the institutionalized spouse’s nursing home bill if he or she is covered by Medicaid.
The Home
Currently, the home is considered exempt if the Medicaid applicant has an “intent to return” home. However, pursuant to new federal law, there is a limit on the amount of equity the applicant can have in the home. The general rule is that if the Medicaid applicant has over $500,000 in equity, Medicaid eligibility will not be granted. There is an exception if a spouse or disabled child continue to live in the home.
Protections for Healthy Spouse
Medicaid provides special protection for the spouses of nursing home residents to make sure they have enough assets and income to live on.
Here’s how the so-called “spousal protections” work: if the Medicaid applicant is married, the government counts the assets of both spouses, regardless of whether they are jointly titled. The date used is the “snap-shot” date—which is the first day the Medicaid applicant entered a hospital or long-term care facility for at least thirty consecutive days
Generally, the community spouse gets to keep fifty percent of the countable assets that exist on the “snap-shot” date. However, as of 2007, there is a limit of approximately $101,000. If there is a court order providing that additional assets are needed, Medicaid will permit the greater amount. The minimum amount each spouse gets to keep, as of 2007, is approximately $20,000.
Fortunately, the community spouse will be permitted to keep all of his or her income. That income will not have to be used to support the nursing home spouse. In circumstances where the community spouse does not have enough income, and the institutionalized spouse does have income, the community spouse may take some or all of the institutionalized spouse’s income. There is a minimum limit for the community spouse (as of 2007) of $1700 per month. A court may order that a greater amount can be transferred from the institutionalized spouse to the community spouse.
Is Transferring Assets against the Law?
Some think that transferring assets is illegal activity, and that to do so is an unlawful effort to “hide” the assets. That is incorrect. In 1996 there was a law passed by Congress that did make it a criminal act to give away assets to get Medicaid. However, the law was later repealed. Thereafter, a law was passed which made it a crime to “counsel” someone to transfer assets to obtain Medicaid. The Attorney General of the United States of American found that this law was an unconstitutional violation of the First Amendment. As a result, she determined that it was not enforceable. A U.S. District Court judge in New York agreed. As a result, the law is unenforceable as of 2007.
Nevertheless, you should always consult with a knowledgeable legal advisor when considering Medicaid planning since these laws can change. The advisor can help you know the current status of the laws.
Another major rule of Medicaid is that there is a penalty to transfer assets. This penalty is in place because the government doesn’t want persons who realize they are headed to a nursing home to simply give all their money to their relatives and immediately obtain Medicaid. Thus, it has imposed a penalty on those who transfer assets for less than fair market value.
What is this penalty? It is a time period, after the transfer of assets, wherein the transferring owner will not be granted Medicaid. The penalty is determined by taking the amount of the transfer and dividing it by a “divisor” (in 2007 it is approximately $6000). Under current Medicaid law, the government looks back sixty month from the time that the Medicaid application is filed, and if there are any transfers during that period a penalty will be applied. The penalty starts at the time the person is in the nursing home and is otherwise eligible for Medicaid but for the penalty.
The Transfer Penalty
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 Medicaud 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).
Exceptions to the Transfer Penalty
Not every transfer results in a penalty. There are certain exceptions. For example, exempt recipients include:
- A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit);
- A blind or disabled child;
- A trust for the benefit of a blind or disabled child;
- 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:
- The applicant’s spouse;
- A child who is under age 21 or who is blind or disabled;
- 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);
- 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
- 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.
The law provides a way out of the transfer penalty. It will be canceled to the extent that the assets are returned. This is an important consideration in Medicaid planning.
Estate Recovery
Under federal Medicaid law, the state must attempt to recoup the amounts it paid for a person under the Medicaid program. This generally means that there would be a lien put on the Medicaid recipient’s house (because that is one of the few assets the person has in his name and can still receive Medicaid). However, there is no effort to “take” assets by the government until the recipient is dead. Even then, no recovery can take place if the recipient’s spouse, blind or disabled child are still living.
The “estate recovery” program generally reaches into the Medicaid recipient’s probate estate. However, states have the option to reach to non-probate assets (assets that the Medicaid recipient had an interest in prior to his death), which includes joint assets, life estates and assets in a revocable living trust.
