One common misconception we run into at Silver Spring Capital is that Medicare and Medicaid are similar programs. Today we’re doing a deep-dive on what we believe you should know about the Medicaid program.
Please note: Specific questions should be directed to your local Medicaid office or to a local elder law attorney. If you don’t know where to start, call me at 862.702.3500 or drop me a message at
[email protected]!
What is Medicaid?Medicaid is a public assistance program that helps pay the medical expenses, including long-term care costs, of patients who meet financial eligibility requirements. Medicaid funding comes from the state and federal governments. The states administer Medicaid using their own standards, subject to broad federal guidelines. Individuals apply for Medicaid at local offices of their state's social services agency. Since Medicaid is public assistance, a client must be in need to qualify. Clients with income and/or assets are expected to pay for their own care to the extent possible, before applying for public assistance.
All the states, territories, and the District of Columbia set their own eligibility standard, benefits package, payment rates and program administration within broad federal guidelines. These rules are complex and ever-changing. Although there are similarities between state laws, the differences are significant. In effect, there are 56 different Medicaid programs!
Medicare v MedicaidBefore we talk more about Medicaid, here are some important differences between the two programs:
| Medicare |
Medicaid |
- No asset or income limits.
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- Applicants must be below a qualifying threshold for modified adjusted gross income, or a member of a mandatory eligibility group
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- Does not cover long-term care.
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- Federal government administers.
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- States administer under broad federal guidelines.
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Regarding AssetsAll states put limits on the maximum amount of assets a Medicaid applicant can own. Most states use the Supplemental Security Income resource limit of $2,000, but the state limits on countable assets range from $999 to more than $4,000. Please note: Specific questions should be directed to your local Medicaid office or to a local elder law attorney.
The 60-Month Look-Back & Penalty Period
Those who transfer assets prior to applying for Medicaid may be disqualified under the 60 day lookback rule. When applying for Medicaid benefits, applicants list the assets currently owned, as well as:
- Gifts, transfers of property for less than fair market value (within 60 months prior to applying for Medicaid) may cause a period of Medicaid ineligibility, also known as a penalty period.
- Transfers of property for less-than-fair-market-value made in the 60 months prior to the Medicaid application.
- Transfers to trusts made in the 60 months prior to the Medicaid application.
If a gift (or other transfer at less than fair market value) was made within the 60-month period, a penalty period is calculated. This penalty period is the amount of time the applicant will be ineligible for benefits. The penalty period is calculated by dividing the amount of the transfer by the average cost of nursing home care as determined by the state. The result is the number of months the applicant is ineligible for Medicaid. The period of ineligibility begins the first day of the month following the date of the application for Medicaid (not the date of the transfer).
Countable AssetsCountable assets include cash, cash alternatives, stocks, bonds, retirement accounts, deferred annuities and real estate. As well, 529 Plans are countable assets if the client is the owner/participant.
Exempt AssetsExempt assets are assets that don't count against the Medicaid limits. Exempt assets vary from state to state, but might typically include:
- A limited amount of otherwise-countable assets ($2,000 in most states).
- A limited amount of assets allowed for the support of a spouse.
- One automobile, if it is being used by the applicant or spouse.
- Household goods and personal effects, including personal jewelry.
- Irrevocable prepaid burial and/or funeral plans.
- Burial space.
- Up to $1,500 of burial funds (including the face value of permanent life insurance earmarked for burial expenses), and
- Term life insurance without a cash-in value.
Typically, participants can also take advantage of a home exemption. A specified amount of equity in the applicant's principal place of residence is typically exempted as well.
- This exemption continues after the applicant is institutionalized if his/her spouse, or minor (or disabled) child continues to live in the house.
- The exemption may also continue after institutionalization based on an anticipated return to the home.
- Depending on the state's rule and−apparently−local interpretations of the rule, the exemption may continue for six months after institutionalization. Or it may continue for as long as the institutionalized applicant intends to return to the house.
- Or it may continue while there is some reasonable expectation that the applicant will return.
Government Reclamation of Medicaid Spending Exempted assets lose their exemption when the Medicaid recipient dies. It is increasingly common for states to seek recovery of Medicaid spending from the estate of the deceased Medicaid recipient. In some cases, the state will recover the Medicaid disbursements from the sales proceeds of the deceased's house.
Non-countable AssetsNon-countable assets are those that are inaccessible, such as assets transferred by the applicant more than 60 months prior to the application. However, even if it has been more than 60 months since the transfer, a transfer of assets will not reduce the amount of countable assets if the transferor retains rights to the assets or if there is a pre-arranged agreement that the transferee will return the assets to the transferor if funds are needed later.
AnnuitiesPurchasing an annuity might not reduce the countable assets, unless:
- The annuity is irrevocable, is non-assignable, is actuarially sound (for life or period-certain not to exceed life expectancy) and provides for payments in equal amounts during the term of the annuity, with no deferrals and no balloon payments.
- The state is named as the primary remainder beneficiary for at least the total amount of medical assistance paid by Medicaid.
In addition to asset-related issues arising from annuity purchases, clients should also know that income from an annuity may reduce or eliminate Medicaid eligibility.
Being Mindful of Income LimitsIn addition to asset limits, many states also set various maximums on the amount of monthly income (from all sources) that a Medicaid recipient may receive. The states' rules also vary as to consequences when the income cap is exceeded.
Generally, a Medicaid-eligible nursing home resident would be expected to spend virtually all of his or her monthly income on the nursing home bill --except for a small personal expense allowance of about $30. A call to the local Medicaid office should provide income-limit specifics.
Spousal Impoverishment ConsiderationsWhen one spouse needs nursing home care, and the other spouse does not, the “at-home” spouse is allowed to retain a limited amount of assets and income. The at-home spouse is often referred to as the “community” spouse, and the spouse needing care as the “institutionalized” spouse. These rules are often referred to as “spousal impoverishment” rules, but more accurately could be called spousal anti-impoverishment rules.
Spousal AssetsA community spouse is allowed to retain up to half of the couple's combined assets, but not more than a maximum set by each state. The highest possible spousal asset allowance varies from state to state, but most often is in the neighborhood of $115,920. Questions about these rules should be directed to the local Medicaid office or to a local elder law attorney.
IncomeThe community spouse's income is not generally considered to be available to the institutionalized spouse. In some cases, a portion of the institutionalized spouse's income may be used to contribute to a personal needs allowance for the community spouse. Questions about these rules should be directed to the local Medicaid office or to a local elder law attorney.
Medicaid Nursing HomesNursing homes do not have to accept Medicaid residents. Payments made to a nursing home by Medicaid are less than private-payments. Keep in mind that a private-pay nursing home may be more comfortable than a Medicaid facility.
Wrap UpWhatever the aspect, Silver Spring Capital recommends exercising caution when addressing Medicaid issues. Furthermore, our group also recommends that specific questions by inquiring individuals should be directed to their local Medicaid office or to a local elder law attorney. As part of our service for our clients, Silver Spring Capital can help connect you with this kind of professional if needed. If this topic may potentially apply to you, family member, close friend, or work colleague, please feel free to call me at 862.702.3500 or e-mail
[email protected].
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Some information in this article was gathered from
https://www.medicaid.gov/.
Paul Brehne CFP® CRPC® RICP®
Managing Director
Silver Spring Capital
Wells Fargo Advisors Financial Network is not a legal or tax advisor.
Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN), Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. WFAFN uses the trade name Wells Fargo Advisors.
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