Have you heard stories about older people spending down their money before entering a nursing home? Does this seem weird to you? I think I can help give you some quick insight. My aunt was just admitted to a nursing home. Her spouse reported that they have retitled assets, paid off debt and made home improvements, so she can one day soon qualify for Medicaid coverage and he can stop paying for the private bed.
It seems counter-intuitive to start remodeling the home when you’re paying $60,000 a year to a nursing home. But it’s all part of the labyrinth that is Medicaid and Social Security law. My purpose here is only to give you a few basics and encourage you to reach out to a qualified Elder Law attorney.
I celebrate daily that my parents have managed to reach 80+ years in relatively good health. Now, their life expectancies are about eight years, but they face an actuarial 5% chance of dying within a year. Considering those odds, I recommend you complete your Medicaid planning shortly after retirement, especially if your health has been failing.
Medicaid terms and rules
Many people think Medicaid planning means giving away money to qualify for coverage, but most Medicaid planning does not include impoverishment. Here are some basic terms and rules.
The Recipient is the person who is entitled to, files for, or will file for Medicaid. Medicaid Eligibility requires that a Recipient’s Countable Resources not exceed $2,000 in countable assets and his Countable Income not exceed his state’s Income Cap ($2,250 a month in some states).
But what is a Countable Resource? Everything is a Countable Resource, except the personal residence (only the first $572,000 in value, if occupied), one auto, any IRAs, pensions and/or retirement plans, and any Irrevocable Trust funded more than five years prior to the Medicaid application.
What is Countable Income? All money paid or gifted directly to the Recipient from any source, including a pension, IRA and retirement plan. Borrowed money is not income but will count as a resource the month following if not spent.
The Penalty Period is the time during which the Recipient is not eligible for Medicaid due to excess Countable Resources. That Penalty Period starts when the recipient, whose available income is below the basic cost of the nursing home care, files an application for Medicaid and reports Countable Resources and/or has made gift transfers that must be “spent down.”
This is how it works
The Recipient enters a nursing home in a private pay bed and files for Medicaid coverage. If his Countable Income and/or Resources exceed the limits, his application is denied. But a snapshot of his finances, called a Resource Assessment, is made to determine the value of his Countable Resources, including any gifts transferred within the last five years, that must be “spent down.”
The Resource Assessment is not performed until the Recipient living in a nursing home files for Medicaid coverage. The Assessment is documented by Form PA-22. If his application is denied, he must save this form and present it when he refiles. In many states, he must insist on a completed PA-22. The Medicaid office may even refuse to give it to him because they think it’s not required until he has already spent down half the assets, but that’s wrong and here’s why:
The spouse of the Recipient is the Community Spouse. The Community Spouse’s income does not count against the Recipient. And the Community Spouse is allowed to retain the Community Spouse Resource Allowance from the Recipient’s Countable Resources and not have those funds count against the Recipient’s eligibility.
In 2018, the Community Spouse Resource Allowance is the greater of $24,720 and half the couple’s total resources, but not more than $123,600. In other words, if the Resource Assessment shows that the couple’s total Countable Resources are $100,000, then half that amount, but at least $24,720, is exempt and can be retained for use by the Community Spouse.
Therefore, if the couple’s total Countable Resources are $100,000, then the Community Spouse may retain $50,000 and they must spend down the rest. If that money is only spent on the private nursing home bed, it may take 11 months to spend it. But they can also spend the money on themselves; They may renovate or refurnish the house, replace an old car with a new one, or take a trip, just as long as the funds aren’t converted to other Countable Resources or given away. They could reduce that 11 months of nursing home payments to just one or two months by putting those excess funds to personal use.
Without proof of the prior Resource Assessment that documents that the amount to be spent down from the first Medicaid application is $50,000, the Recipient who refiles the second claim, after spending down $50,000, will be told that the new Community Spouse Resource Allowance is now $25,000. They must now spend down half the current excess resources, again. They must spend another $25,000.
If the couple’s Countable Resources include amounts that the recipient gave away, outright or by gift to a trust, those funds are exempted over time using a formula that is different in each state. The formula is called the Transferred Resource Factor (TRF) and is based on $199.46 a day or $6,067 a month in many states. The TRF is the amount applied on a monthly basis to exempt the disqualifying transferred funds.
So, if the Recipient gifted $30,000 to his children during the last five years, but they have spent down the couple’s Countable Resources under the Community Spouse’s Resources Allowance, then he is still ineligible until those gifts are exempted at the rate of about $200 a day. Under the formula, the $30,000 gift would be fully exempted after five months. Then he can refile for his Medicaid coverage to begin. Any gifts made more than five years before the Medicaid application is filed are ignored.
This information is not all you need to know, but I hope it is enough warning to encourage you to talk to an Elderlaw attorney in your area at least five years before you think you or your spouse may need nursing home care. Additional planning strategies may be suitable given your financial and health situation. Once informed, you can decide which to implement and which are too restrictive.