|
Medicaid Financing of Nursing Home Care - Updated for 2007
by Thomas D. Begley, Jr.
1. Introduction
According to a study published by the New England Journal of Medicine
almost half of all Americans will spend some time in a nursing home. The
average cost of a nursing home in the United State is approximately $9,000
per month, and in some areas it exceeds $10,000 per month.
There are five ways to pay for a nursing home: private pay, long-term care
insurance, Medicare, Veterans benefits, and Medicaid. Only about 5% of
Americans have long-term care insurance. Many are uninsurable or cannot
afford such insurance. At most, Medicare pays part of 100 days. Less than
1% of nursing home residents are receiving Veterans benefits.
The major alternative to private pay is, therefore, Medicaid. By carefully
designing a thorough Medicaid plan, security can be ensured for the
Community Spouse and a legacy can be preserved for children. Failure to
design a sophisticated plan may result in the Community Spouse being
unable to maintain his or her standard of living. In some instances, the
family home may have to be abandoned. The rules of eligibility for
Medicaid are strict.
The applicant must be a U.S. citizen or a resident alien and a resident of
the state in which he or she applies. It must be medically necessary that
the person be placed in the nursing home. Some state are Income Cap
states. This means if a person’s income exceeds the cap, he or she is
ineligible for Medicaid. Other states are Medically Needy states. If the
person’s income is less than the cost of the nursing home, they are
eligible from an income standpoint.
There are also asset limits. A Medicaid recipient is usually allowed to
retain a small amount of assets, usually in the neighborhood of $2,000. If
the person is married, the Community Spouse is allowed to retain a portion
of the couple’s assets. Some states permit the Community Spouse to retain
one-half of the countable assets with a ceiling of $101,640 for calendar
year 2008 and a floor of $20,880. In other states, the Community Spouse is
able to retain all of the countable assets not to exceed $104,400.
Certain assets are not counted, such as a home, under certain
circumstances, personal effects, wedding and engagement rings, medical
equipment, and certain types of burial funds. In a situation where there
is a married couple, the assets of both the husband and wife are combined.
This is true notwithstanding the fact that a prenuptial agreement may have
been signed.
For Medicaid penalty purposes there is a 60 month
lookback for transfers of assets. That means Medicaid will review the
applicant’s relevant financial records going back five years to determine
whether funds have been transferred during that time period. If assets
were transferred during the lookback period, Medicaid imposes a penalty.
That penalty, which is a period of ineligibility for Medicaid, is
calculated by dividing the amount transferred by the average cost of a
nursing home in New Jersey as determined by the Division of Medical
Assistance and Health Services. The penalty may be for a period of months
or partial months. The larger the transfer, the longer the period of
ineligibility. The penalty does not begin until the applicant is eligible
for an institutional level of care, is otherwise financially eligible
(i.e. has spent down assets to $2,000.00) and has no other period of
ineligibility outstanding. Transfers by either Institutional Spouse or
the Community Spouse are penalized, however, transfers between Spouses are
not penalized. Certain additional transfers are exempt from Medicaid
transfer penalty. These include transfers of a house, in certain
circumstances, and transfers to certain disabled persons.
Medicaid planning involves a number of tax considerations. These relate to
income tax, gift tax, and, possibly, federal estate tax. Failure to comply
with the tax law in designing a Medicaid plan usually results in the
payment of significant extra taxes. By designing a Medicaid plan taking
advantage of the tax law, significant savings can be achieved.
2. Conclusion
The key to Medicaid planning is to act quickly. Failure to act eventually
costs a considerable amount of money. If a nursing home cost in a
particular state is $9,000 per month, then that is the cost of additional
months of nursing home care that the family must pay. In those cases where
planning was not done and the person is already in a nursing home assets
can also be protected, but the earlier the planning is done, the more
money is saved. Married persons care about their spouses, children care
about their parents, parents care about their children. By proper
planning, the security of the Community Spouse can be maintained and a
legacy can be preserved for the children. |
