Medicaid is a healthcare program for low income individuals and families that is primarily funded by the federal government; however, is administered by the individual states. For this reason, there will be some differences with regard to eligibility and benefits from one state to the next. Basic Medicaid typically covers things such as:
- Doctor visits
- Hospital stays
- Emergency care
- Preventative care
People often confuse Medicaid and Medicare and/or use the two names interchangeably. Although both offer healthcare benefits, they are two very different programs. Like Medicaid, Medicare is funded by the U.S. government but is also administered by the federal government. Medicare is an entitlement program, meaning that as long as you paid into the program during your working years, you are automatically entitled to benefits when you turn 65. Medicaid, on the other hand, is a “needs based” program, meaning you must demonstrate a financial need for the benefits offered by the program.
Many people go through their entire working years without ever needing to turn to Medicaid for help with their healthcare expenses; however, as a senior, the likelihood that you will need long-term care (LTC) goes up every year and the cost of that care is exorbitant. As of 2018, you can expect to pay around $13,000 a month, on average, if you are a Connecticut resident. Because neither Medicare nor private health insurance will cover LTC expenses, as a general rule, over half of all seniors in nursing homes rely on Medicaid to help with their LTC expenses. Although Medicaid does cover LTC costs, qualifying for Medicaid can be problematic because of the income and asset limits. Medicaid planning helps ensure that you will be eligible, should you need to qualify, while also protecting your assets in the process.
Along with basic requirements, such as citizenship and residency, your eligibility for Medicaid is determined using income and asset limits imposed by the program. The income limits are tied to the Federal Poverty Level, or FPL. The FPL, in turn, changes each year and is determined by your household size and geographic area. The “countable resources” limit refers to the value of your non-exempt assets. As of 2019, you cannot have countable resources valued at over $1,600 for an individual. Assets such as the equity in your home (up to a maximum amount), a vehicle, and household furnishings do not count toward your countable resources.
If your assets do exceed the limit, Medicaid will deny your application. At that point you will have to “spend-down” your excess assets. In essence, you will have to use your assets to cover your LTC bills until your assets are depleted enough to qualify. Your retirement nest egg you spend a lifetime accumulating could be gone in a matter of months.
There was a time when that worked; however, not anymore. Medicaid now uses a five-year “look-back” period when evaluating applications. The look-back rule allows Medicaid to review your finances for the five-year period leading up to your application. Any asset transfers made during that time period for less than fair market value may trigger an eligibility waiting period. The length of the waiting period is determined by dividing the amount of your excess assets by the average monthly cost of LTC in your area. For example, imagine that you are over the asset limit by $150,000. If the average monthly cost of LTC in your area is $13,000, you would divide $150,000 by $13,000 which gives you 11.54. After rounding up, you end up with a waiting period of 12 months. During the waiting period, you will be expected to rely on your own assets to cover your LTC expenses.
Given the Medicaid spend-down requirements, you may be concerned that a community spouse will be left with no resources if you need to qualify for Medicaid. Fortunately, that is not the case thanks to the Medicaid spousal impoverishment rules. The spousal impoverishment rules allow a community spouse to keep some income and assets when the other spouse goes into long-term care.
Medicaid planning uses legal tools and strategies to protect your assets and help ensure your eligibility for benefits in the event you need them in the future. For example, you might establish a Medicaid trust, which is an irrevocable living trust into which you would transfer non-exempt assets. When Medicaid planning is incorporated into an estate plan early on, it drastically increases the odds of qualifying for benefits while decreasing the likelihood of losing valuable assets in the process.