WHAT IS MEDICAID?
Medicaid is a federal benefit program administered by the states that provides assistance with long term care and nursing home costs for needy people. Medicaid is not insurance. It is a public assistance welfare program funded entirely by taxpayers.
Here are some common questions and answers regarding Medicaid:
- How can Medicaid help pay for long term care?
- How do you qualify for Medicaid assistance?
- Will Medicaid pay for long term care if you own a home?
- What is the Medicaid Penalty Period?
- Can Medicaid recover costs it pays on your behalf?
- Does a state have recourse to collect monies from your estate if you receive Medicaid assistance?
- Can Medicaid file a claim against any of your assets?
- Can a surviving spouse protect his or her asset after the Medicaid beneficiary diees?
A.Each state has a department responsible for providing Medicaid benefits to their state residents. Some states have given the state Medicaid program a different name. In California, for example, the Medicaid program is known as Medi-Cal. Click here to see a list of state medicaid offices.
The original intention of Medicaid was to help provide health care coverage for low-income families. The Medicaid program has morphed into the largest payer of nursing home costs for elderly people who have no money to pay for long term care.
Medicaid is currently paying almost 70% of the costs of long term care provided at nursing homes. Medicaid expenditures are estimated to cost $393 billion in 2008. The government estimates Medicaid will grow to $697 billion in 2017, a cumulative cost of $1.56 trillion over the next 10 years.
Q. How do you qualify for Medicaid assistance?
A. In order to become eligible for Medicaid you must have very few assets. That means you have to get rid of your assets, either by spending them down or by giving them away. If you give them away, there are penalty periods during which you will not be eligible for Medicaid.
If you are a Medicaid recipient, all social security and pension checks you receive will be applied to the costs of nursing home care. The Medicaid program pays the remaining costs on your behalf to the nursing homes and long term care facilities.
Be aware that Medicaid rules keep changing and that some Medicaid laws differ from state to state. If you are applying for Medicaid, or even just thinking about it, you should consult with an elder care lawyer who is familiar with the Medicaid eligibility and estate recovery rules.
The law also requires individuals applying for or receiving Medicaid to prove their citizenship by submitting a birth certificate or passport.
Q. Will Medicaid pay for long term care if you own a home?
A. The Tax Incentive Reduction Act of 2005 states that individuals with more than $500,000 in home equity will be ineligible for Medicaid benefits. However, states have the option to raise this threshold to $750,000.
Q. What happens if the beneficiary you name on your life insurance policy is living in a long term care facility?
A. If the beneficiary of a life insurance policy is in a long term care facility, the proceeds may become an asset of the beneficiary. These assets will be available to pay his or her long term care costs. If the beneficiary on your life insurance policy enters into a long term care facility, review your existing life insurance beneficiaries. Understand how it impacts who pays for your long term care.
Q. What is the Medicaid penalty period?
A. When you apply for Medicaid, you are required to complete a financial qualifications form. This form asks you to provide an inventory of your financial assets. The form also asks you to list any gifts you have made in the past five years. The Tax Incentive Reduction Act of 2005 changes how gifts of your assets impact your eligibility to receive Medicaid.
- The law extends the Medicaid “look back” period from three to five years.
- Most important, the date for removing the value of the gifts from the Medicaid eligibility calculations starts from the day you apply for Medicaid, not the date you made the gift. The look back rule applies to all transfers made on or after February 8, 2006.
If you made gifts within five years before applying for Medicaid, Medicaid will not begin paying for your long term care until the cumulative monthly costs of your care exceed the value of the gifts you made. This period of time when Medicaid is not available is known as the Medicaid Penalty Period.
A Family Story: Medicaid penalty period.
David added his son Eric as a joint tenant on the deed of his personal residence in 2007. At that time, the fair market value of David’s house was $100,000. Medicaid will consider Eric’s half of the property a gift from David with a value of $50,000.
In May, 2008, David fell and became unable to take care of himself. Eric located a nursing home, but it will cost $5,000 a month. Since David had no assets other than his house, Eric filled out a Medicaid application form requesting help paying for David’s nursing home care. David had to list and value the gift of the house on the application form.
David is not eligible for Medicaid benefits for a period of 10 months. The 10-month penalty period was determined by dividing the value of David’s gift to Eric ($50K) by the monthly cost of David’s long-term care ($5K).
Someone must find the money to pay for David’s care the first 10 months. The long term care facility will not accept David as a patient without some means to pay for his care.
Q. Can Medicaid recover costs it pays on your behalf?
A. Medicaid rules require you to use your own assets to pay your nursing home costs until they are depleted, at which point Medicaid will help with these costs.
Most state Medicaid programs allow a healthy spouse to continue living in the family home and to keep a small amount of assets if the other spouse needs to be placed in a nursing home. When the healthy spouse dies, the Medicaid recovery laws allow the state to recover from the proceeds of the sale of the home the costs paid by Medicaid.
Some people think about receiving Medicaid support as similar to obtaining a reverse mortgage on their home. The state, not the bank, pays for their long-term care expenses. You don’t need to pay back the loan until the death of the surviving spouse. The state does not charge interest on money it pays for long term care on your behalf.
Q. Does a state have recourse to collect monies from your estate if you receive Medicaid assistance?
A. A special debt situation may occur if you are receiving Medicaid when you die. When the Medicaid recipient dies, the state has the right to recover these dollars from your estate. The claims are limited to the amount which Medicaid paid, or the value (fair market value of assets less debt) of the estate assets, whichever is less. The state is not allowed to pursue the repayment of the Medicaid payments when the recipient dies if:
- A spouse survives the deceased Medicaid beneficiary. The claim to recover the dollars the state spent for the decedent’s long term care will be made after the death of the surviving spouse.
- A child under the age of 21 survives the Medicaid beneficiary.
- A child of any age who is blind or disabled (under the Social Security standards) survives the Medicaid beneficiary.
Q. What type of creditor rights does the state have against your estate?
A. In many states, Medicaid is simply a creditor and certain other creditors have priority over Medicaid claims. In some states, Medicaid can file under “cost of last illness” and gain priority over other creditors. A federal law passed in 2003 gives states the right to amend their probate laws to make Medicaid a priority creditor. Heirs receive their inheritance only after the Medicaid’s priority claims are paid.
A Family Story: Medicaid estate recovery.
Keith designated his son Alex as the beneficiary of his only property, the family home valued at $100,000. At the time of Keith’s death, Medicaid had paid $24,000 for his nursing home care. Medicaid filed a creditor claim of $24,000. The estate representative paid back $24,000 to remove the Medicaid lien from the property. Alex inherited $76,000.
Q. Can Medicaid file a claim against any of your assets?
A. Under the federal guidelines, states can expand the definition of “estate” to include any property in which an individual had any legal title or interest at the time of death, including assets passed outside probate. A state can define this property to include joint bank accounts, bank accounts with a pay-on-death beneficiary designation, living trusts, life estates in real property, and real estate held in joint tenancy. Generally, retirement accounts are not subject to estate recovery claims.
If your state uses the expanded definition of “estate”, the state has claims against property that would normally not be available for creditor claims.
A Family Story: Expanded state property definition.
After her husband died, Eleanor invited her daughter Sue to come and live with her. Eleanor filed a new deed listing Eleanor and Sue as joint tenants with rights of survivorship.
In the absence of Medicaid claims Sue, as the surviving joint tenant, would have automatically inherited the property. Their state has adopted a definition of “estate” that includes all property in which an individual had any legal interest at the time of death.
When Eleanor had to enter a nursing home, Medicaid paid for some of her long term care costs. When Eleanor dies, Medicaid can attach a lien to the property and force Sue to reimburse Medicaid for Eleanor’s nursing home care out of what had been Sue’s share of the property.
Q. Can your surviving spouse protect his or her assets after the Medicaid beneficiary dies?
A. The surviving spouse may limit the amount of his or her estate that will be available for reimbursement of Medicaid expenditures by filing a petition for limitation. The petition must be filed with the state within six months of the death of the Medicaid recipient using forms available from the state. Click here for a list of state Medicaid offices and contact information.
If a petition is filed, the state will determine the value of the estate of the Medicaid recipient at the time of his or her death. That value will be the limit of the amount available to the state for recovery of its expenditure.