Medicaid or Medical Assistance is the program that is tapped by the majority of people to pay for long-term care in a skilled nursing facility, at home under the Pennsylvania Department of Aging Waiver or the LIFE program. Medicaid has rules as to how many resources the applicant and the applicant’s spouse may keep. If there are excess resources, the applicant must spend down to the applicable resource limit.
Medicaid spend down
A Medicaid spend down is reducing the available assets by purchasing things that benefit the Medicaid applicant and his/her spouse. A popular technique for married couples is to use excess resources to purchase a Medicaid compliant annuity.
Available resources that can be kept by the applicant
The amount of available resources a single or married applicant can keep cannot exceed $8,000.00, if the applicant’s gross income is $2,349.00 or less (in 2020). If the applicant’s gross income is greater then $2,349.00, the resource allowance for the applicant is reduced to $2,400.00.
Available resources that can be kept by the spouse of the applicant
If the applicant is married, the available resources are totaled, regardless of whether they are in individual or joint names. The spouse of the applicant can keep half of the available resources, with a minimum allowance of $25,728.00 and a maximum allowance of $128,640.00 (in 2020). In addition to this half of the available resources, the spouse of the applicant may keep or exclude unavailable resources.
Example: Bob and Sue and their options
Sue is in the nursing home and is going to apply for Medicaid to pay for her care. Sue’s gross income is $950.00 per month. She can keep $8,000.00 in resources.
Bob and Sue have checking, savings and money market accounts and some savings bonds totaling $100,000.00. Bob may keep half of the available resources ($50,000.00) as his protected share. Combined with Sue’s $8,000.00, they may keep $58,000.00 in total. There are $42,000.00 in excess resources. What are the options?
A Medicaid annuity is a contract whereby a financial company agrees to return the principal invested with interest either in a fixed sum or at intervals at some point in the future. Annuities that are used for Medicaid qualification return the sum invested immediately and in equal monthly installments. The income stream is non-assignable. The annuity does not exceed the life expectancy, as determined by the Social Security Administration, of the person who acquires the annuity. Bob and Sue could choose to transfer the $42,000.00 to Bob. Bob would purchase the Medicaid annuity and receive the equal monthly installments over the period of his life, or shorter. If Bob passes away before receiving all of the payments, the Department of Human Services (“DHS”), would be the beneficiary of the remaining payments, to the extent that DHS had paid for Sue’s care. If there were any remaining payments left after the DHS claim was satisfied, the contingent beneficiaries (Bob’s and Sue’s children), would receive the payments.
Bob and Sue could spend the $42,000.00 in excess resources. They could trade in and buy a more up to date vehicle, which is an exempt resource. Or, they could pay off their mortgage or home equity line of credit. They could also pay off credit card debt or make advance payment of various expenses for the next few months, make home improvements or prefund irrevocable burial funds.
Can Bob and Sue give away the excess $42,000.00? Yes, they can, but there may be consequences to Sue qualifying for Medicaid. The general rule is that gifts or transfers without receiving fair market value result in a period of ineligibility for Medicaid. All gifts have to be reported if made within five years prior to the date of the Medicaid application.
There are various exceptions to this rule of a period of ineligibility: gifts to the spouse of the individual; cumulative gifts of no more than $500.00 in a calendar month; gifts to children who are under 21 years of age or who are blind or permanently and totally disabled; gift of resident property under certain conditions to a child caregiver; gifts made exclusively for a purpose other than to qualify for Medicaid; gift that is returned; and, a gift when the Commonwealth determines that denial of eligibility would cause an undue hardship. Many of these exceptions are fact specific and are not easily or readily granted.
The laws, considerations and consequences involved in paying for long-term care are complicated. No matter how well-meaning “friends who’ve been through it,” facility business offices and agencies intend to be, the laws change often, and misconceptions abound. If your spouse is in a nursing home or you are assessing options of admission and Medicaid application for care, consult with a certified elder law attorney.
Tammy Weber’s Free Webinar “What is Medicaid Spend Down.”