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.
Although Medicaid and Medicare are often referred to interchangeably, the programs are not related. Both Medicaid and Medicare provide healthcare coverage and are funded by the federal government; however, the similarities stop there. Medicare is what is referred to as an “entitlement” program because if you have paid into the program during your working years you are automatically entitled to benefits when you retire. Medicaid, on the other hand, is a “needs based” program, meaning you must demonstrate a financial need for benefits to be eligible to participate. Medicare comes in four parts with basic Medicare offered at no charge. If you wish to participate in the other three parts of Medicare you will pay a monthly premium. There are no monthly premiums for Medicaid.
As you age, your odds of eventually needing long-term care (LTC) increased dramatically. At retirement age (age 65) you already stand a 50 percent chance and by age 85 those odds will have increased to a 75 percent chance. As of 2016, the average monthly cost of LTC in the State of New York was over $12,000. With an average length of stay of 2.5 years, you could be facing a LTC bill of well over $360,000. Making matters worse is the fact that neither Medicare nor your basic health insurance coverage will likely cover LTC expenses, leaving you to pay out of pocket unless you are eligible for Medicaid.
Aside from proving citizenship (or other legal status) and residency, the primary eligibility requirements for Medicaid involve demonstrating the need for benefits. To do that, you must have income and “countable resources” that do not exceed the program limits. For many seniors who did not anticipate the need to qualify for Medicaid, the countable resources (asset) limit presents a problem. Although some assets are exempt from consideration, it is easy to see how many applicants have non-exempt assets that exceed that limit.
There was a time when this was an option; however, Medicaid imposed a five-year “look-back” rule that now prevents an applicant from transferring assets in anticipation of the need to qualify for Medicaid. The look-back rule allows Medicaid to review your finances for the five-year period leading up to your application. Any transfers for less than market value will likely be discounted and the value of the assets imputed back into your estate.
If your assets exceed the program limit Medicaid will impose a waiting period, commonly referred to as the Medicaid “spend-down” requirements. During the waiting period, you will be expected to sell your non-exempt assets and rely on the proceeds to cover your LTC bills. The length of the waiting period is determined by dividing your excess assets by the average monthly cost of LTC in your area. For example, imagine that you have $150,000 in non-exempt assets, or $148,000 in excess assets, and that the average monthly LTC cost in your area is $10,000. You divide $148,000/$10,000 which comes out to 14.8. Rounding up, Medicaid would impose a 15-month waiting period.
There was a time when this was the case; however, the Medicaid Spousal Impoverishment Rules now prevent that from happening. The Spousal Impoverishment rules allow a community spouse to keep some of the marital assets and, in some cases, some of the nursing home spouse’s monthly income to ensure that the community spouse is not left with nothing.
Medicaid planning uses legal tools and strategies to protect your assets and ensure that you will be eligible for Medicaid benefits if you need them in the future. Medicaid planning is perfectly legal and is a common addition to the average estate plan.