For all practical purposes, the only “insurance” plan for long-term nursing home care for many seniors is Medicaid. Medicare pays for only about 7 percent of skilled nursing care in the United States. Private insurance pays for even less. The result is that most people pay out of their own pockets for long-term care until they become eligible for Medicaid (also known as MassHealth). While Medicare is an entitlement program, Medicaid is a form of welfare. To be eligible for Medicaid benefits, you must become “impoverished” under the program’s guidelines.

Despite the costs, there are advantages to paying privately for nursing home care. The foremost advantage is that by paying privately an individual is more likely to gain access to a better quality facility. The obvious disadvantage is the expense. In Massachusetts nursing home fees can be $15,000 per month or even higher depending on the facility. Without proper planning, nursing home residents can lose the bulk of their savings.

For most individuals, the object of long-term care planning is to protect savings while simultaneously qualifying for Medicaid nursing home benefits. This is possible, but to do so it is important to understand the basic rules of Medicaid eligibility.

The Asset Rules

The first basic rule of nursing home Medicaid eligibility is that an applicant may have no more than $2,000 in “countable” assets in his or her name. As described below, the spouse in the community is entitled to keep $120,900 (as of 2017). “Countable” assets generally include all belongings except for (1) personal possessions, such as clothing, furniture, and jewelry; (2) one motor vehicle; (3) the applicant’s principal residence (if it is located in Massachusetts and the equity in the residence is less than $840,000, as of 2017); and (4) assets that are considered inaccessible for some reason.

The Home

A home with equity valued under $840,000 (as of 2017) is not considered a countable asset as the long as the nursing home resident intends to return to the home or his or her spouse or other dependent relative (a disabled or blind child or a child under the age of 21) lives there. If the nursing home resident’s spouse lives in the home, there is no cap on the permissible value. It does not matter if it seems unlikely that the nursing home resident will ever be able to return home, as the intent to return home by itself preserves the property’s character as the person’s principal place of residence and thus a noncountable asset. As a result, for all practical purposes, nursing home residents do not have to sell their homes in order to qualify for Medicaid if the equity in the home is worth less than $840,000. However, this does not mean that the home is protected. The property may still be at risk as Medicaid may either place a lien against the property or make a claim against the Medicaid recipient’s estate.

The Transfer Penalty

Medicaid penalizes applicants who transfer assets by imposing one month of eligibility for nursing home benefits for every $9,000 (as of 2017) given away. Medicaid reviews five years of financial statements to identify any disqualifying transfers. This is known as the “look-back” period. The start date of the ineligibility period is the date when applicant is in a nursing home and his or her funds have run out.

Perhaps the easiest way to explain the transfer rules is by way of an example. Let’s assume that Mrs. Smith transfers $20,000 to her grandson on March 15, 2017. On April 15, 2017, Mrs. Smith suffers a stroke and is admitted to a skilled nursing facility. Assume that she spends down her countable assets below $2,000 as of August 1, 2017. The transfer penalty would start on August 1, 2017, and would end in mid-October 2017 ($20,000 ÷ $9,000 = 2.22 months of ineligibility).

There is no cap on the period of ineligibility. For example, the period of ineligibility for the transfer of property worth $900,000 is 100 months ($900,000 ÷ $9,000 = 100 months of ineligibility). However, Medicaid may consider only transfers made during the look-back period. With proper planning this effectively results in a 60-month cap on periods of ineligibility resulting from transfers. People who make large transfers must be careful not to apply for Medicaid before the applicable look-back period expires.

Exceptions to the Transfer Penalty

Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include: (1) a spouse; (2) a blind or disabled child; (3) a trust for the benefit of a blind or disabled child; and (4) a trust for the benefit of a disabled individual under the age of 65 (even for the benefit of the applicant under certain circumstances).

Special rules apply with respect to the transfer of a home. In addition to being able to make transfers without penalty to one’s spouse, blind or disabled child, or into trust for the benefit of blind or disabled beneficiaries, the applicant may freely transfer his or her home to: (1) a child under the age of 21; (2) a sibling who has lived in the home during the year preceding the applicant’s entry into a nursing facility and who already owns an equity interest in the home; or (3) a “caretaker child”, defined as a child of the applicant who lived in the home for at least two years prior to the applicant’s entry into a nursing facility and who, during that period, provided such care that the applicant did not need to move into a nursing facility.

A transfer can be cured by the return of the transferred asset. In such cases, any ineligibility period resulting from the initial transfer is eliminated.

Treatment of Income

When a nursing home resident becomes eligible for Medicaid, all of his or her income, less certain deductions, must be paid to the nursing home. The deductions include a $72.80 per month personal needs allowance, a deduction for any uncovered medical costs (including medical insurance premiums) and, in the case of a married applicant, an allowance that he or she must pay to the spouse who continues to live at home (described below).

Spousal Protections

  • Assets 
    • Medicaid law provides special protections for the spouse of a nursing home resident, referred to in the law as the “community spouse”. The community spouse is entitled to keep a maximum of $120,900 (as of 2017) of the couple’s countable assets. This calculation is not affected by whether the couple jointly owns the assets or whether the assets are all held in the name of the nursing home spouse. For example, if a couple owns $75,000 in countable assets on the date the applicant enters a nursing home, the community spouse will be entitled to a resource allowance of $75,000. If the couple owns $250, 000 in countable assets, the community spouse can keep a maximum of $120,900 (as of 2017).
  • Income
    • Although the amount of assets that a couple can keep is strictly limited, Medicaid treats income differently. In all circumstances, the community spouse retains his or her own income; he or she will not be required to use his or her income to support the spouse receiving Medicaid benefits. In some cases, the community spouse is also entitled to share in all or a portion of the monthly income of the nursing home spouse. Medicaid determines an income floor for the community spouse, known as the minimum monthly maintenance needs allowance, or MMMNA, which is calculated under a complicated formula based on the community spouse’s housing costs. Where the community spouse can show hardship, Medicaid may award a higher MMMNA, but only after a fair hearing. The MMMNA may range from a low of $2,002.50 to a high of $2,980.50 (both 2017 figures) per month. If the community spouse’s own income falls below his or her MMMNA, the shortfall can be made up from the nursing home spouse’s income.
  • Annuities
    • One means of protecting assets for the community spouse is through the purchase of an annuity. The purchase of an annuity transforms excess assets that would otherwise make the nursing home spouse ineligible for Medicaid into a noncountable stream of income for the community spouse. The annuity must be irrevocable and have a term certain – a guaranteed number of years of payment – that is shorter than the life expectancy of the healthy spouse. In addition, the money paid back by the annuity over the life expectancy of the annuitant must be equal to or greater than the amount initially paid for the annuity. The annuity should not be purchased until the spouse enters a nursing home.
  • Increased Resource Appeal for the Community Spouse
    • Where a couple’s combined income is less than the MMMNA, the community spouse can petition MassHealth for an increase in the standard resource allowance so that the additional funds can be invested to generate income to make up the shortfall. This strategy works well when the community spouse is living in an assisted living facility. Given current low interest rates, this permits the low-income community spouse to retain a substantial level of savings above $120,900 (as of 2017), while maintaining Medicaid eligibility for the nursing home spouse.

Estate Recovery

The state has a right to recover whatever benefits it has paid for the care of a Medicaid recipient from his or her probate estate. Property that passes to a survivor outside of probate, such as jointly owned property, the remainder after a life estate, or assets held in trust, escapes estate recovery. In addition, Medicaid must defer its claim if there is a surviving spouse. In this case, Medicaid cannot recover against the estate until after the surviving spouse’s death.

Massachusetts does not seek recovery against the homes of those decedents who owned long-term care insurance when they entered the nursing home, provided that the policy was an individual policy approved by the Division of Insurance. This exemption from estate recovery applies only if the Medicaid applicant makes the proper designation when filling out his or her application. In addition, this exception may no longer apply under new changes to federal law.

The Medicaid Application

Applying for Medicaid benefits is a cumbersome and tedious process. The applicant must verify every assertion of fact in the application by supporting documentation. The application process can drag on for several months, as Medicaid demands additional verifications regarding issues such as the amount of the applicant’s assets and dates of asset transfers. If the applicant does not comply with these requests and deadlines on a timely basis, Medicaid will deny the application.

In addition, after Medicaid eligibility is achieved it may be re-determined annually. Although simple Medicaid applications do not require an attorney’s involvement, it makes sense to work with a qualified elder law attorney in more complicated situations. Examples of situations that may delay or impede eligibility without proper legal advice include a community spouse, transfers of assets, trusts, and real estate other than the applicant’s primary residence.

The Medicaid rules are presently in a state of flux. Therefore, it is more important than ever for you to keep in regular contact with a qualified elder law attorney so that you can be properly advised as the rules change.

The information provided here is a summary only and does not take into account your individual situation. Please contact me at North Shore Elder Law & Estate Planning to learn more about the rules regarding eligibility for Medicaid nursing home benefits and strategies for asset protection without loss of eligibility for benefits.