Medicaid Eligibility

Medicaid Eligibility – Financial Criteria

The most challenging aspect of Medicaid eligibility involves meeting state-specific financial qualifications regarding income and assets. With regard to income, the federal government requires states to provide Medicaid coverage to most individuals who receive federally assisted income maintenance payments such as Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI). As a whole, these beneficiaries are termed categorically needy. States may also set eligibility guidelines referred to as medically needy provisions. Seniors who qualify for Medicaid benefits through a medically needy determination are those who face medical bills-including long-term care expenses-in excess of their ability to pay. In determining eligibility for medically needy benefits, Medicaid looks at both assets and income, although assets are the key determinant in most states.

Medicaid Eligibility-Assets

Medicaid does not count all assets when determining eligibility. Seniors may keep some assets (noncountable assets or inaccessible assets) and not others (countable assets). For example, Medicaid counts investments but does not count an irrevocable burial fund trust.

Noncountable Assets

A primary residence is not counted as long as the applicant, a spouse, or other member of a protected class resides there. Home equity is discussed further in the section “The Family Home.”

Other noncountable assets include: basic household furnishings, a car, wedding ring, burial plots, an allowance for funeral expenses, life insurance of limited value or property, and income-producing businesses. These are sometimes called exempt assets. It is important for you to recognize that these assets are not necessarily protected (from potential probate law or recovery by the state, as discussed later), but simply are not counted for eligibility for Medicaid

Countable Assets

All other cash, stocks, bonds, investments, and retirement plan assets are counted by Medicaid to determine eligibility for benefits. Generally, if an applicant has access to the principal of an asset0even if the principal has never been touched or if it is subject to taxes or penalties0it is a countable asset.

According to federal law, an unmarried applicant to Medicaid may retain noncountable assets plus no more than $ 2,000 to $ 4,000 in countable assets (in 2009; this amount may change in the future). Each state determines its own criteria within these limits. Before Medicaid benefits will begin, an applicant must consume or eliminate the amount of countable assets (spend-down assets) above this limit. (Spend-down assets are expected to be spent on health care.)

Spousal Resource Allowance

Medicaid laws protect a healthy spouse when the unhealthy spouse applies for Medicaid. In order to understand Medicaid’s regulations about spousal protection, you need to become familiar with two terms commonly used in written Medicaid material: community spouse (CS) and institutionalized spouse (IS). Community spouse refers to a healthy spouse who continues to live in the community, while institutionalized spouse refers to a spouse who requires care in a nursing home and is applying for Medicaid benefits.

When a married couple applies for Medicaid, a snapshot is taken of the couple’s total assets. All of the assets of the husband and wife, whether held jointly or separately, are pooled together. Medicaid disregards prenuptial agreements, which may imperil financial plans that were set up to protect separate assets and prevent their use for the other spouse.

For 2009, the community spouse may keep between $ 21, 912 and $ 109,560 (indexed annually) or half of the couple’s combined assets, whichever is less. This is known as the community spouse resource allowance (CSRA). Some stages disregard the one-half limitation and permit a community spouse to keep all of the countable assets up to the CSRA maximum, even if that exceeds one-half the countable assets.

Jointly Owned Assets

Seniors applying for Medicaid cannot protect their assets by creating joint accounts. Medicaid will count assets jointly held by the applicant and another individual other than a spouse as belonging entirely to the applicant if the title is such that any single owner of the resource can control it without the co signature of another owner. As an estate planning technique many seniors put an adult child’s name on their accounts as a joint owner. While this may allow an asset to be transferred at death without being subject to probate, it does not provide asset protection from Medicaid.

Transfer of Jointly Held Assets

The transfer of jointly owned asset can trigger a Medicaid penalty. IN the case of an asset held jointly, Medicaid considers the asset to be transferred if the joint owner (not the Medicaid applicant) withdraws any money. If a transfer occurs during a look-back period (discussed below), it will create a period of Medicaid ineligibility. This rule is one of many reasons why it is important that seniors seek advice from professionals who are knowledgeable about Medicaid’s regulations. Seniors can easily make a costly error when approving this type of transfer without understanding the consequences.

Assets held jointly by spouses are not usually problematic under this rule. It is problematic, however, for seniors who create joint ownership arrangements with adult children. Again, it is important to have the advice of a professional who is knowledgeable about Medicaid.

The Family Home

Until the Deficit Reduction Act (DRA) of 2005, an applicant’s home was not included in determining eligibility for Medicaid. Under the DRA, an individual with more than $ 500,000 in home equity is ineligible for Medicaid. States can increase the home equity limit up to $ 750,000. This rule does not apply if the applicant’s spouse, minor child, or disabled child resides in the house. The spouse, minor, or disabled child is referred to as a member of a protected class. According to current guidelines, members of the protected class include:

  • The applicant’s spouse;
  • Any child under 21;
  • Any child of any age who is blind or permanently and totally disabled;
  • A brother or sister who owns equity interest in the home and resided in the home for at least one year preceding the Medicaid application;
  • Any child who resided in the home for two years prior to admission to the nursing home and provided care that permitted the applicant to stay in the home.

The fact that a senior’s home may be a noncountable resource at the time of application for Medicaid benefits does not mean the home is protected from estate recovery by Medicaid after the applicant’s death. When a Medicaid beneficiary with an interest in a personal home dies and the home is no longer occupied by a member of the protected class, the state may seek to recover the amount of benefits paid by placing a claim against the value of the home.

Since the most valuable asset for most seniors is a home that is owned outright, it is extremely important to obtain competent advice about options for handling the home’s ownership from an elder law attorney or other professional knowledgeable about Medicaid.

The “Look-Back Period” and Ineligibility Penalties

Applicants risk a penalty by attempting to qualify for Medicaid by transferring assts during a period of time called the look-back period. Transfers of assets for less than fair market value (by the applicant or spouse) within this time will result in a period of ineligibility for Medicaid.

The Balanced Budget Act of 1997 sought to make it a federal crime to advise a person to transfer assets for the sole purpose of becoming eligible for Medicaid. A subsequent court ruling held this law to be unconstitutional, and it is currently not being enforced. Regardless, you should advise your senior clients to seek legal counsel when considering action in this area.

Since February 8, 2006, the look-back period during which Medicaid can review any financial transactions begins on the date of the Medicaid application and “looks back” 60 months for all transfers. Medicaid reviews any assets that have transferred for less than full value during the look-back period. The uncompensated value of any assets transferred during this period is then divided by the state-established monthly nursing home cost to determine a period of Medicaid ineligibility. For example, transferring an asset valued at $ 100,000 in a state with a monthly nursing home cost of $ 5,000 for a semi-private room would result in a 20-month ineligibility/penalty period ($ 100,000 divided by $ 5,000), starting when the individual becomes eligible for Medicaid.

Naturally, the larger the transfer within the look-back period, the longer the ineligibility. For example, a $ 500,000 transfer within the look-back period against a state-established nursing home cost of $ 5,000 would result in 100 months of ineligibility. Note that the penalty period is longer than the look-back period. If multiple transfers occur within the look-back period, the ineligibility penalty is determined based upon the combined value of the transfers and begins on the date of the Medicaid application. States no longer round down on the penalty. States can impose partial months of ineligibility. For example, if a transfer created a penalty period of 4.25 months, the ineligibility period would be four months and eight days. Transfers occurring prior to the look-back period are not considered by Medicaid.

Permissible Transfers

There are several circumstances under which assets may be transferred without creating a period of ineligibility:

  • Transfer of a home to a member of the protected class
  • Non-home transfers to a spouse or to another for the sole benefit of the spouse (limited to the CSRA maximum on countable assets)
  • Non-home transfers to a blind or disabled child or for the sole benefit of the blind or disabled child
  • Transfers in which a satisfactory showing is made to the state that:

    • the asset was intended to have been disposed of at fair market value
    • the transfer occurred exclusively for some reason other than to qualify for Medicaid
    • applying a penalty period of inelgibility will create undue hardship
    • all assets transferred have since been returend to the individual

Federal law requires states to seek recovery for Medicaid benefits by placing a claim against the probate (taxable) estate of the deceased beneficiary. Medicaid applicants with annuities are now required to name the states as remainder beneficiary to facilitate recovery of the Medicaid expenditures for that individual. Federal law also authorizes, but does not require, states to recover nonprobate assets not counted during eligibility such as a home may be included in these recovery actions. Thus, while exempt assets may preserve some portions of an estate during the life of the applicant, they may not pass on to heirs according to the preferences of the deceased.

Liens against the property of a Medicaid recipient prior to death are prohibited except in very limited circumstances. Seniors who have had a lien placed by the state should seek legal advice. In Colorado, for example, liens are often placed before death. As a CSA you should contact the agency that over sees Medicaid in your state to learn more about the process.

Medicaid Eligibility-Income

After assets, the second criteria that state Medicaid programs use to determine eligibility is income. Medicaid counts Social Security income, defined benefit pensions, alimony, and income from immediate or annuitized annuities as income. If the principal of an income-producing asset is available, even if it is not accessed, it is not considered income but is counted as an asset.

Most income counted by Medicaid will be applied toward nursing home and other care costs. Medicaid makes up the difference between the total cost and available income. It is extremely important to recognize that Medicaid benefits, even once qualified, are not truly free. The requirement that beneficiaries contribute most of their income toward care is essentially a huge copayment for services.

Income decisions are complicated for married individuals. When a Medicaid applicant is married, a determination must be made regarding the allocation of income to each spouse. Income of the CS is not counted. In most states, the income is credited to the individual whose name is on the income check. Income in both names is split evenly as is income in community property states.

Income Allowance For The Community Spouse (CS)

Congress established a very complicated formula to determine the basic income allowance for the CS. Currently, the CS is entitled to a minimum monthly maintenance needs allowance (MMMNA) that in 2009 is between $ 1,750 and $ 2,739 per month (legislation may change MMMNA).

When the CS has less personal income than the minimums set by the state, it may be possible for the CS to retain some of the IS’s income, up to the amount allowed by the MMMNA. DRA requires states to follow the “Income First” rule. That means that the income of the IS must be used first to bring the CS’s income up to the MMMNA before using assets to provide that additional income.

CSAs should understand not only the importance of protecting the assets of a client who is applying for Medicaid, but also the income and lifestyle needs of the community spouse.

Income Allowances For The Applicant

Each state establishes amounts of countable income (at least $30 per month in 2009) that may be held back by the Medicaid applicant for a small personal needs allowance. Some states also allow the applicant to retain an allowance (typically $ 150 to $ 500) for home maintenance in the event the applicant returns to the community and for expenses related to health insurance or other medical needs. All other income must be contributed toward the cost of care.

Income Cap States

Income cap states are states that set an income threshold for Medicaid eligibility and deny application when the applicant’s income exceeds the threshold. According to federal law, these states can set their income level anywhere between the one-person standard for Supplemental Security Income ($ 647 in 2009) and 300 percent of that amount ($ 1,941 in 2009). Income cap states do not have to allow a spend-down to meet Medicaid eligibility requirements.

The income cap states are:

Alabama    

Alaska

Arizona

Arkasas

Colorado

Delaware

Florida

Idaho

Iowa

Louisiana

Mississippi

Nevada

                                    New Mexico                                   

Oklahoma

Oregon

South Carolina

South Dakota

Texas

Wyoming

Note: States could change their Medicaid legislation regarding eligibility

Miller Trust

The Omnibus Budget Reconciliation Act of 1993 established an exemption for certain trusts that may be set up to help an applicant qualify for Medicaid. One of these, the Miller Trust, is frequently used for individuals who live in income cap states and have too much income to qualify for Medicaid.

The specific requirement for a Miller Trust is that all of the applicant’s income goes into the trust. The trustee distributes the income within the trust only to:

  • The institutionalized individual’s personal needs allowance;
  • The nursing home for the patient payment amount; and
  • The community spouse, if applicable, to increase the MMMNA

Upon the beneficiary’s death, any remaining assets within the trust are paid directly to the state to repay their share of Medicaid’s costs.

Medically Needy States

States other than those listed above are medically needy, spend-down states. Applicants in these states who fall into the medically needy category must comply with the state’s asset limits. Again, they must spend all income on medical care, less a small personal needs allowance and an allowance for spousal support. Medicaid then pays the difference between the nursing home costs and the applicant’s income.

You should determine the current status of your state’s income rules and whether it is an income cap or medically needy, spend-down state.

Annuities and Medical Planning

Elder law attorneys and other professionals sometimes use immediate annuities to convert a client’s countable assets into an income stream to help qualify the client for Medicaid’s long-term care benefits. To accomplish this, countable assets are paid to an insurance company as a single premium for an immediate annuity that provides income, eligible for inclusion in the Medicaid recipient’s income.

As previously mentioned, DRA requires states to be listed as remainder beneficiaries for annuities. The state can be the secondary beneficiary after a spouse or a minor or disabled child.

Preserving Assets

Irrevocable trusts and annuities are very common measures used to preserve assets. Effective and safe use of these financial tools requires a knowledgeable professional. Medicaid looks at assets in a revocable trust as available to the applicant and, therefore, as a countable resource. For Medicaid purposes, annuities must be immediate and irrevocable and meet other requirements determine by Centers for Medicare and Medicaid Services (CMS).

There are numerous other steps that may help seniors preserve portions of an estate or protect the standard of living of a spouse. For example, since the senior’s home is a noncountable resource, cash assets may be used to make substantial improvements and repairs to the home that will either be occupied by the spouse or returned to the applicant in the future. Seniors can purchase family burial plots or prepay funeral expenses to convert non-exempt cash assets into an exempt asset. This can also provide peace of mind to families that may not have readily available assets for meeting funeral expenses. Seniors might also consider paying off debts or prepaying certain annual expenses.

Management of Assets

It is important that seniors who plan to rely on Medicaid assistance for long-term care weigh their sources of income and the value of their countable assets against the requirements of their state. Fortunately, there are a variety of financial options (e.g., receiving retirement annuities in lump sum rather than monthly income, using cash to pay off a mortgage) and tools (e.g., creating of special trusts, annuities, or gifting) that can reduce income and protect countable assets. However, simply transferring countable assets into noncountable assets or property can help with eligibility but may not protect asset for heirs.

In short, most Medicaid planning boils down to one proposition: transferring countable assets so they are inaccessible to both the Medicaid applicant and Medicaid by either giving them away or placing them in a trust. This is generally the practice of elder law attorneys. Again, you are strongly encouraged to seek the advice of a qualified elder law attorney who specializes in Medicaid.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved. www.csa.us