Medicaid is a joint federal-state Social Security program established by federal law in 1965. The laws governing Medicaid vary depending on whether the applicant is single or married, receiving services in the community or in a nursing home, and under or over the age of 65. Disabled individuals of any age, and medically needy individuals over the age of 65 are eligible for Medicaid as long as they meet the financial criteria.
Medicaid is a means tested program. In order to be eligible, Medicaid allows an “institutionalized person” (meaning anyone confined to a nursing home or other facility) to retain only $14,400.00 in resources (“resource allowance”), $50.00 per month in income, plus retain life insurance with a face value of $1,500.00 or less, while qualifying for Medicaid benefits. The “resource allowance” includes all resources, including bank accounts, jointly-held assets (in some cases, only one-half of these are included), cash value of life insurance policies, savings bonds, investment accounts, etc. The applicant can also establish a pre-need burial fund with a funeral home in an unlimited value, if it is set aside in an “irrevocable trust”.
In the event the Medicaid applicant is married and his/her spouse continues to live in the community, the spouse will be allowed to possess assets totaling $74,820.00 (or one-half of the couple’s combined assets up to a maximum of $115,920.00, whichever is greater), in resources, a house with an equity value of no more than $750,000.00 and a car of any value, and still not affect the institutionalized spouse’s Medicaid eligibility.
NOTE: The State Minimum Community Spouse Resource Allowance is $74,820. The Federal Maximum Community Spouse Resource Allowance: $115,920 may be established.
Any assets beyond the allowable limits must first be “spent down” or applied towards the cost of the nursing home care before Medicaid will cover those costs. In addition, the community spouse may keep up to $2,898.00 per month income.
If the community spouse has less than $2,898.00, then income from the institutionalized spouse can be given to the community spouse to bring his or her income up to that level. If there is not sufficient income available to provide the community spouse with his or her income allowance, additional resources may be retained to generate extra income. Approval of this increase is only available through the fair hearing process.
If the community spouse has more than $2,898.00 in income per month, then Medicaid will suggest that he/she contribute 25% of the excess over $2,898.00 to the institutionalized spouse’s medical care.
There are several ways to protect the community spouse during the spend-down period. For example, there is no penalty period imposed on the transfer of assets to a spouse. Also, the couple is entitled to spend funds on anything for which they receive a fair market value prior to an application to Medicaid. Therefore, when there are excess resources, it is strongly recommended that the community spouse pay off any outstanding debts, make repairs and improvements to the home, update appliances, purchase a new car, prepay for burial arrangements, or even take a vacation.
There are also important planning considerations for the community spouse after Medicaid eligibility is established for the institutionalized spouse. This includes special attention to beneficiary designations and the way his/her assets are titled and planning ahead to address the possibility that the community spouse’s health may deteriorate and he/she may need long term care themselves.