An Introduction to Medicaid Planning

Based on a September 2011 poll, conducted by NPR, the Robert Wood Johnson Foundation, and the Harvard School of Public Health, less than 5% of adults considered Medicaid when asked how they would pay for long-term elder care. This stunningly low number sheds light on the fact that while people are living longer and are more aware of the potential need for long-term care as they age, they are unaware of an important method of paying for that care.

Medicaid is a federal program, administered by the states, that pays for nursing home care for individuals who meet the program’s medical, income, and asset requirements. The current average yearly cost of nursing home care in Michigan exceeds $85,000 for a private room. At that rate, even a period of two to three years will deplete the savings of the average person, leaving any surviving spouse with little money to use for their own care. If however, an individual is eligible for Medicaid benefits, the program covers the majority of that cost. The phrase "Medicaid Planning" has become a catchall for the methods used to allow an individual to qualify for Medicaid benefits, while preserving a greater portion of their assets for the well-being of their loved ones.

As a potential applicant contemplates whether to engage in Medicaid planning it is important to consider to consequences and benefits of qualifying for Medicaid. The largest benefit is the applicant’s assets are not consumed by years of expensive medical bills. For a married couple, this insures that the spouse who is not in need of nursing home care has the assets to provide for their own needs. For a single applicant, Medicaid Planning can result in more of the applicant’s assets being passed on to their loved ones.

The consequences of qualifying for Medicaid include the need to leave a home and reside in a nursing home. When faced with that reality, many potential applicants realize that staying in their own home is more important than passing assets to their children. A second often forgotten consequence is that while Medicaid pays for a great deal, if an applicant needs to spend assets in order to qualify for Medicaid, those assets are not available if they are needed for some reason in the future.

Applying for Medicaid benefits is not something to engage in lightly, especially for potential applicants who presently have significant assets, which they could use to pay for care. Proper Medicaid planning is more than spending, giving away, or attempting to protect assets to reach Medicaid’s eligibility requirements. The rules governing Medicaid eligibility consider more than a person’s present financial condition and impose a penalty period of Medicaid ineligibility if the applicant divests wealth to become eligible for Medicaid. The Department of Human Services (DHS) "looks back" 60 months from the date of a person’s application for benefits to determine if that person has given away assets that would impose a penalty on eligibility. There are however ways to spend down assets legally to reach the eligibility threshold.

The first and easiest method requires the client to own a home. DHS considers a single home an exempted asset when determining whether a person meets the asset threshold for Medicaid benefits. The personal property within that home is also exempt. Therefore, a person can pay off mortgages, make necessary repairs, make improvements to the home to increase its value, and purchase new furnishings. All of these techniques are especially useful if one spouse of a married couple needs to take advantage of Medicaid. In addition to the home and personal property, a single car is an exempt asset, this is true even if the applicant never drives the car. Another item that DHS classifies as an exempt asset when determining eligibility for Medicaid, as a pre-paid funeral contract. While many people find it difficult to even think about planning their own funeral, but by taking the time to make those decisions that will eventually become necessary, a Medicaid applicant can both ease the burden on their love ones after their death and remove assets to help qualified for Medicaid.

While spending down assets is a viable method of reaching the Medicaid eligibility threshold when an applicant has few assets, there are times when an applicant desires to qualify for Medicaid, frequently because they are aware that their condition is likely to be prolonged and expensive, leaving them with nothing to pass on to their loved ones, that require more advanced planning.

While it is possible to engage in planning that will assist a potential applicant in becoming Medicaid eligible, the scope of that planning varies greatly based upon the applicant’s present circumstances. Different methods are used when the applicant has a living spouse who is not in need of Medicaid benefits than would be used for a widowed applicant. Furthermore, in a situation where both spouses will potentially require substantial long-term care, still other methods can assist in preserving more assets to pass on to beneficiaries. The complexity of this advanced planning makes it unsuitable to discuss at length in this forum. In addition, potential applicants are cautioned not to attempt such advanced planning without consulting an attorney versed in Medicaid regulations.

 Medicaid planning is a complex area of law, but one with potentially large benefits. Whether a person needs additional care in the near future or simply is aware of the potential need for that care later in life, the proper preparations today, including a complete estate plan, a plan for regular annual gifts, and understanding the pros and cons of the Medicaid program, can insure that any long-term elder care does not leave their loved ones in dire financial straits.