Medicaid is a jointly funded state and federal program that provides, among other benefits, long-term care payments for nursing home patients and certain residents of assisted living facilities. Because Medicaid is a needs-based program, individuals have to qualify both medically and financially for the program. This means that the individual must have exhausted his or her funds and be physically disabled within the definition of disabled applied by Medicaid.
More simply put, Medicaid is a form of welfare that provides a financial safety net for senior citizens who have exhausted their funds and cannot afford to pay for long-term care. It is a form of social insurance; the premium one pays to benefit from this insurance is the complete depletion, with certain exceptions, of the individual’s assets.
In the State of New Jersey Medicaid is available to individuals 65 years of age or older (or to individuals who are blind or otherwise disabled) who require care in a long-term care facility (nursing home or assisted living facility) and whose assets are $2,000 or less. Additionally, there is a requirement that the individual’s monthly income is $2,199 or less otherwise a qualified income trust is needed before an application for Medicaid will be approved. The long-term care Medicaid benefit will pay the majority of the individual’s monthly bills for the facility and for other defined health care purposes.
Until recently there was a second Medicaid program known as Medically Needy for individuals in need of long-term care Medicaid whose gross monthly income exceeded $2,199. However, that program was discontinued when qualified income trusts were implemented in late 2014.
Qualifying for Medicaid is a function of two factors: the first is financial and the second is medical. Unless the criteria for both factors are met, the individual’s application will be denied. As a general rule, an individual qualifies for a program if he demonstrates the requisite financial need, is 65 years of age or older and either suffers from dementia or requires help with a minimum of two or three activities of daily living. Activities of daily living include bathing, eating, mobility, dressing, toileting and taking medication. If an individual has sufficient needs in these areas, he will qualify for Medicaid from a medical standpoint. Individuals who are blind or disabled but under the age of 65 can also qualify for long-term care facility Medicaid if they satisfy the medical and financial criteria.
Protection for the Community Spouse
A community spouse is defined as the spouse who remains at home in the community when the other spouse resides in a long-term care facility (either assisted living or nursing home). The federal government, in an effort to prevent the impoverishment of a community spouse, has enacted certain protections for the benefit of that spouse. The protections are intended to provide sufficient resources and income for the community spouse for living purposes.
The Community Spouse Resource Allowance: To understand the Community Spouse Resource Allowance it is necessary to identify resources, which are considered exempt for qualifying purposes. Exempt resources are protected assets that are not counted (or considered) by Medicaid when it evaluates the ability of the institutionalized spouse to pay for long-term care. The community spouse is allowed to keep all exempt resources. Exempt resources do not have to be spent in order to qualify for Medicaid. Among exempt resources are the following: the primary residence, one automobile, household and personal belongings and a prepaid funeral, burial plot and grave marker.
After excluding exempt assets, the federal government allows the community spouse to retain one half of the balance of the couple’s available resources up to, but not exceeding, a predetermined maximum. The amount of the allowance changes annually. In calendar year 2016 the maximum amount of this allowance (referred to as the community spouse resource allowance or CSRA) is $119,220. All assets in excess of that amount are subject to Medicaid spend down and must be spent before the institutionalized spouse will be eligible for Medicaid.
For example, if the couple has $280,000 in total assets, including a house worth $150,000 and an automobile worth $20,000, both of which are exempt, Medicaid would deduct those two assets from $280,000, with the difference of $110,000 being divided equally between the two spouses. The result of the calculations is that $55,000 would be allocated to each spouse. Thereafter, the institutionalized spouse would have to spend down the $55,000 allocated to him or her to $2,000 and the community spouse would be allowed to retain his or her share – i.e. the $55,000.
If the couple in the above example had $550,000 in assets instead of $280,000, then after deducting the value of the house and the automobile they would have $380,000 to be divided between them. The resulting calculations would be that $119,220 would be allocated to the community spouse and $260,780 would be allocated to the institutionalized spouse and subject to spend down.
Minimum monthly maintenance needs allowance: Another protection for the community spouse is what is known as the minimum monthly maintenance needs allowance (commonly referred to as the MMMNA). This allowance is intended to provide the community spouse with sufficient income to meet minimum monthly living expenses. Briefly stated, the allowance is $1,991.25 for calendar year July 1, 2015 and changes annually on July 1. The allowance is a function of the community spouse’s income and expenses. It is calculated by deducting the community spouse’s income from the basic allowance to determine how much assistance the spouse requires. If the spouse’s income is inadequate to meet approved minimum monthly expenses, then income from the institutionalized spouse will be shifted to the community spouse to make up the difference.
For example, if the community spouse has monthly income of $1,200 then she would be entitled to receive $791.25/month from her institutionalized husband’s income. As stated, this is a minimum allowance. It could be larger if the community spouse demonstrates greater need.
Use of Income: Once an institutionalized spouse qualifies for Medicaid only the institutionalized spouse’s income is used to pay for care in a long-term care facility. The income of the community spouse is exempt from payment for the institutionalized spouse’s care. As noted above in the discussion regarding the MMMNA, if the income of the community spouse is inadequate to meet minimum monthly needs, then, subject to certain mandatory allowances dedicated to the institutionalized spouse (e.g. a personal needs allowance and, if necessary, payment of health insurance premiums) the income of the institutionalized spouse may be shifted to the community spouse.
The Medicaid Look Back
Medicaid employs a five-year look back starting on the first day of the month when eligibility is sought. They look at all financial transactions made during the five years preceding the application to determine what the individual did with his money during the five years preceding the application. Medicaid is looking to confirm that all money spent during that period was for fair market value received and not for gifts and/or did not constitute transfers for less than fair market value.
The look back period is merely a time frame within which financial transactions are reviewed to determine what, if any, effect the transactions have on the application process. Any transaction that falls outside (beyond) the look back period (i.e. is more than 60 months before the application date) is ignored and of no consequence. Only transactions that fall within the look back period are examined.
The Concept of Gifting and the Medicaid Penalty
What is a gift: A gift is generally defined as a transfer of assets from the Medicaid applicant (and/or his spouse if dealing with a couple) to another person, for which the gift-giver did not receive fair market value. The easiest way to understand the concept is by looking at examples of some gifts. If a father gives a daughter $10,000 without receiving anything of value in return, that is a gift. The fact that the father believed he received value via his daughter’s “love and affection” is not sufficient because Medicaid specifically says that “love and affection” does not constitute value. If a mother “purchases” an item worth $4,000 from a child but pays $10,000 for the item then the mother made a $6,000 gift. If a parent “sells” the family house to a child for $1, Medicaid will penalize that transaction since the “sale” is actually a gift of the property – the parent received $1 in exchange for all equity in the property so if it was a $100,000 house the parent received $1 and the child received a $99,999 gift. It is important to analyze and understand the nature of the transaction in order to determine whether or not a gift (or transfer) has been made.
The concept of gifting is further complicated by the fact that not all gifts are penalized. For example, gifts between spouses are not penalized; gifts to disabled children (as disabled is defined by the Social Security Administration) are not penalized, nor are gifts of the family home to children who are minors or adult children who qualify for a caregiver child exception (this occurs in very limited circumstances and is highly regulated) . Gifts that were not made for the purpose of qualifying for Medicaid are not supposed to be penalized, but that is a very difficult exception to prove in practice that should not be relied on except in narrow circumstances.
The Medicaid penalty: If a gift or transfer for less than fair market value is discovered in the look back period, then Medicaid will calculate the amount of the gift or transfer and determine the period (length of time) of disqualification for Medicaid benefits. In order to determine the length of disqualification, Medicaid will divide the amount of the gift or transfer by a predetermined dollar figure that equals the average monthly cost of a semiprivate nursing home room. The resulting number will be the length of time, in months and possibly days, that the individual will be denied Medicaid benefits. For example, if a grandmother gave her granddaughter a gift of $25,000, and applied for Medicaid in 2016 then Medicaid would divide that amount by $9,977 (the 2016 Medicaid divisor) in order to determine the amount of time the grandmother would be penalized (disqualified) from receiving benefits. The resulting number of 2.51 ($25,000/$9,977=2.51) would be the period of time, measured in months, that the grandmother would have to wait in order to receive Medicaid benefits after she is otherwise found to be eligible for benefits.
It is important to note that the penalty is imposed, that is it begins to run, when the individual is otherwise qualified to receive Medicaid benefits except for the disqualifying gift or transfer. This is referred to as the penalty start time, and means, in plain language, that when the individual is out of money and has no ability to pay for care, and is found to be eligible for Medicaid benefits, then the penalty is imposed. Once the penalty period has been served, Medicaid will begin paying the benefit. It is important to remember, as stated above, that gifts beyond the 5-year look back cannot be seen by Medicaid so they are not considered and, therefore, are not penalized.
Medicaid is a benefit that is needed by many but difficult to receive. The application process is needlessly difficult and requires much work to document the financial affairs of the applicant for the five years preceding the need for benefits. There are many traps and pitfalls when applying for Medicaid so it is wise to seek counsel from Medicaid professional when dealing with the process. Contact the attorneys at Price and Price Elder Law if you have any questions about Medicaid.