You’ve heard the horror stories about married couples who lost the majority of their nest egg as a result of the Medicaid “spend-down” requirements when one of them needed help paying for long-term care costs. Understandably, you don’t want this to happen to you. Are the stories true? Will you really lose a considerable portion of your assets if you, or your spouse, go into a nursing home?
The good news is the answer to both questions is “no.” In order to understand how you can avoid losing your assets to the Medicaid “spend-down” rules it is necessary to learn some basics about how the Medicaid Spousal Impoverishment rules work. Keep in mind the Medicaid eligibility rules are complicated and every situation involves a unique set of facts and circumstances that will have a direct impact on what assets and income you are allowed to keep and still qualify for Medicaid.
Basic Medicaid Eligibility Rules
Medicaid is a federally funded, but state administered, healthcare program for low income individuals and families. As such, the program imposes asset limits for participants in the program. If the value of an applicant’s assets, or “countable resources,” exceeds the program limit, they are not eligible. They can spend their assets to pay for care or for other expenses. This concept is referred to as the Medicaid “spend-down.” They could also gift away the excess assets.
For example, let’s say you have assets with a total value of $82,000. The resource limit in your state is $2,000. You gift away the excess $80,000 rather than spending down. The $80,000 gift is divided by the average cost of long-term care (LTC) in your state, called the average private pay rate (APPR). The gifted amount is divided by the APPR. Let’s say the APPR in your state is $5,000. So, in this example, $80,000 (the amount gifted) is divided by $5,000 (the APPR) to arrive at 16. This is the number of months you are ineligible for Medicaid benefits. This penalty period begins after you are otherwise eligible for Medicaid. In other words, this only starts running when you have a medical need and your assets are down to the program limit.
Division of Assets
When one spouse requires LTC, the Medicaid eligibility rules dictate a review of the couple’s assets. The value of all the couple’s non-exempt assets (assets such as a vehicle and your primary residence are usually considered exempt) is divided in half, known as the “division of assets.” The spouse in need of LTC may then be told that he/she will not qualify for Medicaid until his/her share of the assets has been “spent-down” to the asset limit, usually $2,000.
However, the spouse who will be going into LTC can give assets to the spouse who will be remaining in the community.
The community spouse has a community spousal resource allowance (CSRA) which varies by state. Let’s say the couple has $120,000 of assets. Dividing the assets by 2 results in $60,000 for each spouse. However, if we move $58,000 from the spouse going into LTC to the community spouse, the spouse going into LTC has only $2,000, which is within the program limit in the state. The community spouse now has $60,000 plus the $58,000 received from the other spouse, or $118,000. Assuming the CSRA in the state is over $118,000, which it is in many states, they are within the resource limit. If they are still not within the resource limit, then they would have to consider other means to further reduce their resources.
Avoiding the Spend-Down Requirement – Medicaid Spousal Impoverishment Rules
In addition to the resource limit, there is also an income limit. The spouse in LTC may have a minimal amount of income, such as $35 per month. The spouse in the community may have the Minimum Monthly Maintenance Needs Allowance (MMMNA). The MMMNA represents the minimum income level a community spouse needs as determined by the local Medicaid office. The MMMNA figures can fluctuate considerably throughout the country and will change each year to account for inflation. For 2016, the MMMNA may range from a low of $1,991.25 to a high of $2,980.50 a month.
How Can the MMMNA Save Our Nest Egg?
The MMMNA entitles a community spouse to receive income up to the MMMNA amount each month. If the community spouse’s own income falls below the MMMNA amount, he/she may be entitled to keep additional income producing assets attributed to the nursing home spouse in order to reach the MMMNA amount. Consider the following scenario:
Assume that Susan and Bob are married. Between them, they have non-exempt assets in the form of CDs and bank accounts valued at $200,000 on the day Bob enters a nursing home, known as the “snapshot” date. Therefore, Medicaid will attribute $100,000 of assets to Bob and $100,000 to Susan. Since the asset, or countable resources, limit for Medicaid is $2,000, Bob’s assets exceed the limit by $98,000. Susan and Bob are worried they will have to “spend-down” their assets before Medicaid will help cover Bob’s LTC costs. Understandably, they don’t want to lose their nest egg.
The MMMNA in the area where Susan and Bob live is $2,450 per month. This means Medicaid has determined that Susan needs $2,450 in income each month to cover basic living expenses. Susan’s actual income each month, including interest from her half of the couple’s assets, is just $1,850, meaning she is $600 short of the MMMNA she needs each month. Because her income is less than the MMMNA, Susan can keep income producing assets attributed to Bob to make up the difference. Bob’s $100,000 earns interest at the rate of 5% per year, or $417 per month. That $417 added to Susan’s income of $1,850 per month puts Susan’s total income at $2,267, meaning she is still below the MMMNA for her area. Not only does that mean Susan can keep Bob’s $100,000 in assets, but is also means Susan can keep the first $183 of Bob’s income each month because that is the amount Susan still needs to reach the MMMNA of $2,450 each month.
Ask Your Estate Planning & Elder Law Attorney How You Can Keep Your Assets
The above scenario is an example of how a couple can hold onto a significant amount of assets and still get help from Medicaid when LTC is needed. Because of the individual nature of Medicaid eligibility, it is always best to sit down with your estate planning & elder law attorney to discuss how the Medicaid Spousal Impoverishment rules might be able to help you keep your assets.