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The longer you live, the better the odds are you will one day need long-term care (LTC). For the average person, the cost of that care can be prohibitive. Moreover, you cannot count on Medicare nor your basic health insurance to cover costs associated with LTC. Instead, you may find yourself turning to Medicaid for help. If you manage to qualify for Medicaid without losing your hard-earned assets, you may think they are safe, but they may still be at risk from Medicaid recovery. To ensure your assets are safe, you need to understand the Medicaid estate recovery rules.
Will You Need to Qualify for Medicaid?
If you were fortunate enough to be covered by employer sponsored health insurance, you may make it through your entire working years without ever giving a second thought to needing to qualify for Medicaid. As you enter your retirement years, however, the possibility of needing long-term care (LTC) in the future becomes a real concern, as does the cost of that care. Nationwide, the average cost of a year in LTC was $80,000 in 2016 and the average length of stay 2.5 years. That puts the average LTC bill at $200,000! What makes this even more troubling is most health insurance plans won’t cover LTC unless you purchased a separate LTC plan at an additional cost. Don’t count on Medicare helping either as Medicare will only cover LTC for a very short period of time under very limited circumstances. Not surprisingly, over half of all seniors in a LTC facility turn to Medicaid for help covering the cost of their care.
Can You Qualify for Medicaid?
Understanding the difference between Medicare and Medicaid becomes crucial at this point. Both Medicare and Medicaid are federal healthcare programs, however, the similarities stop there. Medicare is not needs tested. In other words, if you meet the basic qualifications you are entitled to benefits without regard to your income or resources. In the case of Medicare, if you are over 65 and paid into Medicare during your working years, you will automatically be entitled to benefits as a retiree. Medicare is also available to some people on social security disability.
Medicaid, on the other hand, is a “needs-based” program, meaning your eligibility is determined by demonstrating financial need. Medicaid is a state-federal partnership. The program is administered by the states. However, for sake of simplicity, we’ll use the term Medicaid, even though sometimes it might be the state agency administering Medicaid, such as your state’s Department of Human Services. To qualify for Medicaid benefits your income must be below the established limit for your area, household size, and the value of your “countable resources.” If the value of your non-exempt resources (assets) exceeds the program limit, you don’t qualify. You would be expected to “spend-down” (sell) your assets and use the proceeds to pay your LTC expenses. Only when your assets finally dip below the program limit would you be eligible for Medicaid to start picking up the tab for your LTC expenses. By incorporating Medicaid planning into your estate plan early on in your life, you can protect your assets from the Medicaid spend-down requirements and set yourself up for eligibility when you need it down the road.
Your Assets May Still Be at Risk Though…
Incorporating Medicaid planning into your comprehensive estate plan is certainly wise – and offers protection for your assets while you are alive. What happens after your death though? Did you know your assets might still be at risk? Medicaid may file a claim against your estate to recover funds spent on you while you were alive. In fact, Medicaid is required to seek recovery from your estate for funds spent on you for nursing facility services, home and community-based services, and related hospital and prescription drug services. Medicaid, as administered in your state, has the option to recover payments for all other Medicaid services provided, except Medicare cost-sharing paid on behalf of certain beneficiaries.
Can I Protect My Assets from the Medicaid?
Although Medicaid is required to attempt recovery from your estate, there are some exceptions to the general right to recover. Medicaid may not recover from your estate if you are survived by one of the following:
- A spouse
- A child under the age of 21
- A blind or disabled child of any age
In addition, Medicaid may not recover from your estate if doing so would impose an “undue hardship.” Individual states are tasked with defining the term “undue hardship” and with promulgating procedures for determining when estate recovery would cause an undue hardship.
The Medicaid estate recovery rules also require a lien against any real property owned by a Medicaid enrollee who has been permanently institutionalized unless any of the following individuals also reside in the home:
- A spouse
- A child under the age of 21
- A disabled or blind child of any age
- A sibling who has an equity interest in the home
Can You Avoid Medicaid Estate Recovery by Transferring Your Home During Your Lifetime?
As a general rule, asset transfers for less than fair market value within the five-year time period preceding an application for Medicaid are not allowed without an eligibility penalty. There are, however, some exceptions to the general rule. You may transfer your interest in a primary residence, without risking disqualification for Medicaid, to the following people:
- Your spouse
- A child who is under age 21 or who is blind or disabled
- Into a Trust for the sole benefit of a disabled individual under age 65 (even if the Trust is for your benefit, under certain circumstances)
- A sibling who has lived in the home during the year preceding your institutionalization and who already holds an equity interest in the home
- A “caretaker child,” who is defined as a child of yours who lived in the house for at least two years prior to your institutionalization and who during that period provided care that allowed you to avoid a nursing home stay
For most people, the best way to protect their home from Medicaid recovery is to transfer the home more than five years before applying for Medicaid. This avoids the eligibility penalty for an uncompensated transfer within the 5-year look-back period. Typically, the transfer would be made to an irrevocable trust, which would ensure a continued right to live in the home.
The Medicaid estate recovery rules are complicated and subject to change at any time. If you believe your estate may be subject to recovery, it is in your best interest to consult with an experienced Medicaid planning attorney in your area.