Medicaid, like Medicare, is an entitlement program that provides health insurance. Unlike Medicare, however, Medicaid is a “partnership” between the federal and state governments and requires more than categorical eligibility. It is “means tested.” That is because Medicaid was originally developed as a safety net. The reality is, however, that many Americans who have worked hard, paid taxes, and never received public benefits may eventually need Medicaid.
An Expensive, Complicated Program
Have a look at this:
That, my friends, is the federal government’s attempt to keep us all informed about a program that costs about $600 billion per year. A little perspective might be helpful here. In 2018, healthcare spending in the USA amounted to about $3.6 trillion. So, Medicaid accounts for about 17% of all healthcare spending in the US.
The Kaiser Family Foundation produced a handy report about 10 things everyone should know about Medicaid. In my world, #9 is key:
Medicaid spending is concentrated on the elderly and people with disabilities. Seniors and people with disabilities make up 1 in 4 beneficiaries but account for almost two-thirds of Medicaid spending, reflecting high per enrollee costs for both acute and long-term care
KFF also offers this graphic on “Medicaid’s Role for Seniors.” In case you’re link-averse, the short story is that long-term care costs a fortune, meaning that unless you’ve got at least $40,000 you’re willing and able to shell out for professional long-term care, Medicaid for long-term care (“LTC Medicaid”) is likely to be of concern. LTC Medicaid is the topic of this post.
With that in mind, two considerations come into play: eligibility and post-mortem recovery. Each state is different: these are the rules in Vermont.
LTC Medicaid Eligibility
“Choices for Care”
Vermont’s LTC Medicaid program is called “Choices for Care,” reflecting the idea that people should be able to choose whether to receive services in their homes or in a long-term-care facility.
Eligibility depends on need (“categorical eligibility”) and means. The means are delineated in detailed rules. (Vermont’s rules are here.) Among other things, these rules define two types of “resources”: countable and excluded.
Countable resources are basically cash or anything that can be readily turned into cash. Into this category fall bank accounts, CD’s, non-qualified investment accounts, whole-life insurance policies (i.e., those with cash value you can withdraw or borrow against), and stocks and bonds, as well as somewhat more esoteric assets, such as precious metals, antiques, and valuable art. Pickup trucks are countable if they are not the only vehicle, and so are automobiles other than one primary vehicle.
Non-countable resources include the following:
- The primary residence (even if you’re in a nursing home);
- $10,000 in burial funds or prepaid burial contract, per individual;
- Life insurance policies with a cash value of $1,500 or less;
- An automobile;
- Ordinary personal belongings; and,
- Equipment/assets used to generate income (such as a tractor on a working farm).
Two other considerations come into play:
- If an individual is married, the “community” spouse (the one not applying for Medicaid) is allowed about $126,000 in countable resources. Single individuals can only have $2,000 to $5,000.
- IRA’s can be excluded from the eligibility determination if automatic withdrawals are set up based on the owner’s actuarial life expectancy according to a Social Security table.
The Five-year “Lookback”
If the rules stopped here, the government fears, people would impoverish themselves to obtain Medicaid benefits. The fear is not wholly unwarranted, considering that the average private-pay stay in a nursing home costs about $10,000 per month. Many people who have worked hard all their lives to get where they are ask, What can we do to protect our legacy for the kids?
This is where the five-year “lookback” period comes into play. Starting from the date of an application for Medicaid, the State will review the last sixty months of transactions to see if the applicant gave anything away – that is, transferred something of value and received nothing in return. Any such transfer may result in a “penalty” period, which is highly punitive. The penalty is calculated like this:
Assume you gave your son $12,000 two years ago. Medicaid will divide that amount by what it would pay for services in one month, say $6,000, to obtain the penalty period: two months. So, if the good son has spent the money and can’t return it, the applicant will have to pay the private-pay rate (about $10,000) for two months. In the end, a $12,000 gift costs the applicant $32,000.
If that gift had been made 5 years and a day before the application date, however, no penalty would have been imposed.
The other side of the coin is post-mortem recovery. In Vermont, if a Choices for Care beneficiary dies, the only way the State can recoup what it has spent is in probate. Avoid probate, and you avoid recoupment. There are many ways to do this, and all are highly dependent on one’s financial situation, assets, and goals.
What to Do?
The upshot is that good planning, done early, plus a bit of luck, is what’s required to avoid Medicaid’s somewhat draconian penalties and to ensure that the benefits are available if needed.
Are you facing Choices for Care? We can help.