How to Get Help Paying Nursing Home Costs

by H. Clyde Farrell, Attorney at Law*

 Because of the high cost of nursing home care—an average of $2,908 per month in Texas at this writing—most people who go into nursing homes for extended times will sooner or later need help from the Medicaid program to pay the nursing home. In all, about 72% of Texas nursing home residents are qualified for Medicaid, and 94% of Texas nursing homes are certified to participate in the Medicaid program.

For the reasons discussed below, people who can afford long term care (or who can purchase long term care insurance) are usually best advised to avoid becoming eligible for Medicaid. It is also true that most people who need some degree of long term care do not need nursing home care. Therefore, this discussion is most helpful to those persons who need nursing home care and cannot afford it. Unfortunately, because of the high cost of such care, many are in that position.

What are the financial requirements for eligibility for Medicaid nursing home care?

The basic requirements are for low income (at this writing, less than $1,635 per month for an individual or $3,270 for a couple who are both on Medicaid) and very limited assets (called “resources” in Medicaidese) (less than $2,000 worth of “countable” assets for an unmarried person at this writing, but see below for couples). Those dollar figures are subject to frequent changes, and the income limits are not absolute, as explained below.

Determining eligibility is further complicated by the fact that certain income and assets are exempt from the limits. For example, at present, exempt resources (assets) for an unmarried person include (among others) a homestead to which the applicant

intends to return, any amount of term life insurance, an automobile to the extent it is worth less than $4,500, a burial contract or policy to the extent it is worth less than $1,500 (or an unlimited amount if it is nonrefundable), and some other exemptions.

For a married couple with one spouse not living in a nursing home or other medical institution and not on Medicaid, the exemptions are more liberal: in addition to the homestead, the couple may own one car of unlimited value; household goods of unlimited value; burial plots of unlimited value for “immediate family”; and the other exemptions that apply to an unmarried person. If both spouses live in a nursing home on Medicaid, the more limited exemptions for unmarried people apply, and the couple can have no more than $3,000 in total countable resources. If both spouses live in a nursing home but only one is on Medicaid, the one not on Medicaid can have unlimited income and resources—including even resources transferred (without penalty) from the spouse on Medicaid.

One way of accelerating eligibility for Medicaid is to transfer funds into exempt assets (such as improvements to the homestead) and pay debts secured by exempt assets (for example, the mortgage debt on the homestead).

 Can a person become eligible for Medicaid by giving away their property?

If a person transfers property for less than market value for the purpose of becoming eligible for Medicaid, they are “penalized” by being ineligible for Medicaid for one month for every $2,908 difference between the market value of the property and the amount they received for it. This amount changes from time to time, as it is the amount DHS estimates it costs, on the average, for private-pay nursing home care in Texas. Fractions of months are “rounded down,” and the month of transfer counts as a penalty month. The maximum penalty period, however, is 36 months no matter how much property is transferred, provided the transfer is to an individual (not a trust), and no Medicaid application is filed for at least 36 months.

For example, if property worth $12,000 is given away all at once, as of this writing, the person who gives it away is ineligible for Medicaid for 4 months. If property worth $12,000 is sold for $2,000, the seller is ineligible for 3 months. However, because of the 36-month maximum penalty period, a gift of $300,000 worth of property to one or more individuals will result in a penalty of only 36 months, provided no application is filed during that time. (If you make the mistake of filing an application within that time, the penalty period will be 103 months!)

Any person giving away property for this purpose should take care to keep enough property to pay for the nursing home and any other expenses that could possibly arise during the waiting period.

Are there any reasons not to give away property to become eligible for Medicaid?

The decision as to whether and how to give away property to become eligible for Medicaid is almost always complex. It requires the advice of a professional who understands both the complicated state and federal rules, and the values of the client. Not only is the law complex and constantly changing, but the following considerations, among others, may argue against such a transfer:

• Such a transfer may be against the deeply held values of the person involved.  

• If the resources involved are sufficient to pay for the nursing home stay, transferring them may deprive the client of the opportunity to stay in one of the better homes, some of which are not certified for Medicaid. 

• Another disadvantage of Medicaid is that when the beneficiary goes to a hospital from the nursing home, they may not be able to return to the same nursing home, in the event that it fills up while they are in the hospital; and they are likely not to be able to return to the same room.

• The beneficiaries of the transfer may use up the property, undergo a divorce, have it seized by creditors or die leaving it to other people, so the person making the gift does not have enough money available to pay for nursing home care during the “penalty period” of up to 36 months. (This risk can be minimized by having an attorney create a trust that will provide substantial legal protection.)

• If the transfer is of property (such as real estate or stock) worth substantially more than when it was purchased, it will result in a capital gains tax liability that might have been avoided by holding the property until death.

• If the person giving away the property does not meet the “medical necessity” requirement (discussed below) and needs any kind of Medicaid other than Community Care, the gift will not result in eligibility anyway.

• The law may change at any time to extend the penalty period, invalidate trusts used, or otherwise make the planning ineffective—perhaps even retroactively to transfers made in the past.

You may give away your property for any reason, as long as the transfer is not motivated to any degree by intent to qualify for Medicaid, and there should be no adverse effects on your Medicaid eligibility. For example, you can make tax planning gifts or gifts to avoid probate, as long as you are not doing (even in part) to qualify for Medicaid. Likewise, you can make certain gifts that do not create a transfer period even if they are intended to qualify you for Medicaid (such as gifts to your spouse). However, if you presently have a need for long term care or have reason to anticipate such a need in the near future, you may have difficulty proving the transfer was not to some degree motivated by intent to qualify for Medicaid.

What can I do if I have too much income for Medicaid eligibility and too little income to pay for nursing home care?

At this writing, persons with more than $1,635 but less than about $2,908 in monthly income have too much income to qualify for Medicaid but too little to pay for the average cost of nursing home care. If they otherwise qualify for Medicaid, they are in what has become known as the “Utah Gap” (named after certain box canyons in Utah from which there is no way out). That is because Texas is one of ten states that have an “income cap” on eligibility but fail to provide for a “medically needy” program for elders.

Under recent changes in the law, there is always a way out. Sometimes, sources of “income” can be sold and converted to “assets” that can then be transferred or “spent down” until the owner has low enough assets to be eligible. In other cases, pension income may be transferred to the spouse at home by means of a “qualified domestic relations order.” In any case, countable income can be reduced by transferring it into a “Miller Trust” (also called a “Qualified Income Trust”). Such planning requires up-to-date knowledge of the law and careful drafting of the necessary legal instruments.

If my spouse needs to go to a nursing home, do I have to use up all my assets before he/she will be eligible for Medicaid?

About one in twenty Medicaid recipients in nursing homes have a spouse who is not in a nursing home. At one time, this “community spouse” had to become impoverished in order for the other spouse to be eligible for Medicaid. Fortunately, a federal law provides some relief for the “community spouse.”

Basically, the “community spouse” is entitled to keep a “protected resource amount.” The starting point is to subtract from all the couple’s property (community and separate) certain exempt property including homestead, household goods, personal goods, one car, and burial funds (as defined and limited in the regulations). The property is valued as of the first day of the first month one spouse is in a nursing home. The “protected resource amount” is one-half of the remaining amount, provided it cannot (at this writing) be less than $17,856 nor more than $89,280. These figures change with inflation every year.

In addition, the community spouse is allowed to keep a limited amount of countable income, known as a “spousal needs allowance.” In the year 2002, the maximum amount is $2,232 per month. If the combined countable incomes of both spouses (after certain deductions) exceed the “spousal needs allowance,” the excess amount (to the extent it consists of income of the spouse in the nursing home) must be paid to the Medicaid program (as “applied income”). There is also a “needs allowance” for certain dependents.

If the combined incomes of the spouses are not sufficient to provide the community spouse the full “spousal needs allowance,” the couple has a right to obtain an increase in the protected resource amount sufficient to produce enough income to provide the spousal needs allowance. For example, if the spouses’ combined noninvestment incomes (after certain deductions) total $1,400, the spouse at home can keep enough assets (to the extent they own enough) to produce an additional $832.00 per month, at the rate of interest being paid locally on one-year certificates of deposit. In this example, if CD’s are paying 2.0% interest, the spouse at home can keep $499,200. And if necessary, they can “give up” income of the spouse on Medicaid to protect more assets.

Moreover, even if the net combined incomes of both spouses exceed the $2,232 level, it may still be possible to keep more than the standard “protected resource amount,” by “shifting” some income to the cost of nursing home care. For example, if the couple in the example above have $2,000 per month income, they can still keep $499,200 in assets by agreeing to pay $600 per month to the nursing home out of the income of the spouse on Medicaid. The spouse at home will still have approximately $2,232 per month income (including investment income), and they will get to keep all their assets.

To obtain this benefit, the applicant spouse must request a “fair hearing” by the Department of Human Services. This is a right guaranteed by federal law, but as of this writing, it is not in the handbook used by DHS eligibility workers. Therefore, they are unlikely to suggest it and may be unaware of its existence. You may need an attorney’s help to obtain this benefit.

Are there nonfinancial requirements for receiving Medicaid?

In addition to financial requirements, most Medicaid programs require that the applicant show a “medical necessity” for nursing home care. That is, the applicant must have a medical disorder or disease requiring attention by registered or licensed vocational nurses on a regular basis. Inability to attend to “activities of daily living,” such as bathing, grooming and eating, is not sufficient in itself.

Ironically, even to receive home care under the “Community Based Alternatives Program” of Medicaid, you have to prove you need nursing home care under this standard. However, it is possible to qualify for home care under the “Community Care” programs without proof of “medical necessity.” For Community Care, it is sufficient to show you need help with “activities of daily living.”

Unfortunately, the Community Care programs do not allow for the “spousal impoverishment” protections. The “Community Based Alternatives Program,” however, does allow for those protections.

For more information on Medicaid and other Elder Law topics, go to www.elderlawanswers.com. To view the website of the Law Office of H. Clyde Farrell, enter “512” in the box at the top left of the first page under “Search by Area Code.” Then click on “Law Office of H. Clyde Farrell.”

Nothing contained in this publication is to be considered as the rendering of legal advice for specific cases. This article is for educational purposes only. Readers are responsible for obtaining such advice from their own legal counsel.

 Medicaid Dollar Amounts Effective as of January 1, 2002:

Medicaid Single Income/Mo.              $1,593           $1,635

Medicaid Couple Income/Mo.            $3,186            $3,270

SSI Single Income/Mo.                          $531               $545   

SSI Couple Income/Mo.                         $796               $817   

Protected Resource Amt. Min.           $17,400         $17,856         

Protected Resource Amt. Max.*        $87,000          $89,280         

Spousal Monthly Allowance                $2,175           $2,232

Gift Penalized (1 month)

(Eff. 9/2/2001)                                     $2,908            $2,232

 *The Community Spouse can keep more by going through a hearing. For example, if C.S. has no noninvestment income and 1-year CD’s earn 1.5%, C.S. can keep $1,785,600. If C.S. has $1,000 non-investment income and 1-year CD’s earn 3.0%, C.S. can keep $492,800.

Medicare Dollar Amounts Effective as of January 1, 2002:

                                                                 2001            2002   

Part A Premium/Mo.1                              $300            $319   

Part B Premium/Mo.                                  $50             $54     

Skilled Nursing Facility Copmt             $99.0          $101.50         

Hospital Stay Deductible                       $792             $812   

Hospital Copmt, Days 61-90                 $198             $203   

Hospital Copmt, Days 91-150               $396            $406   

Max Earnings Taxed for SS2            $80,400         $84,900         

Max Earnings/Yr, Under 65             $10,680          $11,280         

Max Earnings/Yr, Age 65                $25,000          $30,000         

Max Earnings Over 65                  Repealed!         Repealed!      

SS COLA                                           3.50%            2.60% 

 1 Social Security beneficiaries usually have sufficient Medicare covered quarters that they pay no Part A premium.

2 Explanation of the maximum earnings test: www.ssa.gov/OACT/COLA/RTEA.html.

 H. Clyde Farrell is an attorney in Austin who specializes in financial planning and is certified as an Elder Law Attorney by the National Elder Law Foundation. His e-mail address is cfarrell@texas.net. This article is an update to an article published in an earlier issue of the TPJ.