summer 2004 vol. 10 no. 1                                                                                                                             Return to Contents
---------------------------------------------------------------------------------------------------------------------------------------------------

How to Get Help Paying Nursing Home Costs

H. Clyde Farrell

This article is current as of January 7, 2004

Because of the high cost of nursing home care—an average of almost $3,500 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 $1,692 per month for an individual or $3,384 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 married 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 says it costs, on the average, for private-pay nursing home care in Texas (but it is far below the actual cost according to all other sources). 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.

Qualifying for Medicaid almost always rules out staying in an Assisted Living Facility, which is generally more desirable if one can meet your care needs (because with the Texas Legislature’s recent cuts in Medicaid funding, it is almost impossible to get into an Assisted Living Facility on 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, or implementing other protective strategies.)

If the transfer is of property (such as real estate or stock) worth substantially more than when it was purchased, it may result in a capital gains tax liability that might have been avoided by holding the property until death. (This can usually be avoided by an attorney’s reserving certain “interests” in a deed or trust.)

If the person giving away the property does not meet the “medical necessity” requirement (discussed below), the gift will not result in eligibility anyway (except possibly for certain limited home care programs).
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 $1,692 but less than about $3,500 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.
However, 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 $18,552 nor more than $92,760. 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 2004, the maximum amount is $2,319 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 (with, let’s say, an income of $1,200) can keep enough assets (to the extent they own enough) to produce an additional $919 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 $551,400 without giving up any of the couple’s income.
Moreover, even if the net combined incomes of both spouses exceed the $2,319 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 $2,500 per month in countable pension and Social Security income, and their actual investment income is at the one-year CD rate (2.0% in this example), they can still keep $551,400 in assets by agreeing to pay $1,100 per month to the nursing home out of the income of the spouse on Medicaid. The spouse at home will still have approximately $2,319 per month income (including investment income), and they will get to keep all their assets.

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.

How can a lawyer help with Medicaid planning?

A lawyer who is knowledgeable about planning for long-term care can help in the following ways:

• By helping you decide whether or not becoming eligible for Medicaid is consistent with getting the best care you can afford
• If Medicaid eligibility is appropriate, by showing you ways of qualifying sooner rather than later
• By helping you avoid small mistakes that cost big money (because each month’s delay may cost as much as $3,500 in nursing home expenses)
• By saving you time in trying to understand complex rules and formulas, most of which don’t apply to your situation
• By giving you peace of mind from knowing you are considering all the needs of yourself or your loved one and utilizing all the resources available

For more information on Medicaid and other Elder Law topics, go to www.elderlawanswers.com. To view the web site 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.”

H. Clyde Farrell is Certified as an Elder Law Attorney by the National Elder Law Foundation and is a Certified Financial Planner.

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.

Texas Paralegal Journal © Copyright 2003 by the Legal Assistants Division, State Bar of Texas.

Top of Page