How to Get Help Paying Nursing Home Costs

H. Clyde Farrell  

Because of the high cost of nursing home care--an average of about $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.

The basic requirements are for low income (at this writing, less than $1,809 per month for an individual or $3,618 for a couple who are both on Medicaid) and very limited assets (called "resources" in Medicaidese) (not more 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 of any value, 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.

A married couple with one spouse not living in a nursing home or other medical institution and not on Medicaid likewise may own one car of unlimited value; household goods of unlimited value; burial plots of unlimited value for certain "immediate family" members; and the other exemptions that apply to an unmarried person. If both spouses live in a nursing home on Medicaid, the same exemptions as 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 (or separate nursing homes) 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).

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 day for every $117.08 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 HHS estimates it costs, on the average, for private-pay nursing home care in Texas.

For gifts made on or after February 8, 2006, the ineligibility period begins when you are in a Medicaid-certified nursing home and would meet all the other requirements for Medicaid eligibility but for the transfer. The maximum penalty period, however, is 60 months from the date of the transfer, no matter how much property is transferred, provided that no Medicaid application is filed for at least 60 months. For gifts made before February 8, 2006, the ineligibility period began on the first day of the calendar month in which the gift was made.

For example, if property worth $10,000 is given away all at once, the person who gives it away is ineligible for Medicaid for an 85-day period. If the gift was made on or after February 8, 2006, that period does not begin to run until the giver is in a nursing home and has no more than the Medicaid limit of assets and income (and possibly meets other Medicaid requirements, depending on how the rules are written in the next few months). If the gift was made before February 8, 2006, the ineligibility period as already begun-- on the first day of the calendar month during which the transfer was made.

If property worth $10,000 is sold for $3,000, the seller is ineligible for 59 days (there is a gift of $7,000). However, because of the 60-month maximum penalty period, a gift of $300,00 worth of property to one or more individuals will result in a penalty of only 60 months, provided no application is filed during that time. (The maximum penalty period, provided no application is filed within the period, is 36 months for transfers made before February 8, 2006, and the "start date" of the penalty period was the first day of the month of the gift.)

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 60 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 reserving certain "interests" in a deed or trust instrument.)

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).

Family members may disagree as to who should receive the property; and those who feel most passionately that they should get it may be the least capable of managing it wisely.

¥ 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.

At this writing, persons with more than $1,809 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.

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 coupless 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 $19,908 nor more than $99,540. 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 2006, the maximum amount is $2,488.50 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 spouse's combined noninvestment incomes (after certain deductions) total $1,700, the spouse at home (with, let's say, an income of $1,200) can keep enough assets to produce an additional $788.50 per month, at the rate of interest being paid locally on one-year certificates of deposit. In this example, if CD's are paying 4.0% interest, the spouse at home can keep $236,550 without giving up any of the couple's income.

Until September 1, 2004, Texas law allowed an increased "Protected Resource Amount" even if the net combined incomes of both spouses exceeded the spousal needs allowance (now $2,488.50)Yas long as the income of the spouse at home was significantly less. That is still possible in cases in which the institutionalized spouse had a total stay of 30 days or more in a nursing home and/or hospital commencing before September 1, 2004. When it can be done, this is always the best way to qualify, because keeping assets protects the spouse at home from the loss of income that often occurs when the institutionalized spouse passes away.

In addition to financial requirements, most Medicaid programs require that the applicant show a amedical necessityÓ 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 aactivities of daily living,Ó 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 "Care" programs without proof of "medical necessity."  For Community Care, it is sufficient to show you need a certain level of 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.

The Medicaid program never takes property away from anyone--at least, not during their lifetime. It just refuses to provide help until you meet the program's requirements, which means (unless there is a spouse at home) your savings have run out.

Under the new "estate recovery" program, however, Medicaid will sometimes be able to force sale of a Medicaid recipient's residence after their lifetime. This program applies only to people who have received Medicaid benefits at or after age 55 and first qualified for Medicaid in an application filed on or after March 1, 2005. People who filed a Medicaid application before that date are exempt from estate recovery, provided the application led to certification of eligibility. There are some important exemptions and waiver provisions, most of which are covered in a summary at http://www.hhsc.state.tx.us/medicaid/EstateRecovery/ER-FAQ.html.

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 helping you understand complex rules and formulas you need to know, and keeping you from wasting time with information you don' need

¥ By giving you the peace of mind of knowing you are considering all your own needs and those of your loved ones and that you are 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 a512Ó 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."

MEDICAID

Medicaid & SSI Dollar Amounts Effective as of January 1, 2006:

*The Community Spouse can sometimes keep more by applying for an increase. For example, if countable income of both spouses together is $1,500 per month, and the 1-yr. CD rate is 3.5%, they can keep $300,857.

**For applications filed before 9/1/05, the divisor is $2,908/month; thereafter it is $117.08/day. For transfers discovered on or after 9/1/05 in applications filed previously, the divisor is $117.08/day.

Medicare & Social Security Dollar Amounts Effective January 1, 2006:

*Effective 4/1/2006

**Full Retirement = 65 and 6 months if born in 1940 or 65 and 8 months if born in 1941. Full retirement age will gradually increase to age 67 for those born in 1960 and later.

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.

Texas Paralegal Journal © Copyright 2006 by the Paralegal Division, State Bar of Texas.

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