How to Get Help Paying Nursing Home Costs
By H. Clyde Farrell
Because of the high cost of nursing home care—an average of almost $4,000 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 “Medicaid facilities.”
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 $1,911 per month
for an individual or $3,822 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 (usually limited to $500,000 in equity), 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 (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
day for every $122.50 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 HHSC estimates it costs, on the
average, for private-pay nursing home care
in Texas.
Under a new federal law, 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 after the calendar
month of the gift. 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 81-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
has a medical necessity for nursing home
care and files a Medicaid application. If
the gift was made before February 8, 2006,
the ineligibility period has already begun
when the gift is made—on the first day of
the calendar month during which it was
made.
If property worth $10,000 is sold for
$3,000, the seller is ineligible for 57 days
(there is a gift of $7,000). However,
because of the 60-month maximum penalty
period, a gift of $300,000 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 is the first day
of the month of the gift.)
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, including sometimeshidden
exceptions, 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 qualif y you for Medicaid (such as gifts to
your spouse). However, if you presently
have a need for long term care or 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
$1,911 but less than about $4,000 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-todate
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
$20,880 nor more than $104,400. 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 2007, the
maximum amount is $2,610 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
$1,700, the spouse at home (with, let’s say,
an income of $1,200) can keep enough
assets to produce an additional $910 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
$273,000.
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 $2,610)—as
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.
Are there non-financial 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, in order to receive home care
under the “Community Based Alternatives
Program” of Medicaid, you have to prove
that what you really need is nursing home
care meeting this standard. However, it is
possible to qualify for home care under
the “Community Care” programs without
proof of “medical necessity”—just that
you need a certain level of help with
“activities of daily living.”
If I apply for Medicaid, will the government
take everything I have?
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 can sometimes
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.
For a summaries, Frequently Asked Questions,
the state, rules and forms, go to
http://www.dads.state.tx.us/services/estate_recovery/index.html#rules.
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 is likely to cost $4,000 or
more 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’t 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.clydefarrell.
com .
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.
*This article is current as of January 1, 2008
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