How to Get Help Paying Nursing Home Costs

Because of the high cost of nursing home care-an average of $2,309 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 (as of January 1, 1998, less than $1,482 per month for an individual or $2,964 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.

Determining eligibility is further complicated by the fact that certain income and assets are exempt from the limits. For example, at present, exempt resources for an unmarried person (not counted in computing the minimum, presently $2,000 for an individual) 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 a long list of other exemptions.

For a married couple with one spouse not living in a nursing home or other 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 nursing homes, however, the more limited exemptions for unmarried people apply, and the couple can have no more than $3,000 in total countable resources.

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 $2,309 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 $10,000 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 $10,000 is sold for $2,000, the seller is ineligible for 3 months. However, because of the 36-month maximum penalty period, a gift of $1 million 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.

The 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. Also bear in mind that if an application for Medicaid is filed within 36 months, there may be criminal penalties (discussed below).

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.

It may be illegal in some cases, as discussed below.

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.

Under a law passed recently, it is a criminal offense to counsel anyone, for a fee, to dispose of assets in order to become eligible for Medicaid, if disposing of the assets results in the imposition of a period of ineligibility. The Attorney General of the United States construes this law to mean that there is no "imposition of a period of ineligibility" so long as no application is filed within the period of ineligibility for services under a Medicaid program that imposes a period of ineligibility. However, it is easy to make a mistake as to the existence or length of a period of ineligibility, or whether or not the program applied for has a "transfer penalty." Therefore, I strongly advise that you make no transfers for the purpose of hastening Medicaid eligibility, nor any Medicaid application, without first discussing those matters specifically with my office. If you are already a client, we will charge no fee for your initial call, and it may be all that is needed to advise you.
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?

As of January 1, 1998, persons with more than $1,482 but less than about $2,309 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." 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. Until recently, this "community spouse" had to become impoverished in order for the other spouse to be eligible for Medicaid. Fortunately, a new 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 (as of January 1, 1998) be less than $16,152 nor more than $80,760. (These figures change every year. Until January 1, 1997, the figures were minimum $15,348 and maximum $76,740, and those amounts still apply to people who first went into a nursing home during 1996.) Moreover, this amount can be increased if the community spouse can prove at a hearing that more is needed.

In addition, the community spouse is allowed to keep a limited amount of countable income, known as a "spousal needs allowance." As of January 1, 1998, the maximum amount is $2019. 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 couple can keep enough assets (to the extent they own enough) to produce an additional $575.50 per month, at the rate of interest being paid locally on one-year certificates of deposit (though there is no requirement of actually buying such CD's).
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.

Moreover, even if the net combined incomes of both spouses exceed the $2019. 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 more than the $2019. spousal needs allowance, they may be able to keep all their resources by agreeing to pay all their income above $1,975.50 per month to the nursing home. This procedure has been approved by courts in two other states and by some hearing officers in Texas, but at this writing, the Department of Human Services leaves it up to the hearing officers.

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.

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

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