If the cost of an individual’s care needs exceeds their available resources, Medicaid is available to pay for care as the payer of last resort.  Although Medicaid has limited waivers that permit payment for some in-home care and care in certain assisted living facilities, generally Medicaid is limited to payment for care in a skilled nursing facility.  Unlike entitlement assets such as social security and Medicare, which are owed to recipients regardless of their income or wealth, Medicaid is a “means tested” program.  If an individual has sufficient means to pay for their own care, they will not qualify for Medicaid benefits.  Accordingly, Medicaid qualification is subject to strict asset and income limits.  While there are several different Medicaid programs, the most applicable program would be where payments are made to institutions on behalf of aged, blind, and disabled individuals residing in a skilled nursing facility with limited income.  This chapter will discuss the qualification requirements under the Medicaid program for institutional care as well as planning opportunities available to pre-plan for qualification for this benefit without losing all of one’s assets.

In order to qualify for institutional care Medicaid, an individual must be disabled, reside in a nursing home, and have income and assets below qualifying limits.  A Medicaid applicant’s monthly income cannot exceed $2,250 and they cannot have countable assets in excess of $4,000.  Even exceeding these limits by one dollar disqualifies the applicant from Medicaid benefits.  However, a certain strategy is permitted that exempts income above $2,250 per month limit, known as  a Qualified Income Trust.  Additionally, certain exceptions and exemptions are available to make certain assets non-countable toward the $4,000 asset limit. 

During the Medicaid Planning process, excess income can become a problem.  As stated previously, the income limit for Medicaid qualification is $2,250 per month.  However, the average cost of a skilled nursing facility in Mississippi is almost $7,000 per month.  An individual with $0.00 assets and monthly income of $2,251 would be ineligible to receive Medicaid benefits.  However, without other assets, the individual could not pay for the care they need in the nursing home.  They would be more than $4,700 short per month.

Congress addressed such cruel circumstances by permitting individuals who are disqualified because of excess into to “assign” all of their excess income to a “Qualified Income Trust” for the exclusive purpose of paying for their skilled care or reimbursing the Division of Medicaid for its payment of that care.  In other words, an individual with excess income simply signs a document that forces Medicaid to ignore all of their income in excess of the income limit.  In the example above, the Qualified Income Trust would assign $2.00 per month to the trust, and Medicaid would treat the applicant as having monthly income less than the $2,250 limit.  As such, for purposes of Medicaid qualification, the applicant meets the income limitation and is qualified for Medicaid.

Example:  Bob resides in a nursing home which costs $7,000 per month.  Bob’s income is $3,500 per month.  Bob has no other assets.  Bob’s income exceeds the income cap of $2,250 per month, and therefore Bob does not qualify for Medicaid.

Solution: Bob signs a Qualified Income Trust which assigns all of his income in excess of $2,250 per month to the trust to be used exclusively for his health care expenses, or to reimburse Medicaid for its payment of his health care expenses.  Bob is now qualified for Medicaid.  The Division of Medicaid must treat Bob’s income as $2,250 per month.  However, Bob does not get to keep any of the extra money.  All of Bob’s money (except for a $44 per month personal needs allowance) is used to pay for Bob’s care in the nursing home.  The Division of Medicaid pays any balance.

The Qualified Income Trust was created by Congress to avoid the cruel result of disqualifying individuals with income that is too low to pay for their own care, but too high to qualify for Medicaid.  While the trust is generally known in Mississippi as a Qualified Income Trust, other names for this type of trust are a “Miller Trust” or a (d) (4) (b) trust.

While individuals with countable assets in excel of $4,000 are disqualified for Medicaid benefits, some assets do not count towards this limit.  Such assets are referred to as “non-countable” or “Exempt assets.”  The most common Medicaid exempt assets are:

• A personal residence with equity no greater than $572,000
• An automobile
• Prepaid funerals
• Burial plots for the applicant and their family
• Life insurance with a face value no greater than $10,000
• Designated burial funds not in excess of $6,000
• Engagement ring
• Retirement accounts if in a monthly payout status.

None of the above described assets are counted for purposes of qualifying for Medicaid benefits.  Assets outside of this list are counted, and if the fair market value of those assets exceeds $4,000, then their owner are disqualified from Medicaid until his or her assets fall below the $4,000 threshold.

Example:  Bob owns a home worth $500,000, a Mercedes-Benz valued at $75,000, a retirement account of $500,000, and a checking account of $3,000.  Bob’s income is $2,000 per month. Bob has had a stroke and entered a nursing home.  Does Bob qualify for Medicaid?

Answer:  Yes.  Assuming that Bob instructs his retirement account custodian to make payments from his retirement account in equal monthly payments over his anticipated lifetime, all of Bob’s assets other than his checking account are exempt for Medicaid qualification purposes.  His income is less than the income cap.  His home, car and retirement account are not counted.  His checking account is below the asset limit.  Bob qualifies for Medicaid benefits.

Example 2:  Cindy has income of $2,000 per month.  She does not own a home.  She has savings of $10,000 and has no other assets.  Does Cindy qualify for Medicaid?

Answer:  No.  Cindy’s countable assets exceed $4,000.  She is therefore disqualified from Medicaid benefits until she spends her savings funds below the $4,000 threshold.  The assets of married couples are combined for purposes of this asset limit.

While the above examples describe how asset and income limitations apply to Medicaid applicants, certain additional safeguards are designed to prevent the impoverishment of a Medicaid applicant’s spouse who remains at home.  The Medicaid applicant entering or residing in a nursing home is generally referred to as the “Institutionalized” spouse.  A spouse remaining at the home is called the “Community” spouse.  Married couples’ assets are generally treated jointly or purposes of Medicaid qualification.  However, certain additional exemption’s apply to the assets of a Community Spouse.  Specifically, a community Spouse is entitled to have assets in their own name of $123,600.  This is commonly know as the “Community Spouse’s Resource Allowance.”  In addition, the Community Spouse’s income does not count against the Institutionalized Spouse.  In other words, even though a Community Spouse’s income exceeds the income cap of $2,250, their income has no impact on the Institutionalized Spouse’s qualification for Medicaid benefits.  Spouse’s incomes are treated separately for Medicaid qualification purposes.  Also, in order to help prevent the impoverishment of a Community Spouse, if a Community Spouse’s income is less than $3,090, the Community Spouse will be entitled to retain enough of the Institutionalized Spouse’s monthly income to keep the household income of $3,090.

Example:  Jack and Jill are married.  Each receives retirement income of $2,000 per month, for a total monthly household income of $4,000.  Jack must enter a nursing home.  Jill will keep her own income of $2,000 plus an additional $1,090 from Jack’s income to bring her total community household monthly income to $3,090.  Jack will retain $44 per month for his personal needs allowance in the nursing home.  The balance of his income will be paid to the nursing home each month, with the Medicaid paying all costs in excess of that.

Example 2:  Jack and Jill own a house worth $500,000.  Jack has a $100,000 retirement account.  Jill has a $100,000 retirement account.  Additionally, Jack and Jill have joint savings of $120,000.  Jack has entered a nursing home.  If Jack places his retirement account in a payout status with equal monthly payments payable over his anticipated life expectancy and transfers his interest in the savings account to Jill, Jack will qualify for immediate Medicaid benefits.  The savings account no longer counts as Jack’s asset because it is been transferred to Jill’s name and falls within her Community Spouse Resource limit of $123,600.  Accordingly, it is not counted towards Jack’s qualification limit.  Jill’s retirement account is exempt since she is a Community Spouse.  Accordingly, Jack’s only asset is his interest in the home, which is exempt. 

As will be discussed in the following paragraphs, transfers of assets made within 60 months of applying for Medicaid benefits generally disqualify an applicant from benefits. However, these penalties do not apply to transfers of assets made between spouses.

As stated, retirement accounts receive special asset treatment for Medicaid qualification purposes.  The retirement account of a Medicaid applicant must be in payout status over their anticipated life expectancy in order to be treated as exempt.  This payout status must e in the form of equal monthly payments over the applicant’s life expectancy.  Essentially the Division of Medicaid permits retirement account owners treat their retirement account as an income stream similar to as if the applicant had a pension or an annuity.  To do otherwise would treat retirees differently than retirees who receive pensions.  The pension recipients have no ability to withdraw a lump sum and only receive an income stream over their lifetime.  The owner of a 401(k)  or IRA, on the other hand, has the ability to withdraw funds from that account during retirement but was also planning to withdraw those funds over time during their retirement years.  What if the Medicaid applicant’s health improves and they return home?  A rule requiring them to exhaust their retirement would leave them destitute.  To require the IRA or 401(k) owner to liquidate their accounts while permitting the pension beneficiary to continue to receive ongoing lifetime monthly payments for a surviving spouse, would get to cause a severely disparate treatment between those two classes of retirees, both of whom chose to responsibly prepare for retirement, but in different ways.  Rather than engage in this disparate treatment and risk the impoverishment of one class, the Division of Medicaid equates both types of retirement income as long as the Institutionalized spouse is receiving equal monthly payments from their account.  The retirement account of a Community Spouse is exempt whether or not it is in payout status.

A reader of the previous rules might conclude that a Medicaid applicant could simply wait until the need for skilled care arose and then transfer all of their assets to their children to need the Medicaid qualification limits when the need arises.  Such a strategy would work were it not for a provision in Federal Law disqualifying any person that transfers assets within 60 months prior to applying for Medicaid benefits from Medicaid Qualification.  The penalty applies to transfers made by a Medicaid applicant or the applicant’s spouse.  The disqualification is one month from every $6,619 transferred within 5 years of applying for Medicaid benefits.  Each Medicaid applicant must disclose  to the Division of Medicaid all “uncompensated transfers” of assets made by them or their spouse over the prior 60 months.  The Division of Medicaid then totals all of those transfers and divides them by $6.619 to arrive at the number of months that the applicant will be disqualified from Medicaid.  The Medicaid applicant’s penalty does not begin until the applicant has not entered the nursing home, applied for Medicaid benefits, and is determined to be otherwise eligible for benefits except for the implementation of the penalty.  In other words, to start the penalty clock running, the Medicaid applicant must be sick enough to reside in a nursing home, poor enough to meet the means test for Medicaid, and apply for Medicaid benefits.  Only then will the Division of Medicaid calculate the appropriate penalty and determine the applicants eligibility date.

The purpose of this policy is to prevent precisely the type of las-minute planning that the opening sentence of this section suggests.  However, contrary to what some at Medicaid would have you believe, the law does not suggest that the transfer of assets made within 5 years of a Medicaid application is in any way improper or illegal.  In fact, the exact opposite is true.  Since the law specifically provides for a consequence to just such an event it anticipates the conduct.  The law does not prohibit or prevent transfers made within 5 years of application, but rather acknowledges the appropriateness of such transfers and gives a consequence for that permitted act.  . In other words, as long as an individual is willing to be disqualified for benefits for a period of time, it is perfectly permissible, and often even advisable, to make transfers of assets within the 5 year look back.

Example: Bill has $66,000 and earns $4,000 a month in retirement. Bill enters a nursing home costing $7,000 per month. Bill gives $66,000 to his son and applies for Medicaid benefits. Medicaid applies a ten-month disqualification penalty as a result of Bill’s transfer and determines that he would be eligible for benefits in month 11. For the next 10 months, Bill pays $4,000 per month to the nursing home. Bill’s son pays an additional $3000 per month from the funds that his father gifted him, for a monthly total of $7,000. At the end of the 10th month Bill is qualified for Medicaid. Bill’s son still has $36,000 from the funds that his father gave him.

The law neither prohibits nor discourages the transfer of assets by a Medicaid applicant. It merely imposes a consequence that Medicaid applicants and their families should calculate to determine the most desirable result. The frequent claims of many, including Medicaid caseworkers, that, “Transfers made for purposes of qualifying for Medicaid are illegal,” or “A gift made by Medicaid applicant must be immediately returned” are simply incorrect statements of the law. The law provides for a mathematical calculation and expects people to make rational decisions based upon that calculation. There is nothing immoral or illegal about doing the math or applying the law in a manner most beneficial to a Medicaid applicant or their family. In fact, the author of this book believes the opposite is true.

While it is uplifting to know that two-thirds or half of a Medicaid Applicants’ assets can be protected using techniques provided by law in a crisis, such an outcome still results in a substantial loss of the family’s assets.  Rather than take the risk, it might be wise to choose to plan in advance of your need for skilled care in order to maximize the protection over all of your assets.  Such planning is prudent and available.  While every circumstance is different, one commonly used strategy for Medicaid asset protection is the Family Legacy Trust.  A Family Legacy Trust is flexible irrevocable trust that is designed to maximize a grantor’s control over assets held by the Trust, maximize the tax advantages available to the grantor, and yet simultaneously make the assets unavailable to Medicaid.  In essence, individuals that implement this strategy create a legal entity over which they retain significant control, including the right to control investments, control distributions, and change Trust beneficiaries, yet make the assets a completely unavailable for Medicaid purposes.

Medicaid planning for immediate Medicaid eligibility is also known as “Crisis Planning.”  For Medicaid applicants that already fall within the statutory asset limits, there is often little if anything to do in advance of applying for Medicaid.  Bur for the families of applicants that have responsibly prepared for retirement, and have been frugal and saved during their lifetimes, the above rules can have a devastating effect on family finances.  Applied in their simplest form, a couple that ha managed to build a nest egg of $500,000 for their retirement years is faced with the devastating possibility that they must spend $376,400 on nursing home care before either of them qualifies for Medicaid.  What’s worse, all of those years of preparation and saving will leave at-home spouse with resources of only $123,600.  Compare that outcome to a similar couple that was less frugal, enjoying new cars, frequent vacations, and other luxuries throughout their life, but managing to only have savings of $100,000.  An ill spouse from the second couple would immediately qualify for Medicaid benefits, leaving that Community Spouse with essentially the same cushion as the more responsible couple.  In essence, the Medicaid eligibility system rewards people that act irresponsible, and punishes more fiscally responsible families by taking their assets.  With such outcomes, it is easy to understand why most people find the current system unfair. 

Fortunately, there are additional strategies that will permit families to save significantly more of their assets by law.  While the details of such strategies are highly technical, you should be aware that such strategies generally allow for half to two-thirds of a Medicaid applicants’ assets to be protected immediately prior to entering a nursing home, without any preplanning.  Occasionally circumstances allow 100% of the applicants’ assets to be protected.  The notion that an individual has waited too late, and now has no options available for protecting any of their assets is simply never true.  There are always strategies that can protect significantly more than basic application of the rules provide.  Because of the highly technical nature of Medicaid law, applying such a strategy is never a do-it-yourself endeavor.  Before engaging in immediate Medicaid eligibility planning an applicant’s family should seek the counsel of a Certified Elder Law Attorney who specializes in crisis Medicaid asset protection techniques.  If a lawyer tells you that nothing can be done, or you’ve waited too late, go see another lawyer.  There are always strategies that can save significantly more assets than the basic rules provide.