Nursing Home Medicaid and Estate Planning Considerations

Nursing Home care can cost $8,500 to $10,000 per month.  Few people can afford to pay privately for long-term care indefinitely. 

All too often, elders assume Medicare will cover continuous nursing home care should the need arise.  In fact, Medicare has a very limited "skilled rehabilitation" benefit and for only a maximum of 100 days per spell of illness.  Beyond the 100 day maximum benefit period, an individual will either pay privately or seek eligibility for "Nursing Home" Medicaid.  Nursing Home Medicaid is an available payment source for  continuous nursing home placement for those individuals who meet financial eligibility criteria. 

Medicaid is a federal and state partnership that provides health care to thousands of low-income families, serving a variety of populations, including children, children with disabilities, younger adults with disabilities, and those individuals who are 65 and older who need long-term care.  The federal government pays a portion of the state's Medicaid costs by providing a federal match to the state's contribution to the Medicaid program.

The federal government requires each participating State to cover certain Medicaid services (called mandatory services) and then permits the State to add additional services if the state so chooses (non-mandatory services).  States also have some flexibility and can be somewhat more generous then the Federal government rules may provide.  Because of this flexibility, every State's Medicaid program has different rules.

An individual who is eligible for Nursing Home Medicaid benefits from a reduced or discounted rate called a "Medicaid reimbursement rate".  The Medicaid rate is usually significantly less than the prevailing "private pay" rate.  Few nursing homes don't accept Medicaid. 

Medicaid pays the nursing home the difference between the eligible individual's "patient liability" or "cost-share" and the Medicaid rate.  Patient liability is an individual's gross income, minus some allowable deductions, including a protection of income for her spouse, health insurance premiums, like Medicare Parts B and D, Medicare Supplements, private health insurance premiums, some incurred and otherwise unreimbursed medical expenses, and a personal needs allowance.  The net remaining income is paid over to the nursing home provider. 

In addition to the benefit of substantially reduced nursing home care, Medicaid can also cover Medicare copayments and deductibles, medical supplies, and equipment, and depending on the particular State, coverage can also include dental care, optometry, foot care, dentures, eyeglasses, and other needs. 

Though the benefits of eligibility for Nursing Home Medicaid are obvious, financial eligibility criteria is extremely restrictive. 

Income Rules

For 2010 the Nursing Home Medicaid income cap is $2,022.00 per month in gross income.  Gross is before deductions at the source for things like a Medicare Part B or D premium, and/or mandatory tax withholdings at the source.  If gross income is more than the income cap, a type of trust called a "Qualified Income Trust" or "QIT" is needed so that a portion of the income can be disregarded for eligibility purposes.  Only the income of the nursing home resident is considered in determining financial eligibility; the spouse's income is entirely disregarded for eligibility purposes.

Asset Rules

Nursing Home Medicaid asset rules are generally limited to a combined asset exclusion of $111,560 in "countable assets".  Additionally, an individual or their spouse can have a house, a car, retirement funds, personal property, some types of annuities, and other asset exclusions.

 Post-eligibility, the nursing home resident's spouse's assets are wholly disregarded and the resident is treated as a "single" person.  Within a year of qualification for Medicaid, all assets greater than $2,000 other than exempt assets must be transferred to the spouse who is not on Medicaid.

ESTATE PLANNING CONSIDERATIONS

 The Long-Term Care Medicaid financial rules should always be contemplated when an individual or couple is reviewing or developing their estate plan. However, most commonly, a married couple choose to leave all their assets to their surviving spouse and if none, then to their children. 

Although married couples can have considerably greater assets and qualify for Medicaid, a single person can only have $2,000.  A surviving spouse who is participating in Nursing Home Medicaid can lose eligibility if he or she inherits assets from their spouse.  All to often, these inherited assets must then be "spent down" before he or she can resume her Medicaid eligibility.

Consider the following scenario:

-           Husband and wife have assets that include a house with a value of $500,000, retirement funds between them totaling $500,000, and cash/liquid assets of $100,000.  Their estate plan provides that the assets owned by the first spouse to die passes to the surviving spouse. 

Years later, the wife, who suffers from advanced dementia, transfers from the community into a nursing home and is able to qualify for Medicaid.  Within a year of her qualification, she transfers all of her assets to her husband.  Thereafter, her husband passes away.  Since his Will leaves everything to his wife, and the inheritance is significantly greater than $2,000, she loses her Medicaid eligibility and her inheritance is now applied toward her nursing home expenses which now cost $8,500 to $10,000/month.

Unfortunately, available options at this juncture are limited as Medicaid rules "punish" transfers of assets or "disclaimers" of inheritances by imposing periods of ineligibility from Medicaid qualification.  

 Termination of Medicaid eligibility could have been avoided if a revised estate plan was implemented when the need for  long-term care was initially contemplated.

Alternative scenario with a revised estate plan:

-           Husband and wife acknowledge that either one of them may need long-term care and choose to review their estate plan.  The wife is showing very early signs of dementia and they begin to contemplate the possibility of long-term care.  On advice of counsel, the couple takes several steps to improve their estate plan for their current situation. 

 First, they both execute a new Will that leaves everything to the surviving spouse but includes a "special needs trust" for the benefit of the surviving spouse.  They also establish ownership of the marital assets so that they both own roughly one-half of the assets and they own none of the assets as joint tenants with rights of survivorship.  They change the beneficiary designation on their retirement accounts to their child/children. 

Later, the wife's dementia worsens and she transfers from their home into a nursing home and thereafter, qualifies for Medicaid.  Within a year of her qualification, she transfers all of her assets to her husband.  Thereafter, the husband passes away. 

Since the husband executed a new Will that contained a special needs trust for the wife's benefit, property held in his name (that didn't specify a beneficiary) is distributed by his estate representative to the "trustee" designated in his Will, who is solely responsible to administer the inheritance for her benefit during her lifetime upon the terms, uses, and conditions contained in the special needs testamentary trust.  This type of trust is disregarded by Medicaid and the property administered by the Trustee for the wife's benefit is exempt from consideration as either "income" or as a "resource" for Medicaid eligibility purposes.  The wife's Medicaid continues uninterrupted.  Since the husband designated their children as "beneficiaries" on his retirement funds, the retirement funds pass directly to the children and are preserved. 

A trust made a part or provision in a Will is called a "testamentary" trust and can be written to protect/preserve needs-based government benefits eligibility, including Supplemental Security Income (SSI) and/or Medicaid.  

A "special needs trust" is a type of trust that is used to supplement needs-based government benefits like Medicaid rather than serving as a substitute for Medicaid.  The assets held and administered through the trust can be conserved and only used after Medicaid has made reimbursement for an individual's otherwise unreimbursed long-term care needs.  For example, since Medicaid only makes reimbursement for a "semi-private" room, Trust assets could be used to supplement the Medicaid reimbursement to the nursing home so the wife could enjoy the benefit of a private room.  Upon the wife's passing, the assets may then pass to those remainder beneficiaries designated.        

 CONCLUSION

It's very important to seek legal counsel experienced in Medicaid and special needs eligibility in the State in which you reside as Medicaid rules and policies do differ from State to State.  Also, developments in the law can change, thereby requiring adjustment to a given estate plan with government benefits considerations.