Don’t Look Back, Plan Ahead
A Brief Guide to Medicaid
The recent economic rollercoaster has us all nervously checking our investments. Words like “recession,” “inflation,” and even “war” have slipped into our every day, following us as we talk to friends, read the news, scroll social media. A trip to the grocery store has become an exercise in restraint, carefully navigating increased prices, and last year’s low interests rates are long forgotten.
Suffice to say, the future feels a little less certain these days. And when uncertainty reigns, plans bear reassessing. For most of us, there’s one plan that we all have in common: growing old. Whether it’s retiring to the beach, finding that perfect community home, or moving in with our children, our plans for old age are incomplete without accounting for long-term care. As our economy flirts with recession, however, paying for that long-term care may feel overwhelming. That’s where Medicaid comes in.
Medicaid, Explained
Let’s start at square one: what exactly is Medicaid? Medicaid is a needs-based health care program with extremely low to no deductibles. Every state has their own version of Medicaid, governed by federally mandated minimum benefits. In North Carolina, low-income adults, children, pregnant women, seniors, and people with disabilities are generally eligible for a Medicaid health care plan (those who already receive Supplemental Security Income or State/County Special Assistance for the Aged or Disabled are automatically eligible). Currently, around 2.3 million individuals are enrolled in NC’s Medicaid plan – that’s almost one out of every four state residents!
The level of care an individual needs is based on their ability to engage in the Activities of Daily Living (walking, bathing, eating, dressing, etc.). For elderly recipients who need assistance with at least three of these activities, Medicaid will pay for long-term care, such as the costs of a nursing home and medications. In NC, there are even Medicaid programs for in-home and community-based services.
Sounds idyllic, right? Of course, there are significant catches. The first is straightforward: Medicaid is exclusively for low-income individuals. Once you start looking into exactly what “low-income” means, however, things can get a little more complicated. In North Carolina, Medicaid eligibility has both an income and an assets cap, and the income limit is based on several factors such as your marriage status and what type of care you need.
Eligibility
Let’s say you’re 65 years or older and you want to apply for full Medicaid coverage through Medicaid’s Aged MAA. As of April 2022, your income cap for eligibility would be $1,133 per month, with an asset limit of $2,000. If you’re applying with a spouse, those numbers would increase to $1,526 (joint income) and $3,000 (joint assets).
It’s important to note that Medicaid defines income rather loosely – beyond employment wages, income encompasses alimony payments, pension payments, Social Security Disability Income, Social Security Income, IRA withdrawals, and stock dividends. Assets, meanwhile, include cash, stocks, bonds, investments, IRAs, savings, checking accounts, and any real estate that is not a primary residence. Luckily, quite a few assets are exempt from this limit – personal belongings, household furnishings, one car, and the applicant’s home aren’t counted (*as long as applicant’s home equity interest is less than $636,000 and they, or their spouse, actively reside there).
Of course, these stipulations are just broad strokes – there are many additional factors to account for. For example, Medicaid’s Institutional / Nursing Home program, which covers the cost of a nursing home, has different income limits. Or maybe you’re married, but only your spouse is applying for Medicaid. For Aged MAA, your income would count towards their eligibility, but not for the Nursing Home program. And then there’s the huge asterisk – even if you don’t meet the specific criteria, you may still be eligible if you can meet the medical deductible or spend down.
Once you’ve sifted through the maze of eligibility, you should have a general idea of the finances you’ll need to benefit from Medicaid’s programs. Now it’s time for Catch #2: The 5 Year Look-Back. In North Carolina, every financial transaction a Medicaid applicant made within the five years (60 months) prior to their application is thoroughly reviewed.
The Look-Back
Remember, Medicaid is a government program. Before the government steps in to foot the bill, they expect applicants to fully exhaust their own funds. During the look-back process, Medicaid ensures an applicant’s assets have not been transferred for below market value at any point in the preceding five years. Every financial transaction is categorized as either compensated or uncompensated – to disincentivize applicants from hiding, moving, or giving away assets to qualify for Medicaid, uncompensated transactions are penalized accordingly.
Such uncompensated transactions are common and can be quite unintentional, such as large monetary gifts (even for special events), transfers of real property to family members, or collections or valuables sold under-value. Medicaid counts these gifted, donated, or under-sold asset as funds that could have been used to pay healthcare-related costs, and suspends Medicaid eligibility for applicants who made such transfers within the preceding five years.
The amount of time an applicant is determined ineligible for Medicaid is known as the “penalty period,” and corresponds to the total value of uncompensated assets transferred. To calculate the penalty period, this total value is divided by a Penalty Divisor – the average cost of private-pay nursing home care in each state. In North Carolina, this amount (as of June 2022) is $237 per day or $7,110 per month.
So, let’s say you gave your $300,000 vacation home to your daughter. Technically, that $300,000 could have paid for about 42 months of nursing home care. If you gifted the house within five years of your Medicaid application, you’d be ineligible for coverage for those full 42 months. As there’s no upper limit to this penalty period, it’s crucial to plan well in advance for any Medicaid application. And while you’ll preplanning, you’ll want to start thinking about Catch #3: Medicaid’s Estate Recovery Program.
Estate Recovery
Medicaid’s Estate Recovery Program, or MERP is, “a program through which a state’s Medicaid agency seeks reimbursement of all long-term care costs for which it paid for a Medicaid beneficiary,” according to the American Council on Aging. In other words, the government wants its money back after you die.
Every Medicaid agency tracks how much is spent on every patient’s care, and states are required to seek reimbursement for certain care costs, such as nursing facility services, home and community-based services, and related hospital services. To recover these costs, they lay claim to a Medicaid recipient’s estate . This means that when a Medicaid recipient passes away, assets they had can be claimed by Medicaid agencies – only what’s leftover after Medicaid’s reimbursement (and other creditors) is disbursed to the heirs.
Thankfully, North Carolina is what’s known as a “Probate Only State.” This means that for NC residents, Medicaid’s estate recovery is limited to assets that pass through the probate process. This can be a residence, vehicles, bank accounts, or personal possessions – really any assets owned solely by the deceased. Of course, if there are no assets that pass through probate, there’s nothing for MERP to claim. Case closed.
Planning Ahead
Between its five-year look-back and estate recovery, the Medicaid process can feel like a perilous journey. Fortunately, with enough insight and planning, the pitfalls can be avoided and Medicaid’s immense benefits enjoyed. Maybe you’re above the income and asset limits set for Medicaid long-term care eligibility, but unable to pay for care out-of-pocket. With the right spend-down strategies, you could qualify for Medicaid without abandoning your hard-earned assets. And if you pan ahead to keep your assets out of probate, Medicaid’s Estate Recovery Program is toothless.
No matter the situation, preplanning is imperative when it comes to Medicaid. At Susan Hunt Law, we can help you plan for your long-term care, navigating Medicaid eligibility while avoiding its catches. If you or a loved one are considering Medicaid, schedule a consultation at Susan Hunt Law today!
