The Medicaid program pays for healthcare for the poor of all ages. Unlike Medicare, Medicaid provides extensive benefits for long-term care, but only to those who are impoverished. However, some people who are not poor when they first need long-term care are eventually able to rely on Medicaid to cover the costs of their care. They spend their assets and income on care until they have very little left, at which point they meet Medicaid's definition of poverty and qualify for benefits. This practice is called “spending down”, and it is a viable means of meeting long-term care needs, but it has significant drawbacks, some obvious and others not so obvious, as we will see.
The Medicaid Program
Medicaid is a federal-state program. The federal government establishes broad guidelines for its operation, and each state administers its own program and determines, within these guidelines, eligibility criteria; the type, amount, and duration of services its program pays for; and rates of payment for services. Thus, a person who is eligible for Medicaid in one state may not be eligible in another state, and the benefits provided in one state may not be provided in another. In addition, state Medicaid programs may change from year to year in response to changing needs, fiscal constraints, or emerging problems. For information on a particular state's program, visiting the website of the National Association of State Medicaid Directors (www.nasmd.org), which includes links to state Medicaid websites.
Medicaid is jointly funded by the federal government and the state governments. In 2006 the federal government provided 50 to 76 percent of funds, depending on the state, with an average federal contribution of 59 percent; the states paid the rest.
Despite the disadvantages, many people end up relying on Medicaid to pay for their long-term care because they did not make other provisions. Approximately 60% of all nursing home patients receive Medicaid funding – and consequently Medicaid is the single largest payor of long-term care expenses in the U.S.
In the simplest terms, to be eligible for Medicaid a person must be poor. But determining who is considered poor for purposes of Medicaid eligibility is anything but simple. There are many categories of eligible individuals, and as mentioned above, requirements differ from state to state, and they may change from year to year. What follows is a summary of the complex rules that apply in this area. Details of Florida’s Medicaid program can be found in Appendix A and Appendix B
Some people are deemed “categorically needy” by Medicaid, that is, they are defined as poor and eligible for Medicaid benefits because they fall into certain categories. Most of these categories consist of children of low-income families and low-income pregnant women, so they are not normally relevant to long-term care. But a few categories include adults without dependent children, such as recipients of Supplemental Security Income (SSI). These are people with very low incomes (in 2009, no more than $674 per month for individuals, $1,011 for couples) who receive government assistance to help them maintain a minimal standard of living.
Most (but not all) state Medicaid programs also extend eligibility to some people who do not belong to one of the categorically needy groups but are considered “medically needy”. These are people whose income and assets were above the poverty level but have been depleted by medical or long-term care expenses. For a person to qualify as medically needy, the value of her financial assets must be below a certain level, and her income (or her remaining income after medical or long-term care expenditures) must also be below a certain level. These levels are known as eligibility limits. If a person's assets and income are above her state's eligibility limits, to qualify for Medicaid she must spend down -- that is, she must liquidate her assets and spend the proceeds on care until the value of the remaining assets falls below the asset eligibility limit, and she must spend almost all her income on healthcare or long-term care, so that the remaining amount falls below the income limit. Once she reaches the eligibility limits, she can begin receiving benefits for Medicaid-covered services.
Medicaid eligibility rules are applied somewhat differently to individuals who participate in a state long-term care partnership program. If their long-term care insurance benefits run out and they are forced to apply to Medicaid, they are allowed to keep some assets that others would be required to spend down. The specifics of partnership programs and how they affect Medicaid spend-down requirements are covered in detail later in this course. In this chapter we will focus on the standard rules that apply to most applicants.
The Deficit Reduction Act (DRA) of 2005, effective February 8, 2006, made significant changes in the rules governing Medicaid eligibility. These changes are highlighted in the discussion that follows.
The asset eligibility limit varies by state, but it is generally about $2,000 for an individual and $3,000 for a married couple. (For cases in which only one member of a couple is applying for Medicaid long-term care benefits, see "Spousal Impoverishment" below.)
Medicaid divides financial assets into two categories: countable assets are those that are considered in determining whether a person exceeds the eligibility limit, and noncountable assets (also called exempt assets) are those that are not. Countable assets include:
· cash, savings and checking accounts, and certificates of deposit;
· stocks and bonds;
· IRAs, Keogh accounts, and other retirement funds;
· the cash surrender value of life insurance policies with a combined face value greater than $1,500;
· items that may be converted into cash, including vacation homes, second vehicles, collectibles, and any other items not specifically listed as noncountable assets by Medicaid;
· and in some cases, the applicant's home (see below).
If the total value of a person's countable assets exceeds the eligibility limit, she is not eligible for Medicaid. To become eligible, she must spend all countable assets above the eligibility limit on care; illiquid assets, such as houses and vehicles, must be sold and the money spent on care.
Noncountable assets are not counted in calculating whether the eligibility limit is exceeded, and they do not have to be sold to pay for care. They include:
· household goods and personal effects, such as furniture and clothing;
· one automobile, regardless of its value, if its primary use is the day-to-day transportation of a household member;
· the cash surrender value of life insurance policies with a combined face value of less than $1,500;
· one wedding and one engagement ring;
· burial plots for the applicant and her immediate family, as well as burial funds for the applicant and her spouse; and
· the applicant's home, in most cases.
Medicaid's treatment of a person's primary residence is complex and has been modified by the DRA. The rules can be summarized as follows:
· If the applicant is living in the home and is not applying for payment of long-term care services, the home is noncountable, regardless of value.
· If the applicant is applying for long-term care benefits, the home is countable if the equity value is more than $500,000 (or $750,000, at the option of the state) unless a spouse, dependent child, or disabled child lives in it.
· If the applicant has left her home permanently to live in a nursing home, the home is countable, regardless of value, unless a spouse, dependent child, or disabled child lives in it.
In addition, in cases where a home is deemed noncountable and the applicant is not forced to sell it, a lien may be placed on it so that if it is sold, Medicaid must be reimbursed for long-term care benefits out of the proceeds.
Many states also have income eligibility limits. Like assets limits, income limits vary from state to state, but in all states they are very low -- usually even lower than the income limits cited above for the Supplemental Security Income (SSI) program. Some states grant Medicaid eligibility to certain persons with incomes up to the federal poverty level (in 2009, $10,830 annually for an individual and $14,570 for a couple).
In calculating whether a person's income exceeds the eligibility limit, Medicaid counts all but the first $20 per month of unearned income, including Social Security benefits, other government and private pensions, veterans' benefits, workers' compensation, annuity payments, and investment income. Food stamps and certain other forms of public assistance and charity are not counted. (A portion of any earned income, such as wages or earnings from self-employment, is not counted, but this is of course not normally relevant to applicants in need of long-term care.)
Whether a state has income eligibility limits or not, if a person qualifies for Medicaid and enters a nursing home, almost all her income must be spent on care. She may retain only a small personal needs allowance (usually between $30 and $90 per month depending on the state) to cover items such as toiletries and reading material. In addition, any income used to pay health insurance premiums may be retained.