The Medicaid eligibility rules explained above give rise to a question: If one of the spouses of a married couple needs long-term care and applies for Medicaid, must all the income and assets of the couple above the eligibility limits be spent on her care, leaving the spouse who does not need care with nothing to live on?
Medicaid rules have evolved to prevent spousal impoverishment -- that is, to ensure that the spouse who remains at home (called the community spouse) retains a reasonable amount of financial resources. States may also apply these rules when a person does not enter a facility but needs home healthcare or community-based care, but for the sake of simplicity, we will refer here only to the "nursing home spouse." These rules are complex, and we will summarize them.
If a community spouse has income of his own, he retains that income and does not have to spend it on his spouse's nursing home care. If the community spouse has little or no income of his own, some of the income of the nursing home spouse is set aside for his use and is not required to be spent on care. Specifically, the spousal impoverishment rules provide for a minimum monthly maintenance needs allowance (MMMNA) for the community spouse (In 2009, the MMMNA is $1,821.50 except in Alaska and Hawaii). The MMMNA works in this way:
· If the community spouse has no income of his own, he receives the entire MMMNA amount from the income of the nursing home spouse.
· If the community spouse does have some income of his own, he receives an amount from the income of the nursing home spouse necessary to bring his income up to the MMMNA level.
· If his own income is greater than the MMMNA, he receives nothing from the income of the nursing home spouse.
Jane and Ted are a married couple. Ted enters a nursing home and is expected to remain there indefinitely. They apply for Medicaid. Jane receives $700 a month from a trust left her by a relative but has no other income of her own. Assuming the applicable MMMNA is $1,900, Jane is allowed to retain $1,200 of Ted's monthly income, which added to her $700 of trust income giving her a total monthly income at the MMMNA level of $1,900.
If there are other family members living in the household in addition to the community spouse, a family monthly income allowance is allotted to them in a similar way.
In general, a couple must spend all its countable assets in excess of the eligibility limit on the care of the nursing home spouse, except for a protected resource amount (PRA) reserved for the community spouse. (All noncountable assets are of course retained by the couple.) The amount of the PRA is set by each state within federal guidelines. All states must allow the community spouse to retain all countable assets up to a minimum amount ($21,912 in 2009). States have the option of also allowing the community spouse to keep half of assets in excess of the minimum up to a certain limit. This limit cannot be higher than a federal maximum ($109,560 in 2009), but states may set a lower level -- for example, a state might let the community spouse retain half of the couple’s assets up to $50,000.
In addition, if the entire income of the nursing home spouse is allotted to the community spouse and this is insufficient to bring the community spouse's income up to the MMMNA level, the community spouse may retain enough of the couple's assets to generate enough income to reach the MMMNA level.
Transfers of Assets
Some individuals do not “spend down” their assets to the Medicaid eligibility limit, instead, they give them to family members or others. In some cases, the donor continues to access the assets through the cooperation of relatives, or at least to enable others to benefit from them.
Medicaid rules addresses this practice Medicare recipients transferring assets for less than their value (assets are given away or sold for less than they are worth) or more commonly, by a person before she applies for Medicaid. This rule applies to recent gifts or transfers prior the Medicaid application date, during the so-called “look-back period”. Under the DRA, the look-back period for transfers made on or after February 8, 2006 is now 60 months (five years). For most transfers made before that date, the old look-back period of 36 months (three years) still applies. The look-back period for transfers involving most trusts has been, and remains, 60 months.
If a Medicaid applicant transferred assets during the look-back period, Medicaid benefits will be withheld for an amount of time referred to as the penalty period or disqualification period. The length of the penalty period for nursing home care is determined in this way: The value of the transferred asset is divided by the state's average monthly private-pay rate for nursing facility care. (This rate is set by each year by the state based on charges to private patients within the state.) The result of this calculation is the number of months that Medicaid benefits are withheld. This forces the Medicaid applicant to pay long-term care costs out of his own pocket roughly equal to the amount of the improperly transferred asset, which generally makes the transfer financially disadvantageous. There is no limit to the length of a disqualification period.
Karl gave assets worth $90,000 to his children five months before entering a nursing home and applying for Medicaid. This transfer falls within the look-back period, so benefits must be withheld. The $90,000 is divided by the monthly private-pay rate (in his state $4,500), resulting in a 20-month penalty period - - that is, Karl must pay for nursing home care out of his own funds for 20 months. (And since nursing home costs will probably increase over these 20 months, Karl may actually pay more than $4,500 toward the end of the penalty period and as a result spend a total of more than the $90,000 he transferred to his children.)
Before the DRA (and this rule still applies to transfers made before February 8, 2006), the penalty period began the first day of the month in which me transfer occurred, leaving a loophole in the transfer of asset rules.
In January 2005 Jerry gave $50,000 to his daughter. Fourteen months later, in March 2006, he entered a nursing home and applied for Medicaid. This transfer fell within the 36-month look-back period, and in theory Jerry was subject to a penalty period of 10 months (based on his state's average monthly private pay rate of $5,000). However, this penalty period began on the first day of the month in which the transfer occurred -- January 1, 2005 -- and ended 10 months later, on October 31, 2005. So in fact, the penalty period had already elapsed by the time Jerry applied for Medicaid, and he suffered no penalty. (If he had applied earlier, say in June 2005, he would have been subject to a penalty period, but only up to October 31, 2005.)
Under the DRA, for transfers taking place on or after February 8, 2006, the penalty period begins on the first day of the month in which the Medicaid applicant enters a nursing home and otherwise meets Medicaid eligibility requirements.
In January 2007 Jane gives $50,000 to her son. Fourteen months later, in March 2008, she enters a nursing home and applies for Medicaid. This transfer falls within the look-back period, and Jane is subject to a penalty period of 10 months (based on her state's average monthly private-pay rate of $5,000). This penalty period begins on the first day of the month in which Jane enters the nursing home and qualifies for Medicaid -- March 1, 2008 -- and ends 10 months later, on December 31, 2008. So Jane, unlike Jerry, will have to pay for her nursing home care for 10 months.
Certain types of assets transfers are permitted. These include transfers to a spouse, or to a third party for the sole benefit of the spouse; transfers to certain disabled individuals or to trusts established for those individuals; transfers for a purpose other than to qualify for Medicaid; and transfers where Medicaid determines that imposing a penalty would cause undue hardship.
As we’ve seen, a Medicaid recipient is allowed to retain noncountable assets such as his home, as well as countable assets up to the eligibility limit. When a recipient dies, he leaves these assets in his estate, and Medicaid generally seeks to recover from the estate the money it paid to the recipient in benefits. This is referred to as estate recovery, and it normally applies to recipients in nursing homes and to those who began receiving benefits for home-based and community-based care after age 55.
Upon death, Medicaid may recover assets left by the decedent in his probate estate -- as well as jointly held property that passes automatically to the surviving joint owner or property held in a trust. Medicaid may not recover a decedent's home before the death of a surviving spouse, and in some cases the home may be protected from recovery and preserved for surviving children or siblings. For example, in some states, homestead provisions protect a primary residence from creditors, including Medicaid, and allow it to pass to heirs unencumbered. The states differ considerably in how they administer Medicaid estate recovery and how estate recovery provisions interact with state probate laws, so there is much variation in what assets different states actually recover.