Understanding Medicaid Eligibility Planning: Securing Healthcare for Seniors

Article Summary

This article provides an overview of Medicaid eligibility planning, including the different types of Medicaid programs, strategies for meeting eligibility requirements, and common Medicaid planning tactics.

Key takeaways:

1. Medicaid is a joint federal and state program that provides health insurance for low-income Americans and long-term care coverage for nursing home care.
2. Medicaid planning is the process of preparing to meet eligibility requirements and protecting assets from being claimed by Medicaid.
3. Common Medicaid planning strategies include Medicaid spend-down, caregiver agreements, annuities, spousal income transfers, and Medicaid asset protection.

Introduction

At an average of almost $100,000 annually, most Americans can’t afford long-term nursing home care. Fortunately, Medicaid is available to cover these costs for those who need help. However, Medicaid has strict eligibility requirements and most people who rely on Medicaid for long-term care don’t immediately qualify. They have to plan for it, using a variety of sometimes complicated strategies to get there.

In this article, we’ll look at what it means to plan for Medicaid eligibility for long-term care, and the basics of how to go about doing that.

What is Medicaid – and Why is it so Confusing?

There tends to be a lot of confusion surrounding Medicaid for a few reasons. First, the program is run jointly between the federal government and each individual state, so many of its specific rules and details – even its name, in fact – varies from state to state. Secondly, there are multiple programs under the Medicaid umbrella.

Low-Income Public Health Insurance

Medicaid provides health insurance for low-income Americans. Medicaid planning doesn’t usually pertain to obtaining Medicaid health insurance coverage.

Long-Term Care Coverage

Medicaid is the largest payer of long-term care in America, covering costs for over 60% of nursing home residents across the nation. Under normal circumstances, Medicaid only pays for nursing home care, not home care or senior living settings like assisted living or group homes.

Medicaid Waivers

Medicaid waivers are special programs that provide funding for services that usually aren’t covered. For example, Home and Community-Based Services (HCBS) waivers allow people to receive care at home, live with family, or stay in a residential senior living setting instead of a nursing home.

Waivers are limited, and there is often a long waitlist to receive one. Many states have multiple HCBS waiver programs targeting different populations. Eligibility requirements may vary from program to program.

Contact your state’s Medicaid office for questions regarding waivers that exist in your state, to apply for one, or to put your loved one’s name on a waitlist.

What Does it Mean to Plan for Medicaid Eligibility?

At the time of application, Medicaid will scrutinize all financial transactions in their lookback period – five years in most cases. If they find anything that’s violated their rules, the applicant is penalized with a period of ineligibility or denial of coverage.

If your loved one has less than $2,000 in assets and less than $2,000 in monthly income, applying for Medicaid is relatively straightforward. If they have more than that, however, it can be incredibly complicated.

Rules vary from state to state, based on marital status and other conditions – and they change over time. Eligibility requirements for waiver programs also differ, so it can be challenging to understand all the options, much less to ensure you’re in compliance with all the requirements.

Medicaid planning refers to the process of preparing to meet eligibility requirements. It can also include protecting assets so they won’t later be claimed by Medicaid. Depending on your situation, there may be many potential strategies to go about this.

Common Medicaid Planning Strategies

Medicaid has strict limits on both income and assets, although the exact figures depend on the state of residence, marital status, and other factors.

Not all income sources or assets are counted toward the limit. Many Medicaid planning strategies are built around transferring countable resources into exempt ones.

It’s important to note that Medicaid strictly forbids giving away money or assets. In fact, many transactions you might not think of as gifts can be classified as such by Medicaid – and result in penalties –  so it’s important to understand and play by their rules.

Medicaid Spend Down

One popular method of Medicaid planning is known as Medicaid spend-down. It usually refers to spending assets on allowable expenses until they reach the qualifying limit.

However, some states also allow income spend-down – paying allowable medical expenses before counting the remainder toward the limit.

Read more: What is Medicaid Spend Down?

Caregiver Agreements

Paying a family member for their help is often an allowed expense in Medicaid’s eyes – provided the proper documentation and procedures are followed. It’s important to understand and follow the rules because if not, the payments will likely be classified as gifts and penalized.

Read more: Paying a Family Caregiver: Creating a Medicaid-Friendly Personal Care Agreement

Annuities

An annuity is a contract with an insurance company in which an individual pays a large lump sum and, in return, the company provides a reliable income stream to the individual or their beneficiary.

The most common situation for annuities to be used when planning for Medicaid is when one spouse is applying for long-term care coverage and the other spouse is not, especially in states which don’t count the spouse’s income towards the applicant spouse’s income limit.

Many kinds of annuities are NOT allowable under Medicaid regulations. Be absolutely sure that you’re choosing a “Medicaid Compliant Annuity” to avoid penalties and issues with eligibility. Commission-based Medicaid Planners can help you purchase an appropriate product.

Spousal Income Transfers

Known as Minimum Monthly Maintenance Needs Allowance (MMMNA), spousal income transfers are a common and fairly simple tactic in which an applicant can transfer a portion of their income to their spouse. These transfers can lower an applicant’s countable income and provide the well spouse with a stable stream of income.

Medicaid Asset Protection

Medicaid’s Estate Recovery Program (MERP) was created in order to reclaim funds they’ve spent on long-term care for program recipients when possible. When a Medicaid recipient passes away, the state often claims assets from the estate, including their home, vehicle, or resources that may have been exempt for eligibility purposes. These funds then pay for services for future Medicaid recipients.

If your loved one’s home has special sentimental value, or there are other reasons to shield particular assets from MERP, you should look into the various methods of Medicaid Asset Protection.

Examples of asset protection strategies:

• Lady Bird Deeds allow Medicaid applicants to pass their home on to a loved one via inheritance by transferring ownership to a beneficiary at the moment of death. Because it’s no longer part of their estate it’s not subject to Medicaid’s estate recovery program and can’t be claimed by Medicaid. Lady bird deeds aren’t allowed in every state.
• Child Caregiver Exception rules allow Medicaid applicants to transfer ownership of their home to an adult child caregiver who has lived with them for two years or more. They must have provided enough care that without it, the parent would have had to move into a nursing home.
• Sibling Exception rules allow Medicaid applicants to transfer ownership of their home to a sibling provided the sibling has lived in the house for at least a year and has some share of ownership themself.

Trusts

Some types of trusts are Medicaid-friendly, and others aren’t.

Examples of Medicaid-compliant trusts:

• Irrevocable Funeral Trusts can be set up in order to cover funeral costs for the Medicaid applicant in advance. Note that other options to pre-pay for funeral costs exist that might seem similar to irrevocable funeral trusts, but aren’t Medicaid-compliant, so be sure yours is before finalizing it.
• Medicaid Asset Protection Trusts (MAPT) can be a good way to preserve a family home or other assets for future generations. Because ownership is transferred to the trust, the assets are no longer owned by the applicant and don’t count toward the asset limit. It’s important to note that MAPTs are classified as gifts and will violate the lookback period, so this strategy must be utilized well in advance (usually five years) of the time of application.
• Qualified Income Trusts allow certain Medicaid applicants to transfer money into this special trust which can be used to cover care and medical expenses. This is commonly used to lower one’s countable income to a qualifying level. QIT Trusts aren’t available in every state – they’re usually used in states that don’t allow income spend down. QIT trusts are known by different names in different states.

Pooled Income Trusts can transform surplus income for disabled individuals into a reliable monthly payment.

Who Can Help with Medicaid Planning?

There’s a range of professionals who can assist with Medicaid planning.  One might be a better choice than another depending on your loved one’s specific situation. You can use the American Council on Aging’s Medicaid Planner Finder to find the best option for your loved one.

Top choices for Medicaid Planning:

• Elder law attorneys are very knowledgeable in the area of Medicaid planning and are able to assist with trust creation. Their major drawback is their expense, but utilizing a prepaid legal plan may help manage the expense.
• Eldercare financial planners have a good understanding of financial planning needs and options common to the older population and can help develop a solid financial plan for future care needs. They can be a little expensive.
• Geriatric care managers can, in some cases, help with Medicaid planning – look for one with particular experience in this area. Care managers understand potential future care needs well.

Free resources for basic information about Medicaid eligibility:

• Benefits counselors or case managers who work for local Area Agencies on Aging, Aging and Disability Resource Centers or Medicaid offices can offer free assistance with the application, but they can’t advise individuals on what to do in order to qualify. They’re often very busy.
• SHIP Counselors, or State Health Insurance Program Counselors, provide free assistance to individuals who have questions about public insurance programs, such as Medicaid and Medicare. They are typically volunteers and can’t offer in-depth assistance or guidance on how to rearrange assets or income in order to meet eligibility requirements. They’re a great, free resource for very low-income individuals with basic questions about public benefits.
  

Potential sources of specialized information relating to Medicaid-compliant products:

• Commission-based Medicaid Planners sell Medicaid compliant annuities. They know a lot about Medicaid eligibility, and annuities of course, but they won’t offer a whole lot of help outside of that specific area. They don’t charge clients for their services because they earn a commission from sales.

Insurance agents who specialize in Medicaid-compliant policies may be able to answer some questions without charge, specifically about the types of products they sell. For example, while term life insurance won’t impact Medicaid eligibility, whole life insurance can.

Planning for Medicaid Eligibility: A Highly Personalized Process

Seventy percent of Americans require long-term care in their lifetime, with twenty percent needing it for longer than five years. With statistics like those, it’s nice to know that Medicaid is available to help cover the costs if needed.

Medicaid planning can ensure that if or when the time comes, your loved one will be eligible for coverage. Medicaid planning can save valuable time and energy and reduce the stress of the application process. Proper planning can conserve an applicant’s spouse's resources and shield meaningful assets from Medicaid’s estate recovery program to share with future generations.

Much like tax advice, Medicaid planning is highly customized to each person’s specific situation. In simple cases, self-planning is usually adequate, but in more complex circumstances it makes sense to consult with one of the many types of professionals out there available to help.

Learn More

Medicaid is a complex topic! Want to learn more?

Read more about Medicaid:

Is My Loved One Eligible for Medicaid?

Learn about:

• The differences between Medicare and Medicaid
• Medicaid for long term care
• Medicaid Waiver programs
• Medicaid’s eligibility requirements
• Professional Medicaid planners

What is Medicaid Spend Down?

Learn about:

• Medicaid income and asset limits
• Medicaid Income Spend Down
• Medicaid Asset Spend Down
• Spousal Impoverishment Rules

Sources

Cost of Long Term Care by State | Cost of Care Report | Genworth

10 Things to Know about Medicaid: Setting the Facts Straight | KFF

Medicaid's Role in Nursing Home Care | KFF

How Much Care Will You Need? | ACL Administration for Community Living

Medicaid Eligibility: 2022 Income, Asset & Care Requirements

What is a Medicaid Waiver? Your Guide to Medicaid Home and Community Based Services

Eligibility | Medicaid

Planning Techniques to Help Gain Medicaid Eligibility

What is Medicaid Planning?

How Purchasing a Medicaid Compliant Annuity Impacts Eligibility for Medicaid Long-Term Care

How to Restructure Your Assets to Qualify for Medicaid | Kiplinger

How Life Insurance Policies Impact Medicaid Eligibility

Author Bio

Laura Herman is an elder and dementia care professional who advocates for better senior care in America. This article has been reviewed by TJ Falohun, co-founder and CEO of Olera. He is a trained biomedical engineer and writes about the cost of healthcare in America for seniors.