Protecting Assets from Medicaid Spend Down
What is Medicaid Asset Protection?
Medicaid Asset Protection is planning for protection from Medicaid "spend-down" requirements, typically through legal maneuvering provided by irreversible trusts - recently outlawed by Congress except under very specific conditions.
What is Medicaid Spend Down?
Medicaid Spend Down is what you must do when you have too many resources. In other words, you have too much money and you have to “spend down” assets before you will be eligible for Medicaid coverage. Those excess assets are called the “spenddown” amount.
Medicaid programs in Texas have income and asset limits that someone within a covered group must not exceed in order to qualify for the program. However, there are additional programs for those who exceed these limits but have special circumstances. In this case, the medically needy program has been established to help those who don’t qualify for traditional Medicaid but who still need medical financial assistance.
The classic “spend down” technique is to pay for the nursing home bill using your assets until you've reduced your life savings to the point that you qualify for Medicaid coverage of those bills. In most cases, however, you do not have to spend anything. Instead you can essentially convert an asset that is countable into one that is not countable. The idea is that instead spending money on something that Medicaid can ultimately pay for, you instead pay for something that will benefit you or your family yet not be considered a gift or a countable asset. There are some very smart ways to spend down so let's review a few techniques in detail. Before transferring any assets, you should always seek professional advice from an attorney or financial advisor. The consequences of making transfers that are not eligible for exemption can be severe and include rendering the applicant ineligible for Medicaid.
What is the Medicaid "Look Back" Rule?
When you're looking to qualify yourself or a loved one for Medicaid a look-back period is now applied. The look-back period is a balancing act between the government's way to provide Medicaid support and your desire to be able to leave property to heirs in a Will or Trust.
You can't simply give property away and begin receiving Medicaid.
In 2005, The Deficit Reduction Act (DRA) changed the Medicaid asset-transfer rules:
The look back rule time period was changed from 3 years to 5 years.
The penalty period or ineligibility period for transferred assets is the date when the person applies for Medicaid - generally when the person enters a nursing home.
States are required to apply the DRA to their state programs, because Medicaid is run by both the state and federal government.
The cost of Long term care continues to increase, making such services difficult to afford for most individuals, and inaccessible for many. The Medicaid Program provides coverage of long term care services for individuals who are unable to afford this care. Some individuals, with assistance from financial planners and attorneys (like “Senior Care of Michigan” have developed methods of arranging assets in such a way that they are not countable when Medicaid eligibility is determined, and are thus preserved for the individual and/or family members. Various techniques are used to artificially impoverish Medicaid applicants, including gifting of assets to family members, investing assets in financial instruments that are inaccessible, and executing financial transactions for which fair market value are not actually received to get LTC coverage through Medicaid. Some of these financial instruments include: Annuities & Life Insurance Policies.
What is the Long-Term Care Partnership?
The Long Term Care Partnership model is to use Medicaid’s safety net feature as an incentive for middle income people to buy private long-term care insurance and, by doing so, encourage them to prepare for the risk of needing long term care. This, in turn, will help delay or avoid the need for Medicaid to pay for their long-term care.
In the Partnership model, states offer the guarantee that if benefits under a Partnership policy do not sufficiently cover the cost of care, the consumer will qualify for Medicaid under special eligibility rules that allow a pre-specified amount of assets to be disregarded. (The consumer must also meet other Medicaid eligibility rules.) This is generally referred to as “asset protection” in the context of the Partnership program.
The LTC partnership is a unique program combining private LTC insurance and special access to Medicaid. The partnership helps individuals financially prepare for the possibility of needing nursing home care, home-based care or assisted living services sometime in the future. The program allows individuals to protect some or all of their assets and still qualify for Medicaid if their LTC needs extend beyond the period covered by their private insurance policy.
Section 6021 of the DRA allows for Qualified State Long-Term Care Partnerships. States with approved State Plan Amendments (SPAs) also exclude from estate recovery the amount of LTC benefits paid under a qualified LTC insurance policy. As a part of the package of reforms included in the Deficit Reduction Act of 2005 (DRA), Congress lifted the moratorium on Long-Term Care Partnership programs that had been set in 1993. The expansion of the Long-Term Care Insurance Partnership model made possible by the DRA does not, for the most part, call for alterations in how Medicaid is administered.
However, there are key aspects of Medicaid eligibility rules, including home equity and income limitations, exhaustion of benefit requirements, etc., that states must consider when implementing a Partnership program. Talk to an attorney before you move or transfer any assets to get the best results for you.
When Applying for Medicaid
You must disclose the amount of your assets and when you made the asset transfers. Medicaid can question any transfer within the look-back period. If you didn't get something of at least equal value in return for a transfer, you'll be ineligible for Medicaid. The look-back period is 5 years for transfers made after February 8, 2006, the date the DRA went into effect.
Asset transfers during the look-back period trigger the ineligibility period. The length of the ineligibility period is calculated by dividing the amount transferred by the average monthly cost of nursing home care in your area.
For example, if you transfer $75,000 and the average cost of nursing care in your area is $3,000 per month, your ineligibility period is 25 months. The period begins to run on the date you apply for Medicaid.
The best-case scenario is for the elderly person to transfer assets and be able to stay out of a nursing home until the look-back period expires. If only it were so simple to follow that plan. These rules can be confusing at best, and can affect the type of care you or your loved one receives.
For more information: Contact Senior Care of Michigan below to speak with a Senior Planning Expert.