Medicaid is a healthcare program for low income individuals and families. Medicaid is primarily funded by the federal government; however, states may supplement that funding and each state administer its own Medicaid program. Consequently, the eligibility requirements and benefits offered can vary somewhat among the states. Nevertheless, basic Medicaid typically covers things such as:
- Doctor visits
- Hospital stays
- Emergency care
- Preventative care
Medicaid and Medicare are often mistaken as the same program. While both programs provide healthcare benefits, Medicaid and Medicare very different programs with a number of important differences. Medicare is funded and administered by the federal government. Most importantly, Medicare is an entitlement program, meaning that as long as you paid into the program during your working years, you are automatically entitled to benefits when you turn 65. Medicaid, however, is a “needs based” program. To qualify for benefits from a needs based program an applicant must demonstrate a financial need in addition to meeting any other eligibility criteria.
You could easily make it to your retirement years without ever needing to rely on Medicaid to cover your healthcare expenses which may leave you wondering why you would need to turn to Medicaid as a senior. The answer lies in the likelihood that you will need long-term care (LTC) as a senior. In 2018, the average cost of LTC in Indiana was over $90,000 a year. Medicare won’t cover LTC except under very narrow circumstances – and even then, only for a brief period of time. Most private health insurance also excludes LTC. Consequently, over half of all seniors in nursing homes rely on Medicaid to help with their LTC expenses. Although Medicaid does cover LTC costs, qualifying for Medicaid can be problematic because of the income and asset limits. Medicaid planning helps ensure that you will be eligible while also protecting your assets if you do need to qualify in the future.
Along with basic requirements, such as citizenship and residency, your eligibility for Medicaid is determined using income and asset limits imposed by the program. The income limits are tied to the Federal Poverty Level, or FPL. The FPL, in turn, changes each year and is determined by your household size and geographic area. The “countable resources” limit refers to the value of your non-exempt assets. As of 2019, you cannot have countable resources valued at over $2,000 for an individual or $3,000 for a married couple if you want to qualify for Medicaid in Indiana. Assets such as the equity in your home (up to a maximum amount), a vehicle, and household furnishings do not count toward your countable resources.
If the time comes that you (or a spouse) need to apply for Medicaid and your assets exceed the “countable resources” limit, your application will be denied. To be eligible for Medicaid, you will first need to “spend-down” your assets to get the value of your assets under the limit. In practical terms, you will have to rely on your own assets to cover your LTC bills until those assets are depleted enough to qualify for Medicaid. The result is that your retirement nest egg could be depleted in short order.
Transferring assets in anticipation of the need to qualify for Medicaid worked at one time, but not anymore. Medicaid now uses a five-year “look-back” period when evaluating applications. The look-back rule allows Medicaid to review your finances for the five-year period leading up to your application. Any asset transfers made during that time period for less than fair market value may trigger an eligibility waiting period. The length of the waiting period is determined by dividing the amount of your excess assets by the average monthly cost of LTC in your area. For example, imagine that you are over the asset limit by $100,000. If the average monthly cost of LTC in your area is $7,500, you would divide $100,000 by $7,500 which gives you 13.33. After rounding down, you end up with a waiting period of 13 months during which you will be expected to rely on your own assets to cover your LTC expenses.
Given the Medicaid spend-down requirements, you may be concerned that a community spouse will be left with no resources if you need to qualify for Medicaid. Fortunately, that is not the case thanks to the Medicaid spousal impoverishment rules. The spousal impoverishment rules allow a community spouse to keep some income and assets when the other spouse goes into long-term care.
Medicaid planning uses legal tools and strategies to protect your assets and help ensure your eligibility for benefits in the event you need them in the future. For example, you might establish a Medicaid trust, which is an irrevocable living trust into which you would transfer non-exempt assets. When Medicaid planning is incorporated into an estate plan early on, it drastically increases the odds of qualifying for benefits while decreasing the likelihood of losing valuable assets in the process.