Medicaid is a healthcare program that is primarily funded by the U.S. federal government; however, it is administered by the individual states. Consequently, the eligibility guidelines and benefits offered can vary somewhat from one state to the next. Most states, including Illinois, offer different categories of Medicaid, such as Medicaid for children, for pregnant women, and for the aged and disabled.
People often confuse Medicaid and Medicare and/or use the two names interchangeably. Although both offer healthcare benefits, they are two very different programs. Like Medicaid, Medicare is funded by the U.S. government but is also administered by the federal government. 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, on the other hand, is a “needs based” program, meaning you must demonstrate a financial need for the benefits offered by the program.
As you age, your odds of needing long-term care (LTC) increase. If you do end up in a nursing home, or other LTC facility, you can expect to pay over $8,000 a month, on average, for that care in Indiana as of 2019. Neither Medicare nor private health insurance are likely to help with your LTC expenses which is why 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 when the time comes.
Your eligibility for Medicaid is determined, in part, by the 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 your assets and is extremely low — $2,000 for an individual and $3,000 for a married couple who are both applying. Some assets are exempt, including your primary residence (up to a specific equity limit); however, it is very easy to exceed the asset limit if you failed to plan ahead.
If your assets do exceed the limit, Medicaid will deny your application. At that point you will have to “spend-down” your excess assets. In essence, you will have to use your assets to cover your LTC bills until your assets are depleted enough to qualify. Your retirement nest egg you spend a lifetime accumulating could be gone in a matter of months.
Medicaid 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, if you transferred an asset valued at $90,000, your assets exceed the limit by $88,000. If the average monthly cost of LTC in your area is $8,000, you would divide $88,000 by $8,000 which gives you a waiting period of 11 months. During the waiting period, you will be expected to rely on your own assets to cover your LTC expenses.
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.
Not necessarily. An experienced Medicaid planning attorney may be able to help you utilize some last minute Medicaid planning strategies that will protect some, if not all, of your excess assets. For example, you might be able to convert non-exempt assets into exempt assets by using your savings to pay down your mortgage.