There are many misconceptions about Medicaid and Medicaid eligibility. You will have undoubtedly received information from family, friends or others. Such information will be well intentioned, but most of the time it is only partly true. Medicaid laws are complex and confusing. I do not recommend that you try to plan for Medicaid by yourself. One mistake may cost you thousands of dollars and may result in months of Medicaid ineligibility. It is important to get good legal counsel from a knowledgeable legal specialist.
Misconception #1: “I don’t need Medicaid, I have Medicare.”
The Truth: Medicare is a Federal catastrophic major medical insurance program primarily for hospitalization. Medicare does not pay for long-term custodial care. Medicaid is a State and Federal funded and State run assistance program. For seniors, Medicaid is primarily for long-term care in Medicaid qualifying nursing homes, and in certain circumstances, long-term care outside of a nursing home.
Misconception #2: “If I or my spouse go into a nursing home, the State will take my home away.”
The Truth: Your home is an exempt asset if it is owned by you or you and your spouse and can stay an exempt asset during your entire nursing home stay. The home must be used and titled properly. A home that is not titled or used properly is not exempt and is available for nursing home expenses. There are other exempt assets in addition to the home and include one automobile, certain pre-paid funeral arrangements and certain life insurance policies.
Misconception #3: “If I give assets away, I have to wait 60 months to qualify for Medicaid.”
The Truth: The Department of Human Services looks back 60 months for transfers that are “divestments”. If your transfer is not a divestment, it is ignored, even if it is made the day before you apply for Medicaid, and even if it is thousands of dollars.
To determine the number of months your divestment disqualifies you for Medicaid benefits after your Medicaid application is approved, you divide the amount of the divestment by the penalty divisor, which is $6,191 in 2008. For example, a $20,000 divestment will disqualify you from receiving benefits for about 3.2 months after your application is approved.
Misconception #4: “If I go into a nursing home, the State will take my assets away.”
The Truth: The State takes nothing. Medicaid simply will not pay anything until you “spend down” all of your available or “countable” assets. If you are single or your spouse is also in a nursing home, you would have to spend down to $2,000 or less in cash or other countable assets. If your spouse lives at home, he or she can also keep at least $20,880 in 2008 or if greater, one-half of the countable assets up to $104,400, and also an income allowance of at least $1,712 per month.
One way to qualify for Medicaid is to convert countable assets into exempt assets. After death, the exempt assets are still protected. Although Michigan has enacted a Medicaid estate recovery law, the law has no set implementation date.
Misconception #5: “If I am already in a nursing home, it is too late to protect my assets.”
The Truth: You can protect assets no matter how long you have been in a nursing home. If you are in a nursing home and your spouse lives at home, you can usually protect almost all of your assets for your spouse. If you are not married or your spouse is also in a nursing home, in most cases you can still protect a substantial portion of your assets.
Misconception #6: “If I put my assets in joint names with my children, the assets will be exempt for nursing home purposes.”
The Truth: You are considered the owner of any assets that you put in joint names with anyone, even assets that were put in joint names decades ago.
Misconception #7: “I can give away $12,000 per person per year without any penalty.”
The Truth: This is a Federal gift tax limitation that has nothing to do with Medicaid eligibility. Medicaid gifting rules are completely different. All gifts that are divestments, no matter what amount, will create a penalty.
Misconception #8: “My total nursing home expense is the daily cost of care.”
The Truth: Most nursing homes charge extra for additional supplies and services such as gloves, non-prescription medication, incontinence care, needles, etc. These extra charges can substantially increase the monthly cost of long term-care in a nursing home.
Misconception #9: “There is a small chance that I will end up in a nursing home anyway.”
The Truth: According to studies reported in the New England Journal of Medicine, 43% of 65 year old persons will spend time in a nursing home. Of those entering a nursing home, 55% will spend more than 1 year in the nursing home and 21% will stay more than 5 years.
Misconception #10: “If Medicaid will cover my nursing home expenses, I do not need long-term care insurance.”
The Truth: Many people benefit from long-term care insurance. Most of the time, Medicaid only covers long-term care expenses in certain nursing homes. Most long-term care insurance policies are much more flexible and will pay long-term care expenses while you are in your home, an adult foster care home, an assisted living facility or a nursing home.
Long-term care insurance premiums are surprisingly affordable for the benefits you receive. For example, if you were 68 years old, you could have a $1,700 annual premium for a $100/day benefit. If you went into the nursing home after 15 years, you could recover your total premiums paid in less than 9 months.
Misconception #11: “I have protected my assets by purchasing a ‘Medicaid friendly’ annuity.”
The Truth: Annuities were once popular and effective Medicaid pre-planning tools. However, changes in both Federal and State Medicaid laws have dramatically limited their usefulness in pre-planning and qualifying for Medicaid. Most annuities that are currently marketed as Medicaid friendly annuities are regular annuities which are convertible when needed into a Medicaid qualifying income stream over the life of you or your spouse. The intent is that the annuity would not be a countable asset but an income stream for Medicaid purposes.
The drawback with these types of annuities is that they give you few options for Medicaid planning purposes, and may require that the income or death benefit from these annuities be used to pay for nursing home expenses. Many of these annuities have substantial surrender charges for ten or more years if you need to cash them in. Annuities purchased or “converted” after February 8, 2006 must also name the state of Michigan as the primary beneficiary to the extent of Medicaid payments.
Nowadays, Medicaid compliant annuities should only be purchased after your entry into a nursing home or your entry is imminent, as part of a plan to apply for Medicaid. Any annuity you purchase for investment purposes should have a provision for a hardship waiver of surrender charges if you or your spouse need to pay for long-term care expenses. If not, the annuity may significantly limit your options and the amount of your assets that can be protected when you or your spouse enter a nursing home.
By: Matthew M. Wallace CPA, JD
Published edited October 12, 2008 in The Times Herald newspaper, Port Huron, Michigan as: Busting myths about Medicaid