Long-Term Care and Medicaid: A Very Brief Overview

Introduction

Medicaid can ensure that persons receive the care they need while preserving their and their spouse’s standard of living and protecting lifetime savings or a personal injury settlement. The following summarizes some important Medicaid provisions (all dollar amounts are as of March 2021). However, action should not be taken without firsthand research or advice from a qualified elder law attorney.

Resource Eligibility

Applicants may not have more than $2,000 of countable assets. If the applicant is married, the spouse is allowed a community spouse resource allowance equal to one-half the countable assets the couple has on the first day that the applicant is institutionalized for at least 30 consecutive days up to the $130,380 maximum.

Real Estate: Counts, with the presumed value being the county auditor’s value. However, the home is not counted if the applicant has signed a statement intending to return home, even if that is very unlikely. The home also is excluded, if it is occupied by the applicant or the applicant’s spouse or dependent children, grandchildren, parents, grandparents, siblings, or other dependent family members.

Life Estates: Count if the underlying real estate counts, with the presumed value being the county auditor’s value of the real estate multiplied by the product that corresponds to the life estate owner’s age on Medicaid’s life estate table.

Household Goods and Personal Effects: Excluded.

Motor Vehicles: The first vehicle is excluded. The presumed value of all other vehicles is the Blue Book trade-in value.

Prepaid Funerals: If they are irrevocable, excluded for the applicant and spouse.

Burial Spaces and Arrangements: If they are irrevocable, excluded for the applicant, spouse, parents, children, siblings, and other immediate family members.

Life Insurance: If the face value of all policies exceeds $1,500, all cash surrender values count.

Retroactive Social Security and Supplemental Security Income (SSI): Excluded for nine months, provided they are held so that they can be separately identified.

Essential Property Used in a Business: Excluded.

Non-Business Income-Producing Property: Excluded up to $6,000 of the equity value, if net annual return is at least 6% of the excluded equity.

Retirement Funds: Count, unless at least minimum required distributions are being taken.

Annuities: Count to the extent the applicant or spouse can withdraw funds. Purchase treated as an improper transfer, unless the annuity is irrevocable, non-assignable, actuarially sound, and Ohio is named as the remainder beneficiary after the spouse or minor or disabled child up to the amount Medicaid pays.

Promissory Notes: Count, unless they cannot be sold. If the note cannot be sold, the assets given for the note are treated as improperly transferred.

Continuing Care Retirement Community (CCRC) Entrance Fees: Count, if they can be used to pay for care, the applicant is eligible for a refund when leaving the CCRC, and the fee does not confer an ownership interest in the CCRC.

Income Eligibility

The monthly gross income of applicants living in the community who are not seeking home and community-based services (HCBS) cannot exceed $794, unless the applicant is seeking Medicaid under the Affordable Care Act. The monthly gross income of applicants seeking coverage of nursing home care or HCBS, such as PASSPORT, cannot exceed $2,382, unless enough of the gross income is deposited into a qualified income trust (QIT) such that the difference between the gross income and the deposit is less than $2,382 each month.

Qualified Income Trust (QIT) Terms: The QIT must be irrevocable, and nothing other than the applicant’s income can be placed into the QIT. If the QIT has a balance at the applicant’s death, Medicaid must be reimbursed up to the amount Medicaid paid.

QIT Expenses: The QIT can pay only the applicant’s unpaid nursing home and other medical expenses, $50 monthly personal needs allowance, maximum $3,260 monthly income allowance (MIA) for the spouse, maximum $718 monthly allowance for each dependent family member, and up to $15 per month for bank, trust administration, and legal fees.

Transfer of Resources

Improper Transfers: Transfers on or after the “lookback date” of the applicant’s or spouse’s resources for less than fair market value are presumed to be for the purpose to qualify for Medicaid or avoid utilizing the resources for the expenses of the applicant or spouse.

Rebutting the Presumption of an Improper Transfer: Clear, convincing, and credible evidence that the transfer was for reason(s) having nothing to do with Medicaid or avoiding utilizing the resource for the applicant or spouse.

Baseline Date: First date the applicant has applied for Medicaid and is institutionalized or has signed a Request for HCBS.

Lookback Period: Begins 60 months prior to the baseline date, no matter how many Medicaid applications or how often the applicant is institutionalized or requests HCBS, and continues forever.

Restricted Coverage: If the presumption of an improper transfer is not rebutted, Medicaid will not pay for nursing home care or HCBS.

Months of Restricted Coverage: Add all improper transfers during the lookback period and divide by $6,905. Multiply the number of whole months by $6,905 and subtract the result from the total amount transferred. Add the difference to the applicant’s patient liability in the first month of eligibility for nursing home care or HCBS.

Beginning Date of Restricted Coverage: Date the applicant is income and resource eligible, has applied for Medicaid, and is receiving nursing home care or has applied for HCBS.

Permissible Transfers of the Home: To the applicant’s spouse, child younger than 21, blind or permanently and totally disabled child, sibling with an equity interest in the home who resided in the home at least one year immediately before the applicant’s institutionalization, or child who resided in the home and provided care during the two years immediately before institutionalization that permitted the applicant to remain at home.

Permissible Transfers Other Than the Home: To or for the sole benefit of the applicant’s spouse or disabled child, to a trust established for the sole benefit of the applicant’s child who is blind or permanently and totally disabled, or to a trust for the sole benefit of anyone younger than 65 who is blind or permanently and totally disabled.

Undue Hardship: Requires clear, convincing, and credible evidence that health or life is endangered or that the necessities of life are deprived and that a good faith effort was made to recover the resources. If in a nursing home, the applicant must receive and unsuccessfully appeal a discharge notice.

Monthly Income Allowance (MIA)

The spouse retains all his/her own income. If the spouse’s gross monthly income is less than the $2,155 Minimum Monthly Maintenance Needs Allowance (MMMNA) plus the Excess Shelter Allowance (ESA), the spouse may keep an MIA from the applicant’s income to bring the spouse’s monthly income to $2,155 plus the ESA.

Excess Shelter Allowance (ESA): The ESA = the monthly rent or mortgage + the prorated monthly property taxes and homeowner or renter insurance + the $553 monthly standard utility allowance.

MIA Formula: MIA = $2,155 MMMNA + ESA – 30% of MMMNA ($646) – spouse’s monthly gross income.

IRAs and Annuities

For most middle class citizens, except for those who are government employees, retirement accounts are their primary source of wealth and financial stability. In spousal cases, should IRAs, 401ks, or other assets be diminished significantly, the community spouse, who may become the surviving spouse, will likely face impoverishment. This is particularly true if the institutionalized spouse passes away and a Social Security check or pension check disappears.

Ohio is currently undergoing an odd process where some counties are taking a different approach to IRAs. The State of Ohio is considering changing its approach to IRAs. Since the mid-90s, IRAs have been counted as a resource for Medicaid eligibility purposes. Many other states have treated IRAs as exempt or non-countable, if they are “in pay status.” For someone over the age of 59 ½ who is taking annual withdrawals based upon required minimum distributions, some counties in the State of Ohio do not count those IRAs as a resource. It appears that Cuyahoga, Geauga and perhaps Lake County are all employing this approach.

Otherwise, “annuitizing” part or all of the IRA to preserve income for the well spouse may be advisable. (See Hughes v. Colbert, 734 Fed.3rd 473 (Sixth Circuit 2013, Cert. Denied)). A single-premium, immediate-pay annuity is a complex vehicle; however, preserving additional income for the long-term may be appropriate even though the state must be named a residual beneficiary in most circumstances. Typically, the IRA is transferred to an insurance company and, thereafter, monthly distribution checks are issued. This strategy eliminates the IRA as a “resource.” The state must be a contingent beneficiary pursuant to the federal statute.

Small Businesses

Closely held businesses and farms may be considered countable assets for Medicaid purposes. A longstanding family business may render an applicant ineligible, whether the business is owned by the community spouse or the institutionalized spouse. By utilizing corporate mechanisms and buy-sell agreements, these businesses may be maintained and preserved. These are often a source of income for the community spouse, even after the death of the institutionalized spouse. Similarly, promissory notes are often subject to thorough review. Promissory notes between family members are considered highly suspect. Promissory notes secured by a mortgage are likely considered valid; however, the payment terms cannot exceed the life expectancy of the owner and payments must be in equal installments. In many circumstances, the agency will require that the promissory note be calculated at present value and liquidated or refinanced. Farmland adjacent to the residence is exempt along with the residence, as long as the county auditor value does not exceed $603,000.

Care Arrangements

For many individuals who suffer from dementia or a series of strokes, in-home assistance is often preferable. If the individual is eligible for the Medicaid PASSPORT program, the Ohio Department of Medicaid will provide 15 to 20 hours per week, depending upon the family’s needs, of additional assistance in the home. The goal of PASSPORT is to provide assistance so that, along with family assistance, a person who might otherwise require nursing home or other institutional care may be maintained in the residence. Similar HCBS programs are for the disabled and the mentally ill.

Individuals unable to reside at home may be able to reside in an independent living facility. This is usually an apartment for a senior which has some private space but also usually opens to a common community center, including a cafeteria. These are viable and usually affordable, but Medicaid assistance is not available.

Assisted living, however, is the next level wherein a person cannot live independently but is not yet ready for nursing home care. These facilities often are appropriate and may run $5,000 to $6,000 per month. The State of Ohio has an assisted living waiver program. The state will pay for assisted living; however, most assisted living facilities require at least one year of private pay before they will accept the waiver program.

Nursing homes are the last stage and usually charge $8,500 to $10,000 per month. This kind of facility provides full-time care, and approximately 75 percent of all Ohio nursing home residents are enrolled in the Medicaid program.

Long-Term Care Insurance

Long-term care insurance is a viable means to fund long-term care while protecting the estate. Long-term care insurance is a general category that includes several options. It generally provides either a lifetime benefit or a per day benefit for nursing home or in-home care under certain circumstances.

Traditional long term care insurance is offered by a number of companies. It usually  provides a per-day benefit and often includes a benefit of one-half that amount for in-home care. These policies typically come in three-year, five-year or lifetime increments. Like other forms of insurance, increasing the daily benefit or reducing the elimination period increases the premium.

Hybrid life insurance policies contain both a life insurance component and a long-term care insurance component. These policies typically require a single premium. Many top companies offer such policies. The benefit of these hybrid policies is the certainty that the insurance policy will actually pay off in the long run, either when long-term care is required or at death.

Medicaid Qualified Personal Residence Trusts (QPRT)

This is a special kind of irrevocable trust that can be used to transfer a home or other assets to children, yet allow the parent to continue to live in the home.

The trustee must allow the parent to continue to use the home rent-free for a fixed number of years specified in the trust instrument (the “fixed” term). When the fixed term ends, the home is distributed to the heirs or remains “in trust” for them.

After the fixed term ends, the parent can continue to use the home and enter into a lease allowing the parent to live in the house. In terms of Medicaid planning, the assets held within the trust are not counted as resources for Medicaid eligibility purposes and the funding of the trust initiates the five-year lookback period described above after which the funding no longer is subject to Medicaid’s transfer of asset rules. Further, the transfer to the trust is not considered a completed gift for tax purposes, allowing a basis “step up” at death. This type of trust is very complex and careful drafting is essential.

Estate Recovery

At the death of the applicant, Medicaid can recover costs paid on behalf of the applicant from the applicant’s estate if the applicant is permanently institutionalized or age 55+. Estate includes any asset in which the applicant had a legal interest at death. No recovery can occur if the spouse or child of the applicant who is younger than 21, blind or disabled is alive. 

Home: No recovery may be made against the home if occupied by the spouse, the applicant’s sibling who resided in the home for at least one year immediately before institutionalization and continuously thereafter, or the applicant’s child who resided in the home for at least two years immediately before institutionalization and continuously thereafter and who during those two years provided care delaying institutionalization.