LONG TERM CARE AND MEDICAID ELIGIBILITY PLANNING OVERVIEW

The purpose of this memorandum is to acquaint you with the provisions of federal and New York law which govern eligibility for Medicaid benefits for long term nursing home care and the so-called “transfer of assets” rules which can render a person ineligible for Medicaid benefits based on gifts made by that individual or their spouse. The recently passed Deficit Reduction Act of 2005, which was adopted by New York State effective August 1, 2006 for transfers made after February 8, 2006, made drastic changes to the Medicaid eligibility rules.

Medicare vs. Medicaid

Medicare is a federally administered health insurance program which covers persons age 65 and over (and in some cases, disabled persons under age 65). Medicare recipients are required to pay premiums for their coverage and personal income is not a factor in determining Medaid eligibility. Medicare, in general, does not cover the cost of long term nursing home care.

In contrast, Medicaid is a “needs based” medical assistance program which is jointly administered by the federal and state governments. For eligible recipients of any age, Medicare covers a wide range of medical services, including long term nursing home care. This memorandum will focus mainly on eligibility for coverage of long term nursing home care through an award of Medicaid benefits.

Who is eligible to receive a Medicaid award to pay for nursing home care.
Savings and Income Limits.

In 2008, single individuals who reside in a nursing home (or a married individual whose spouse also resides in a nursing home) are eligible for Medicaid benefits if they have no more than $13,050 in savings and $50 per month in income. Savings in excess of the $13,050 allowance must be “spent down” before an individual may qualify for a Medicaid award. Any monthly income in excess of the $50 monthly “personal needs allowance” must be paid directly to the nursing home and will be used to reduce the monthly Medicaid award.

For married couples where one spouse resides in the nursing home and one spouse resides at home (the “community spouse”), in addition to the above, the community spouse is entitled to retain a maximum of $104,400 in savings and $2,610 in monthly income. In general, any savings or income in excess of these limits must be contributed towards the care of the spouse residing in the nursing home. The community spouse, however, may refuse to contribute savings and income in excess of the above limits towards the care of the spouse residing in the nursing home. In such case of a “spousal refusal,” the New York Department of Social Services (“DSS”) may seek to recover the excess savings and income.

Exempt Assets

In addition to the above savings and income limits, a person may keep additional assets which by statute are declared “exempt” and are thus ignored when determining Medicaid eligibility. The most significant exempt asset is the individual’s home, so long as the home does not have equity in excess of $750,000 and so long as the individual declares an intent to return to the home, should they be able to be discharged from the nursing home. If an individual in a nursing home cannot declare an intent to return home, the home is still exempt (even if it has equity in excess of $750,000) if any one of the following persons resides in the home: the individual’s spouse or child under age 21, or any child over age 21 who is blind or disabled.

In New York, an individual retirement account or the assets in a pension plan are generally considered resources which must be contributed towards the cost of nursing home care unless the individual has begun taking his or her “required minimum distributions” after age 70 ½. In this case, the account assets themselves are no longer considered available to pay for the nursing care, but the annual distributions count as income which must be contributed towards the cost of care.

Other exempt assets are an automobile, a pre-paid burial fund and life insurance with a nominal cash surrender value.

Transfer of Assets Rules

The general rule is that you must “spend down” your non-exempt assets (presumably on nursing home care) before you can become eligible for a Medicaid award. The transfer of assets rules, contained in New York Social Services Law §366, prevent you from gifting away your assets (exempt and non-exempt) for the sole purpose of obtaining a Medicaid award.

The “look back” period. When an individual applies for Medicaid, DSS will review the individual’s records for a period of time to determine whether any gifts were made. That period of time is commonly referred to as the look back period. Prior to February 8, 2006, the look back period was three years, for most transfers, and five years for certain transfers involving trusts. For applications for Medicaid benefits made after February 8, 2006, the look back period is five years for all transfers.

If there were any gifts made during the look back period which were for the purpose of Medicaid eligibility planning, a “penalty period” will be imposed and the individual will be declared ineligible for Medicaid benefits for the duration of the penalty period.

Calculation of the Penalty Period. The length of the penalty period is always measured in months and it is calculated by dividing the amount of the gift by the average monthly cost of nursing home care (as determined by DSS regulations).

Example: A makes a gift on October 15, 2006 of $50,000 to his daughter. On December 1, 2006, A goes into a nursing home and applies for Medicaid benefits. The average monthly cost of a nursing home in the Northern Metropolitan region (which includes Westchester County) is $8,724. $50,000 / $8,724 = 5.73. A is therefore ineligible for Medicaid benefits for 6 months.

Commencement of the Penalty Period. For gifts made prior to February 8, 2006, the penalty period commenced on the first day of the month after the month in which the gift was made. Thus, in the above example, if A had made the gift on January 15, 2006, he would have incurred a 6 month penalty period which would have begun to run on February 1, 2006 and which would have expired on July 31, 2006. Therefore, on August 1, 2006, A would have been eligible for Medicaid benefits.

For gifts made after February 8, 2006, the penalty period begins to run only after A begins to reside in the nursing home, applies for Medicaid benefits and would have been otherwise eligible for such benefits if it were not for the gift. Thus, in the example above, if the $50,000 gift he made to his daughter was his only asset, A would have been eligible for Medicaid benefits when he applied on December 1, 2006, but for the gift. However, because the gift, A is ineligible for Medicaid benefits for a period of 6 months, which begins to run on December 1, 2006 and is not eligible for Medicaid benefits until June 1, 2007. It must be asked, however, that since the $50,000 was A’s only asset, how will A pay for the nursing home until June of 2007, and will the nursing home even accept A if he has no means to pay for 6 months.

Transfers which do not cause a period of ineligibility. Certain transfers do not trigger the ineligibility rules. Any transfer to a spouse is exempt from the transfer rules, because the community spouse is required to use his or her assets to support the spouse residing in the nursing home (see above). A transfer of an individual’s residence to 1) a child who has resided in the home for at least two years and acted as a caretaker to the individual, 2) a sibling who is part owner of the residence, 3) transfer of the residence to a blind or disabled child.

Also, if it can be shown that the asset was transferred for a purpose other than creating Medicaid eligibility, or if the gifted asset is returned, the ineligibility rules will not apply.

Liens for Medicaid Benefits Paid

In some instances, DSS can put a lien on the property of a Medicaid recipient for the purpose of recovering benefits paid. DSS can also recover benefits from the estate of a Medicaid recipient who has died.

Planning

The recently adopted changes in the Medicaid eligibility law have made it imperative that long term care planning be addressed much earlier than was necessary under the prior law. It is also important to note that actions that you may take to plan for your long term care may be inadvisable from and estate tax or income tax planning perspective. Therefore, if you are considering long term planning for yourself or a loved one, it is important to discuss and understand the benefits and drawbacks of all the options that are available.

PLEASE NOTE THAT THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ADVICE. EVERY SITUATION IS UNIQUE AND IF YOU ARE CONFRONTED WITH A MEDICAID OR OTHER ELDER LAW ISSUE, WE ENCOURAGE YOU TO MEET WITH US SO THAT WE CAN GIVE YOU ADVICE SPECIFICALLY TAILORED TO YOUR NEEDS.