Medicaid – A Long-Term Care Planning Tool

By Jessica L. Estes

Medicaid is a needs-based benefit available to individuals who are within certain income and asset limits to help pay for their long-term care. In the Baltimore-Washington metro area, the average cost of nursing home care per month is $12,000, or more. Most people do not receive that much income monthly, especially those who are retired.

Moreover, it is more likely than not that one will require some form of long-term care in their lifetime. And, unless a person has long-term care insurance or enough assets to supplement their income to cover the cost, likely they will have to apply for Medicaid. Generally, health insurance will not pay for this type of care.

Medicaid is a federal program that is administered by each state. Although the federal rules provide the basic guidelines for Medicaid eligibility, it is up to each state to implement and interpret the federal rules. So, each state’s rules are different. There are three basic criteria that one must meet to be eligible for Medicaid: (1) technical eligibility, (2) medical eligibility and (3) financial eligibility.  

Technical eligibility is met if you are: (1) aged 65 or older, blind, or disabled; (2) a U.S. citizen or resident alien; and (3) a Maryland resident. For Medicaid purposes, you are considered a Maryland resident if you are admitted to a long-term care facility in Maryland. Medical eligibility is established when a person requires skilled nursing care or assistance with at least three activities of daily living.  The activities of daily living include walking, bathing, dressing, eating, transferring and maintaining continence. Most people meet both the technical and medical eligibility criteria if they reside in a long-term care facility.

However, the third criteria – financial eligibility, looks at an individual’s income and assets. So long as a person’s income is less than the monthly cost of care at the facility, he or she passes the income test. But, the asset rule requires that a person not have more than $2,500 in countable assets. Countable assets include bank accounts, investment accounts, stocks, bonds, retirement accounts such as IRAs, college savings plans (529 plans), real estate that is not one’s primary residence and that is not income-producing, and whole life insurance policies whose face values total more than $1,500. If the total face values of all countable policies are more than $1,500, then the cash values of the policies will be considered countable assets for Medicaid purposes.

Because of the $2,500 asset limit, most people – the middle class – must “spend down” their assets below $2,500 before they will be eligible for benefits. At $144,000 per year or more for nursing home care, that will not take long. And, even though the state does provide some spousal protection, it is minimal.

Further, once an individual meets the three basic criteria, the State then looks back five years from the date of the application to see if an individual has given away assets for less than fair market value. The five-year period during which the State has the right to look at all your financial records, including bank statements and tax returns, is called the “look-back” period. If the State finds that you have given away assets for less than fair market value during the look-back period, it will total all the gifts and then divide by $11,513 (in 2024), which is the average monthly cost of nursing home care in Maryland. The resulting figure is the number of months that a person will be under penalty and for which the State will not pay benefits.  Rather, an individual will have to pay privately during that penalty period. But, because the penalty does not start until one has applied for and been approved for benefits, his or her assets already have been spent-down and he or she has no funds with which to pay during the penalty period. This is not a situation in which you want to be.

There are, however, asset protection strategies that are available to preserve one’s assets while still qualifying for Medicaid. These can include the use of asset protection trusts, single premium immediate annuities in the case of spouses, personal care contracts, promissory notes and strategic gifting. To be clear, though, strategic gifting is not giving away up to $18,000 per year to any number of individuals. That is a tax planning strategy and those gifts could be subject to penalty. If you have not already planned for your long-term care, it is never too soon. Given that most people do not have long-term care insurance and that approximately 70% of people over age 65 will require some form of long-term care in their lifetime, long-term care planning should be part of your estate plan. Especially Medicaid planning, if you intend to leave any assets to your beneficiaries.

Jessica L. Estes is an elder law and estate planning attorney at ERA Law Group, LLC in Annapolis.  She can be reached at (410) 919-1790 or via email at [email protected].

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