People I meet with often share things they have heard about Medicaid. “My neighbor told me … ,” or “my uncle’s experience was … ,” but normally as we speak, there are missing pieces of information to the puzzle. Everyone’s situations are different, and without the details, it’s hard to apply the rules. Not knowing the details and the rules has led to many myths about exactly who qualifies for Medicaid, what coverage it provides, and what assets can be protected and when. I’d like to share with you five myths regarding Medicaid’s Long-Term Care Coverage followed by “the rest of the story.”
Myth: “Medicare will pay for my nursing home stay.”
Well, let’s talk about this. Medicare is the federal health insurance program for people who are 65 years of age and older, certain people under age 65 who are receiving Social Security Disability Insurance, and people with End-Stage Renal Disease. You must be aware that Medicare's coverage of nursing home care is very limited. Medicare covers only up to 100 days of “skilled nursing care” per “spell of illness” (20 full pay days and an additional 80 co-pay days). To qualify, there are three main requirements. First, you must enter a Medicare-approved “skilled nursing facility” within 30 days of a hospital stay that lasted at least three days (meaning admission as an inpatient; “observation status” does not count). Second, the care in the nursing home must be for the same condition, or a condition that is medically related to the condition, that caused the hospital stay. Third, the care received must be daily care at a “skilled” level which cannot be provided at home or on an outpatient basis. The care must be ordered by a physician and delivered by, or under the supervision of, a professional such as a physical therapist, registered nurse, or licensed practical nurse. End game: Medicare coverage is minimal, so you will need an alternate plan to pay for long-term care in an assisted living facility or nursing home.
Myth: “Only people who are broke qualify for Medicaid.”
Most people I meet with don’t want to spend their entire life’s savings to be eligible to utilize Medicaid as a payment option for long-term care. The misconception arises because Medicaid is a state-run program intended to help low-income individuals pay for long-term care. However, I regularly explain to people that you do not need to be completely penniless to qualify. In Wisconsin, a single Medicaid applicant can have no more than $2,000 in “available” assets to be eligible to receive benefits. The spouse of a Medicaid applicant, also called the “community spouse,” may retain as much as $126,420 without jeopardizing the Medicaid eligibility of the spouse who is receiving long-term care. Certain “exempt assets” (a house, a car, and personal possessions such as clothing, furniture, and jewelry) do not impact eligibility. I recommend different planning options based upon your individual situation. More specifically, my recommendations depend on whether you are proactively anticipating the need for future assisted living or nursing home care vs. emergency planning for imminent care needs.
Myth: “If I give my money to my children, then Medicaid can’t take it from me.”
While technically true, this won’t work. The state will look at all gifts you’ve made within the five years before you applied for Medicaid. This is known as the “Five-Year Look-Back.” After you make a gift (i.e., giving your children your money, house, or other assets for less than fair market value), which Medicaid calls a “divestment”, Medicaid will impose a penalty. The length of the penalty period depends, in part, on the amount of money you give away. This penalty is a period of time during which you will be ineligible for Medicaid, and you will need to find an alternative way to pay for your care. This often means self-paying. If you’ve given away your assets, you no longer have the money that you would need to self-pay, so you must either ask for the gifts back or seek alternative options, which are often even less desirable. However, this doesn't mean that you can't transfer assets at all -- there are limited exceptions (for example, you can transfer money to your spouse without incurring a penalty). I highly encourage my clients to speak to me before transferring any assets, so their planning will not be negatively impacted. Pre-planning your asset protection will avoid, or greatly reduce, the impact of the Five-Year Look-Back.
Myth: “I can give away up to $15,000 a year under Medicaid rules.”
Not True. Here, we have confusion between gift tax rules and Medicaid rules. You can give away up to $15,000 a year without incurring a gift tax. However, under Medicaid law, as noted earlier, gifts are considered divestments. A gift of $15,000, or any other significant amount of money, could trigger a penalty period if it was made within the Five-Year Look-Back.
Myth: “We have a prenuptial agreement, so my assets won’t be counted if my spouse needs Medicaid.”
Unfortunately, this too is a myth. A prenuptial agreement only works to keep property separate in the event of death or divorce. For Medicaid eligibility purposes, a prenuptial agreement does not keep your property separate. Medicaid will deem the assets owned by either spouse available resources.
Unfortunately, there are more than these 5 myths that exist about Medicaid’s long-term care coverage. It’s important to consult an elder law attorney before making assumptions based upon comments you hear in passing. Everyone has a different situation, including you. I encourage you to seek planning early and look to an elder law attorney who can help you down the path that’s right for you.