(This is a modified copy of an article Randy Clinkscales recently wrote for the Kansas Senior Times. It is the first part of a two-part series on when to apply for Medicaid. If you have questions after reading this series of articles, feel free to contact our office.)
A common question that I get called about is, “When do I apply for Medicaid?” No matter what anyone tells you, it is not an easy question to answer, and it certainly is not a question that can be answered without knowing all of the factors of each particular case. The consequences of applying for Medicaid at the wrong time can be devastating to both the applicant, the applicant’s spouse, and even the applicant’s family. Not only can the timing be financially devastating, it can jeopardize the health and safety of the applicant.
Let’s look at the process and what the Medicaid laws intend (as they pertain to the elderly needing nursing home care). Medicaid laws intend to provide benefits to the indigent (poor) individuals (basically with no more than $2,000 in assets). The laws also protect certain exempt property that will not be calculated toward the $2,000 figure. So, the person in the nursing home applying for Medicaid is allowed no more than $2,000 in assets, plus certain exemptions (we will refer to this person as the “institutionalized spouse”).
However, long ago the Medicaid laws were changed so as to not make poor the spouse who is not in the nursing home (the “community spouse”). To avoid “impoverishing” the community spouse, the law allows for a “division of assets,” which allows the community spouse to keep one-half of the couple’s assets, but not more than $99,540 (this number changes periodically).
When one of the spouses enters a nursing home, that event creates a “snapshot” of the couple’s assets. However, that snapshot can be triggered earlier – even before entering the nursing home. It is from this snapshot that the total assets of the couple are determined, and the spend down can then begin (the spending down of the institutionalized spouse’s onehalf of the assets).
The filing of the Medicaid application triggers other events. You obviously cannot be eligible for Medicaid until you apply. However, the Medicaid application can seek a determination of qualification for the three months prior to the application — but no more.
After the application is filed, certain transactions cannot be made without incurring a penalty. While the law provides for no penalty for transfers between spouses, the filing of the Medicaid application can cause issues with Medicaid officials if the transfers between the spouses involve the home or other such exempt or income-producing property.
The filing of the Medicaid application also sets the date for the look-back period (the period that Medicaid will look back to see if there were any uncompensated transfers or gifts). Let’s take a few examples and apply some numbers.
Bill and Sally have $200,000 in assets. Bill suffers a massive stroke, completes his rehabilitation process, and is placed in a nursing home. In three and one-half years, the couple will go through approximately $175,000 paying Bill’s nursing home care costs (based on average nursing home care costs in Western Kansas of $4,000 per month). If the couple applies for Medicaid now (with only $25,000 remaining in assets), the most that Sally can keep is the $25,000 — because that is all that is left. Most likely, she will only be entitled to keep the minimum, approximately $20,000, provided by law. The remainder will need to be spent down.
There is nothing that Medicaid can do to help the situation. In this scenario, Bill and Sally impoverished Sally by waiting too long to apply for Medicaid.
If, however, Bill and Sally would have applied for Medicaid when Bill had first gone into the nursing home, they would have been denied benefits, but could do a division of assets. As a result, Sally would have set aside to her $99,540. The remaining $100,460 would have to be spent down. Even without additional planning, Bill will qualify for Medicaid in two years. Then Sally will have retained the $99,450. (With proper additional planning, Bill may be eligible for Medicaid even sooner.)
Let’s take the same couple in another scenario. Bill and Sally had a farming operation. In January 2002, the couple retired and turned over their farm to their children, gifting it to them. The value of the farm is $300,000. Two and one-half years later (July 1, 2004), Bill has a devastating stroke and goes into the nursing home. Again, the couple has the $200,000 that they had saved. Bill and Sally are told to apply for Medicaid, so that the division of assets can occur. By filing the Medicaid application, Medicaid will look back and see the transfer that occurred two and one-half years ago. As a result, Bill will be disqualified for 100 months (or until October 2010). Clearly, Sally will be financially devastated. She and Bill will run out of money in 2008. In addition, because the nursing home is not obligated to care for Bill, he will be discharged from the nursing home when Sally and Bill no longer can pay for his care, potentially exposing Bill to danger because of his very fragile health. Sally ends up trying to take care of a person who needs nursing home care, and her own health will quickly decline because of her efforts. (Many will say Bill and Sally need to go back to their children for help. That is fine, but the property may no longer available, perhaps due to divorce, debt, bankruptcy, and so on.)
However, if Bill and Sally would have waited six months longer to apply for Medicaid and self-payed for the nursing home care ($4,000 times 6 months), their assets would be reduced to $176,000. Sally would keep one-half of that ($87,000), and Bill would be eligible no later than when his one-half of the assets is spent down to $2,000 (about 1 1/2 years). There would be no 100-month penalty (because the three years would have passed since the date of the transfer and the Medicaid application). The result is that Sally is not impoverished, Bill qualifies for Medicaid and gets the nursing home care that he so desperately needs, and Sally is able to take care of herself without the burden of caring for an uninsured nursing home resident.
Note that under the new law passed on February 8, 2006, the results would be even more devastating to Bill and Sally if they apply too soon. Under the new law, the look-back period is five years, and the disqualification period rules have changed as to when the disqualification period begins to run.
To summarize, under our scenario, too early an application will be terribly destructive to the family, their resources, and even their health. By filing at the appropriate time, Sally is protected and is not impoverished, and Bill qualifies for Medicaid.