Note: The allowances and income and resource limitations referenced in this blog are subject to periodic change and this info should not be relied upon without consulting with an attorney at the relevant time.
In general, everyone is entitled to enroll in Medicare when they turn 65, which acts as their health insurance for general health care, hospital or doctor visits. However, while Medicare and supplemental plans may pay for rehab for the first 20 days and a portion up to the 100th day in some cases, Medicare does not pay for long-term care in a skilled nursing or assisted living facility.
The average monthly cost of a skilled nursing facility is around $9,500. This means you could easily spend through a lifetime of savings in only a short couple of years in a long-term care facility.
While long-term care insurance and VA benefits may offer a small stipend towards payment, the only program available for full payment for long-term care in a skilled nursing facility is Medicaid which is a needs-based governmental program. This means you have to qualify under the hundreds of pages of Medicaid regulations and be deemed unable to pay your own way to receive Medicaid. As a disclaimer, the rules discussed in this blog pertain to benefits in a skilled nursing facility and not an assisted living facility which has a different set of rules to be discussed in a future blog.
When there is no spouse at home, you can qualify for Medicaid when your countable assets are less than $2,000 and you are not sanctioned by the dreaded 5-year review.
What is the 5-year review (aka 5-year look back)?
The 5-year review is a full financial audit of all your financial accounts open at any time in the five years immediately preceding a Medicaid application. The 5-year review looks for any instances of giving assets away or selling assets below fair market value.
Medicaid sanctions you for a full month for every $7,110 given away in the five years immediately preceding a Medicaid application. A sanction is a waiting period during which time you cannot receive Medicaid benefits.
Example: You are applying for Medicaid and conveyed a parcel of real estate to one of your children 4 years and 8 months prior to filing for Medicaid. The tax value of the parcel at the time you deeded the parcel to your child was $71,100. If otherwise eligible for benefits, you will be sanctioned for a period of 10 months. $71,100/$7,110 = 10-month sanction.
As you can see, the harshest part is that the sanction does not begin until you are in a nursing home and have less than $2,000 in countable assets. You can essentially go broke and still not be eligible for Medicaid due to the 5-year review. This means your children could be forced to use their own personal funds to pay privately during the waiting period.
Additionally, what Medicaid counts as gifts are often not in line with what may be actual gifts. Medicaid often penalizes applicants for writing checks to cash or making cash withdraws if they are unable to prove the cash was used for the applicant’s own benefit. Medicaid also penalizes applicants if they have sold assets for less than fair market value in the prior 5 years. The gift is based on the difference between fair market value and the sales price.
What is the purpose of the 5-year review?
When asking the government to pay thousands of dollars a month on your behalf, the application process is going to be rigorous. If you could just give all your property away to your children when you needed Medicaid, it would be relatively easy to obtain Medicaid and everyone would do so, right? The State of North Carolina wants to ensure that Medicaid applicants do not transfer property out of their name for the purposes of qualifying for Medicaid.
Countable versus non-countable assets:
The list of non-countable assets is a very short list which includes but is not limited to your personal residence up to a maximum value of equity unless occupied by a dependent, one essential vehicle, a certain type of preneed funeral contract, household furnishings and certain types and values of life insurance. All assets not included in one of the non-countable categories are countable.
Although Medicaid does not count certain assets against an applicant while they are alive, once they have passed away, Medicaid contracts with a third-party to file claims against the estates of Medicaid recipients for the amount the State paid on the Medicaid recipient’s behalf.
Example: Tom qualifies for Medicaid because he only owns his home and $500 in his bank account. He is not deemed to have made any gifts in the 5 years immediately preceding the application. Tom receives benefits for 12 months before he dies and Medicaid pays $75,000 in benefits on his behalf. Medicaid will file a claim against Tom’s estate and force the house to be sold in order to reimburse itself for the 75k paid for Tom. Therefore, even though all of your assets are not be countable for Medicaid purposes, they are all recoverable. Accordingly, all of your assets must be dealt with by an astute Medicaid planner to make sure they are protected from estate recovery. Generally, the only exceptions to Medicaid estate recovery is when the Medicaid recipient’s estate does not exceed $5,000 in value or total benefits paid were less than $3,000.
Despite the harsh and complex rules, there are ethical and legal strategies which can be employed by an astute estate planner to help your family if you should ever need long-term care in a skilled nursing facility. A basic understanding of the outline provided in this blog can make it easier on your estate planning attorney should you need long-term planning.
A couple of tips would be to avoid writing checks to cash and making large cash withdrawals in your elder years, use a debit card when possible for the best paper trail and always consult with an attorney before making outright transfers to children or other family members or selling assets below fair market value.
To begin your long-term care planning, speak with one of our estate planning attorneys.