Medicaid (Medi-Cal in California) and Medicaid Planning
are becoming huge issues for most of us. It is helpful to know the basics.
Medicaid is the single largest payer of nursing home bills in America and is the last resort for people who have no other way to finance their long-term care. Nursing homes can cost between $40,000 and $180,000 a year. In California in 2014 the median cost of a semi-private room was over $86,000. A private room was $104,000. Most people qualify for Medicaid only after they have used up most of their savings.
Eligibility for Medicaid depends on your state's asset and income-level requirements.
In addition to you meeting your state's medical and criteria for nursing home care, your assets and monthly income must each fall below certain levels if you are to qualify for Medicaid. Fortunately, several assets (which may include your family home) and a certain amount of income may be exempt or not counted. Medicaid planning can help you meet your state's requirements without spending down all your assets. To determine whether you qualify for Medicaid, your state may count only the income and assets that are legally available to you for paying bills. (Countable assets). Medicaid planning helps you devise ways of making your assets and income inaccessible.
You may be able to exchange countable assets for exempt assets.
Countable assets are those that are not exempt by state law: exempt assets may include the family home, prepaid burial plots and contracts, one automobile, and term life insurance. Through Medicaid planning, you can rearrange your finances so that countable assets are exchanged for exempt assets or otherwise made inaccessible to the state. For example, instead of spending your savings solely on nursing home bills, you can pay off the mortgage on your family home, make home improvements and repairs, pay off your debts, purchase a car for your healthy spouse, and prepay burial expenses.
Irrevocable trusts arranged well in advance (not revocable trusts) can help you leave something for your loved ones.
Property placed in an irrevocable trust will be excluded for Medicaid purposes. If you name a proper beneficiary, the principal that you deposit into the trust (and possibly any income generated) will be sheltered from the state and can be preserved for your heirs. Typically, though, the trust must be in place and funded for a specific period of time for this strategy to be an effective Medicaid planning tool.
There are Medicaid planning risks. You risk disqualification and estate recoveries. Get professional help.
Medicaid planning is more effective in some states than in others. In addition, federal law encourages states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. This means that your state may be able to place a lien on your property while you are alive, or seek reimbursement from your estate after you die.
When you apply for Medicaid, the state has the right to review, or look back, at your finances (and those of your spouse) for a period of months before the date you applied for assistance. In general, a 60-month look-back period exists for transfers of countable assets for less than fair market value (for transfers made prior to February 8, 2006, there's a look-back period of 60 months for transfers into an irrevocable trust and a look-back period of 36 months for all other transfers). Transfers of countable assets for less than fair market value made during the look-back period will usually result in a waiting period before you can start to collect Medicaid.