Tuesday, January 20, 2009

My Parents' Medicaid Eligibility

Returning to the subject of Medicaid: after the previous post talking about general Medicare and Medicaid issues, here's more on the specific case of how my parents might pay for a nursing home... please, as you read this, remember that these are not the words of an expert. They are the words of someone who has tried to research the issues and who has spoken to a lawyer a few times, all while being stressed out and confused and grasping at anything she can do to feel like she's helping her parents deal with a terminal illness-- in other words, I may be wrong about a lot of things, but this is how I'm muddling through.

As discussed before, when it comes to nursing homes, Medicaid is for people who don't have the cash to pay for it themselves. But because the cost of nursing home care is so astronomical, you don't have to be "poor" to need Medicaid, especially if you're married-- Medicaid acknowledges that the spouse who's not in the nursing home still has to have money to live on.
In the example of my parents, who are married, they will have to spend quite a lot of their own money before they qualify for Medicaid, but not all of it. The spouse who goes into a nursing home can keep a small amount of money for him or herself-- about $2,000 plus about $60 a month in income in my parents' case, I think. (If you're not married, that is literally all you get to keep. Medicaid will put a lien on your estate for repayment from anything that is left from the sale of a house, etc.)
The other member of the couple, referred to as the "community spouse," can keep the couple's house (at least if it's worth under $500k) and car. The couple can also keep enough money to cover burial plots and funeral expenses. Beyond that, the community spouse can retain income and assets up to an amount determined by the state you live in-- this is referred to as the CSRA, Community Spouse Resource Allowance. Where my parents live, my mother can keep up to about $110,000 worth of cash assets-- that may sound like a lot, but not if she has to live on it for 20 years. She'd also get to keep some portion of my father's pension and Social Security income, up to another state-determined amount referred to as a MMMNA, minimum monthly maintenance needs allowance. I had a hard time getting straight answers on how much this would be-- apparently housing is expected to be about 30% of it, and in my parents' state, the maximum may be about $2,500 a month, but it wasn't totally clear.
My parents house is probably worth around $400,000 or maybe less, so they don't have to worry about that. The rest of their assets are around $350,000. Subtract the $110,000 my mother can keep, plus about $20,000 for their funerals & burial, plus maybe $25,000-30,000 for a new car bought with cash, once the current one's lease is over. There are also some repairs and renovations needed for their house, which can be an allowable way to spend down your money, though the lawyer said it would be better to do all that before my dad went into a nursing home. All in all, my parents are probably left with at least $150,000 they'd have to spend before qualifying for Medicare while both of them are alive. Given that a nursing home can cost about $90,000 a year, the money wouldn't last all that long.
One thing my mother can do is use that $150,000 to buy an annuity that is in her name only-- that would then be income that she'd be able to keep more of, as opposed to an existing asset that has to be spent up front. But otherwise, there is nothing she can legally do to keep that money from being required for a nursing home before Medicaid kicks in. Theoretically, she could give away some of that money, or put it in a trust, etc. But these are all considered non-qualifying transfers that are subject to a 5-year lookback. If my parents' records were reviewed and any non-qualifying transfers were found in the past 5 years, my father's Medicaid eligibilty would be delayed by a number of months equaling the total amount of those transfers divided by the monthly cost of his care. Given that my father's entire life expectancy is far less than 5 years at this point, it would be crazy to mess around with this, even if my sister and I just used any money we'd been given to make up the gap of paying for the nursing home. But also, with that life expectancy, he might not live in a nursing home long enough to even spend down $150,000 and have to apply for Medicaid.

What about after my father is gone? My mother is still only in her mid-60s, so hopefully she will have many years to live. It should also, hopefully, be more than 5 years before she needs a nursing home. If she wants to transfer money to my sister and me, she can start giving us the maximum annual gift allowance amount each year, and we could somehow put the house in our names so she'd be in a position to qualify for Medicaid sooner.

The other thing that the lawyer advised us to do was for my parents to put all their assets in my mother's name only, and create a will that leaves everything to my sister and me, bypassing my dad. This is completely opposite to what my dad originally thought of doing, because of my mother's money management problems. And it's a change from the trust the lawyer recommended at first. His thinking was that if in some freak accident my mother ended up dying before my father, then all the assets wouldn't be my father's, leaving them to potentially be spent down to almost zero on a nursing home. It puts my dad in a risky position, because he's left with nothing, and has to trust that my sister and I would use the money to look after him. And I do worry a bit about my mother having sole control of all that money. But we're all trying to tackle this together, and in the end, we all believe that we'll take care of each other.

So that is my somewhat scattershot explanation of our situation, as I understand it. I feel really lucky that my parents do have savings and that they want to leave some kind of inheritance to my sister, her kids, and me. It's not fun dealing with all this stuff, but it's far better than having no money and no options.


Anonymous said...

Thank you for explaining this so well Madam X. It can be difficult to wrap your head around all the details and restrictions.

I dont know if your parents have longterm insurance? If so, would appreciate how that affects the Medicaid process (I assume you would not have left out such a detail, but just checking).

I'm sorry your family has to go through this. It is positive to hear though that your family pulls together and is willing to face the financials headon. I am in hospital finance and am very clear how healthcare is more than just actual medical care; many patients and families do not get the connection, don't cooperate (we are *evil* finance people arrgh!) and may have distasterous consequences as a result.

I'm grateful for you that you have a lawyer involved. I also like the gifting idea now "just in case". I know you would invest wisely and safely and be 100% willing to help either parent as needed.

Best wishes to you and your family during this difficult time.

Madame X said...

Thanks Anon-- and no, my parents have never had long-term care insurance, and at this point, I think the cost would be extremely high if they could get it at all. I may still explore getting it for my mother, but I can't imagine it would be viable for my dad.

Anonymous said...

Hi Madamme X-

Lots of great info-thank you. My father has Alzheimer's and doesn't have LTC. I'm going to purchase it for my mother because I'm afraid my father's illness will spend all the money. For my 68 year old mother who is in relatively good health it's about $3,500 a year and that will buy years of coverage. A tad pricey but worth it in my opinion. If your considering LTC insurance I would do it soon it gets more expensive as the insured gets older.

I totally agree with your last sentence-it's far better than having no money and no options. I tell my mother that all the time. I have no idea how people with limited funds get through these difficult situations.

Also, how is your father doing?

Anonymous said...

Edit to above-$3,500 will buy 5 years of coverage.

Anonymous said...

Hello Madame X,

Thank you for sharing all this information with us. I feel like you are doing in advance all the research that I will one day soon have to do. And you are really making it easier for me and all your readers. I know you're not a lawyer, but seeing what you are going through at least lets me know the kinds of questions I will need to ask.

I feel so frustrated sometimes, because when I think of you and your father at this stage in his life, it should just be about spending time together and remembering good times. It shouldn't be about the mountain of bureaucracy and tax law that you are wading through.

But you are such a positive person to say that your family is in a much better situation than so many other families! You are an inspiration.

Best of luck to you and your family.

mOOm said...

This all does sound very complicated... BTW the annual maximum gift is irrelevant as I understand it in your case. Any money given above that maximum gift amount each year can be counted against the tax free amount of the estate for inheritance tax purposes. The estate here is going to come in below the likely tax free level anyway, so in theory your parents could give the whole lot away tax free right now (that's the way I understand it but could be wrong as it is complicated and I'm no longer focused on US taxes). But that would presumably be a non-qualifying transfer from the point of view of Medicaid in your father's case.

Anonymous said...

Hi Open Wallet,

Have you yet talked to someeone in the federal Medicaid program?

I strongly encourage this; you will know clearly what your Dad will/when qualify.

The agency that manages Medicaid has gotten way stricter with families and in looking into their finances.

If they see that family assets have been sold or 'transferred' just to qualify for Medicaid, that is seen as not good.

I don't want to alarm you but please talk to someeone else beside this attorney.

Anonymous said...

Thank you for this post.

Madame X said...

Moom- my parents are definitely well under the cutoff for the estate tax-- the law would have to change drastically for it to affect them. But it's my understanding that if they gave me less than that gift allowance amount, then I wouldn't have to pay taxes on it-- but I may be wrong! I'm looking into it.

Madame X said...

Karen-- thanks for asking after my dad. He's been in and out of the hospital a lot and hasn't gone restarted his chemo treatments yet. We're starting to wonder if the length of life/quality of life balance points towards him just not doing any treatments, but that is a very sad and difficult decision to have to make.

And Anon 3;29, you are right-- I wish my parents could just be enjoying an uncomplicated retirement at this point rather than worrying about so many things, but unfortunately it is not to be.

And thanks Finance Girl, we are definitely not giving away or trying to hide any money at this point and we'll certainly be talking to someone in a Medicaid office when and if the time comes.

Thanks for the kind words, everyone.

mOOm said...

My understanding of the US gift tax is that the recipient never has to pay taxes on gifts. If the gift is over $12,000 in a year then the giver has to pay a gift tax or they can deduct that gift against their "uniform credit" and it reduces the amount they can leave tax free when they die. I could be wrong but that was what I thought. Here (Australia) and in Israel (where my mother lives) we don't have inheritance taxes so its not something I've dug that much into.

Tired of being broke said...

Your explanation of the Medicaid process is a very good breakdown for someone not involved in longterm care. I can tell you that you are way more prepared that many of the family I came across during my days working at a nursing home in their billing office. This preparation will help you a great deal if and when your dad needs nursing home care.