Medicaid and Nursing Homes

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Nursing Homes and Medicaid

How the government can help pay nursing home bills.

The fourth and final way to pay for nursing home care is to have the government bear the cost. In fact, nearly half of all nursing home residents have their bills paid by Medicaid.

To be eligible for Medicaid, you must be considered medically needy and in need of assistance. In general, this means that your income and assets must fall below certain levels established by the government. These levels are very low, and so in most cases older Americans in the middle class don't automatically qualify for Medicaid. To obtain Medicaid benefits, they must "spend down" their assets until they are poor enough to be eligible. In a few states, however, no matter how much spending down of assets you do, you will remain ineligible if your income exceeds a specified level.

Medicaid considers the assets and income of both spouses when one or the other seeks nursing home benefit payments. All of the couple's "countable assets" are combined and divided equally between them. Countable assets include stocks, bonds, bank accounts and certificates of deposit, as well as investment property, vacation homes and second vehicles.

Non-countable assets include your primary residence, a car, household effects and personal jewelry and clothing, as well as a prepaid funeral or burial account. Life insurance policies may be either countable or non-countable, depending on whether or not you have a cash value policy (countable above a certain value) or a term policy (non-countable). Other kinds of assets may be either countable or non-countable, depending upon how your state has categorized them. Your state Medicaid office can provide the exact lists it uses to categorize assets.

The spouse who is not entering the nursing home (called the "community spouse") is allowed to keep all of his or her own income, and half of all joint income, up to a maximum amount established each year. If the amount falls below the poverty line for a family of two, then the community spouse may receive additional allowances from the income of the other spouse (called the "institutionalized spouse). And if housing costs for the community spouse are very high, or if other dependents of the institutionalized spouse live with the community spouse, some additional allowances may also be made.

While in many cases potential Medicaid recipients spend down their assets by paying for nursing home care out of their own pockets, there are some strategies that can be followed to protect your children's inheritance. These strategies allow you to transfer assets to family members, or create a trust, and still qualify for Medicaid.

Transferring assets to your spouse doesn't really help, since as we've already seen Medicaid takes the assets of both spouses into account when determining eligibility. You must transfer your assets to others, such as your children, in order to remove them from consideration by Medicaid. And you cannot simply transfer them one day and enter a nursing home the next at Medicaid's expense.

Under federal law, you must be denied eligibility for Medicaid if you give your assets away or sell them for less than their fair market value within 36 months of applying for Medicaid. If you place assets in an irrevocable trust, you'll incur a waiting period of 60 months. These are known as "look-back" periods.

For example, suppose you gave your vacation condominium worth $90,000 to your daughter and then applied for Medicaid. In your state, the average monthly cost of nursing home care is $3,000. As a result, you would be ineligible for Medicaid for 30 months (90,000 divided by 3,000).

Some kinds of transfers are exempted from the ineligibility rules. For example, you may transfer your assets to your spouse without incurring a penalty. However, if you transfer assets to your spouse, and your spouse then transfers those assets to a third person, the ineligibility period does apply to those transfers.

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