Medicaid is a healthcare program that is predominantly funded by the United States federal government; however, the individual states have the option to supplement funding and expand on the coverage mandated by the federal government. Medicaid is also administered by the individual states, meaning the eligibility guidelines and benefits offered will differ somewhat from one state to another. Basic Medicaid typically covers things such as:
- Doctor visits
- Hospital stays
- Emergency care
- Preventative care
People often confuse Medicaid and Medicare and/or use the two names interchangeably. Although both offer healthcare benefits, they are two very different programs. Like Medicaid, Medicare is funded by the U.S. government but is also administered by the federal government. Medicare is an entitlement program, meaning that as long as you paid into the program during your working years, you are automatically entitled to benefits when you turn 65. Medicaid, on the other hand, is a “needs based” program, meaning you must demonstrate a financial need for the benefits offered by the program.
As you age, your odds of eventually needing long-term care (LTC) increase dramatically. At retirement age (age 65), you already stand a 50 percent chance and by age 85 those odds will have increased to a 75 percent chance. As of 2018, the average yearly cost of LTC in New Hampshire was over $133,000. With an average length of stay of three years, you could be facing a LTC bill of well over $400,000. Making matters worse is the fact that neither Medicare nor your basic health insurance coverage will likely cover LTC expenses, leaving you to pay out of pocket unless you are eligible for Medicaid.
Your eligibility for Medicaid is determined, in part, by the income and asset limits imposed by the program. The income limits are tied to the Federal Poverty Level, or FPL. The FPL, in turn, changes each year and is determined by your household size and geographic area. The “countable resources” limit refers to the value of your non-exempt assets. In many states the countable resources threshold is only $2,000 for an individual.
Some assets, such as a primary residence up to a certain equity limit, are exempt; however, it is very easy to exceed the asset limit if you failed to plan ahead. Each state decides what assets are exempt. Common examples of exempt assets include:
- Your primary residence up to an equity cap
- Household goods and furnishings
- One vehicle
- Term life insurance
- Burial plot
If the value of your non-exempt assets exceeds the resource limit when you initially apply for Medicaid, your application will be denied. Transferring assets in contemplation of applying for Medicaid won’t work because Medicaid uses a five-year “look-back” period. The look-back rule allows Medicaid to review your finances for the five-year period prior to application for any asset transfers made for less than fair market value. If any are located, Medicaid may impose a waiting period based on the value of the asset transferred. The way to avoid finding yourself in this situation is to incorporate Medicaid planning into your estate plan long before you are likely to need to qualify for Medicaid.
If your assets exceed the countable resources limit when you apply, you may be required to “spend-down” your assets. Basically, this means you will be expected to rely on your non-exempt assets to cover your LTC costs. When your assets drop below the $2,000 limit, Medicaid will start helping with your LTC expenses.
Given the Medicaid spend-down requirements, you may be concerned that a community spouse will be left with no resources if you need to qualify for Medicaid. Fortunately, that is not the case thanks to the Medicaid spousal impoverishment rules. The spousal impoverishment rules allow a community spouse to keep some income and assets when the other spouse goes into long-term care.
Medicaid planning uses legal tools and strategies to protect your assets and help ensure your eligibility for benefits in the event you need them in the future. For example, you might establish a Medicaid trust, which is an irrevocable living trust into which you would transfer non-exempt assets. When Medicaid planning is incorporated into an estate plan early on, it drastically increases the odds of qualifying for benefits while decreasing the likelihood of losing valuable assets in the process.