The good news is that the well spouse of a long-term care patient need not be completely “cleaned out” before the ill spouse can qualify for Medicaid benefits. Whether any individual will qualify, however, is a complicated question, and the way the Medicaid program is administered varies somewhat between states. I’ll address the high points for married Oregon applicants over 65, but this is an area where working with an attorney who specializes in Medicaid planning can potentially save you many thousands of dollars.
Physical eligibility
Medicaid applicants must undergo both physical and financial screenings. The physical evaluation generally involves a personal visit from a social worker who assesses the applicant’s ability to perform “activities of daily living,” such as bathing, dressing and feeding himself. Whether an applicant is deemed sufficiently disabled to require long-term care and qualify for Medicaid is not based so much on a diagnosis as on the degree to which the applicant’s ability to perform these necessary functions is impaired. People who have been accepted into a residential memory care unit are almost certainly sufficiently impaired that they meet the physical criteria for Medicaid eligibility.
Financial eligibility
For a married people, financial eligibility for Medicaid is based on two criteria: the applicant’s individual income and the couple’s combined assets. In Oregon, a Medicaid recipient’s individual monthly income may not exceed $2250. If it does, however, this obstacle can be remedied by the creation of an Income Cap Trust, which holds the recipient’s excess income and distributes it according to a predetermined monthly budget. A well spouse who does not receive Medicaid benefits may have unlimited individual income. Where the well spouse’s income is lower than a specified range, it is sometimes possible to divert some of the ill spouse’s income to help support the well spouse.
The analysis of a couple’s assets is more complicated. The first thing you should know is that several key assets are excluded from the picture, including your residence (up to $572,000 in equity), your car and a prepaid burial or cremation plan or burial hardware. This means the well spouse can continue to live in the couple’s residence so long as she is able to cover the expenses associated with it.
After exclusions, the remaining assets are divided equally between the spouses, with the well spouse being guaranteed a minimum amount of $24,720 and limited to a maximum of $123,600. This means if the couple has a house and $24,721, the well spouse keeps the house and $24,720. If they have $400,000, each spouse will be allocated $123,600, and the remaining $152,800 will become part of the “spend-down” unless… you and your lawyer can find another, Medicaid-approved use for it (file this teaser under “reasons to consult a Medicaid attorney before applying for benefits”).
The “spend down”
Most people of a certain age have heard of the Medicaid “spend down.” Don’t try this at home! There are many ways to deal with excess assets and special rules regarding specific types of assets, so, at the risk of repeating myself, Do Not Pass Go until you have consulted with an attorney who specializes in Medicaid planning.
Generally, however, there are two pots of assets that must be spent down: (1) the ill spouse’s share of the divided assets that exceed $2000 and (2) any assets in excess of the spouses’ combined asset limits of $123,600 each (so anything over $247,200).
In the example above, where the couple has a combined net worth of $400,000, all of which is in cash, the total amount to be spent down would be calculated like this:
$121,600 (the ill spouse’s one-half of the permissible assets minus $2000)
+ $152,800 (the excess above $247,200)
$274,400 (spend-down target)
This leaves the ill spouse with $2000 and the well spouse with 123,600.
While you should work with your attorney to determine how best to spend (or reallocate) excess assets, there are a few rules of thumb that I think are useful for most people to know:
- Don’t give assets away, including to charities. The $15,000 per year/per person federal gift tax exclusion doesn’t apply here.
- Don’t sell assets for below-market value.
- Don’t add anyone else’s name to an asset, especially real estate! This may be seen as making a gift.
- It’s OK to spend assets on fun experiences for you! This may be the perfect time to take that cruise!
- Home improvement is a good way to turn excess assets into excludable home equity.
- Think about buying a reliable car if yours is on the old side. Remember, your car is not counted as an asset!
After you qualify
Medicaid patients in residential settings such as memory care receive full room and board as well as long-term care expenses and most medical expenses. The trade-off is that all of the patient’s income other than a small “personal needs allowance (usually $167) and any income approved for the support of the well spouse will be used toward the patient’s care expenses. Beyond that, covered expenses are paid for by Medicaid.
In addition to the personal needs allowance, the Medicaid recipient may keep $2000 in assets. It’s useful to keep an eye on the recipient’s bank account to be sure it doesn’t creep above $2,000, potentially disqualifying the recipient. If a Medicaid recipient receives an inheritance or gift, notify your attorney immediately so you try to avoid or minimize any disruption to his Medicaid benefits.
A final word
You guessed it: Medicaid planning to protect a well spouse is not a job for do-it-yourselfers. This article only scratches the surface. If you anticipate that you or your spouse will require long-term care in the foreseeable future, please do yourself a favor and consult an expert.
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