Most older adults have to plan how they will pay for senior care — because this type of care can be expensive, strategic planning is important. If a person can’t afford care, they may be able to qualify for Medicaid, which can help pay for it. This national and state insurance program has strict income and asset requirements, so people may choose to use Medicaid planning strategies to become eligible for Medicaid when the time comes. Here, we’ll explain five common Medicaid planning strategies that can help people plan to qualify for the program, all while using their money and protecting their assets legally and wisely.
What is Medicaid, and how do I qualify?
Medicaid is a jointly funded state and federal government insurance program that provides health insurance coverage for low-income individuals. Medicaid covers health care and nursing home care, but it does not cover long-term care.
To qualify for Medicaid, the applicant’s resources cannot exceed the limit set by the program. The following are the resource limits for individuals and married couples:
- Individuals are allowed a monthly income not exceeding $2,742.
- Married couples can have a combined monthly income of $5,484; each spouse may earn up to $2,742 monthly.
Applicants should also account for other countable assets. Countable assets include property that can appear as income, including stocks, bonds, cash, bank accounts, investments, IRAs, 401(k)s, and any funds that may remain from a COVID-19 stimulus check. Even if an applicant meets the income threshold, their application may be denied if their countable assets exceed the resources limit. A Medicaid applicant may lower their countable assets and resource amount through Medicaid planning strategies.
A person needs to consider two general areas when planning for Medicaid eligibility: their assets and their income. Below are common Medicaid planning strategies used for each of these areas.
Medicaid planning strategies that protect your assets
People typically amass assets over their lifetimes and hope to pass them on to heirs or beneficiaries after passing. But as long-term care costs add up, you may use those assets to pay for care. Some common Medicaid planning strategies help individuals protect their assets so they do not need to sell their homes or let go of other assets to pay for in-home care or a senior living community. Below are common strategies that help people with asset planning.
Medicaid spend down
Medicaid spend down is the process of reducing the amount and value of an applicant’s resources to make them eligible for Medicaid coverage. There are several ways to take advantage of Medicaid spend down to help you or your spouse get coverage:
- Paying for home modifications like kitchen or bathroom remodels.
- Prepaying for funeral and burial expenses.
- Purchasing medical equipment like wheelchairs and chair lifts.
- Paying off debt, including credit cards, vehicles, and mortgages.
Remember the look-back period if you choose to participate in Medicaid spend down. Medicaid’s Look Back Rule prevents applicants from gifting, selling, or transferring their assets below fair market value. Medicaid will “look back” over several months or years for any transactions. Transactions made within the look-back period are all subject to review. Consider keeping a log of your transactions to provide proof of asset transfer.
Life estate
Many seniors are understandably concerned about keeping their family home if they receive Medicaid coverage during their lifetime. If Medicaid paid for your nursing home care, hospital stays, or other medical care, it may require your estate to repay the value of those benefits after your death. This is called Medicaid estate recovery.
Many people choose to create a life estate to avoid Medicaid estate recovery. A life estate allows a homeowner to transfer the title of their home to another person for that person’s lifetime. A life estate removes the house from your countable assets for Medicaid purposes. Speak to an estate planning attorney for more information regarding this option.
Caregiver agreement
An increasing number of seniors want in-home care and want this assistance from someone they know intimately. Often, family members take on the task of caring for their aging loved ones. Caretakers may need to quit their jobs to ensure they can provide adequate care. Discovering payment options for caretakers is a part of most common Medicaid planning strategies.
Caregiver agreements exist to help seniors pay for their in-home help. The more a senior pays out of pocket for in-home caregiver services, the more their countable assets are reduced for their Medicaid application.
Spousal refusal and spousal transfers
Medicaid allows spousal transfer. Spousal transfer happens when a married couple transfers any assets solely in the spouse’s name seeking coverage into the well (sometimes called “community”) spouse’s name. This is a common Medicaid planning strategy, and it can significantly reduce the spouse’s countable assets for their Medicaid application.
Spousal refusal is available in a minority of states. With spousal refusal, the community spouse refuses to provide any support to the other spouse. The spouse seeking coverage then becomes immediately eligible for Medicaid benefits.
Medicaid planning strategies that protect your income
Another category of Medicaid planning strategies aims to protect the applicant’s income. Speaking to an estate planning attorney and discussing whether you need to revamp your estate plan may be beneficial. Among common income planning strategies is the Qualified Income Trust.
Qualified income trust
A qualified income trust (QIT) is a financial planning tool for Medicaid applicants if their state does not allow Medicaid spend down. A QIT is an irrevocable trust account that holds a Medicaid recipient’s monthly income and disperses it to pay the recipient’s medical expenses.
Medicaid planning tip: Seek legal advice
Ultimately, the best way to understand your Medicaid planning options is to speak with an experienced elder law attorney or Medicaid planner. Your estate planning attorney will help you know the best next steps for your special set of circumstances.
