The Dreaded ‘Medicaid Spend-Down’

About Medicaid Spend-Down

Medicaid eligibility is predicated on need. If an individual has income or assets that exceed the maximum limits set by their State of residence, then they are not eligible to receive Medicaid benefits.

Most commonly, without help from Medicaid, they must pay out-of-pocket for their own home health care, nursing home care, prescriptions and co-pays on their medical insurance. A big expense that is often overlooked in planning is prescription drug co-pays, even if they have Medicare insurance (a totally different program).

So, if an individual’s assets are greater than their State allows Medicaid recipients to own, he or she will have to liquidate those assets (by paying for health care – not by giving them away!) prior to receiving aid from Medicaid.

Because the government’s hand is so far-reaching into your finances as you approach Medicaid, it is important to consider your options before trying to protect your assets from Medicaid. Even after spending almost everything you own, Medicaid only allows you to keep a bare level of minimal assets.

How much can you keep? It varies by State, but generally you will only be allowed to keep about $2,000 in cash, one house if a spouse or disabled dependent is living in it, furniture for the house, a few personal possessions like a wedding ring, and one car for transportation. You will officially be poor. It’s not much to call your own after a lifetime of hard work.

Can you simply place assets in your spouse’s name to shield them from Medicaid? No. Your spouse can only keep ½ of your combined financial assets (not counting the home and the financial items listed above). But there is another big catch.

There is a dollar limit to the amount of assets your spouse can keep for themselves to live on. It’s about $110,000. That is, your spouse can only keep ½ of your combined assets, like we said, but up to a limit of about $110,000.

For example, if you and your spouse have $80,000 in cash, IRAs, 401(k)s and investments, your spouse can keep only $40,000 for themselves. You keep $2,000, and Medicaid makes you spend the remaining $38,000 on your health care costs (like nursing home bills) before they will help you.

Suppose you and your spouse have $500,000 in the same types of financial assets. In that case, your spouse will only be allowed to keep possession of about $110,000 – the rest must go towards paying your nursing home bill before Medicaid will pay the bill for you. Not a nice picture, is it?

Why not give the assets away first, possibly to your children? That won’t work. States review all asset transfers made within the FIVE YEARS PRECEEDING the date an individual applies for Medicaid.

Asset transfers that took place within five years of applying for Medicaid can affect the amount of benefits you receive, and especially how long you must wait to receive them.

For example, suppose a widowed spouse became unable to take care of herself. So, she gives her life savings of $80,000 to her adult child to build an addition to their house so she can move in with them. That is commonly called a ‘Mother in Law Suite.’

Then six months after moving in her health declines further; say she has a stroke. She needs a nursing home, badly, and applies for Medicaid to pay the bill for it.

Since she transferred $80,000 away within the preceding five years, Medicaid tells her to pay the first $80,000 of her nursing home bills herself. After that period ends, about one year, Medicaid will kick in.

But where is she going to get that $80,000 from? Since the money was spent on the home addition, the poor elderly lady must stay with her children and become a burden to them. It’s a real problem – and giving away assets is bad advice that many people unwittingly follow.

At Elder Life Group, we work with Elder Law attorneys who have a deep understanding of federal and state regulations. Crisis planning is a complex and time-sensitive process. We help guide seniors and family members nationwide to preserve their assets from nursing homes or other unforeseen liabilities while accelerating eligibility for Medicaid benefits through our state-of-the-art asset protection analysis. Have questions? Contact us today, for a free Asset Protection Analysis.

Which assets would you have to spend first? These things:

checking and saving accounts,
mutual funds,
stocks and bonds,
deferred annuities,
revocable living trusts,
burial trusts beyond a minimum amount,
and the cash value of most life insurance policies.

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