No Money, No Transfers, No Medicaid – What Gives?
February 28, 2011
I received a call the other day from Mary who was at her wits end. Last year her dad’s Medicaid application had been denied. Dad’s finances were quite simple. He had no money to his name. What little he had in savings he had spent down for his care and other needs. Dad received $1300 per month in Social Security. He rented an apartment not too far from where Mary lived. There were no transfers from Dad’s account in the last 5 years. Dad’s health was getting progressively worse and Mary didn’t know where to turn. So, why wasn’t he eligible for Medicaid?
It all sounded straight forward. But then I probed a little bit deeper. I asked Mary how Dad pays his rent, food, insurance premiums and home assistance with only $1300 each month. “Well, actually”, Mary told me, “I am supplementing his income.” I learned that Mary was transferring $750 every month into his account so that he would have enough to pay his bills. I asked Mary which Medicaid program she applied for. She said she wanted to keep Dad in his apartment as long as she could so she applied for the home based Medicaid program. That’s all I needed to hear. I had the answer.
Remember that Medicaid has an income eligibility limit of $2022 per month. If you have more than that you can’t qualify for some of the Medicaid programs, but you can for others. In Mary’s case, she applied for one with a hard cap, so to speak. But, Dad has $1300 in income. Why wouldn’t he be eligible?
That’s because there is a specific Medicaid regulation, that counts as income, any regular contributions by family members over an extended period of time. And that’s exactly what Mary was doing when she deposited $750 each month into Dad’s checking account, giving him $2050 of income per month, $28 over the limit. I explained to her that it would have been better for her to simply buy her Dad some of the things he needed. This way there would be no income and he would have been well below the income cap.
The good news is that, with this change, Dad can now be eligible for Medicaid. The bad news is that it took Mary a year to call us to learn this information. Dad lost a full year of benefits. Just another example of how when it comes to Medicaid, looks are deceiving. What appeared to Mary to be so simple actually cost her tens of thousands of dollars and a lot of heartache and stress.
The Long Term Care Perfect Storm
February 21, 2011
Two articles in the local paper last week reminded me again of how a number of forces are combining in the coming months and years to really make the long term care issue an acute problem for many Americans, creating a “perfect storm” to use a popular phrase of recent years.
Here in New Jersey the budget deficit worsens. Governor Christie will be announcing his state budget for the upcoming year and many are bracing for cuts in Medicaid programs, a trend that is occurring across the country. The economic recession has reduced tax revenues in many states and caused a reduction in federal funding as well. Remember that the federal and state governments contribute, on approximately a 50/50 basis, towards the cost of Medicaid programs. What this means is that many states are cutting optional Medicaid programs and reducing the rate at which they reimburse providers.
The second article talks about the first wave of Baby Boomers who are starting to turn 65 in 2011, and the fact that many are postponing their retirement plans for at least 4 years because of the recession. In other words, they can’t afford to retire yet. The article also notes that even before the latest economic downturn, Baby Boomers were unprepared for retirement which now typically lasts decades. So, what do you think will happen as 77 million people retire over the next 20 years? Many will enter an overburdened and underfunded long term care system. More people and less money, a perfect storm.
Knowing this storm is brewing, what can and should you do? I am reminded of Aesop’s Fables, those stories we all learned as a child. The particular one that is relevant here is “The Squirrel and the Grasshopper”. The squirrel was busy in the summer gathering food and preparing for the coming winter. Meanwhile the grasshopper was having a good time, not a care in the world. When winter arrived he was unprepared and died of starvation.
The same holds true for long term care planning. Failing to plan while you are healthy may leave you unprepared when a crisis hits. Ask yourself if you could afford a $125,000 per year additional expense (the average cost of nursing home care in New Jersey), or $250,000 for a married couple, without depleting your assets. If the answer is “no” then it may be time to talk to your advisors, including a qualified elder law attorney, about putting a plan in place. Better to be the squirrel rather than the grasshopper.
The Right Way and the Wrong Way to Reduce a Medicaid Penalty
February 14, 2011
There are many reasons why the Medicaid program is so confusing to the general public. Perhaps, the greatest source of misunderstanding is the Medicaid penalty. And that mystification can cost literally thousands to hundreds of thousands of dollars. Allow me to explain.
The Medicaid penalty is actually a period of months of ineligibility for benefits. The more money gifted, or more accurately, “transferred for less than fair value”, the longer the penalty. Sounds fairly straightforward but it isn’t. That’s because the penalty doesn’t actually begin until the applicant files a Medicaid application and the State calculates the penalty.
Many people are entirely in the dark about these rather arcane rules and file a Medicaid application only to find out that they will have to transfer money back and spend it down first. And that decision to apply before transfers back can be a huge mistake. What if all the money can’t be returned? Returning part of the gift should at least reduce the penalty, right?
Well, not necessarily so. Recently, New Jersey changed its position on partial gift returns, indicating that its interpretation of Medicaid laws now leads it to conclude that only when all the money is returned will it wipe out the penalty. And that’s one reason I am fond of telling clients and prospects that timing is everything when it comes to Medicaid.
If I can’t give back all the money Mom gifted to me, but only a part, I may be better off returning it before she files for Medicaid. Why? Because, remember, the penalty isn’t calculated until I apply and the State reviews my financial records and determines the exact length. A partial return before Mom applies for Medicaid won’t result in a reduced penalty because there is only a potential penalty at that point. If Mom transferred $100,000 to me but I transfer back ½ then when she applies for Medicaid the penalty will be calculated on $50,000, not $100,000.
The reduced penalty can save some families tens and hundreds of thousands of dollars and possible financial ruin and is another reason why it so important to get proper advice before, preferably years before, an anticipated Medicaid application is to be filed.
How Does Medicaid View Long Term Care Insurance?
February 7, 2011
Mary cared for her husband, John, at home. John had long term care insurance to help pay for a home health aide. However, over time, keeping John at home simply became impossible and Mary was forced to place him in a nursing facility. She applied the insurance towards the cost of care there, and spent down their assets to cover the balance until Mary had $100,000 remaining. Mary then applied for Medicaid and that’s when she ran into a problem, caused, ironically, by the insurance.
Mary was told that John’s long term care insurance counts as income and, therefore, he had too much income to qualify for Medicaid. Yet he didn’t have enough to cover the private pay cost of the nursing home. Mary and John were caught between a rock and a hard place. How was this possible?
New Jersey has two Medicaid programs that cover nursing home care. One program is for applicants who have no more than $2022 per month in gross income. And when we talk about income, we usually mean Social Security and pension, which can’t be modified as long as you live. A second program exists for those who have income greater than $2022, but the income limit for that program is the equivalent of the Medicaid reimbursement rate. That rate is what Medicaid pays the nursing home, usually somewhere between $5000 to $6000, depending on the facility.
John’s insurance policy benefits were being paid directly to him, not to the nursing home. For that reason, Medicaid treated the payments as income to him , which pushed his “income” to $6500 per month, making him ineligible. So was that it? Was Mary out of luck? Not necessarily.
With a slight change John could be made eligible. By having the insurance company send the benefit check directly to the nursing home, it would not be counted as income and John could qualify for Medicaid. That’s because under Medicaid regulations third party payments for medical care or services, including room and board, are not counted as income. If the insurance company, as the third party, pays the nursing home directly, then that “income” disappears.
Crazy, right? How can a minor change like that affect Mary’s health and well being so drastically? That’s because, Medicaid regulations are so complex and arbitrary. Failing to get the proper guidance can cost literally thousand and hundreds of thousands of dollars. In Mary’s case, she spent another $25,000 before she sought out the advice of an elder law attorney who helped her fix her application. Another example of how difficult navigating through the long term care maze can be.
