MEDICAID AND LONG TERM CARE

Introduction
           
Medicaid is a federal and state government program that offers assistance in paying for long-term health care, including in-home care, assisted care and skilled care. In Colorado, nursing home care costs an average of $6,267 a month and it is likely that most people will require long-term skilled care at some point in their lives.  Given these facts, the importance of Medicaid benefits is obvious. Fortunately, it is possible to plan for the probability that long-term health care will be needed and prepare accordingly.
                       
Eligibility Requirements
           
To qualify for Medicaid benefits, recipients must meet criteria related to their medical condition, income and financial resources. A test is administered to determine whether or not it is medically necessary for a person to receive long-term care. To meet the income criteria established in Colorado for 2010, a recipient’s gross monthly income cannot exceed $2,022. If a person’s income exceeds that level, but falls below the average cost of nursing home care in his or her region, eligibility still can be attained through the creation of an income cap trust. Finally, a recipient’s other financial resources are considered. Generally speaking, an individual can only have assets of $2,000 or less, while a married couple can have countable resources in excess of $104,000. Certain resources are considered exempt when determining Medicaid eligibility, including a home, household goods, personal effects, a vehicle and funeral policy. It’s permissible to convert what are considered countable resources to exempt resources by making home improvements, purchasing a different vehicle or paying for funeral arrangements in advance. Legal fees also fall into the category of exempt resources.

Medicaid and Married Couples
           
Medicaid regulations take into account the needs of married couples when one person requires long-term care and the spouse does not. In such situations, the spouse who does not require long-term care, or the community spouse, is afforded an allowance for income and resources.

Estate Planning When a Spouse Requires Long-Term Care

Estate planning documents aren’t set in stone. Wills, trusts, advance directives and other documents should be reviewed from time to time and, if necessary, changed to reflect changing circumstances.

This is especially important when one spouse requires long-term health care. In fact, a simple will that leaves everything to the surviving spouse could create considerable difficulties either by interfering with Medicaid benefits or the management of assets.

Fortunately, options are available to accommodate the special circumstances that arise when a spouse requires long-term care, including elective share wills and special needs trusts.

One of the estate planning issues that arises when a spouse needs long-term care is related to the elective share. An elective share describes the portion of an estate a surviving spouse must claim in place of what they were left in a will. Even if a will specifically disinherits a spouse, he or she still may claim an elective share.

In Colorado, the elective share is determined by a formula that takes into account the length of marriage as well as the types and values of the assets involved. Generally speaking, a spouse who’s been married for at least 10 years is entitled to receive half the property in the estate.       

The elective share becomes a problem when one spouse is admitted to a nursing home or other facility for long-term care. When one spouse is institutionalized, ownership of the couple’s assets typically is transferred to the spouse at home, also called the community spouse.

In the past, the institutionalized spouse also was disinherited, particularly if an inheritance could affect eligibility for Medicaid benefits that pay for long-term care. The institutionalized spouse previously could waive an elective share in the event the community spouse died. Regulations now require that an institutionalized spouse who receives Medicaid benefits claim the elective share.  Failure to claim the elective share constitutes a transfer of assets that creates a period of Medicaid ineligibility. The duration of ineligibility depends on the value of elective share and cost of care.

In addition to interfering with Medicaid eligibility, passing on assets to a spouse who is receiving long-term care and deemed incapacitated could require court proceedings to appoint a conservator to manage those assets.  A number of estate planning options are available, however, to accommodate a spouse who requires long-term care.

An elective share will creates a trust to hold the assets of the elective share as well as appoint a trustee, usually a child, to manage those assets. Compared to a will that simply bequeaths assets to the surviving spouse, an elective share trust minimizes the amount of assets that must be transferred and provides for their effective management.

In addition to an elective share will, it’s also possible to establish a special needs trust. Such a trust holds assets that can be used to pay for things not covered by Medicaid — telephone and cable television services, over-the-counter medications such as vitamins and travel expenses for loved ones to visit.   

Redirecting Income for the Community Spouse

Admitting a spouse to a nursing home or other facility for long-term health care is difficult both emotionally and financially. The spouse who remains at home often must budget and spend differently when money is diverted to pay for long-term care.

This situation makes it important for the spouse at home to correctly report expenses to take full advantage of the income that could be available to him or her to help preserve quality of life. Moreover, planning could be required to ensure that the spouse at home receives adequate income if the institutionalized spouse dies.

There are circumstances under which income that otherwise goes to the institutionalized spouse to pay for care could be redirected to the spouse at home.  The amount of income a community spouse is allowed to receive can be increased to pay for costs related to housing, medical expenses and dependents living at home. Exceptional circumstances — the need to repair or replace an appliance, for example — also can be considered.

Gifts and Transfers

One of the most important considerations related to long-term care planning involves gifts or transfers to others, including transfers to trusts. A period of ineligibility for Medicaid benefits occurs whenever a person gives away or transfers assets. Under federal legislation enacted in 2006, any transfer that occurs within a five-year period prior to the submission of an application for Medicaid benefits creates a period of ineligibility. That period doesn’t begin on the date of the transfer, but rather the date on which an applicant is otherwise eligible to receive Medicaid and an application is filed. The length of the ineligibility period is determined by a formula that takes into account the amount of the transfer and average monthly cost of nursing home care.

Estate Recovery

Even though a home is considered an exempt resource for the purposes of determining Medicaid eligibility, the state has a right under certain circumstances to place a lien against the residence to recover Medicaid benefits following the death of a recipient. In addition, the state can recover Medicaid benefits from certain assets of the estate of the recipient. In such situations, Medicaid recipients only delay the payment of their care until after their death.