Assets and Annuities and Eligibility for Medicaid Coverage of Nursing Home Care

Money coming in

How much you can receive a month while qualifying for Medicaid coverage of nursing-home bills varies among states and changes periodically. In most states, if you spend all your income on nursing-home costs–minus a small personal-needs allowance, typically less than $100 a month–Medicaid will cover the balance of the nursing home's charges.

Many state also impose an income-cap to restrict eligibility to people who have monthly incomes below a certain level (which these states adjust annually with inflation). 

Your assets

The value of the assets you can keep also varies by state, though most set the limit at several thousand dollars for one person. Your house is also exempt if you expect to return to it after leaving the nursing home or if your spouse lives there.

If you enter a nursing home and your spouse doesn't, he or she can keep more income and assets than permitted under the eligibility rules summarized above. In general, Medicaid eligibility considers all assets owned by either spouse, then allows the spouse still living at home to keep half of the couple's assets up to state-by-state limits. Now here are the basics of giving away assets to qualify for coverage. You must get advice from an attorney who specializes in Elder Law before attempting any of these approaches:

Transferring assets to someone other than your spouse. When you apply for Medicaid, you must disclose any gifts you've made to people other than your spouse within the past 36 months. Such asset transfers result in a period of ineligibility for Medicaid. Government bureaucrats calculate the waiting period by dividing the value of the assets you've given away by the average monthly cost of nursing-home care in your state or region. (You can ask your state Medicaid office for the average monthly cost of nursing-home care in your area.) For example, someone who disposes of $45,000 can't receive Medicaid for the next 10 months if the average monthly cost of a nursing home is $4,500. Applying for Medicaid during the 10 months is illegal.

Transferring assets to an irrevocable trust. Trusts established to qualify you for Medicaid involve waiting periods too. Though some exceptions apply to individuals defined as disabled under the Social Security laws, most people who dispose of their assets by putting them in a trust must work within tight constraints. For an irrevocable trust to be effective, says Boston attorney Alexander A. Bove Jr., author of The Medicaid Planning Handbook (Little Brown; $12.95), you must not have the option of tapping its principal.

When you apply for Medicaid, you must disclose whether you or your spouse ever created a trust or whether either of you is the beneficiary of a trust. If you answer yes to either question, you must produce a copy of the trust document, plus records of all trust transactions and distributions that have occurred within 60 months of your Medicaid application. Again, transfers and distributions can create a waiting period. The length of time you must delay applying for Medicaid will depend on the amount of assets involved and the average monthly fees for nursing-home care in your area.

Annuities and Medicaid

Using annuities to protect assets has become very popular. Two recent books on the subject, The Medicaid Planning Handbook by Alexander A. Bove, Jr. and Avoiding the Medicaid Trap by Armond Buddish, specifically discuss the use of annuities to avoid Medicaid seizure. 

Generally, if your assets exceed the Medicaid test limits, you may still be eligible for Medicaid by converting the assets to an immediate annuity income stream. Using an income annuity in this manner may be beneficial in the right situation if structured properly.

Keep in mind that states' rules for Medicaid differ greatly and it is important to learn as much as possible about your own state's requirements. The annuity income stream must begin prior to applying for Medicaid. Under the Kennedy Kassebaum and OBRA '93 Acts, an annuity must have life expectancy payout rates that are in accord with the latest social security mortality tables (HCFA Tables). Many insurance companies' payout rates are not in compliance. You should contact an agent with experience in this field. (We recommend you call ImmediateAnnuities.com at 800-872-6684, the hosts of this web site.) Using a straight life annuity with no refund or no period certain guarantee will cause the income stream to stop on the death of the annuitant. Additionally, under the Estate Recovery rules passed by OBRA 93, any income that continues to heirs after the Medicaid recipient's death may be subject to recovery by the state.

You must be careful that the combined monthly income from the annuity together with your other social security and pension payments stays under the allowable federal limits. Otherwise, the purchase of too large an annuity income stream could inadvertently take you even slightly over the limit and completely disqualify you from Medicaid. For example: Say you want to reside in a nursing home that costs $4,500 per month. In order to pass Medicaid qualification tests, you use a significant portion of your assets to purchase an immediate fixed annuity that pays $800 per month for life. Your only other income, from Social Security and pension plans, is $525, making your combined monthly income total $1,325. Be careful that this total remains below the federal guidelines. If the federal limit were $1,315, then you would be $10 over the limit and be ineligible for Medicaid coverage. Better to purchase LESS annuity income to stay well below the threshold than more income.

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(not intended for the General Public)