With nursing home costs now averaging close to $95,000 per year, it’s no wonder many seniors need the help of Medical Assistance or Medicaid when they hit a major health crisis. But the Medicaid program is designed to pay certain medical expenses for individuals who cannot pay those expenses themselves. That’s why there are complicated rules in place to make sure those who can afford to pay their own expenses do so, without making a spouse or certain other relatives impoverished. The rules, including the various exceptions and qualifications, are difficult to summarize in a short article, but this article seeks to serve as a general discussion of some of the major components of the rules.
Unless you’ve somehow planned for long-term care, through saving or insurance, you’ll likely find you significantly deplete most of your assets before qualifying for any assistance. That reality has led many people to explore reducing assets that might be available for their long-term care. If the reduction is made to avoid having to pay for your own impending long-term care needs, that is known as divestment. Divestment is defined as disposing of assets for less than fair market value in order to qualify for Medical Assistance or Medicaid. It’s a prohibited practice that carries penalties.
If you’re one of those couples caught somewhere between the ability to self-pay and the poor house, understanding the rules surrounding Medical Assistance can help you find legal alternatives. Although Medical Assistance is a federal program administered by the states, the rules in each state vary. Following are the general rules for Wisconsin.
Medical assistance allows people to retain some assets while exempting some others.
Exempt assets for both single and married persons include:
- Life insurance with a face value of $1,500 or less, a
- Pre-paid funeral and burial expenses, including plot, headstone, casket, vault,
- Up to $4,500 in an irrevocable non-refundable burial trust, or
- A designated burial policy up to $15,000.
In addition, single people may keep a residence so long as equity in the property does not exceed $750,000 and the nursing home stay is temporary. The only exceptions are for situations where (1) the homeowner’s child lived in the home for at least the past two years and the arrangement delayed the need for nursing home care; or (2) a disabled child lives in the home. Single people may also maintain one vehicle if needed for medical care.
Married couples have a few additional assets that are exempt. Exemptions that apply to married couples include a residence of any value, one vehicle of any value, retirement accounts of the community spouse and most household and personal items, except those held for investment purposes such as gold, silver or collectible art.
One common planning tool is to maximize the exempt assets by:
- purchasing a life insurance policy with a face value of $1,500 or less;
- pre-paying funeral and burial expenses or purchasing a burial insurance policy.
If you’re married, you can also:
- make improvements to the house, such as replacing a deteriorating roof, upgrading an outdated air conditioning or furnace system, installing a ramp or making other changes to increase the accessibility for the community spouse;
- trade in an unreliable car for a new one.
If you’re single and a child is willing and able to move into your home to assist you and thereby delay your need for long-term care, that would not only improve your quality of life but may also eventually mean the house could be transferred to the child without affecting eligibility for Medical Assistance.
In addition to exempt assets, an “institutional spouse” may have assets of no more than $2,000 and still qualify for Medical Assistance. The “community spouse” may keep a resource allowance ranging from $50,000 to $120,900, depending on assets. Of course, the state keeps track of all amounts paid under the Medicaid program and will seek reimbursement upon the death of the surviving spouse.
People receiving Medical Assistance, whether single or institutional spouses, are allowed to retain $45 per month in income. Community spouses are allowed a maintenance needs allowance of between $2,670 and $3,022.5, depending on shelter expenses.
One more extreme option
When it comes to Medical Assistance, spouses are required to use their assets for the support of one another. Even a prenuptial agreement can’t stop that obligation. The only way to at least partially protect the assets of a community spouse is for the couple to consider obtaining a divorce. This is a sad step to take, but it doesn’t have to change the relationship. It just changes their legal status. Divorce is a difficult decision for couples, particularly at such a time when the health of one is compromised. Some couples seriously consider taking this step; many don’t. Even a divorce is not necessarily a solution, since the couple would still have to address a division of property, as well as alimony or maintenance.
When you apply for medical assistance or Medicaid, the government will want to look back for a period of time to see if and how you have used or disbursed assets. If you divested within five years from the date of application for assistance, you will fail to qualify for assistance until the value of the divestment is used for your care or the divestment is cured through the asset being returned to you.
Of course, one way to reduce or delay discussion of the whole divestment debate is to invest in long-term care insurance.
Wisconsin has a program called the Wisconsin Partnership. For any qualified long-term care policy purchased since the program’s inception, insured parties may put away for family members one dollar for every dollar paid from the insurance for long-term care without the amount being considered a divestment.
Most people begin considering long-term care insurance in their 50s. If you’re among them, keep in mind that statistics indicate only 12 percent of us will need to be in a nursing home for more than 90 days. Also, it’s important to remember there are many options to consider before nursing homes, including in-home care and assisted living, both of which are far more affordable than nursing homes.
Right or Wrong Answers
One final issue to consider is that medical assistance is designed to pay the care for people who cannot afford it themselves. The question is whether any of us should expect the government to pay for that care. There is no right or wrong answer. Just remember that you have more choices when you pay for the care yourself, and that may be the best reason of all to plan not to need government assistance.
By Greg Bonney, estate planning attorney in La Crosse, WI. For more information on divestment alternatives in Wisconsin, contact Greg Bonney at Johns, Flaherty & Collins, SC.