Medicaid Planning

What is Medicaid?

Medicaid (Medi-Cal in California) is America’s health care safety net. It is funded by both federal and state dollars through our income tax system. Medicaid has two divisions. One division provides regular medical care for the poor and the other division assists senior citizens with nursing home costs. Social Security, Medicare, and Medicaid are entitlement programs. Unlike Social Security and Medicare, Medicaid is a means-tested program created by Title XIX of the Social Security Act that seniors must qualify for to receive benefits. It is the primary health care safety net for senior citizens, providing long-term care and nursing home benefits to a major sector of the senior population requiring professional long-term care. Medicaid limits the amount of assets or resources a senior may have and still qualify for benefits.

The Stay-At-Home Spouse (Community Spouse)

The Spousal Impoverishment Act (SIA), which Congress passed in 1988, protects the stay-at-home spouse (well spouse) by allowing him or her to keep a minimum amount of non-exempt assets referred to as the Community Spouse Resource Allowance (CSRA), and a minimum amount of a couples joint monthly income. The income amount is referred to as the Minimum Monthly Maintenance Needs Allowance (MMMNA). If the stay-at-home spouse has income separate from the applicant that is greater than the MMMNA, the stay-at-home spouse may then have unlimited income. Each state sets its own Community Spouse Resource Allowance following federal guidelines up to $95,100 for 2005 with a MMMNA guideline maximum of $2,378. Some states have both a minimum base and a maximum amount for both the CSRA and the MMMNA. Both can be increased under certain circumstances through a “Fair Hearing” or a Court Order.

The Asset Test

While a couple resides together, Medicaid views the couple as a single financial unit and considers all of the couple’s assets, whether community or separate property, as being available to both partners. All assets will fall into one of three categories: Exempt, Countable, or Unavailable. To qualify for Medicaid, the applicant (ill spouse or single person) may not have more than $2,000 of non-exempt or countable assets. If married, neither spouse can qualify for benefits unless both partners qualify as a unit.

Division of Assets – Exempt Assets

The exempt asset list is short – $2,000, personal residence, personal property, household goods, one motor vehicle (unlimited value), term life insurance, a small amount of whole life insurance, burial insurance and plots, and wedding and engagement rings. In the state of California qualified pension plans (IRAs, TSAs, 401(k) plans, etc.) are considered exempt if they are under distribution meeting the IRS Required Minimum Distribution amounts. However, most states view qualified plans as countable assets. A few states consider the community spouses’ qualified plan as unavailable, if it is under Required Minimum Distributions. Personal Residence:

The personal residence is an exempt asset if the applicant intends to return home. The “intent to return home” only requires that the applicant state their intent on the Medicaid application by checking the appropriate box. Some states review the ability to return home every six months. The home may be transferred to the stay-at-home spouse prior to or after qualification.

Whole Life Insurance: Whole Life Insurance with a cash value of less than $1,500 is exempt. If the cash value is greater than $1,500 it is considered an available asset and can be kept for the benefit of the spouse as part of the CSRA.

Division of Assets – Countable Assets

Countable Assets represent any financial resource that can be converted to cash and spent on long-term care or nursing home costs. These assets must be reduced down to the Medicaid qualifying amounts by one of three basic strategies:

Spend-Down: A couple may spend excess non-exempt
(countable) assets prior to applying for Medicaid benefits by improving the value of exempt assets such as home improvement, a new vehicle, furniture, etc. The remaining assets must then be used to private pay nursing home costs until reduced to the qualifying level.

Converting Assets to Unavailable Using a Qualifying Annuity: Under current Medicaid regulations, a couple may purchase an irrevocable annuity using excess non-exempt assets and have periodic payments of principal and interest paid to the community spouse in his or her name alone. Congress defined the conditions under which an annuity can be used to convert available assets to unavailable assets through the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93).

Increasing the Community Spouse Resource Allowance by Court Order: If the community spouse’s income is below the Minimum Monthly Maintenance Needs Allowance, a court order may be obtained to increase the Community Spouse Resource Allowance to create income up to the allowable Minimum Monthly Maintenance Needs Allowance.

Division of Assets – Unavailable Assets

Unavailable Assets represent any financial resource that cannot be converted to cash by the applicant or their spouse. Unavailable assets usually consist of unassignable or non-saleable notes and trust deeds, limited partnerships with no secondary market, irrevocable trusts created by death, listed real estate, assets held in joint tenancy (with someone other than the community spouse), or irrevocable and unassignable period certain annuities not exceeding the life expectancy of the owner/annuitant.

Notes and Trust Deeds: If a note or trust deed cannot be transferred because of limitations in the document, it is considered an unavailable asset. However, if it is transferable and saleable, Medicaid may require it to be sold in the open market with up to a 30% discount.

Limited Partnerships: Most public limited partnerships require the consent of the general partner
before the limited partnership interest can be sold or transferred.

Qualifying Irrevocable Period Certain Annuities: Under current Medicaid regulations, a couple
may purchase an irrevocable annuity using excess non-exempt assets and have periodic payments
of principal and interest paid to the community spouse in his or her name alone. The annuity
purchased is considered to be value for the monies expended and therefore not a disqualifying gift
of non-exempt assets. If the applicant is single, the income from the annuity must be applied to
the applicants “Share of Cost.”