Medicaid is a means tested-program.  In short, it means that you must be poor.

What does poor mean in terms of Medicaid?  It means that you can only have a certain amount of money and possessions (called Resources) in your name.  It also means that your well spouse (a/k/a Community spouse) can only have a certain amount of Resources in his or her name.

In addition, depending on the type of Medicaid benefits you receive, Medicaid will only let you, and your spouse, keep a portion of your income.  The break down looks like this for 2009, and appears will be the same for 2010.

The institutionalized person (person in a nursing home) can only have:

• Resources: – maximum of $13,800 of non-exempt assets.
• Income Level: $50 per month.

The Community spouse (healthy spouse) is allowed to keep:

• Resources: – minimum of $74,820 and a maximum of $109,560.
• Income Level: – $2,739 of the couple’s combined income.

If the couple’s or institutionalized person’s resources exceeds $74,820 or $13,800, respectively, then the excess normally must be spent on the cost of the Long Term Health Care before Medicaid eligibility can be established.

Anything above the Resource level may cause the Department of Social Services (the government organization that oversees the Medicaid program at the County level) to deny your Medicaid application or force you to contribute towards your health care.

Can I transfer assets out of my name to drop down to those Resource levels?

Yes, but for nursing home care, Medicaid will look back over the 5 years preceding the date of your Medicaid application to see if you transferred assets out of your name.  If it sees a transfer in the last 5 years, they will penalize you.  The penalty is a one month denial of Medicaid benefits for approximately every $11,000 you transferred.  The penalty is there to dissuade you from transferring your assets rather than spending them on your Long Term Health care costs.  My next Blog will reveal the 5 Secrets!

Under the new Deficit Reduction Act of 2005 (“DRA”) rules, a person who is otherwise eligible for Medicaid will be subject to a transfer penalty period based upon transfers made for less than fair market value. As of 2011, the Medicaid agency will look back through the last 5 years for asset based transfers. The DRA increased the look back period for transfers on non-trust assets from 3 to 5 years, for transfers made on or after February 8, 2006. Therefore, any transfers made prior to February 8, 2006 will be governed under pre DRA rules.

For example, let us assume a person made transfers of $13,000 to each of his three grandchildren last year, for a total annual gift of $39,000. He would be penalized by the Medicaid agency in the following manner. First Medicaid determines the regional nursing home transfer rate in Suffolk County which is approximately $11,000 per month. This number is usually less than what an individual not on Medicaid would pay privately for the same services in a Suffolk County nursing home. Second The Medicaid agency will calculate the total transfers made and divide that number by the nursing home transfer rate of $11,000. In this example the penalty would be $39,000 divided by $11,000 to get 3.5 months of penalty time from the date the Medicaid application was filed (not from the date of the transfer).

Therefore annual gifts of $13,000 or less may not be a good component to your long term health care plan if you wish to rely on Medicaid to pay your nursing home bills.

A: There are various reasons why a person can get Medicaid benefits without being penalized. The most obvious is that they qualify for Medicaid. Meaning, among other things, they have a resource level below $13,050. Medicaid will deny you benefits if you have more than $13,050 (increased recently from $4,350) of available resources. A penalty period will be imposed for non-exempt transfers of assets, during a 5 year look back period, meant to reduce the applicant’s available resources below the $13,050 resource level. Notice I mentioned non-exempt transfers. There are exempt transfers, i.e. transfers that a Medicaid applicant can make without having Medicaid invoke a penalty period. You could use these exempt transfers to divest yourself of assets. Transfers to a spouse and/or a disabled child will not affect Medicaid eligibility. A Medicaid applicant can also transfer assets to certain types of trusts that will not interfere with an applicant’s eligibility. One such trust is a Special Needs Trust. Strict adherence to the statutory requirements must be taken to effectively create a Supplemental Needs Trust and they are only available to applicants who are disabled. Using any of these exempt transfers may help to reduce your resource level and decrease or eliminate any Medicaid penalty period.

It should be noted that any course of action taken to divest assets may have adverse consequences for the applicant, his spouse or even any perceived beneficiaries of the applicant’s estate with respect to taxes or government benefits. Therefore, it is always a good idea to have a competent legal professional outline a balanced estate plan that can achieve your desired goals.