If you want to get Medicaid, your strategy to be Medicaid-eligible will depend on which stage in the application process you are in: (a) before the Medicaid look back period; or (c) during the Medicaid look back period. The Medicaid look back period will depend on the type of care you are looking into and the state the nursing home you are applying for is located.
Medicaid is a social welfare program that provides long-term care for individuals in need. To avail of Medicaid, one must not have a lot of income or assets. If the person has income or assets, Medicaid requires that person to use that income or asset to provide for that person’s long-term care. Only when the person doesn’t have sufficient income or assets does Medicaid step in to help provide it.
What is the Medicaid look back period?
To ensure that individuals are not gaming the system by gifting assets in order to be Medicaid-eligible, Medicaid has imposed a look back period. The look back period is the period of time Medicaid reviews to see if an individual made a transfer of assets for less than the fair market value. Medicaid considers these asset transfers to be made for the purpose of becoming eligible for Medicaid, and thus, penalizes the individual from availing of Medicaid for a period of time depending on the gifted value of the asset transfer.
The look back period depends on the state. As of 2022, all 49 states, including New York, have a 60-month look back period for Medicaid institutional care, except for California which has a 30-month look back period.
In New York, there was previously no look back period for Medicaid home care. However, beginning October 1, 2022, there will be at least a 15-month look back period, with an additional month added each month until the look back period reaches 30 months.
How is the Medicaid look back period applied?
Asset transfers within the look back period are scrutinized to see if they were transferred for less than fair market value. The gifted value of these asset transfers will be used to compute the penalty period, a period for which the individual is ineligible to apply for Medicaid.
For example, as of 2022, the Medicaid income and asset limit for a single individual in New York is $934/month and $16,800 respectively. Individuals with income or assets above the limit are not eligible for Medicaid.
For example, if you are receiving $800/month in pension benefits but have assets worth $100,000, you have to reduce your assets to $16,800 in order to be Medicaid-eligible. Suppose you are a widow with $100,000 in your bank and you want to enter a New York City nursing home facility, you need to spend $83,300 of your assets in order to have $16,700 in your bank account which would make you Medicaid-eligible. If you gift $83,300 to your adult son six months before applying for Medicaid, the Medicaid checker will discover that you have transferred $83,300 within the look back period of 60 months. The checker will then divide $83,300 with the 2022 New York City nursing home Medicaid regional rate of $13,415 to arrive at a number of 6.21. This means that from the time you apply, you are ineligible for Medicaid for an additional period of 6.21 months. After this period, you can re-apply for Medicaid and you will be eligible (provided the income and non-financial eligibility requirements are met) because you fall within the asset limit of $16,800.
Strategies to minimize the penalty period in Medicaid
The strategy to reduce your assets to be Medicaid-eligible will depend on when you engage in the act of reducing your assets: before the Medicaid look back period or during the Medicaid look back period.
Before the Medicaid look back period
If you reduce your assets before the Medicaid look back period, you will not incur any penalty.
Most individuals, to preserve their savings, use irrevocable trusts to reduce their wealth on paper. When property is transferred to an irrevocable trust before the look back period, there is no penalty. When property is transferred to an irrevocable trust during the look back period, there is a penalty because the transfer is considered a gift.
An irrevocable trust is a trust that cannot be amended or revoked without the beneficiaries’ consent. It is established by a grantor, transferring property to the trustee, who then manages it for the benefit of the beneficiaries. In order for the transfer of assets to the trust to not be counted as the grantor’s asset, the grantor must relinquish ownership and control over the property to the irrevocable trust.
If you are planning your estate early for Medicaid eligibility, an experienced estate planning lawyer will be able to draft an irrevocable Medicaid trust that ensures the property transferred to the trust will not be considered your assets for purposes of Medicaid-eligibility.
During the look back period
During the look back period, a Medicaid planning attorney can employ a number of Medicaid planning strategies to reduce your income or assets without violating the look back period.
Strategies that don’t violate the look back period
To qualify for the Medicaid income limit if you are receiving more than said amount, you should spend down the income to fall below the state income limit. Income includes employment wages, alimony payments, pension payments, social security income, social security disability income, payments from annuities and IRAs.
In New York, the income limit to be Medicaid-eligible as of 2022 is $934/month for an individual and $1,367/month for a couple when both spouses are applying. The qualified expenses to spend down your income are classified into medical bills and medical expenses, examples of which are enumerated below:
- Medical bills
- Your own medical bills
- Your spouse’s medical bills
- Parent’s bills for their children’s spend down
- Bills of a child living with you
- Bills of a child who does not live with you, but whose medical bills you pay for
- Past unpaid medical bills (sometimes up to 6 years old) for yourself or any of the people named above
- The part of any medical bill not covered by $Medicare or private insurance
- Medical expenses
- Paid and unpaid medical bills from previous months
- Transportation expenses to get medical services
- Medical expenses or payments to therapists, day treatment, drug and alcohol programs, burses, personal care attendants, and home health aides (as required by a physician)
- Prescription drug bills
- Payments made towards surgical supplies, medical equipment, prosthetic devices, hearing aids, and eyeglasses (as required by a physician)
- Medical services not covered by Medicaid
- Medical services from providers who do not participate in the Medicaid program
- Some over-the-counter drugs and medical supplies, such as bandages and dressings, if they have been ordered by a doctor or are medically necessary
If you are the only one applying and your spouse is not applying, you can also transfer some of your monthly income to your non-applicant spouse up to a certain amount, for as long as the income of the non-applicant spouse does not fall over the Monthly Maintenance Needs Allowance (MMNA). In New York, the MMNA is $3,435 per month.
So, for example, if you have monthly income of $4000 and your non-applicant spouse has a monthly income of $2000, you have to spend at least $3066 to fall within the $934/month income limit in New York. Since the MMNA in New York is $3435, you can only transfer $1435 to your non-applicant spouse monthly so your spouse with a $2000/monthly income can receive the limit of $3435 per month. The remaining balance of $1631 ($3066 less $1435) must be spent down with qualified medical bills and expenses in order for you to be Medicaid-eligible.
To qualify for the Medicaid asset limit in New York as of 2022, a single individual must have assets of not more than $16800, $24600 for a married couple if both spouses are applying, and $16800 for applicant-spouse and $137,400 for non-applicant spouse, if only one spouse is applying.
A Medicaid estate planning attorney will help you count which of your assets are countable towards your asset limit. Countable assets are cash, stocks, bonds, investments, vacation homes, and savings and checking accounts. Exempt assets are the primary home (for as long as the Medicaid applicant lives in it or has intent to return and the home equity interest is below $636K to $955K depending on the state), IRAs and 401Ks in payout status, personal belongings, one vehicle, non-refundable prepaid funeral and burial contracts, and life insurance policy with a cash value up to $1500.
If you have assets of more than this amount, you want to be Medicaid-eligible, and you are within the Medicaid look back period, a Medicaid planning attorney can advise you on some legal strategies to reduce, if not eliminate, the penalty period.
The following strategies to spend down your assets may be employed during the Medicaid look back period and do not result to penalties:
- Transfer of assets with adequate consideration
- If you transferred your assets for full fair market value during the Medicaid look back period, there is no penalty.
- Caregiver agreements
- Adult individuals (friend or relative) who live with you and take care of you, serving as your primary caregiver for at least two years, can receive your home during the Medicaid look back period without penalty.
- Medicaid exempt annuities
- Purchasing a Medicaid exempt annuity during the Medicaid look back period that will convert your asset into an income stream will not result into any penalty. The income stream paid by the Medicaid annuity will be counted towards your asset limit.
- Transfers to non-applicant spouses
- You can transfer your assets to a non-applicant spouse up to a certain limit. As of 2022, the non-applicant spouse can hold assets up to the limit of $137,400, called the Community Spouse Resource Allowance.
- Transfer of home to siblings
- If you co-own the home with a sibling, you can transfer the home to your sibling during the Medicaid look back period without incurring a penalty, for as long as your sibling was living in the home for at least a year.
- Recuperation of assets
- In order to reduce the penalty period, some states allow you to recover assets in a disqualifying asset transfer. For example, if you transferred Some states, however, do not accept partial returns.
- Undue hardship waiver
- If you transferred your assets during the Medicaid look back period without adequate consideration but are unable to recover your assets, you can request Medicaid to waive the penalty because you will be without basic needs such as food and shelter. However, before getting exemption under this ground, you need to exhaust all remedies in recovering your assets, which includes filing the appropriate legal action to recuperate the asset.
- Transfers to disabled children under 21
- You can transfer assets to disabled children below 21, either directly or indirectly to a trust, during the Medicaid look back period. This will not incur any penalty.
- Debt payments
- Paying off your mortgage, student loan, or credit card debt during the Medicaid look back period will not result to any penalty.
When employing any of the above strategies, it is important that the agreement is documented. For example, if you sell your asset for full fair market value, the sale has to be documented with the appropriate deed showing the sale for fair market value. Otherwise, it will be presumed to be sold for under fair market value.
If you plan to transfer your home to your adult friend or relative because they served as your primary caregiver, you should ensure that a detailed caregiver agreement is in place that states, at the very least, the amount of compensation and the services provided.
Before employing any of the above strategies, it is important to consult with a Medicaid planning attorney who can evaluate your situation and give you a more customized legal strategy in becoming Medicaid-eligible.
Strategy that violates the look back period but minimizes the penalty
If, despite employing the above strategies, your assets are still above the Medicaid asset limit, you can employ the gift and loan strategy. Here, you gift part of your asset and loan part of your asset to a family member. The gift will be considered a violation of the look back period and will be used to compute the penalty. The loan, however, if done correctly, will not be a violation of the look back period and will not incur a penalty. The loan, however, must be payable in equal monthly installments based on your life expectancy. Usually, the monthly payments from the loan will be used to pay off the nursing home care during the penalty period.
This strategy applies when your assets are above the asset limit and you are only planning for Medicaid eligibility within the look back period. The gift and loan strategy allows you to preserve a little bit of your savings and still be Medicaid-eligible.
The Medicaid look back period guidelines can be complex, and it is important to obtain the services of a Medicaid estate planning attorney when employing strategies to become Medicaid eligible. Trying to do-it-yourself may result to expensive mistakes, which can be irreparable. Should you need a Medicaid estate planning attorney, the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at firstname.lastname@example.org.