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Q: How does Medicaid work, and is it possible to transfer assets to become eligible for nursing-home coverage?

A: Medicaid is a joint Federal and state program that pays for medical care for individuals who can not pay their own medical bills. Medicaid pays for physician-approved hospital stays, medical care, prenatal care, vaccines for children, family planning services, x-rays, prescription drugs, and skilled nursing home care.  However, to qualify for Medicaid, a person must have limited income and few assets, or resources. The rules are complicated, and each state operates its own Medicaid program.

            In nearly every state, Medicaid eligibility is limited to children, pregnant women, families with dependent children, persons who are blind or disabled, and persons 65 or older. A few states cover single healthy adults who fall within certain income and eligibility guidelines.

The guidelines for qualifying for Medicaid are based on two factors:

Income Levels:  All states impose an income cap to restrict eligibility to people who have monthly income below a certain level. The income that the spouse earns in his or her own name is not considered.  

           In most states, if you spend all your income on nursing-home costs—minus a small personal-needs allowance; usually about $100 per month—Medicaid will cover the balance of the nursing-home charges.  Some states are more generous than others; in South Carolina, for instance, the income limit is $1,656 per month.

            Assets:  Before Medicaid applicants can qualify for Medicaid, they must “spend down” their assets, such as cash, stocks, and most other items, until only a certain amount remains.  This amount will vary from state to state.  Most set the limit at several thousand dollars for one person and more for a couple.  For instance, in Connecticut the limit is $4,000 or less per individual and  $6,000 or less for a couple. You do not need to factor in certain valuable assets:  the home where you live, home furnishings, a car, and the amount in a prepaid burial account. 

If you enter a nursing home and your spouse does not, he or she can keep a percent of total income and assets.  Medicaid eligibility considers all assets owned by each spouse, then allows the spouse still living at home to keep half of the couple’s assets to a state-by-state limit.    Any assets above that limit have to be spent down before your eligibility kicks in. In determining Medicaid eligibility, the couple’s assets are evenly divided. The nursing-home patient spends his or her half down to the state’s criteria (i.e., $1,656 In South  Carolina), and the at-home spouse will usually get to keep the remaining 50 percent of the assets. 

Transferring assets to qualify for nursing-home care: Many people think that in order to qualify for Medicaid they need to falsely impoverish themselves by giving their assets away. This is not always the case. Moreover, doing so to preserve assets can be tricky and timing is everything. When you apply for Medicaid you must disclose any gifts you have made to people other than your spouse within the last 36 months. Assets transferred during this period will result in a period of ineligibility for Medicaid.

The government calculates the waiting period by dividing the value of the asset given away by the average monthly cost of nursing-home care in your state.  For instance, someone who gifts $45,000 can’t receive Medicaid for the next 10 months, if the average monthly cost of the nursing home is $4,500 per month.  Applying for Medicaid during that 10-month period is illegal. 

Be aware that Federal law requires the Medicaid program to “look back” 36 months prior to the application for Medicaid nursing-home benefit to see if assets have been transferred for less than fair market value.  The look-back period is 60 months if the assets were transferred to an irrevocable trust.  You will need to make copies of every financial document—bank statements, brokerage statements, etc.—to send to the Medicaid office in your state.  It takes time.  They don’t accept  “I can’t find that.”  You might have to call banks or other financial institutions to get copies of the required documentation.

Under legislation passed in 1993, the Federal government requires states to begin recovery of Medicaid money from estates of recipients who have passed away.  In other words, after the death of Medicaid patient the state can lay  claim against and force the sale of exempt assets, such as a house.  So without proper planning, Medicaid eligibility may not save family assets from being exhausted on Medicaid cost.

Call your local or state Medicaid office for information.  Better yet, consult an Elder Care attorney in your area prior to applying for Medicaid, especially if there is any question about eligibility—either financial or medical.

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This answer was prepared by financial planner Elizabeth Lewin, who is the author of “Family Finance” (Dearborn Trade), among other books, and a contributing editor to MAKING BREAD.

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