Medicaid is one of the largest insurance providers in America, designed to help low-income families and individuals, seniors, the disabled, and those in dire circumstances that otherwise wouldn’t be able to afford to take care of themselves. The application process can be a daunting and confusing experience; one mistake can result in you being denied coverage as well as drastic financial losses down the line. There are steps one can take to avoid making any crucial mistakes while considering applying for Medicaid.
Taking Too Long to Plan
Although you can still plan when you are in a nursing home, it will take a large amount of money out of your pocket. It’s best to start planning in advance to figure out which plan you may want to apply for, as well as considering which plans you would be eligible for. The goal here is to choose a plan without acquiring penalties or at least avoid them as much as possible.
Spending Down On The Wrong Things
A Medicaid “spend down” is a financial strategy that is used when your income is higher than the Medicaid income limit. This essentially requires those with higher incomes to spend a portion of their assets so that they will have a low enough income to qualify for Medicaid. This money should be spent on health care, medical-related costs, and accrued debt (mortgage, vehicle and/or credit card balances). Anything outside those expenses can result in a penalty and a period of ineligibility for the program.
Giving Away Assets
Some people give away their assets in the hopes of spending down, but this is not allowed due to the 5-year-lookback period. This states that if you have given away assets as a gift or transferred them within a 5 year period, you may be penalized. If do not disclose these transfers, you will lose eligibility for a period of time and will have to pay for your medical expenses on your own. If you find yourself in a nursing home before receiving eligibility for Medicaid, you can purchase a private annuity if you have assets that are not protected within the 5 year-lookback period. This means you can transfer a portion of your assets to your child and be ineligible for a much shorter amount of time. Once you become eligible, you will be able to keep your remaining assets.
If within the 5-year-lookback period there has been spending down unrelated to medical or accrued debt, there can be a period of ineligibility and penalties. Also, getting a divorce will not help you qualify for Medicaid. If there is an uneven split in assets and the spouse that needs care gets the short end of the stick, the state will deny them Medicaid because they will question as to why they didn’t go after the assets that they were rightfully owed. If you want to transfer assets to a disabled child, you may do so by having a pooled income trust, which will transfer your assets without risking your Medicaid eligibility.
Transfers Between Spouses
If you want to transfer any assets between you and your spouse, there will be no penalties in regards to your Medicaid eligibility. You can transfer any assets to your spouse in their name, and they will be considered a ‘community spouse.’ When you are a community spouse, in most states, your spouse can protect 50% of countable assets for both of you, up to $126,420 and keep it. This refers to cash and retirement. Your primary house, (one) car, and personal property are not countable. You can also petition for an increase in the community spousal resource allowance and sometimes be allowed to petition for an increased income allowance. In New York and some other states, your spouse can refuse to provide support for you in a scenario called “spousal refusal.” This will result in immediate eligibility for Medicaid. Medicaid may seek to gain contributions from the well off spouse, however. This happens in some cases, but in others, Medicaid will negotiate a settlement at a discounted rate.
Medicaid planning is a challenge, as one mistake can cost you thousands of dollars and possibly your eligibility. We recommend meeting with a Medicaid planning attorney who will help you figure out which plan works best for you and will make sure you can avoid penalties down the road.