How do the Medicaid rules differ for single individuals and married couples?
The Medicaid qualification rules for single individuals and married couples are significantly different.
For a single individual, the total of all “countable assets” must be $2,000 or less. This means that bank accounts, financial accounts, stocks, bonds, mutual funds, and the cash value of life insurance can total no more than $2,000. Some assets, such as a house, may be temporarily exempt and thus not “countable.” In some cases, retirement accounts (such as IRAs and 401(k)s) may now be treated as a stream of income instead of an asset. Keep in mind that there is more than one way to reduce assets to the $2,000 level. Our Medicaid plans preserve some of those assets outside of the individual’s ownership. Once on Medicaid, individuals must also pay over all of their income to the nursing home as their share of costs (except for a $50 monthly allowance).
For a married couple, the rules are designed so as to not impoverish the healthy spouse, while providing Medicaid benefits to the spouse who needs nursing care. Generally speaking, the healthy spouse may keep their own income of any size, a house and car, plus a substantial amount of other assets. Though the level of these other assets is limited to approximately $130,000, through our planning and Medicaid-compliant annuities, it is possible in some cases to preserve even more.
What is the five-year rule?
The five-year rule is one of the major rules of nursing home Medicaid, but it is often misunderstood. Since Medicaid benefits are asset-dependent, this rule is intended to prevent an individual from giving away all of their assets and then immediately qualifying for Medicaid.
The five-year rule (also known as the five-year lookback period) works like this: at the time that you apply for Medicaid, they will ask whether you have gifted any assets in the last 60 months (or 5 years).
If the answer is yes, and there is not a good reason for the gift (which there seldom is under the Medicaid rules), you will be awarded benefits, but penalized for the gift, assuming the application is good in all other respects. The penalty is a period of time in which Medicaid will not pay the nursing home bill, specifically one month for each $6,905 gifted. Gifts given more than five years prior to the Medicaid application are not penalized.
For example: if you gifted $32,000 to your children four years ago, and another $37,050 six months ago, the total gifts in the five-year period would be $69,050. So, if your application was otherwise acceptable, 10 months would be the assigned penalty period, and Medicaid would not pay your nursing home bill for those 10 months.
Therefore, gifts to children can jeopardize your care, if those gifts are not part of an overall Medicaid plan carefully designed by an Elder Law attorney. Much of our planning involves gifts and corresponding penalties; but in those cases, we make sure to set aside sufficient money to pay for the nursing home care during the penalty period.
Will you have to turn over all of your assets to the nursing home?
Clients sometimes have the impression that they will have to turn their financial accounts and the deed to their house over to the nursing home upon admission. This is not the case. Medicaid will not pay for your care unless you are at a qualifying level of assets. Until that point, you are required to use your assets to pay the monthly bill for your care. But you will not turn over control of your accounts to the nursing home.
Will you lose your house if you need nursing care?
How your house is treated will depend on whether you are married at the time of needing nursing care (see FAQ above). In the case of a married couple, one house can be kept. It will be exempt as long as the healthy spouse is living there.
For a single individual or surviving spouse, a house may be temporarily exempt, but if the individual needs to remain permanently in the nursing home, it must be sold as part of the Medicaid qualification process. With our assistance and careful planning, often clients can preserve some of the proceeds from the sale. In limited cases, the house can be transferred to certain individuals, such as a disabled child, a long-time caretaker child, or a sibling of the Medicaid applicant.