When faced with the necessity of long term care, many Americans find themselves in a dire financial situation. This is because long term care costs in this country are extremely high.
Adult day health care services are on the low end, with median monthly costs at $1,603. Unfortunately, for day services, that is not a small number and can take a serious toll on anyone’s finances, needless to say an older person who may be on a limited budget.
On the opposite end of the spectrum is the national median monthly cost of $8,821 for a nursing home. While adult day health care services can certainly put a strain on someone’s finances, $8,821 can diminish a life savings in years, if not months.
And, for those in the New York and New Jersey area, the monthly median cost for nursing home care is even higher, coming in at $12,927. (See the Genworth Cost of Care Survey for more details on these figures.)
When dealing with these exorbitant costs, rather than solely facing the option of spending all of your life savings, one should consider what is generally referred to as a Medicaid spend-down. Here is some information about it:
Medicaid is a health care program for low income Americans. To qualify, you must meet the medical and financial requirements. The financial requirements are broken down into two categories, income and resources.
If your income and/or resources are over the state determined limits, you are able to spend them down in order to qualify:
Income Spend Down – If your income exceeds requirement levels, you can offset it with expenses for medical bills such as doctor visits, prescription drugs, medical insurance premiums, and other medical expenses. If you spend down on these items and are still over Medicaid’s income requirements, in some states you can qualify for Medicaid if you are below the monthly cost of care, which as mentioned, is quite high. If your state does not follow that rule, you can likely set up a qualified income trust (also called a Miller Trust) to reduce your income and then qualify. Please note that the Miller Trust purely reduces your income so you can qualify for Medicaid, but all of your income will still be paid to the long term care facility.
Resource Spend Down – Medicaid imposes a resource (asset) limit which will vary greatly by state. For instance, New Jersey’s resource limit is $2,000 whereas New York’s is $15,750. These limits are clearly very low; however, there are ways to spend them down and qualify.
Resource Spend Down Strategies to Qualify for Medicaid
If your resources are over the allowable amounts, it may be tempting to sell or give them away, but this is not advisable. Instead, you should consult with an elder law attorney as it’s important to understand Medicaid’s criteria and their 5-year look back period in order to not make yourself ineligible. Getting the advice of an elder law attorney is fundamental to understanding how this works.
To begin, it is important to understand that Medicaid categorizes your resources in two ways, those that are countable and those that are not countable. Please see my article, Paying for Long Term Care: Medicaid’s Financial Requirements, which discusses this in detail.
Right now we are going to focus on the resources that are counted by Medicaid, but you can spend on items that Medicaid will not count as resources you have that should be paid towards long term care. This is what the “Medicaid Spend Down” is. And, as you can see, it can be very helpful because with costs of long term care so high, it is likely that all resources you have (cash, stocks, bonds, property other than your primary residence, retirement accounts) will end up in Medicaid’s hands.
So, here is a list of items that you are allowed to purchase. And, once purchased, Medicaid will not consider them as something that should be put towards paying for your long term care:
- Home improvements
- One vehicle
- A medical device that is not covered by insurance
- Paying off debt such as a mortgage, car loan, or credit card debt
- A Family Caregiver Contract or a Life Care Agreement with a family member
- An Irrevocable Funeral Trust to pay for funeral and burial costs
- A Medicaid compliant annuity
- A life insurance policy with a face value of less than $1,500
Qualifying for Medicaid long term care benefits can be complicated, and this is just some basic information on how you can do so. I will continue to write on the topic and explore this in greater detail.
In the meantime, older adults should consider consulting with an experienced elder law attorney to understand how a Medicaid spend down strategy may be a good option for them.
If you have any questions on this article, or any else related to elder law, please contact us at www.schedulefreeconsult.com or 201-664-0540 to schedule an appointment to discuss any of your long term care concerns.