What Is Medicaid Planning?

Long-term care is expensive, and Medicare covers only limited skilled nursing care. Medicaid is the largest payer for nursing home care, but it has strict financial rules.

Asset and income limits

Medicaid for long-term care generally requires the applicant to have very limited countable assets, often a few thousand dollars, with certain exempt assets such as a home up to an equity limit while a spouse lives there, one car, personal belongings and prepaid funeral arrangements. Income rules and limits vary by state.

The five-year look-back

When someone applies for long-term care Medicaid, the state reviews asset transfers made during the previous 60 months (42 U.S.C. 1396p(c)). Gifts or transfers for less than fair market value during that period create a penalty period of ineligibility, calculated by dividing the amount transferred by the average monthly cost of nursing home care in the state.

Some transfers are exempt, such as transfers to a spouse, to a disabled child, or in certain cases a home to a caregiver child.

Protections for a spouse at home

Federal "spousal impoverishment" rules let the spouse who remains at home keep a share of the couple's resources and a minimum monthly income allowance (42 U.S.C. 1396r-5). The amounts are updated annually.

Common planning tools

• Spending down on exempt items, such as home repairs or a car
• Medicaid-compliant annuities
• Irrevocable trusts created more than five years before applying
• Paying off debt
• Personal care agreements with family caregivers, done properly
• Converting countable assets into exempt assets

Poorly planned gifts can cause long penalty periods, so planning should be done carefully and early.

Estate recovery

States must try to recover Medicaid long-term care costs from the estates of certain deceased recipients, subject to exceptions such as a surviving spouse or a minor or disabled child (42 U.S.C. 1396p(b)). Some states recover from assets outside probate.

Is it legal?

Yes. Medicaid planning uses rules written into federal and state law. Hiding assets or lying on an application is fraud.

Who to talk to

Elder law attorneys focus on Medicaid planning. See estate planning lawyers near you, and plan ahead, ideally more than five years before care is needed.

Sources

1. Cornell Law School LII: 42 U.S.C. 1396p, Liens, adjustments and recoveries, and transfers of assets
2. Cornell Law School LII: 42 U.S.C. 1396r-5, Treatment of income and resources for institutionalized spouses
3. Medicaid.gov: Eligibility