Pennsylvania Medicaid Background
The average cost for a private room in a nursing home in Pennsylvania is approximately $75,000 per year, and approximately $90,000 per year in the Philadelphia area. At these rates, a stay in a nursing home can significantly deplete the estate of even persons with substantial assets.
One option to pay for skilled nursing care is medical assistance benefits. A person cannot be eligible for medical assistance for long term care unless they have a very minimal amount of assets. However, with careful planning, a person may be able to use gifts, trusts, annuities or other “exempt assets” to preserve their estate for their children while making themselves eligible for Medicaid benefits.
Russell Law works with clients to avoid the depletion of their estate to the incredible expense of long term care.
How Can We Help?
What is Medicaid?
Medicaid, or the Medical Assistance (“MA”) program as it is known in Pennsylvania, is a means tested benefit program, funded jointly by the federal and state government, which provides medical insurance to low-income individuals and families. MA also provides payments for low income individuals for skilled nursing home care.
The cost of nursing home care is consistently rising, and can cause a near-complete depletion of assets, so it is important to understand how the MA program works with respect to assets and income of applicants.
What are the financial limits to qualify for Medicaid in Pennsylvania?
When an individual applies for Medicaid, the local county agencies will examine all of the available resources of the applicant- their income (if any), and their assets. Income can come from many sources, but is typically Social Security payments, pensions, IRAs, and annuities. Assets are typically stocks, bonds, checking accounts, savings accounts, brokerage accounts, and non-term life insurance policies, just to name a few. The asset limits in Pennsylvania in 2020 are:
- $2,000.00 for an unmarried individual
- $2,000.00 for a married individual (one spouse applying, non-applicant spouse may keep up to $128,640.00 in available resources)
“Available resources” in the Medicaid context, is a bit of term of art; not all assets are considered available to the applicant, for example, the primary residence up to $585,000.00, irrevocable burial trust agreements, one automobile, and your spouse’s retirement accounts. As you can see, the MA program is only available to those in dire need of skilled nursing care, and do not have resources above these amounts.
Can I give my assets away to qualify for Medicaid?
When engaging clients in estate planning to prepare for Medicaid eligibility, a common theme presents. Clients will seek counsel, and will ask whether or not they can simply give their assets away to qualify financially for Medicaid. This includes giving cash gifts, as well as the steady standby- putting someone else (typically the children) on the deed to the family home. The main problem with this “strategy” is that Medicaid examines the applicant’s financial profile for a full 5 years prior to the application date. This is typically known as the “5-year look back rule.” What does that mean, exactly?
It means that any gifts given within 5 years of application will be examined, and if they are sufficiently large enough, they result in a period of ineligibility for the applicant. For example, if Applicant A changes the deed on the family home to “give” the house to Applicant A’s two children, and applies for Medicaid within that 5-year window, the county agency will look to the value of the house and apply a penalty-the divisor is the monthly average of the cost of skilled nursing care in Pennsylvania. So, if you give a house worth $400,000.00 to your children, it will result in a period of ineligibility of about 38 months ($400,000.00 / $10,400.00 = 38).
If I go on Medicaid, can the government take my house?
A frequent misnomer we encounter in Medicaid planning is that the government can take your house if you are enrolled in the Medicaid program. This is typically not the case. While you are alive, the government cannot make you sell your house to pay for a nursing home stay.
This is particularly true if you are married and your spouse still lives in the home. What the governmental can (and will) do is attach a lien on your estate through the Estate Recovery program. What this means is that, once a Medicaid recipient passes away, their estate will be presented with a statement of the Medicaid services that person received.
If their estate does not have sufficient assets to pay the lien back, the lien will attach to the home (if any). Once that home is sold, the lien will be satisfied from the proceeds.
Is there anyway to protect all of my assets so that I may leave them to my children?
The short answer to that question is “yes”, but it requires savvy estate planning strategies. It is also a question of timing. There are certain types of trusts we can employ to protect those assets, both from the county Medicaid agencies during life as well as the Estate Recovery program upon death. We typically refer to these trusts as “Medicaid Asset Protection Trusts” (“MAPT”). The MAPT is an irrevocable trust which is created, typically by spouses, whom we then refer to as the “Grantor” or “Trustor”).
The MAPT is then controlled by someone other than the MAPT Grantor. The balance of the MAPT will be distributed to whomever the Grantor decides shall receive it upon their death(s). The principle behind the MAPT is that the Grantor(s) are “giving away” their assets to the trust so that Medicaid cannot count them as available resources when an application is submitted. One major catch, however, is that the gifts to the MAPT must fall outside of the 5-year lookback period. Otherwise, they will trigger penalties with periods of ineligibility. This is why timing is important, and you want to make sure you are consulting with seasoned Medicaid planning attorneys.
Medicaid Spending Do’s and Dont’s!
When an individual believes it is time for nursing home care (or if they are in a nursing home already), that individual will typically begin a “spend down” process. When we say “spend down”, we referrer to the process through which an applicant will spend or otherwise use available resources and assets until they qualify for Medicaid.
Because Medicaid is means tested, an applicant cannot have above a certain amount of countable assets. Countable assets may be liquid assets, such as cash, real estate, or automobiles. Here are some Do’s and Don’ts for Medicaid applicants during a spend down:
DO- Purchase Non-Countable/Exempt Assets. When spending down assets to qualify for Medicaid, the applicant is not free to spend their money any way they wish. While it might seem unfair, Medicaid will assess penalties, not only for giving assets away, but for spending money in a way which will be seen as trying to qualify for Medicaid faster.
However, there are certain purchases which are permissible, and can really help accelerate the spend down process. An applicant is allowed to own one home and one automobile, so if the applicant has enough cash available, either one of these purchases are permissible.
DO- Pay off existing debts. Similar to purchasing Non-Countable or Exempt assets, an applicant may make payments towards existing debts. For example, the applicant may pay off a car note, or make payments toward a mortgage which exists on the primary residence. Also, any medical bills which the applicant has incurred may be paid off or paid down during the spend down period.
DO- Explore the option of turning cash into an income stream. Medicaid views an applicant’s income and cash assets very differently. There are methods of taking cash and turning it into income for the applicant, rendering them eligible for Medicaid much faster than a traditional spend down of that cash. This is an area where a seasoned Medicaid attorney can maximize the applicant’s ability to qualify for Medicaid.
DON’T- Give assets away. The cardinal sin, if you will, when trying to qualify for Medicaid, is giving your assets away. This issue is frequently complicated by the fact that most people are not aware of the 5-year lookback period for Medicaid. When an individual applies for Medicaid, the county agency will demand 5 years’ worth of financial records for the applicant; the agency will then conduct a thorough review of those records to discern whether or not the applicant gave any assets away.
“Gifting”, according to the Medicaid rules, includes traditionally understood gifting away of money/assets, transfers for little-to-no consideration (like changing the deed of the house to the children), or selling an asset for less than fair market value (i.e. selling your house for half of what it is worth). Each gift will be examined by Medicaid, and based on the value of the gift/transfer, they will assess a period of ineligibility that can be catastrophic.
DON’T- Wait till the last minute to plan. Too often, we have clients reach out to our office to explain that a parent or a spouse has entered a nursing home, and that they failed to do any kind of planning prior to the nursing home stay. Now, sometimes this cannot be helped. An individual may go from perfectly healthy to needing a nursing home in a very short period of time. If there is a sense within a household that someone may be failing in health, or that skilled nursing care may be need in the future, it is always a good idea to address this sooner than later. Simply put, the more time you give your attorney to help plan, the more assets they can protect for you and your family.