Medicaid for Long-Term Care and the Two-Part Test

In this episode, John Ross and Lisa Shoalmire discuss using Medicaid to pay for long-term care, specifically to pay for nursing home care and the two-part test.

Episode Transcript
Lisa
Welcome to Aging Insight. I'm Lisa Shoalmire, and I'm here with my co-host John Ross. And you are here watching the program that is specially designed for seniors and families that care for a senior or... One of these days, we'll all [chuckle] hopefully be a senior.
John
Yeah, could be anyone of us at any time. That's right.
Lisa
That's right. And so this show is designed for a few things. The biggest concerns that we listen and that we hear from seniors, is they don't wanna go broke in their retirement years taking care of their living needs and their medical needs, they don't wanna become a burden on their families and friends, and they don't want to go into institutional care or a nursing home. And those things are all possible to accomplish if you just plan ahead, and get some good information to make those decisions on. So that's what Aging Insight is all about.
John
Yeah. We know that you can navigate through this path of aging, and disability, and that sort of thing, as long as you know what you're doing along the way. And when it comes to that whole thing about not going broke, one of the keys is figuring out how you're going to pay for your care. And when it comes to paying for care, essentially you've got three options. You can have long-term care insurance if you're one of the about 7% of the population that can afford it or qualify for it with good health. Most people don't have long-term care insurance, though. You could pay cash at the rate of say, $4,500 to $5,000 a month. But some people have the financial ability to do that. But the third option is to qualify for some sort of government assistance, which when it comes to nursing home care at least, there's one option, and that is Medicaid. Medicaid is the only government program that pays for nursing care.
Lisa
Well John, and there's a lot of confusion about Medicare versus Medicaid.
John
That's true.
Lisa
And a lot of our viewers who are 65 or older, are going to be familiar with Medicare that provides a physician's benefit, it provides hospitalization benefits. But what a lot of young seniors don't realize is that Medicare pays nothing for long-term care, other than a very small rehab benefit.
John
If you've been in the hospital, you go to a nursing home following at least a three-day stay in that facility, well then Medicare will pay 100% of the first 20 days. And they pay 80% of up to the next 80 days. And then, of course, if you have supplemental insurance, that picks up the other 20%. But after that 100 days, Medicare is done and that's where you get to Medicaid.
Lisa
Right. So first of all, I just wanted to make sure our viewers understand the difference between Medicare, which is a health insurance program that seniors over 65 all have access to. And then the program of Medicaid, which is basically the only program that pays toward long-term care costs.
John
That's right, and it's the only one that pays directly to that nursing home to cover that cost. But there's a lot of rules for qualifying for it. Now some of 'em are pretty basic. You have to be a US citizen, for example. You have to be over the age of 65, or blind, or disabled. You have to have a medical necessity, meaning that you need somebody's help like a nurse, on a daily basis. So you've got to have some medical reason why you need that nursing home care and you have to be in a facility that accepts Medicaid. Not all of them do. Now, in our viewing area, most nursing homes accept Medicaid. But there are still some out there that are private pay only. So, if you're looking at Medicaid as being a payer of your care, it does need to be a facility that accepts Medicaid. Now a lot of times, Lisa, people will say, "Well John, I don't know that I'd wanna be in a Medicaid facility." And that's kind of a misconception.
Lisa
Yeah. In our area, a facility that accepts Medicaid is also a facility that accepts private pay patients. And so in our area, there's not really a difference in care between a Medicaid pay paying patient versus a private pay paying patient. The facilities are the same, the beds are the same, the staff is the same. And so there's not that much difference in our area between those two. But one thing you said a moment ago, John was that you have to be residing in a facility that accepts Medicaid as one of the requirements. And that is something that a lot of people think about. "Well, maybe things are getting to be really hard at home and maybe I need that type of care," or they're thinking about a family member that needs that type of care. And I've had people ask about applying for Medicaid while they're still at home. And if we're talking about facility type care, you have to actually be residing in that facility at the time you apply for that care.
John
That's right, yeah. And so yeah, it's one of those things where you move in and then you apply. That's right. Now, I will tell you that those are the basic rules, those are the minimum things. But what it really boils down to is a two-part test. There's an income test and there's an asset test. And you have to meet both of these tests in order to qualify. So, I think, Lisa, what we oughta do is take a quick break.
Lisa
Sure.
John
We'll come back and we'll talk about what the income and the asset test is all about. Stick with us.
John
Welcome back to Aging Insight everybody. I'm John Ross your host, here with my partner and co-host, Lisa Shoalmire. And today we're talking about using Medicaid to pay for long-term care, specifically to pay for nursing home care. And right before the break, we mentioned that there are some basic requirements. You gotta be a US citizen, you gotta be over 65, or blind or disabled, you have to have a medical reason to be there, and you have to be in a facility that accepts Medicaid. But what it really boils down to is a two-part test. There's an income test and an asset test. And Lisa, let's talk about that income test first.
Lisa
Right. These tests that have to do with the income and assets of the patient. And that's really what we're talking about, is the patient or the patient and their spouse. These are the issues that trip up most people when they're applying for Medicaid. So, the income test has to do with the income that the applicant or the patient who's looking for the care, what their income is. And at this point in time, the applicant who is applying for Medicaid assistance to pay for care in Texas, cannot have income in their name. And we'll talk a little bit about that in a second, but they can't have income in their name more than $2,163.
John
That's right. Now, of course, notice we're talking about the applicant's income, not their spouse's income. In Medicaid terms, they use what they call "the name on the check rule." If the patient's name is on the check, then it's considered their income. If the name of the spouse is on the check, then it's the spouse's income. And they're only looking at the income of the patient. And then as Lisa said, it's gotta be under a certain minimum limit which is around $2,100. Now, some people are over that. And that's actually not necessarily a problem. There was a lawsuit in Colorado many years ago about people who had more income than the income limit, but not enough income to actually pay for their care. And out of this lawsuit came something called a "qualified income trust." All that is is a special type of trust that is created for people who have a little too much income so that they can still get Medicaid. But I guess the key here, Lisa is that really nobody should ever be disqualified because they have too much income.
Lisa
That's right. With the use of this qualified income trust, generally, anyone whose income exceeds the monthly Medicaid limit can utilize this income trust in order to quality, in order to get their income to the point that is needed to qualify. So, yeah, you're right; income should never be the tipping point, I would say.
John
Right. So, whether you're talking about for yourself or whether you're listening to a friend and they say "Well, Bob's gotten older and he probably could use a little bit of help, but there's no point in even applying for Medicaid because he's got too much income." Well, now you know that's always wrong. So income rule, yeah, there's a limit but even if you're over that limit, there's a solution. So, since nobody gets disqualified for the income test, or at least nobody should, what gets most people is the asset test.
Lisa
Right, and as we get older, we save our nest egg, we save for retirement, maybe we've paid off our mortgage so we own our home outright, and we're a little more wise about incurring debts and things. So, a lot of times our seniors have accumulated some assets, and that's where this final test to qualify for Medicaid comes in, is that the program looks at your assets to determine if you have too much to qualify for the Medicaid program. The good news is if there's a number of assets that the Medicaid program does not count toward eligibility, and those assets for most of our retirees and seniors constitute quite a bit of their accumulated wealth.
John
Right. When you're looking at it, Medicaid looks at what they call "countable resources." And when they say countable resources, they mean everything that you have except they do not count the value of your home and the land that it sits on as long as the total value is less that $535,000. Now, notice I said, "The house and the land that it sits on." The way I usually describe this is is if I walk out of the front door, it's every piece of dirt I can step on without having to cross somebody else's dirt. So in other words, whether that's a little bitty house on a lot of land or a whole lot of house on a little land, it doesn't matter as long as the value is less than $535,000. So, they do not count the house, they do not count a car, and they don't count pre-paid irrevocable burial contracts. And all that is is where you have actually paid for the funeral and you can't get the money back. Those three things do not count against you. But most everything else you have, checking, savings, stocks, bonds, IRAs, boats, RVs, Harley Davidsons, all of those other things count against you.
John
Right. Now, unfortunately, if you're a single person and you're looking at Medicaid, in addition to the house, the car, the funeral and some of your personal items, the limit on all of the other stuff that you have all added together has to be less than $2,000.
Lisa
Right, so that means that CD at the bank, or your IRA, or just what you have in your general checking if any of that exceeds $2,000 all together... I've had some folks say "Well if I have $2,000 in one account and $2,000 in another account. Is that okay?" That doesn't work. What they're talking about is if you take it all and add it all together, is it worth less than $2,000? And as a single person, that is the asset limit.
John
Right. Now, if you're a married couple it's a little bit different. If you have a married couple and one spouse is in the facility and one spouse is not in the facility, well, the one who's not in the facility can keep a certain amount of assets. This is what's called the "spousal protected resource amount," which generally is one-half of all of the countable assets. So add up all those countable ones, divide that number in half, and Medicaid would say "Well, we expect you to spend half of that, and you can keep the other half. And we'll start paying once you're down to half." So, if I had a house, a car, and $200,000, they might say, "Well, divide that in half and you need to get rid of $100,000 and you can keep the other hundred."
Lisa
Right. And so the idea for that is is that that one-half stays with the spouse in the community because they've got bills to pay and a lifestyle to maintain, and their own retirement and health needs to look at into the future. And so that one-half stays with the spouse, and the other half is essentially assigned to the spouse that needs the care. And when we come back, we're going to talk about what that spend down amount for the spouse that needs the care, what that really means and what your options are. So, if you'll stick right with us and come right back.
Lisa
Welcome back to Aging Insight. I'm Lisa Shoalmire and I'm here with John Ross, and today we've been talking about paying for long-term care, and specifically utilizing the Medicaid program to help with the cost of long-term care. Now, before we went to the break, we were talking about assets that a married couple can have, and one spouse obtained long-term care through the Medicaid program while the other spouse remains at home in the community. And the example you used a moment ago, John, you talked about if the couple had $200,000 in countable assets, then essentially, that amount is divided in half and one-half is allocated to the spouse at home as their protected resource amount, but what happens with this other half? The other $100,000?
John
Right. Well, the general idea, and the reason that oftentimes you'll hear the term "spin down," is because what they're looking for is they're looking for you to... What they would like for you to do is spend that money on that person's care for some period of time until it's all depleted. However, one of the things you have to think about is that that spouse who's not in the nursing home may have a lot longer life, and if you reduce their assets in half, that could really limit the ability of that community spouse to take care of himself or herself. So a lot of times, we wanna look at how do we preserve some of that or how do we use some of that that might be more beneficial to the family? And oftentimes, one of the first things we talk about is spending some of it.
Lisa
Right. And for our seniors, that's really hard to do because we're so used to saving for that rainy day. But one of the things that you can do is if the married couple, they have been at their home, a lot of times, seniors will put off maintenance, or remodeling, or updating just because they're concerned about spending that money. Well, when you're in a situation where one spouse needs long-term care and we're going to have to spend down the money no matter what, one thing we can do is take some of that money that is allocated to the spouse who needs care, and spend it on the updates and the maintenance that need to happen at the residence for the benefit of that spouse that's gonna be living at that residence.
John
Right. That person that lives at the house, maybe that house needs some new floors, or some carpet, or a new paint job, or a roof, or maybe some appliances.
Lisa
And my favorite is remodeling the bathroom to make it senior-friendly.
John
Absolutely. The house doesn't count against you, whereas money in the bank does. So if you take the money in the bank and you spend it on the house, or the car, or funeral, those things do not count against you. So oftentimes, the first thing that we'll talk to people about doing is spending some of that money. Now, when we... We'll talk about that. A lot of times people will say, "Well, you know what? I'd rather just give it away. Maybe I'd just rather give it to my kids."
Lisa
Yeah. No, that's a bad move. And in fact, that's gonna get you in more trouble than just remodeling the bathroom. So, with the Medicaid program, this is where the five-year look back rule comes in. You may have heard of this, where any transfers of your own assets that you make during a five-year period prior to applying for Medicaid assistance, but the value of those transfers are brought back in and counted against you, even though you no longer have the asset on hand. So, for instance, if you thought, "Well, I'll just give $20,000 to each of my three kids, and that'll get rid of $60,000 dollars." It doesn't work that way. If you do that, the state will count the $60,000 against you, even though you've given it away. So, don't give assets away.
John
Right. In fact, the key really is protecting your assets for your own benefit. And as we approach the end of the show, we can't obviously go into all the details and all of the different strategies that are involved in protecting assets, but I did wanna throw out a statistic. The Government Accounting Office, which is in charge of managing the government's budgets, they just recently did a report, and they said that the vast majority of people who were receiving Medicaid benefits, in fact, something like 85% of them had less than $2,000 in total resources, countable and non-countable. So, 85% of all the people on Medicaid were down to just their last few pennies, but they also said there was about 7% to 10% who were receiving Medicaid and still had access to tens of thousands of dollars, because they were able to utilize the rules in their favor to protect and preserve some of their own funds for their own benefit. And that's what it's all about, you protecting your assets so that they can be used for you. That's really the key to it, but you gotta do it before you go broke.
Lisa
Right, yes. Can't get the money back after we do that, and there's a lot of rumors out there. We've heard a number of times, "Well, there's all these millionaires receiving Medicaid, long-term care," and that is just not true.
John
It's not true. It's not true, but it is important for you to preserve that little bit for your own benefit, because although Medicaid is a good program and it does provide a very needed resource, it's not there to provide a quality of life. That's what your resources are for.
Lisa
Right. So, through the Medicaid program, you can access the care that is needed for yourself or your loved one. And sometimes the care needs of that senior, that person, just really outstrip the ability of the family to care for them. And so, this is a program to make sure we're getting that care, and then if we can preserve some resources, then we're gonna be able to enhance the quality of that senior's life while they're getting that care.
John
That's right, and if you ever have any questions, feel free to reach out to us on our Facebook page at facebook.com/aginginsight, or you can listen to us on the radio every Saturday at noon, live call-in radio on 107.1. And that's why we're here, to answer those questions.
Lisa
Yeah. Alright, well, thanks for tuning in for an episode of Aging Insight, and we'll see you next week.
John
Bye-bye.

2 thoughts on “Medicaid for Long-Term Care and the Two-Part Test”

  1. My financial advisor said to his understanding, having an IRA inside an Annuity protects those funds from the spend down for nursing home care. Is this correct?

  2. Mr. Horton – It is true that under the newest provisions for Texas Medicaid, a “Qualified Retirement Annuity” is not considered in determining your financial eligibility for benefits. However, that does not necessarily mean you should run out and invest your IRA money in a qualified annuity. Medicaid rules are very complex and timing the purchase of an annuity for Medicaid purposes can be critical. Too much annuity, too little annuity, purchasing too soon or purchasing too late can all have an impact on whether or not that move is appropriate in your particular situation. I would recommend that you have a consultation with an Elder Law attorney before making investment choices based on Medicaid. My firm, Ross & Shoalmire (www.rossandshoalmire.com) does not charge for an initial consult if you’d like to discuss this with one of us. We can be reached at 903-223-5653.

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