It’s rare for me to have a guest article on my site. However, a few weeks ago, I had a meeting that disturbed me. As soon as the meeting was over I contacted Texas Elder Law Attorney John Ross and asked him to write this guide for my readers on how to use Medicaid Long Term Care to pay for nursing home expenses.
I just couldn’t see a story like this happen again.
It’s been a few weeks now, but I still think about this meeting often. Listening to the woman that I met with her and her story was heartbreaking. I felt so sorry for her — but there was nothing I could do to help her.
I’m sharing her story with you here in hopes that someone else won’t make the same mistakes.
The Stunning Cost of Long Term Care
Several years ago, the woman’s husband developed dementia. He began the slow decline that’s typical of the disease. Everything was okay for a while and she could manage on her own — but eventually, her husband needed more (and professional) care.
While she took care of him as long as possible, she ultimately she had to concede that his healthcare needs had exceeded her abilities to meet them.
So the woman chose a local nursing home and helped her husband move into the facility. The cost surprised her, but thankfully her husband had saved in his company retirement plan. Those assets, she thought would largely cover the expenses, and she herself had enough savings to use for for about two years.
But over time, the cost of long term care completely wiped out the funds in her husband’s retirement account. She took the last distribution out of the account the same month he died.
Here she was: 72. Healthy, but widowed. And broke.
Her story is sad enough — but becomes even more tragic when you consider it didn’t have to be this way at all, had she only known her options for using Medicaid long term care to handle her husband’s healthcare expenses.
As a Texas resident, this woman could have used this strategy to avoid depleting her only financial means that would have supported her through her retirement. But by the time I met with her, it was too late.
So please read this article from John Ross and then share it with anyone you know who could be affected. It could help someone else go through the same struggles.
How to Use Medicaid Long Term Care for Nursing Home Expenses in Texas
Please note that this post and the rules detailed below are specific to Texas. If you live in another state, I’ll put some resources at the end of this article for you to find the help you need.
The need for long-term care solutions continues to grow as our population ages.
Currently, there are really only three options to cover this kind of cost. You can use:
- Long-term care insurance
- Your own savings
- Medicaid long term care
Option one really isn’t much of an option anymore. It used to be affordable for the retiree who had some savings but not enough to completely cover the cost of something like a nursing home in their later years.
But today, the long-term care insurance market is a mess. Premiums have exploded over the past few years, leading many individuals to drop their coverage.
According to an Urban Institute report, only about 5% of the population has long term care insurance. We see that same trend in our own internal surveys; approximately 7% of our clients have policies now, but many are on the verge of dropping their coverage as they watch their premiums skyrocket.
Option two isn’t realistic either. Very few people can pay for private care out-of-pocket for a significant amount of time.
According to the Department of Health & Human Services, the average nursing home cost for a month of long term care in a semi-private room is $6,844. At that price, it wouldn’t take long to blow through the average $135,000 retirement account balance for those approaching retirement.
The average retiree can only afford to pay for about 19 months of care at current prices. For a couple, that could easily be taken up by one spouse who may need care sooner than the other — leaving nothing for the other spouse to live on in the present, much less use in the future when they may need care.
The Only Realistic Option for Many: Medicaid Long Term Care
This leaves many with Medicaid Long Term Care as the only viable option when it comes to handling nursing home costs. Unfortunately, this area of planning is poorly understood by most.
That’s made worse by the fact many people hear things like “just give it all to your kids and wait three years,” or worse, “you have to spend all your money first” to receive Medicaid. Both are bad pieces of advice, and it often comes from family members who “know somebody who did it,” the staff at the nursing home, or worst of all, an insurance agent or financial advisor who has something to sell you.
This may sound self-serving to my profession, but it’s crucial you get your information from an attorney who practices in this area. The laws around Medicaid eligibility change all the time; if you’re not keeping up with them, one wrong move could disqualify you from years of benefits.
Towards the later part of this article I’ll tell you how to find an attorney who practices in this area and can help you figure out how these rules apply to your situation — but first, let’s make sure you have a basic understanding of Medicaid and how you can use it to help you pay for long term care in Texas.
What’s the Difference Between Medicaid and Medicare?
One of the questions that I’m asked most often when I speak at events is, “Won’t Medicare Cover Long Term Care?”
The short and sweet answer is that Medicare is not meant to cover nursing home expenses. For that, you’ll need Medicaid Long Term Care.
Here’s a quick description of each program and how they contribute to long term care coverage:
Medicare is the federal health insurance program for people who are over the age of 65 (or meet other specific criteria if younger than 65). Medicare consists of four parts:
- Part A: Hospital Insurance
- Part B: Medical Insurance
- Part C: Advantage Plans
- Part D: Prescription Drug Coverage
Individuals pay a monthly premium for Medicaid, it’s usually deducted from your Social Security benefit each month.
When a person enters a long-term care facility, Medicare often covers their stay for the first 20 days. Longer coverage can occur if supplemental insurance coverage is in place.
Medicaid is the only government program available to pay for nursing home expenses. Although Medicaid is a federally created program, the actual administration of that program is left to the individual states.
Because of this division between federally-created rules and state administration, there are many specific differences between the states (although the overall rules are generally the same.) For this reason, the specifics that I discuss in this article may be slightly different in your state.
These two programs may sound a lot alike, but they differ greatly in coverage. If you want one to pay for nursing home expenses, you’ll need to know the basic rules on how to qualify for Medicaid.
How Do You Qualify for Texas Medicaid Long Term Care?
Here are the broad rules for qualifying to use Medicaid long term care to cover the cost of a nursing home:
- Be a U.S. Citizen or an alien lawfully living in the U.S. AND reside in the state where they are applying for benefits;
- Be over the age of 65, disabled or blind;
- Meet “medical necessity” requirements for skilled nursing care;
- Live in a facility that accepts Medicaid
- Have gross monthly income of less than $2,313.00 (in 2019)
- Meet certain asset requirements
Most of these rules are fairly straightforward, but the last two rules on assets and income can cause lots of confusion. This is because they are based in laws that vary from state to state and change often.
Let’s examine each of those two tricky requirements individually.
The Income Requirement
For 2019, your gross monthly income cannot exceed $2,313 in order to qualify. Although this seems like a fairly cut and dry limit, an individual who has more than this amount can still often qualify for Medicaid.
If the applicant otherwise qualifies for Medicaid long term care nursing home benefits, the applicant (or the applicant’s spouse or duly appointed agent) may create a Qualified Income Trust or “Miller Trust.” This trust allows the applicant to transfer his/her income into the trust and then qualify for Medicaid long term nursing home care benefits.
This means that no one should ever be disqualified for Medicaid because they have too much income. Either you are under the income limit and qualify – or you are over the limit, set up a Miller Trust, and then qualify.
Be aware, this type of trust has very specific requirements and is not for the do-it-yourselfer. You will want to work with an attorney to help you set this up properly.
One last note on the income requirement is that when Medicaid counts your income, they only count the income sources of the individual who needs to qualify for Medicaid – not joint income if you’re married.
The Asset Requirement
While a Miller Trust does a fantastic job in overcoming the income cap issue, it is not a tool that can be used to protect assets. If your assets are in excess of the limits, there are other strategies that can be used. The foundation of these strategies is in understanding how Medicaid views an individual’s assets.
Medicaid determines eligibility for an individual by dividing their assets into countable resources and non-countable resources. The non-countable resources have no effect on eligibility and are not considered while the countable resources in excess of the limits will prevent the person from receiving benefits.
Here’s a brief breakdown of some of the more common assets and whether they are countable or non-countable.
B) Bank Account balances
C) Investment Accounts
D) Real property (other than primary residence)
A) The principal residence of the Applicant up to a value of $585,000.00;
B) A burial plot held for the Applicant or the Applicant’s family;
C) Term or burial insurance, if it has no cash value;
D) Identifiable burial funds in the amount of $1,500.00, or
E) Prepaid irrevocable burial contract regardless of the value;
F) One automobile, regardless of value;
G) Household goods and personal items;
H) Life insurance policies owned by the Applicant with total face values of $1,500.00 or less per insured person;
I) Livestock and poultry that are held for business purposes or for consumption;
J) Business property essential for self-support; and
K) Non-business property valued at up to $6,000.00, essential for self-support (generally mineral interests).
To qualify for Medicaid, an unmarried individual’s countable resources cannot exceed $2,000. (If both spouses are applying for long- term care nursing home benefits, their combined countable assets generally cannot exceed $3,000.)
When a couple is married, and only one is applying for long-term care Medicaid, all available non-countable resources of both spouses are counted. Included are assets held in joint or individual names of the married couple.
One-half of the couple’s resources are set aside for the spouse not applying for Medicaid, with a minimum set-aside amount of $25,284 and a maximum of $126,420 (in 2019). This means that if someone is married, the spouse who does not need care will be allowed to keep up to $126,420 in countable assets.
So what happens if an individual’s countable assets are over the limits? Getting someone qualified for Medicaid is a matter of either spending the countable resources, or converting the resources from countable to non-countable assets.
If you are in a situation that requires spending countable assets, this could be spent by privately paying for care at the nursing home or it could be used to make improvements on the home, prepaying for funeral, making exempt transfers to disabled children or college accounts for grandchildren under and age of 21.
Why A New Law Changes Everything
For the vast majority of Americans, the two largest personal assets a family owns are their homes and their Individual Retirement Accounts (“IRAs”) or other type of qualified retirement account (401k, 403b, Thrift Savings Plan, etc.).
As discussed above, the home is a non-countable asset. Under recent changes in policy interpretation, IRAs, or other retirement accounts, for individuals over 70 1⁄2 that are required to take their minimum annual distribution are also non-countable assets.
This is a significant change in how you can approach Medicaid planning!
Imagine an 80-year-old surviving spouse owns her own home, has $100,000 in her IRA that was rolled over from her spouse upon his death, and $10,000 cash in the bank. If she needs long-term care, she would probably be told she must spend all of her IRA before qualifying for Medicaid.
This is advice is not only outdated, but just plain really bad advice.
This surviving spouse could qualify for Medicaid by simply spending $8,000 on prepaid burial (or other eligible spend-down) and now has $2,000 or less in the bank which is her only countable asset — and could then use the Medicaid long term care benefit to cover her nursing home costs.
Don’t Take My House! How the Medicaid Estate Recovery Program Works (MERP)
So far this sounds simple enough, but this move alone is only half of what needs to be done. It is important to note that while her home and IRA are non-countable assets for initial Medicaid eligibility, those assets may not be protected when she dies.
This is because every state has a Medicaid Estate Recovery Program (MERP). If you receive long term care services, the state has the right to ask your estate to pay that money back after you die.
When an individual who was on Medicaid long term care benefits dies, the family will receive two letters from MERP’s debt collector HMS. The first letter is a Notice of Intent to file a claim against the estate. The second letter provides the amount of the claim.
Without proper planning, the family may have to sell the home to pay the MERP claim before any proceeds can be distributed. This is why you may have heard that Medicaid will “take your house,” but that isn’t necessarily true.
When planning for clients in Texas, we usually make sure that the house is not part of the estate. If the house is not in a person’s estate, under current Texas law, MERP does not have a claim!
So how does one ensure their house is not in their estate? One way is to have a proper deed prepared so the house passes instantaneously to an intended beneficiary at death. Such deeds are used regularly in Texas to avoid MERP claims, and also to avoid the home passing through the long and complicated probate process.
Here are a few of the tools we use:
Lady Bird Deed (LBD)
In Texas, an LBD could refer to a little black dress — but in this arena, it means an “Enhanced Life Estate Deed” (Arkansas has a similar Deed of a different name, but Arkansas has much different MERP rules than Texas.)
To create a LBD, a homeowner executes a Deed turning a full interest in a home into a “life estate,” and names a beneficiary or beneficiaries who will take ownership of the home once the owner passes away (the “remainder” interest). The owner retains the ability to sell, exchange, partition, lease, and do essentially anything they would be able to do had the Deed never been created in the first place.
LBDs have many positive characteristics, including simplicity, MERP and other creditor avoidance, bypassing probate, beneficiaries can immediately sell the home upon receiving it, and they can be created through Powers of Attorney.
But with these pros come some cons. LBDs are difficult to revoke or amend, they do not address a beneficiary’s creditor or government benefit issues, and they can negatively affect mortgaged property.
Transfer on Death Deed (TOD)
A TOD has the same end result as a LBD; it bypasses probate and avoids MERP. The home becomes non-probate property and passes to a named individual upon the owner’s death. Like LBDs, TODs have positive and negative characteristics.
On the positive side, TODs are simple to create and execute, they allow the owner to name alternate beneficiaries, they are easily revoked or amended, and they have no effect on mortgaged property.
But the downsides may include the fact that the home is not exempt from other creditors thus rendering the home virtually unsellable for about two years, and it cannot be created by a Power of Attorney.
LBD with Revocable Living Trust (LBD with RLT)
To avoid some of the negative results of both LBDs and TODs, while retaining the positive aspects, estate planning attorneys will often create a LBD with a RLT.
Here, the owner creates both a LBD and a RLT, and the RLT holds the remainder interest. Discussing the legal intricacies of trusts is beyond the scope of this article, but the general idea is that the creator of the LBD also retains full control of the RLT and therefore the property.
As such, this sort of plan fixes some of the issues with a regular LBD. The creator of the RLT can easily change beneficiaries by amending the Trust, for example. Federal law also protects transfers to a RLT from mortgage acceleration, and RLTs can provide contingencies for any beneficiaries who might have creditor problems or receive government benefits.
LBDs with RLTs render the property immediately sellable after death, can be created with a Power of Attorney, and provide the same creditor or government benefits contingencies mentioned just above. Furthermore, RLTs can also hold other property such as cars, mineral interests, business interests, and farming equipment, and therefore allow such property to bypass probate and MERP.
Ultimately, the decision to create any of the deeds mentioned above depends entirely on individual circumstances. While this tool might be perfect for one person, it may not make sense for another. For this reason, we encourage you to speak to someone who specializes in this area of law in order to determine whether this type of planning suits your unique needs.
How to Find Qualified Help
Once you decide to reach out for assistance, you may find plenty of individuals willing to help you. Please don’t just use anyone. Make sure you find an attorney who specializes in Medicaid planning!
Thankfully, it isn’t hard. If you live in Texas, you could start by reaching out to my office.
If you’re in another state, you can visit the website for the National Academy of Elder Law Attorneys. They have a “Find a Lawyer” button to help you narrow down your search and only see attorneys who specialize in a certain practice area like Medicaid planning for your specific state.
A few other questions that I get frequently:
Q. What is a Medicaid bed?
A. Not all facilities accept Medicaid as a way to pay for long term care. Those that accept Medicaid only accept a limited number of recipients. A “Medicaid bed” refers to a bed in a semi-private room at a facility that accepts Medicaid.
Q. If my spouse has to go to the nursing home, will I be required to pay all of their income to the nursing home?
A. Not always. Each state allows a Monthly Maintenance Needs Allowance (MMNA) for the spouse not needing Medicaid (community spouse.) In 2019, the federally mandated minimum is $2,058.00 and the maximum is $3,160.50. The MMNA differs from state to state. This means the community spouse is allowed to keep up to the maximum amount allowed by their state of residency.
Q. Can’t I just give everything to my children?
A. No. Any gift made within a 5 year “look-back” period will incur a penalty. During the penalty period, the applicant may be qualified for some limited Medicaid benefits, but Medicaid will not pay for the nursing facility. Please consult with an expert to discuss any gifts before making one.
Q. Will a prenuptial agreement protect my assets if my spouse needs Medicaid?
A. A prenuptial agreement does not keep your property separate for purposes of Medicaid eligibility.
DISCLOSURE: John K. Ross IV, Lisa B. Shoalmire, and Ross & Shoalmire, LLP, by way of this article is not offering legal advice. Before relying on any information contained herein, the reader should consult an Elder Law Attorney.