Medicaid Basics: Assets, Income and Transfers?
The process of applying for Medicaid can be confusing and time consuming. This webpage will explain several basic factors an eligibility intake worker will look at to determine whether to approve a Medicaid application. This webpage will then apply these factors to an application for one of the most common forms of Medicaid, Nursing Home Medicaid.
What is Medicaid?
Medicaid is an entitlement program, designed to provide medical care to the poor. It is different from Medicare, which is an insurance program available to many Social Security recipients. We pay for Medicaid with our taxes, as it is funded by both the federal and state governments. Since Medicaid is intended to pay medical bills of the poor, a Medicaid intake worker will look at an application with three main things in mind:
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Assets owned by the Applicant;
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The Applicant's monthly income; and
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Assets transferred within the past 36 months (60 months for trusts)
Assets:
A Medicaid applicant's assets are always determined on the first minute of the first day of a month. Generally, assets of an individual cannot exceed $2,000, and assets of a couple cannot exceed $3,000. A couple's assets are determined by adding everything owned by either spouse.
After an individual has been in a hospital or nursing facility for 30 days, his or her spouse is allocated ½ of their combined assets, calculated as of the first day of the month of institutionalization. The spouse's allocation, however, is subject to limits. The maximum a spouse may retain is $95,100 and the minimum is $19,020 (2005 figures). The institutionalized individual is eligible for Medicaid in the month the couple's combined assets, less the spouse's allocation, is less than $2,000. After 30 days of separation, the $2,000 limit applies, even if the individual is married. This means assets received after the first day of the month of institutionalization must be spent before an individual can be eligible for Medicaid.
Not all property owned is considered an available asset. A home occupied by a spouse, or a blind, disabled or dependent child is not considered available. A car used by the applicant or spouse may not be considered available. Real estate owned with another who refuses to sell is not an available asset and some real estate which generates income is not considered an asset.
Income: New Jersey has two Medicaid programs that pay for nursing home care. Nursing Home Medicaid pays for those with income less than $1,737.00 per month. Medically Needy Medicaid pays for those with monthly income over $1,737.00. There are some other distinctions between these programs:
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Medically Needy Medicaid allows an individual to have up to $4,000 in assets, rather than the $2,000 allowed by Nursing Home Medicaid.
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Medically Needy Medicaid does not pay for inpatient hospitalization, while Nursing Home Medicaid does pay for hospitalization.
Income means gross income, before deductions for taxes or health insurance premiums. It includes income received by an individual and may also include income of a spouse or income of a parent with whom the individual lives. After the individual lives in an institution for 30 days, however, only that individual's income is counted as income, even if he or she is married.
Asset and income figures are updated annually, so you should check with your local Medicaid office regarding such limits.
Transfers:
Medicaid is a program intended for the poor. Therefore, it includes regulations preventing someone from giving away his or her assets and claiming poverty. If an applicant gives away property worth more than $6,050.00 within 36 months before applying for Medicaid, or transfers assets to a trust within 60 months prior to applying, the gift makes the applicant ineligible for Medicaid for a period of time.
Medicaid regulations assume the purpose of any such gift was to obtain Medicaid eligibility. An applicant that makes a gift or transfers funds in excess of $6,050.00 is ineligible for a penalty period based upon the size of the gift. More importantly, beginning January 1, 1997, any transfer which incurs a penalty is a federal crime.
These are the general rules, but there are many exceptions. Perhaps the easiest way to demonstrate how complex a determination of Medicaid eligibility can be is to provide an illustration of an application for nursing home Medicaid.
Jack and Jill:
Jack and Jill have lived on a hill for many years. Jack has recently retired and receives a pension of $1,000 per month, from which is deducted a $50.00 insurance premium. Jack also receives $500 per month in Social Security benefits, and pays a monthly Medicare premium of $78.20. Jack and Jill jointly own their home, which is now worth $200,000, and on which there is a $25,000 mortgage.
Unfortunately, Jack recently suffered a head injury and requires a tremendous amount of care. Jack is currently in a hospital, and has resided there since he had his head injury on November 5, 2004. Jill has been advised by members of the hospital staff that there is nothing more they can do for Jack, and that he requires 24-hour care. Jill is no longer able to provide that care at home, so. they have reluctantly determined that Jack will enter a nursing home.
Medicaid:
The hospital staff advised Jill to consider making a Medicaid application. Jill called the local County Board of Social Services, and requested an appointment to speak to a Medicaid intake worker. The Medicaid intake worker spoke to Jill, helped her fill out an application and gave her a list of the necessary documents, including Social Security cards, Birth and Marriage Certificates, bank statements for the last 36 months, stubs from pension checks, copies of Social Security checks, and other relevant information. Jill dutifully filled out the Application Form and gathered all the necessary information together, and submitted the application on November 30, 2004.
On November 15, 2004, since Jill anticipated the hospital costs would be high, she took out a home equity credit line on the house in the amount of $50,000. She put this money in a bank account in her name.
Determining Eligibility:
The Medicaid intake worker determines the assets of this couple as of the first day of the month that Jack went into the hospital, or November 1, 2004. On November 1, 2004, Jill had not yet taken out her home equity credit line, so that the couple's assets totaled $50,000. The assets do not include their house and a car, which are exempt. The intake worker then divides these assets by 2, and allocates $25,000 to Jack and $25,000 to Jill. Once Jack has been institutionalized for 30 days, he cannot be eligible for Medicaid unless the assets allocated to him are less than $2,000. Therefore, for Jack to be eligible, Jack and Jill must have less than $27,000 of their assets left.
The hospital bills are high, but Medicare and private health insurance cover most of them. Therefore, Jack has not spent any of his funds by November 30, 2004. Moreover, on November 15, 2004, Jill took out the home equity credit line and added another $50,000 to the assets which must be spent down for Medicaid eligibility. Therefore, Jack and Jill must spend not only $23,000 of the $25,000 Jack had on November 1, 2004, but also the extra $50,000 he received on November 15, 2004, for a total of $73,000.
Out of the Frying Pan:
After speaking to the Medicaid intake worker, Jill realizes she has gotten herself into a pickle and decides to get rid of the $50,000 she got from the home equity credit line. She gives it to her son, Tom. Now Jack only has to spend $23,000 before he is eligible for Medicaid.
Unfortunately, however, the transfer rules apply to this gift to Tom, which means that Jack will also have to wait 8 months before he can be eligible for Medicaid ($50,000 ÷ $6,050 = 8). Jill calls her son, Tom, and asks him to send the money back to her, but Tom is unable to do so, since he paid gambling debts with the money.
Now Jack needs to be discharged into a nursing home, but Jack and Jill do not have enough money left to pay over $6,000 per month to a nursing home for the 8 months Jack is ineligible for Medicaid.
Our Moral:
While this story is fiction, many of these events happen to unwitting Medicaid applicants. Jack and Jill made several basic mistakes.
First, since Jack went into the hospital on November 5, 2004, the couple's assets were determined as of the first day of November. At that time, they had $50,000 in the bank. They also had a $25,000 mortgage on their house. If Jack and Jill had decided to repay the $25,000 mortgage on November 5, 2004, Jack would have been eligible for Medicaid as of December 1, 2004 and Jill's equity in the house, which is an exempt asset, would have increased. Instead of paying off the existing mortgage, they took out a new mortgage and increased the amount of money they had to spend before being eligible for Medicaid.
In August 1993, Congress revised the Medicaid rules, to which all of the states must conform. For example, Congress extended the look back period from 30 to 36 months. It further extended this period to 60 months for transfers to trusts. It is within the power of Congress to further extend the look back period, and the current 36 month look back is the current guideline.
Congress also required states to recover assets from a Medicaid recipient's estate after their death.
For more information on the topics discussed in this Newsletter, please do not hesitate to call Michael Bolton, Esq. at (973) 425-0497.
