What is Medicaid?

     Medicaid is a government funded health-insurance program. The costs for Medicaid are shared by the federal, state and local governments. Medicaid should be distinguished from Medicare, a federal insurance program most frequently associated with receipt of Social Security benefits.

     To be eligible for Medicaid while living in the community or nursing home, a Medicaid applicant may not have more than certain income/asset levels. Click here for the current Medicaid income resource levels.

Protecting Your Most Cherished Asset: Your Home

     Although an individual’s home is an “exempt” resource for purposes of determining initial Medicaid eligibility, Medicaid may place a lien on the sale proceeds of the home and take back from the sale the amount it spent on behalf of the Medicaid recipient. Also, Medicaid will lien the applicant/recipient's estate after all exempt persons die. Therefore, the home should be considered an asset, and appropriate planning is necessary to transfer it. Transfers to a spouse and certain specified individuals will not trigger a penalty period for purposes of Medicaid nursing home eligibility, but transfers to any other person will.

     In general, a simple transfer of your home should be avoided since it may incur a substantial period of ineligibility and may trigger a costly capital-gains tax. A more attractive alternative is to transfer the home to a certain type of trust containing specific clauses, one being the right of the grantors to live there for the remainder of his, her or their lives. Once the said transfer is completed, no probate will be necessary for the home and significant capital gains taxes will be avoided upon death.  Although transferring to a trust typically does not avoid the 5 year look back period imposed by Medicaid on all transfers for less than fair market value, your home will become a protected asset after the said five years have expired. Only an experienced elder lawyer will know how this type of trust should be drafted.

 Changes Wrought by the 2006 Medicaid Laws

     On February 8, 2006, President Bush signed into law the Deficit Reduction Act of 2005, which included the most sweeping overhaul to Medicaid laws ever, resulting in severe consequences for elderly citizens.  Briefly, some of the major changes are as follows:

Home. The new law limits the equity of an applicant’s home to $500,000. The new legislation permits states to increase the limit to as much as $750,000. Any equity in a home in excess of the limit will be considered an "available resource" and must be liquidated to pay toward the cost of care. There are exceptions. The home may be transferred to a spouse, disabled child, or minor child, without affecting eligibility for Medicaid and without incurring a penalty.

Annuity. For an annuity to be eligible under the new law, it must name the State the irrevocable beneficiary.

Long-Term Care Insurance. All states will now be permitted to offer long-term care partnership policies. In essence, a partnership policy permits an individual to buy long-term care insurance that pays for three years coverage and at the end of the three years the individual will qualify for Medicaid regardless of the amount of assets they have (not including any excess income of the individual or spouse which will still be counted).

Look Back and Transfer Penalty Periods.  The change that has probably created the most negative impact on individuals is the look back and transfer penalty periods. The new look back period is now 60 months for all non-exempt asset transfers, whether made to trust or otherwise. The new transfer penalty period will not begin to run until the Medicaid Applicant "otherwise qualifies but for the implementation of a transfer penalty.”  The penalty will not begin to run until the applicant is residing in a nursing home and depletes his assets to the qualifying levels. For example, if you made a $5,000  gift to your child and four and one-half years later apply for Medicaid benefits, you would be ineligible!

     Since planning for elderly has been greatly hindered by the new laws, (especially when one is in need of immediate nursing home care)  long term planning is now more than ever being viewed as a more viable option to consider.  Only an experienced and knowledgeable attorney can guide you through the complex Medicaid laws.

Note: The information contained on this site is for informational purposes only and is not to be considered legal advice. Also, information contained on this site may not be accurate due to future changes in the law.  For further information,  please contact Mark Gallo, Esq. at (718) 761-6464 for a free consultation.