A well-kept secret may allow couples to keep more assets and still qualify for Medicaid
This article will explain a little-used technique that allows a married couple who has income below a certain amount to be able to keep more assets than are typically allowable for married couples in Medicaid cases. Using this process, our office has handled cases where, with our involvement, couples were allowed to keep over $100,000 more than what Medicaid normally allows. It is not something you will typically hear about from nursing home social workers or most Medicaid caseworkers. It is one of the best-kept secrets in the Medicaid eligibility process.
First, an explanation of basic Medicaid “spousal impoverishment” rules. (If you are familiar with these, you can skip down to the part that explains the process to keep additional assets.) When a couple is married, and one spouse needs nursing home care, Medicaid will provide coverage of the cost of care if the couple meets financial eligibility rules. These rules are commonly referred to as “spousal impoverishment” rules but actually, that is a misnomer. The current set of rules regarding eligibility for married couples is based on a federal law that was put into place by Congress to prevent spouses from becoming impoverished if only one needed nursing home care. Therefore, they really aren’t “spousal impoverishment” rules, they are “spousal anti-impoverishment” rules. These rules also apply where there is a married couple and the spouse needing care is applying for Family Care benefits — not in the nursing home. Technically, the spouse applying for benefits is called the “institutionalized spouse” – either in a nursing home or applying for Family Care – and the spouse who is not applying, and lives in the community – is called the “community spouse.” The “institutionalized spouse” could also be referred to as the “nursing home spouse.”
Assets: Under these rules, the allowable amount of assets that the couple can have to qualify for Medicaid is between $50,000 and $115,920, plus $2,000 for the nursing home spouse. The house is not counted in this total as long as it is worth less than $750,000. A few other things are not counted also, such as retirement funds that belong to the spouse who remains in the community (called the “community spouse”). Even with some exclusions, these totals are significantly less than what is estimated that a couple should save for a comfortable retirement.
Income: There are also rules related to income. These rules say that once the nursing home spouse is eligible (based on meeting the asset test described above), he or she may in some cases be able to transfer a certain amount of income every month to the community spouse. This transfer is allowable only in cases where the community spouse has less than $2,585-2,898 in his or her own income per month. In those cases, the nursing home spouse can transfer income, but only enough to bring the community spouse’s total income to that level. The exact amount within this range is based on the amount of expenses for “shelter” that the community spouse incurs. So you take the appropriate income allocation amount, and subtract the community spouse’s income, and the difference is what the institutionalized spouse can transfer.
As you can see, it is fair to say that there is some calculating involved, both in determining the right asset level that a couple might have and in determining the amount of income, if any, that the nursing home spouse can transfer to the community spouse. An experienced elder law attorney can help couples figure out these numbers to the greatest advantage of the couple. This is not something that nursing home social workers or county Medicaid workers are known for doing well. I have seen far too many couples who spent much more than they had to because a social worker did not bother to analyze the situation carefully and use appropriate deductions and calculations.
Here is a basic example of how things work:
Bob and Joy are a married couple living in Grafton, Wisconsin. Bob has a stroke and is hospitalized, then transferred to a skilled nursing home. Unfortunately, it appears that this will be a long-term and possibly permanent situation for Bob. At the time Bob is hospitalized, the couple owns the following assets: a home with a home equity line of credit that has $20,000 outstanding, with monthly payments of $500. The home is valued at $250,000. The value of the home does not count for Medicaid purposes. They have two CDs totaling $150,000 and a checking account valued at $10,000. Their total countable assets for Medicaid purposes are $160,000. Under traditional spousal impoverishment rules, Bob will qualify for Medicaid to pay for the nursing home, once their countable assets are reduced to $82,000 ($80,000 to go to Joy as the community spouse, and $2,000 for Bob.)
After this asset, the level is reached, and Bob is eligible for Medicaid, then a calculation is made as to whether any of Bob’s income can go to Joy. First, Bob gets to keep a monthly allowance of $45. Then, other things can be subtracted which we won’t go into here. Then we can figure out how much of the leftover funds Bob can transfer to Joy. Let’s assume that the income allowance for Joy is the maximum, $2,898. If Bob’s income from Social Security is $2,000, and Joy’s income from Social Security is $600, then Bob would be allowed to transfer all of his monthly income to Joy if he chose to do so, because her income plus his income is less than the maximum ($600 + $2,000 = $2,600) However if Joy’s income is $1,500 per month, then Bob can only transfer $1,398 to her because $2,898 (the maximum) – $1,500 (Joy’s income) is $1,398. If he keeps his $45 personal allowance he would actually transfer even less.
In any event, all this background is leading up to tell you about an exception to these general rules.
The little-used way to keep additional assets: The exception has been around for many years, but the way it works has been changed by the Medicaid changes in the most recent Wisconsin budget act. The general principle of the exception is that in some cases, a couple can be allowed to keep more assets by showing it is necessary to generate income for the community spouse. The exception comes into play in those cases where the community spouse’s income, even with the funds that have been transferred from the institutionalized spouse, is less than the $2585-2898 range I have listed above.
The law says that where a couple’s combined income is below that spousal income level, then the couple can ask to be allowed to increase the amount of assets they can keep. The purpose of the increase is to generate additional income.
Under new Medicaid rules, the amount of additional assets the couples can keep is based on the amount of funds that could be used to purchase an immediate lifetime annuity. So, using the example where Bob has $2,000 in income and Joy has $600, and the applicable allowance is $2,898, then we need to figure out how much the monthly income should be. This is because Bob and Joy’s combined income is less than $2,898. When Bob takes out his $45 personal allowance, he only has $1,955 to transfer to Joy, bringing her total income up to $2,555, which is $253 less than the maximum allowance. Bob and Joy are both 75. We will look at an immediate annuity for Joy, with monthly payments of $253 per month. You can check and may get a variety of answers depending on which company you choose. One company will give an estimate of $34,769. This means that instead of having an asset limit of $82,000, Bob and Joy would have an asset limit of $116,769. After receiving an increased asset level based on that annuity amount, Bob and Joy are not actually required to purchase an annuity (although they certainly could choose to do so.) They could simply keep the funds in savings.
This increase can only be obtained by using the state fair hearing process. The hearing process can also be used to increase the monthly income a community spouse may keep, but it involves different facts and analyses. In many cases, it is well worth the extra effort to go through this process.
Alternatively, families may choose to purchase the annuity which reduces the countable assets before the application is completed. This saves the costs of a fair hearing but limits the use of funds that previously may have been in an unrestricted account such as a money market.
A reliable source for Medicaid annuity estimates is Krause Financial Services.
Experienced elder law attorneys can help you understand what options would work best for you, and can help you maximize the results.
