Health care costs can be overwhelmingly expensive, and many people worry that they might lose their life savings when faced with illness or the need for long-term care as they age. As an older adult on a fixed income, it can be very challenging.
One financial strategy to help cover long-term care costs is applying for Medicaid. Many people assume they don’t qualify for Medicaid due to their income and assets, but a Medicaid spend down, which involves “spending down” your finances to meet eligibility criteria, may allow you to qualify for the program.
[READ: Using VA Benefits to Pay for Long-Term Care.]
The Truth About Senior Living and Medicare Coverage
A common misunderstanding people have is that if they have Medicare, everything, including long-term care, is covered. Medicare is the federal program that provides health care insurance for people aged 65 and older, as well as some younger individuals with certain disabilities or other conditions. Medicaid, on the other hand, is a federal-state hybrid that provides health care coverage to individuals who have limited income and resources.
In truth, Medicare generally doesn’t cover long-term care. It only covers some medical services in this setting, such the price of physical therapy or the changing of sterile dressings. Basic Medicare, or Medicare Part A, does pay for some short-term stays in a skilled nursing facility, but only if you come from the hospital after a three-day stay there.
How Medicaid Works to Help Cover Costs
If you don’t have enough savings to cover the cost of long-term care, you can become eligible for assistance from Medicaid.
To qualify for these services, you will have to meet a state’s level of care criteria and financial eligibility requirements. These requirements can be tricky because there is more than one avenue to qualify. Plus, each state has its own specific rules. Ultimately, depending on your assets, income and a variety of other factors, you may be required to contribute to the cost of your care. For example, some may restrict eligibility to people over 65, have a disability or are blind.
[Will My Disability Benefits Change When I Turn 65?]
So, What Is Medicaid Spend Down?
Medicaid is needs-based so you will need to show you have insufficient assets to pay for your own care. For example, in New York, the 2024 income eligibility limit per month for individuals is $1,752 and $2,371 for couples. In Texas, it’s $2,829 for individuals and $5,658 for couples. This limit applies to both Institutional Medicaid and Medicaid Waivers.
In addition to any salary you make, other sources of income such as Social Security payments, pensions and veterans benefits may count towards that total.
Many individuals who apply for Medicaid realize they have too many assets to qualify for the program’s benefits. The process of reducing an individual’s assets to qualify for Medicaid is commonly referred to as “spending down.” Depending on the state, this may also be referred to as “surplus income program,” “medically needy program” or “excess income program.”
Asset limits — the value of your assets like investments and some possessions that help determine your Medicaid eligibility — are a little more complicated and also determined by state rules.
While each state varies in the details, there are a number of assets that are normally considered “countable” during a spend down, meaning they are included when determining if an applicant meets the financial requirements for Medicaid. They may include:
— Annuities. Any payments from annuities (a financial product where you pay money either as a lump sum or in installments to an insurance company or financial institution and in return you receive a steady income, usually in retirement).
— Bank accounts. This includes checking, savings, money market accounts and certificates of deposit (CDs).
— Life insurance. Cash surrender value of life insurance policies.
— Real estate. Any property owned, excluding your primary residence.
— Retirement accounts. IRAs, 401(k)s and other retirement accounts.
— Stocks and bonds. Investments accounts, mutual funds, bonds and other securities.
— Trusts. Depending on the state and the type of trust, some are considered countable while others are not.
There are other assets, referred to as “non-countable” assets, that are typically not considered when determining eligibility for Medicaid. Again, it varies by state. They may include:
— Disability-related assets. Assets that are used to support a disability.
— Burial plots and prepaid funeral expenses. Paid for funeral expenses and burial plots.
— Household goods and personal belongings. Furniture, clothing and other personal belongings.
— One vehicle. Typically, one car is exempt.
— Primary residence. Your primary residence is normally considered non-countable.
— Trusts. Depending on the state and type of trust, some are considered non-countable while others are considered countable.
Each state’s Medicaid program has rules that govern aspects of how to spend down, so individuals should consult an expert who specializes in their state such as a Medicaid planner or elder law attorney before they apply. Consult the American Council on Aging’s website to find a reputable professional Medicaid planner.
[READ: Home Safety Checklist for Seniors]
Who Qualifies for a Medicaid Spend Down?
There are many factors that are considered when determining if someone qualifies for a Medicaid spend down. Some eligibility requirements differ from state to state, but generally states include:
— Assets. Your assets must be below a certain state-mandated limit.
— Income. Your income must be below the Medicaid eligibility limit for your state.
— Medical expenses. You must have significant medical expenses that exceed your income.
— U.S. citizen. You must also be a U.S. citizen or qualified non-citizen who resides in the state you are applying.
Additionally, there may be other factors to consider, such as your age, disability status and marital status. Find out further information by going to Medicaid.gov.
What Expenses Qualify for Medicaid Spend Down?
A Medicaid spend down typically requires individuals to spend their excess income mainly on health care and medical-related costs. Some examples include:
— Health-related home upgrades such as stair lifts, wheelchair ramps or installation of safety equipment like grab bars
— In-home care services such as home healthcare workers who assist with daily living such as bathing or eating
— Medications, both prescribed and over-the-counter
— Paid and unpaid medical bills
— Transportation to medical appointments
It is very important to keep all receipts for health-care-related spending and medical bills, no matter how small. You will need to show proof of this spending on your application.
While Medicaid prioritizes medical expenses, some states may allow other types of debts to be included. Other possibly permissible expenses include mortgage payments, rent, utilities, home maintenance, taxes and car payments.
In general, “state and federal law allow for a range of permissible expenditures that will reduce the value of the applicant’s estate,” explains Leigh Davitian, founder and chief executive officer of The Dumbarton Group in Washington, D.C.
Applying for Medicaid and Spend Down
Check with your state Medicaid office on documents you’ll need, and whether you can apply online or in person. Your local State Health Insurance Assistance Program (SHIP) also has counselors to help you.
Applying for Medicaid is very complex and confusing. The biggest mistake is not knowing what your state requirements are, says Diane Omdahl, president and co-founder of the Medicare consulting firm 65 Incorporated.
“I have referred many people to the law firm I used with my own parents,” Omdahl says. “They know the rules and how to ensure you have an accurate application. Paying a bit more upfront for professional guidance can save you later on.”
The Medicaid spend down program application involves several steps, which may vary slightly depending on the state.
Here’s a general guide on how to apply:
1. Check eligibility. Confirm that your income exceeds the Medicaid eligibility limit in your state but is close enough that a spend down can bring it within qualifying levels. Also, make sure your assets meet the state’s Medicaid limits. This spend down calculator may help give you an idea, however should not be used in place of guidance from a qualified Medicaid specialist or elder care law attorney.
2. Gather necessary documentation: Collect all income and asset documentation such as pay stubs, Social Security benefit statements, bank account statements and real estate documents. Gather all medical bills, receipts, insurance premium statements and other documents that can be used to demonstrate your medical expenses. Make copies of everything just in case.
3. Submit an application. Fill out the Medicaid application form, which can usually be done online through your state’s Medicaid website, in person at your local Medicaid office or by mail. Include all necessary documentation to show your income, assets and any applicable expenses.
4. Meet with a case worker. You may be required to meet with a Medicaid case worker to review your application and discuss the spend down process. Be prepared to provide any additional information or clarification requested by the case worker.
When you apply for Medicaid, there is a “look-back period,” designed to identify any efforts, innocently or not, to hide assets or gift them to meet the asset limit. This review begins on the date of your Medicaid application, and generally goes back five years.
For example, Medicaid will be looking for money given to a granddaughter for a down payment on a house or a valuable painting sold to a nephew at a fraction of its worth. The purchase of a car for a relative or caregiver may be acceptable, but only if it is used as part of your care, such as trips to the store, pharmacy or doctor’s office.
“Medicaid will scrutinize these things closely, so you will need documentation and proof. It’s essential to be absolutely honest and transparent,” Davitian says.
If Medicaid finds violations during the look-back period, you may have a penalty period of Medicaid ineligibility. If the violations are severe enough, you could be banned indefinitely from the program. This is one reason to engage an expert who understands the Medicaid application and spend down rules and processes in your state. Trying to navigate the system on your own or making assumptions about how to protect or disperse your assets could mean trouble down the road.
[READ: How to Pay for Nursing Home Costs.]
Other Ways to Pay for Senior Living
If you or your loved one have significant savings, it may be tempting to consider paying for senior living out of pocket. However, a stay that stretches into years can eat up your savings quickly.
The annual cost of nursing home care is approximately $108,408 for a private room. Assisted living can cost $4,500 per month or more, according to Genworth Financial.
Besides paying out of pocket or spending down to qualify for Medicaid, there are other ways to pay for senior care. No matter what you choose, however, you will always benefit from long-term planning.
“People don’t want to think about getting sick and needing long-term care, but addressing this early can enable you to retain some assets and have something left to leave for your heirs,” Botta says.
Long-term care insurance is one way to pay for senior care. It is specifically designed to cover the cost of care, including assisted living and other senior care options. However, policies must be purchased well in advance of needing care, and not all policies cover every type of senior living.
Another way to help pay for senior care are veterans benefits. Those who are military veterans and a surviving spouse may qualify for the Aid and Attendance benefit, which provides additional financial support for senior living. Additionally, some states operate veterans homes that offer long-term care to eligible veterans, often at a lower cost than private facilities.
Some life insurance policies can be cashed out or converted into a long-term care benefit plan to pay for senior living. Some policies allow for the early payout of a portion of the death benefit if the policyholder is diagnosed with a terminal illness, which can be used for senior care expenses.
Since leaving a legacy is important for most people, “you will be glad down the line if you plan ahead while everyone is still healthy. It’s part of good financial planning,” Botta explains.
[READ: How to Pay for a Nursing Home With No Money.]
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Bottom Line
Paying for long-term care is prohibitively expensive for many seniors and a lifetime of savings can be depleted quickly. One financial strategy to avoid this is to spend down assets in order to qualify for Medicaid. Medicaid is required to pay for long-term care of those who qualify and must receive the same quality of care that private pay patients receive in the same facility.
A Medicaid spend down can be complex, and the rules differ between states. It’s advisable to consult with a Medicaid planner or elder law attorney to understand your state’s specific requirements. Be honest when submitting your application. To prevent asset hiding, Medicaid has a ‘look-back period’ where they may examine your financial records to see if you’ve transferred assets to qualify for benefits. Dishonesty can lead to temporary or permanent ineligibility to the program.
Start planning now for the future possibility that you or a loved one will need long-term care services. Early planning can help reduce stress and confusion, and it can also help preserve an inheritance for your family.
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What Is Medicaid Spend Down? Everything You Need to Know originally appeared on usnews.com
