Lack of understanding about qualifying Medicaid long term care is understandable. The rules are as complicated as some parts of federal income tax law. Moreover, the rules change quite often. They're composed of both state statutes and regulations. Some of the rules vary from state to state. They are enforced in Texas by the Texas Health and Human Services Commission ("HHSC").
This discussion is directed at Medicaid long term care benefits for Texas residents age 65 and over. Those who are either seeking or already receiving Medicaid benefits are referred to in this discussion as "clients."
A client must meet five requirements to qualify for Medicaid:
- Medical necessity.
- Financial need.
- Texas resident (no waiting period).
- US citizen or lawful permanent US resident for at least five years.
- Must in a Medicaid bed in a state-approved Medicaid facility.
This discussion is restricted to the Texas financial requirements. It will also address the Texas estate recovery rules.
Income Limitations or "Income Cap" Rules.
The 2009 "income cap" for countable income of an unmarried person is $2022. What this means is that if a single client's non-excludable and non-exempt income exceeds $2022 per month, then the client won't qualify for Medicaid unless the client directs the excess (or more) countable income to a Qualified Income Trust ("QIT"). The A QIT is sometimes referred to as a Miller Trust. Click here for a discussion of the requirements of a QIT.
The income cap for a married client whose spouse is at home is the same as for a single person: $2022 per month in 2009. The married client may implement a QIT to qualify. In addition, the spouse at home is entitled to a monthly maintenance minimum needs allowance. For 2009, the allowance is $2739.
If both spouses are eligible, then the income cap of each is the same as a single person: $2022 for 2009. Each eligible spouse may establish a separate QIT.
Generally speaking, the Texas Administrative Code defines countable income as both cash and in-kind items that can be used to meet a client's needs for food or shelter.
Long term care insurance benefits are not countable income for purposes of Medicaid eligibility. They are treated as a third party resource which reduces the amount of Medicaid benefits rather than eligibility for Medicaid benefits. This distinction is important to keep in mind when considering the merits of taking-out long term care insurance.
Click here for a more detailed list and discussion of countable, exempt and excluded income, including trusts, retirement related benefits and annuities, life estates and mineral rights.
Resource Limitations.
Resources are liquid assets including cash along with real and personal property that the client and the client's spouse own, have the right to convert to cash, and with respect to which there is no legal restriction from using them for the client's support and maintenance.
A client's resource limit is $2,000 plus a $60 a month personal needs allowance. A client's resources are redetermined at 12.01 a.m. each month.
In addition to the resource limit, some assets are excluded. If the a single client owns an interest in a home, it will most likely be his or her most valuable protected resource. Other excluded assets include most personal and household effects, one and possibly two automobiles, burial spaces and term insurance.
Click here for a more detailed list and discussion of countable, exempt and excluded income
If the a married client has a spouse at home, an additional amount can be protected as discussed under the next heading.
Protecting Additional Resources of Married Couples.
The Texas rules define a community spouse as the spouse not receiving medical care and services in a Medicaid facility. The community spouse is often referred to as "the spouse at home."
If the client has a spouse at home, then an additional amount of the couple's combined resources are eligible for protection. This is amount is called the "spousal protected resource amount."
Unlike the client's resource limit which is redetermined monthly, the SPRA is determined only once. The HHSC determines couple's combined countable resources as of 12.01 a.m. on the first day of the client's first continuous period of institutionalization in a Medicaid facility that lasts at least 30 days.
It is defined as the greater of (a) one-half of the couple's combined countable resources but not to exceed the maximum amount set by federal law, or (b) the minimum amount set by federal law. For 2009, the minimum amount amount set by federal is $21,912 and the maximum amount is $109,560.
To illustrate, if the value of a couple's combined countable resources is $250,000, then the SPRA is the federal maximum of $109,560. The federal maximum is less than half ($125,000) of the couple's combined countable resources.
If the couple's combined countable resources are $200,000, then the SPRA is $100,000.
If the couple's combined combined countable resources are $30,000, then the SPRA is the federal minimum of $21,912. The federal minimum is greater than half, or $15,000, of the couple's countable resources.
If the couple's combined countable resources are less than the $21,912 federal minimum, then all of there countable resources are protected.
Expansion of the SPRA.
An institutionalized spouse whose first 30 day or more continuous period of disability begins after on after September 1, 2004, may request HHSC to increase (expand) the SPRA to produce additional income to bring it up to the community spouse's monthly maintenance allowance.
For 2009, the MMMNA is $2739. TAM Rule Sec. 358.420 provides that "the couple can protect an amount of resources equal to the dollar amount that must be deposited in a one-year certificate of deposit (CD), at current interest rates, to produce interest income equal to the difference between the MMMNA in effect at the time of the request and other countable income not generated by either spouse's countable resources. The couple is not required to invest in the CD as a condition of eligibility."
One year CDs are currently yielding less than 1 percent per annum. The expanded SPRA may result in protecting all or at a large portion of the couple's combined countable resources. It would take a CD in excess of $500,000 to make-up a $500 MMMNA shortfall.
Because gifts can result in a penalty period before the client will qualify for Medicaid, a couple should become familiar with the expansion rules prior to the client's institutionalization and prior to implementing gifting and other spend-down strategies.
Gifting (Transfer) Rules.
Those who have any familiarity with the Medicaid rules have heard that gifts made during the "look-back period" may prevent a client's eligibility. The look-back period currently in effect is 60 months.
Gifts made during the look-back period by a client and his or her spouse (except to each other) may result in a penalty period. During a penalty period, the client will not be eligible for Medicaid long term care benefits.
The following are the definitions and operating rules used in calculating the penalty period.
- The penalty period begins when the client is in the nursing home, has made application for Medicaid and would qualify but for the gifts.
- The 60 month look-back period ends on the date the penalty period begins.
- The penalty period is measured in days. It is computed by dividing the cumulative gifts the client made during the look-back period by the penalty factor in effect at the beginning of the penalty period. The penalty factor for 2009 is 122.50.
Assume a single client made a series of gifts totaling $200,000 to her two children during the look-back period. Dividing the $200,000 by 122.50 results in a penalty period of 1634 days or about 54 months.
If a clients room and board is $3,500 per month and has other covered expenses of $300 per month and with $1,000 of social security income to help cover the costs, then the client will have a shortfall of $2,800 each month.
If the client had not made the gifts, the client's entire $200,000 will be used up in 71 months to cover the $2,800 monthly shortfalls.
But making the gifts may preserve around $47,000 of the client's asset. That's because the $2,800 shortfalls would require about $153,000 of the client's assets during the 54 month penalty period, leaving $47,000 of the $200,000 that was gifted.
Under the Medicaid rules, the penalty period can be shortened by the children returning a portion of the gifts to the client. Properly implemented that penalty period could be shortened so that up to $114,000 of the $200,000 gifts would remain when Medicaid payments begin.
No gifting program to preserve a client's resources should be undertaken lightly. Referring to the illustration above, assume one of the children spent all of that child's $100,000 and the other one is going through a divorce and is under orders not to dispose of any property. There may be period of 54 months during which neither public nor private funds are available to provide for the client's long term care. And the children may not be able to provide for their parent's care.