MEDICAID HELP WITHOUT FALLING INTO POVERTY
c.2013 New York Times News Service
When Colin Sandler was in high school in the mid-1980s, her grandparents legally separated after 45 years of marriage. This was not because their marriage was troubled, but because her grandfather had fallen ill and medical bills threatened to consume their entire life savings and all their income, leaving Sandler’s grandmother penniless.
The separation, as Sandler recalls it, allowed her grandfather to qualify for Medicaid and her grandmother to stay solvent. Sandler, now an elder care consultant in Cortland Manor, N.Y., says that in those years divorcing was a mainstream financial planning move. Tactics to keep elderly people’s assets and income within their family’s control while still qualifying them for Medicaid were common. Loopholes were exploited.
But legislative changes in the late 1980s and a major overhaul in 2003 have closed some loopholes, and the eligibility requirements for Medicaid have been eased; they will relax further on Jan. 1 under the Affordable Care Act of 2010, in an expansion that some but not all states have embraced. Such changes allow elderly people to keep more assets and income and still qualify for Medicaid.
Medicaid is intended to provide health care to people who are indigent, including people who are indigent and disabled or elderly. And paying for long-term care at home or in a nursing facility is an effective way to quickly run out of money. The national median rate for a year in a nursing home is $83,950. In New York state, it is $125,732.
The exact qualifications for Medicaid vary by state and will continue to do so. Most states now will cover nursing home expenses for someone whose income is $2,130 or less each month and who has $2,000 or less in assets, not including the primary residence. The threshold is substantially lower for at-home care. In New York the monthly income limit for receiving care at home is $800, or $1,175 for a couple. Any surplus that materializes must be spent on the patient’s care for that person to remain eligible.
Most people would prefer that their family inherit their life savings. But if in the five years before applying for Medicaid, an elderly person transfers any assets — for example, money or property to children or grandchildren — the giver would incur a penalty upon enrollment. Those five years are known as the look-back period.
There are a handful of exceptions. Federal law keeps some assets out of the equation altogether. A patient’s house is exempt, if the equity in it falls under a threshold that varies by state, from $500,000 to $802,000, and if the enrollee plans to remain there or to return after a stay elsewhere for medical care. Personal belongings are also exempt, like furniture or even a car. So are small life insurance policies and prepaid funerals.
Since the late 1980s, federal laws have included protections against “spousal impoverishment,” allowing the healthy spouse to retain a modest income — depending on the state of residency, currently up to $1,938 to $2,989 each month — without affecting the ill spouse’s Medicaid eligibility. Spousal protection laws also allow the healthy spouse to keep half the couple’s assets, as much as $115,920 in some states and as little as $22,000 in others.
“It’s not a windfall but they’re certainly not being forced to be impoverished or get divorced,” Sandler said.
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An offshoot of the divorce method is still used with some success. The healthy spouse can sign documents refusing to take financial responsibility for the ill spouse’s care. “Spousal refusal” allows the healthy spouse to keep the marital assets and assigns financial responsibility for the ill spouse to the state. The measure was meant to protect spouses, usually wives, who were abandoned or estranged.
But it is not entirely foolproof. The state can open an investigation to review the legitimacy of the case and can come after the healthy spouse’s assets, even after that spouse is widowed.
That tactic, too, has become less effective as state governments have caught on and become more aggressive about recovering money.
Nonetheless, some couples opt for spousal refusal because filing for it prompts Medicaid to take on the patient right away. It also activates a review process to determine what the healthy spouse can afford to contribute, rather than holding the applicants to a one-size-fits-all standard.
“For the most part, those people will come out better in the end,” Sandler said.
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The population that can take advantage of these protections has grown since the Defense of Marriage Act was overturned this year — at least in states that recognize same-sex marriages. Before that decision, elder care professionals “had seen heartbreaking cases,” said Valerie J. Bogart, a lawyer with the New York Legal Assistance Group.
In those cases, when higher-earning partners entered nursing homes under Medicaid, “they were not allowed to provide an allowance of their income to the spouse at home,” said Bogart, sometimes leaving the healthy spouse impoverished.
In New York, a state that recognizes same-sex marriages, “the spouse at home can receive the institutionalized spouse’s income, and the institutionalized spouse can still be eligible for Medicaid,” she said.
One strategy, called pooled trusts, has become more popular in the states where it is available. Pooled trusts, run by nonprofit organizations, allow the elderly or disabled to maintain more of their income and assets than Medicaid otherwise permits.
Participants submit their income each month to a special trust managed by a third party. The trust pays the participant’s basic living expenses, including rent or mortgage payments and utilities.
Still, registering for a trust is complicated. Experts recommend that families seek help from experienced professionals when applying for Medicaid. Mistakes can cost thousands of dollars and incur penalties that will delay coverage.
Lawyers for the elderly and geriatric case managers are most qualified, although their services can be expensive because they often address other planning issues, like taxes. Community groups like the New York Legal Assistance Group and agencies that act as advocates for people with specific diseases can also help low-income applicants, but many of those organizations are stretched thin and have waiting lists. And there are private companies that specialize in Medicaid applications, where social workers or other professionals help applicants navigate the process. The quality of their services can vary.
Bogart said her organization has come across cases where a mistake by a private company cost a family thousands of dollars and about three months of eligibility.
“You have to be careful in who you hire, and saving a little money on the cost upfront might be penny-wise and pound-foolish,” she said.