Medicaid Nursing Home Rules Toughen

People who plan to have Medicaid pay for their nursing home care are in for some big surprises. A new law that has not received much publicity changes the rules.

Medicaid is the program that pays the medical expenses of the nation’s poor. Medicare is the program that pays some medical expenses of older Americans. Medicare pays very few nursing home expenses. It generally pays for limited nursing home stays for rehabilitation after an illness or injury.

A number of older Americans plan for Medicaid to pay any long-term nursing home expenses they incur. To do this, they have to meet Medicaid’s definition of having limited income and assets.

A few years ago Congress realized that middle class and upper income families were qualifying for Medicaid using “impoverishment strategies.” These are techniques involve rearranging income and assets to take advantage of exemptions in Medicaid law and giving income and assets to other family members to stay within Medicaid’s limit. Congress created some roadblocks to qualifying for Medicaid in this way a few years ago.

In recent deficit reduction legislation, Congress tightened the rules for Medicaid qualification.

Previously, it was fairly easy to qualify for Medicaid without a lifestyle reduction. Houses and a car of any value were exempt assets; they were not included when counting the assets owned by the beneficiary. Some people also could qualify by converting their investment portfolios into low payout annuities.

In addition, only gifts or other transfers within three years of nursing home admission were counted, as were transfers to trusts within five years of admission. Those provisions enabled people to retain enough assets to pay for three or five years of a nursing home and give the rest to their children. If the nursing home stay lasted more than three years, Medicaid picked up the rest of the tab.

The new law significantly tightens the eligibility rules.

• Home equity of more than $500,000 is counted as an asset, though a state can choose to increase this limit to $750,000.
• The waiting period for Medicaid eligibility after making gifts or other transfers is as long as five years instead of three years. The state will examine charitable gifts and gifts to family members over the years to determine if the look-back period should be extended.
• States are required to look for asset transfers within the five years before a Medicaid application instead of three years. But they are allowed to waive the longer waiting period for those who would face hardships.
• Some annuities that were exempt assets for Medicaid eligibility now are included assets.

The new rules took effect when the President signed the bill into law on February 8.

The intent of the changes is to encourage more people to purchase long-term care insurance to cover nursing home needs. Another strategy encouraged by the law is to use a reverse mortgage to pay for any long-term care.

I have long advised readers that the Medicaid strategies might not be their best choice for long-term care. Medicaid generally pays nursing homes too little to provide high quality care, so nursing homes that accept mostly Medicaid patients often are not the best places to stay.

Anyone who plans to use Medicaid to pay for nursing home care will need to track gifts to both relatives and charities. The state will be checking those for at least the five years before the Medicaid application. They also will have to meet with an attorney to revise their plans in light of the new law.