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Medicaid Overview, Part I

By: Paul Nicolosi, Fri Dec 9th, 2005 09:45:15 PM

Medicaid, also known as medical assistance is a joint federal-state program that provides health insurance coverage to low-income children, seniors and people with disabilities. In addition, it covers care in a nursing home for those who qualify. Medicaid is a state administered program and provides more comprehensive coverage than Medicare, particularly with regard to nursing home care. However, not all nursing homes participate in the Medicaid program. There are no limits on the maximum length of a Medicaid recipient's stay at a facility. The Federal government pays roughly one-half of the costs, while the State covers the remainder. In Illinois, the agency that administers Medicaid is the Illinois Department of Public Aid (IDPA). In the absence of any other public program covering long-term nursing home care, Medicaid has become the default nursing home insurance of the middle class. While Congress and the federal Health Care Financing Administration set out the main rules under which Medicaid operates, each state runs its own program. As a result, the rules are somewhat different in every state, although the framework is the same throughout the country. The following describes some of the basic rules regarding Medicaid in Illinois.

Resource (Asset) Rules

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In order to be eligible for Medicaid benefits in Illinois a nursing home resident may have no more than $2,000 in "countable" assets. While a Medicaid applicant may be eligible even if these assets exceed the limits, the applicant will be required to "spend down" these assets. This means that the cost of care must be paid for by the Medicaid applicant to the extent that the assets exceed the $2,000 limit. The spouse of a nursing home resident--called the 'community spouse'-- is limited to one half of the couple's joint assets up to $84,120 (in 2000) in "countable" assets (see Medicaid, Protections for the Healthy Spouse). The $84,120 figure changes each year to reflect inflation. In addition, the community spouse may keep the first $17,400, even if that is more than half of the couple's assets. These figures change annually and are found in the Department of Human Services policy manual. Basic Medicaid information is also available at http://www.state.il.us/dpa/mednews.htm. All assets are counted against these limits unless the assets fall within the short list of "non countable" assets. These include: (1) Personal possessions, such as clothing, furniture, and jewelry with an equity value of no more than $2000. However, wedding rings, engagement rings and items required because of an individual's medical or physical condition are exempt regardless of value. (2) One motor vehicle if it meets any one of the following criteria: A) If it is necessary for employment B) If it is necessary for transportation for medical treatment of a specific or regular medical problem C) If it is modified for operation by or transportation of a handicapped person or D) If it is necessary because of terrain, remoteness or similar factors to provide necessary transportation to perform essential daily activities. A motor vehicle owned by a nursing home resident is also exempt if transferred to a spouse. In all other cases the exemption is limited to $4,500. (3) The applicant's principal residence, provided it is in the same state in which the individual is applying for coverage although some limitations, discussed below, exist. (4) In Illinois, up to $1,500 of revocable burial expenses are exempt and up to $4,120 in irrevocable prepaid expenses are exempt. However, the amount of the revocable expense exemption is reduced by the amount of irrevocable expenses. In all cases, expenses for burial space or plots and other customary items such as a casket or headstone are completely exempt. (5) Assets that are considered "inaccessible" for one reason or another. These assets often come in the form of specific types of trusts.

The Home Nursing home residents do not have to sell their homes in order to qualify for Medicaid. In Illinois, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home. The home may also be kept if the Medicaid applicant's spouse, sibling, minor or disabled child lives there. However, if the applicant leaves the home with no intention of returning, the property must be counted as an asset.

The Transfer Penalty The second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in Illinois. The period of ineligibility starts on the first day of the month of the transfer. Example: If a Medicaid applicant made gifts totaling $90,000 in a state where the average nursing home bill is $5,000 a month, he or she would be ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18). Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month. In theory, there is no limit on the number of months a person can be ineligible. Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80). However, the IDPA may look only at transfers made during the 36 months preceding an application for Medicaid (or 60 months if the transfer was made to certain trusts). This is called the "look-back period." Effectively, then, there is now a 36-month limit on periods of ineligibility resulting from transfers. This means that people who make large transfers must be careful not to apply for Medicaid before the 36-month look-back period passes. Example: To use the above example of the $400,000 transfers, if the individual made the transfer on January 1, 1998, and waited until February 1, 2001, to apply for Medicaid -- 37 months later -- the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2000, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits.

About the author: Rockford native Paul Nicolosi concentrates his legal practice in business law and transactions, and business and estate planning. He is active on several company boards and participates in regular company reviews for consideration by venture capital firms.