A Primer on the New Medicaid Rulebook
Why It's Tougher Than Ever To Qualify For Help
Most seniors probably realize that Medicare won't cover a long nursing-home stay. But many families will be shocked to learn that their state Medicaid program won't either--unless Mom and Dad are really, truly unable to pay.
Medicaid has always been intended as a safety net for the disabled and poverty stricken. But people well above the poverty level, facing nursing-home bills of $50,000, $60,000--and now upwards of $70,000--a year, have been able to qualify even when they own a comfortable home and, in some cases, have handed the kids their inheritance early. No longer. Congress, concerned about the health of a system caring for 53 million Americans--including nearly 1.3 million senior citizens in nursing homes--has made financial hardship tougher to claim.
How to test in. The basic income and savings tests that states use haven't changed, says Gene Coffey, an attorney with the National Senior Citizens Law Center. Some set an income cap allowing Medicaid recipients up to $1,809 in monthly income this year and about $2,000 in assets, not counting the house. Residents above the income limit who still can't afford their nursing home bills have the option of creating a "qualified income trust," naming the state as beneficiary. Medicaid pays the bills, and any income goes into the trust. Other states look at ability to pay on a case-by-case basis--although they typically set the asset limit at $2,000 as well. In any state, a spouse can stay in the family home indefinitely, keep one car, and is allowed up to $99,540 in savings and $2,488.50 per month in income.
But anyone who is "house rich" now faces a new restriction. Previously, Medicaid didn't consider the home when calculating eligibility; a million-dollar mansion wouldn't knock you out of the running. Now, single people whose equity tops $500,000, or up to $750,000 in some states, will have their application handed back. (The home stays off the radar as long as a spouse or a dependent child lives in it.)
It's also harder to qualify for coverage after making gifts. Under the old rules, Medicaid looked back over the applicant's previous three years' finances, totaled up handouts (including church contributions and the used car that went to a grandson), divided the sum by the average monthly cost of nursing-home care in the area, and arrived at a number of months during which the state wouldn't pay. The equation stays the same under the new regulations--a gift of $50,000 divided by a $5,000-amonth bill equals a 10-month penalty-- but the "lookback period" stretches to five years. And the penalty clock, which used to begin ticking when the gift was made, now doesn't start until your parent is headed for the nursing home.
"We're facing a penalty of about nine months," says Rod Lowenstein of Jericho, N.Y., whose father made a transfer worth $80,000 to family members this year and now is suffering from congestive heart failure and might need a nursing- home stay.
The Medicaid changes include two that families might welcome. Congress expanded programs allowing people who invest in certain long-term-care policies to qualify for Medicaid, if needed, without losing all their assets. And it set aside funds to increase coverage of in-home care.
Families of some people who qualify for Medicaid--for nursinghome or other care-- will eventually get a bill from the state. Federal law requires states to recover funds if the person dies leaving anything behind--typically the house. This often happens when the second parent dies, or when a child has moved in.
"It was more stress than taking care of my mother," says Manny Dragon, a postal worker from Daly City, Calif., who lived with his mom for 11 years during her battle with cancer, and got a $45,000 bill after her death because her name was still on the deed. Had he read all the fine print, he says, he'd have discovered the problem--and perhaps that the law allows a parent to give the house to a child who's been a live-in caregiver for at least two years. But "who's not going to sign it? We needed medical attention for my mother," he says. Dragon was able to challenge the bill and win. But he's an argument for doing your homework.
This story appears in the November 27, 2006 print edition of U.S. News & World Report.