How to Pay for Long-Term Care - Medicaid Spend Down

Reducing Countable Assets

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Reducing assets an unfortunate byproduct of a society not financially preparing for aging and needing the Medicaid system and a country unable to figure out long term care financing. Henrik Jonsson

When all of your resources have been exhausted, Medicaid can be used to paid for care in a skilled nursing facility and certain assisted living places too. Check with your financial planner and attorney for expert advice. In this article, we provide an overview of how to legally reduce your assets that count toward Medicaid qualification. Keep in mind that each state regulates spend downs differently.

In our first article on this topic, we reviewed an analysis by the Government Accountability Agency GOA that showed that nearly 75% of nursing home residents had some resources that were not counted toward their Medicaid eligibility yet most of the residents considered by the GAO were far from wealthy.

Transfers of Assets

Federal law limits Medicaid payment for long-term care services, including nursing home care, for individuals who divest themselves of—or “transfer”—their assets for less than fair market value (FMV) within a specified time period.

States conduct a review, or “look-back,” to determine whether the applicant (or his or her spouse, if married) transferred assets to another person or party. The look-back period is typically 60 months. It can vary for assisted living. If the state determines that an applicant transferred an asset for less than FMV during the look-back period, the individual may be ineligible for Medicaid coverage for long-term care for a period of time called the penalty period.

Reducing Countable Assets

One method Medicaid applicants could use to reduce assets is paying off existing debt or making certain purchases.

  • Purchasing burial contracts and prepaid funeral arrangements, which are generally non-countable resources.
  •  Spend down countable resources on upgrades to your home such as a new roof or carpeting.
  • Applicants can also use countable resources to purchase services, which are not considered a resource. For example, applicants may pay for a personal service contract, also referred to as a care agreement, which is an arrangement in which an individual pays another person, often an adult child, to provide certain services over a period of time.
  • Applicants may reduce their countable resources by purchasing certain financial instruments that generate an income stream such as an irrevocable and non-assignable annuity.
  • Another financial instrument is a promissory note, under which applicants lend funds to another party, such as an adult child.
  • Applicants may reduce their countable assets by giving some or all of their assets as a gift to another individual, such as an adult child but if given during the look-back period, would likely result in a penalty period.
  • An additional method married applicants could use to reduce countable assets is to increase the amount of assets that the community spouse is able to retain. That gets tricky.
  • Married applicants may reduce their countable assets by purchasing an irrevocable and non-assignable annuity that pays out income to the community spouse.

Eligibility workers stated that bank statements were the most useful source of information for identifying and verifying applicants’ financial eligibility. Bank statements show transactions, such as payments of life insurance premiums, the movement of lump sums of money over time, or transfers of money in and out of accounts.

Consult with a qualified attorney to assure you do the right thing! This information from the GOA should be considered a starting point only. It is not about gaming the system but about legally protecting your assets to the fullest extent allowed by law.

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