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February 16, 2006
THE NEW MEDICAID RULES AND SINGLE PEOPLE
When a single person gets ill and needs nursing home care the new rules require that the person spend all of their assets on their nursing home care, or pay for at least for the first five years of nursing home care.
How much would 5 years cost? Well, at today’s rate, without including any inflationary rate increases over the next 5 years, it would cost $565,750, not including prescriptions, ambulance rides and other costs of living. This is based on a current nursing home cost of $310 per day.
So it would seem that if a single senior has more than $565,750 that they could save the excess and a single senior that has less than $565,750 would lose everything, if they had not done any advance planning.
The End of the Half-A-Loaf – Prior to this law change we used to be able to save about half of a person’s assets if they entered a nursing home and had not had done any advance planning. We would have them gift away about half of their assets and keep the remaining half to pay for the disqualification period for having given the other half away. This disqualification period always started on the date that you gave away some of your assets.
Now, the disqualification period for any gifts made within the last 5 years doesn’t begin until you are in the nursing home or have less than $2,000, whichever is later. This means that any gifts within the last 5 years would have to be returned and paid over to the nursing home.
Can more be saved? Yes, but only with advance planning. The sooner you begin, the more that can be saved. In today’s example we’ll look at a typical single senior and see what her options are.
Example: Mary is 70 years old, has one daughter, owns her own home worth $500,000 and has $150,000 in savings. Mary does not have long term care insurance and her monthly income is $1,000 per month. Mary suddenly has to enter a nursing home.
Under the new rules, once Mary has reduced her assets below $2,000, she will be financially eligible for MassHealth (Medicaid) to pay for her future nursing home and medical expenses. At that time, when her assets are below $2,000, MassHealth will lookback 5 years to see if Mary had made any gifts during that time and assess a disqualification period. If Mary is unable to get the gifts back, she will be unable to pay the nursing home during this disqualification period and face an eviction from the nursing home for failure to pay.
Under last minute planning the only thing that Mary could do is sell the house immediately and make a gift to her child, Donna. Out of her $650,000 in assets, the gift will be small because Mary must keep enough money to pay approximately $565,000 for 5 years of nursing home care. That’s about $85,000 that Mary will be able to give her daughter.
If, on the other hand, had Mary had transferred her house to an Irrevocable Trust and been healthy for the subsequent 5 years, she would have been able to transfer her home to her daughter, free and clear. Under this scenario, Mary’s only daughter, would receive $500,000 versus the $85,000 in the prior example.
President Bush has already presented his 2007 budget proposal to Congress and it includes another $36 billion in Medicare cuts and $5 billion in Medicaid cuts. Who knows what they are going to cut next. Maybe they’ll say that having $2,000 (current asset limit for a single person) is too much and reduce it to $200?
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org