Medicaid
Overview
by Paul Nicolosi
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
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.
