As married couples progress through their retirement years, it is vital to become acquainted with the basics of Medicaid in the context of long-term care. Specifically, all married couples should have a working knowledge of the Medicaid laws preventing spousal impoverishment, including the Division of Assets process. People are living longer. The number of individuals who are over age 65 is increasing. Baby boomers are turning 65 at a rate of 10,000 a day and approximately 1 out of every 4 of these boomers will spend time in a nursing home. At a median cost of $180 per day, the cost of nursing home care in Kansas can cause financial hardship and ruin to couples of moderate means, hence the need for Medicaid.
In Kansas, the Medicaid program is called KanCare. In Missouri, it’s called MO Health Net. Both are needs-based programs and are typically programs for the indigent (KS: assets less than $2000 and MO: assets less than $5726) except in the case of married couples. In lieu of impoverishment or divorce, married couples of moderate means may turn to Medicaid when one spouse requires nursing home care. The theory behind the Division of Assets process and the Spousal Impoverishment laws is to prevent divorce and to protect the financial well-being of the spouse in the community (i.e. the spouse who does not need long-term care).
If a married couple has long-term care insurance or adequate assets to pay for a nursing home for a period of two to three years without suffering financial drain (anticipated cost for two to three years exceeds $200,000), eligibility for Medicaid may not be necessary. However, if the cost of $200,000 for nursing home care is overwhelming, then the couple may need to consider Medicaid.
Income vs. Assets & Spousal Impoverishment Rules
The Minimum Monthly Maintenance Needs Allowance (MMMNA) is one Spousal Impoverishment Rule. It allows a married Medicaid nursing home applicant or HCBS Medicaid Waiver applicant to transfer a portion, or in some cases, all of their monthly income, to their non-applicant spouse. The MMMNA protects non-applicant spouses who have little to no monthly income from becoming impoverished so that their applicant spouse can meet Medicaid’s income limit; it is the minimum amount of monthly income to which the non-applicant spouse is entitled.
The Community Spouse Resource Allowance (CSRA) is the second of the Spousal Impoverishment Rules. To be Medicaid-eligible, there is an asset limit. When an applicant is married, the assets of both spouses are considered jointly owned. This means that regardless of whose name an asset is in, it is calculated towards the asset eligibility of the applicant spouse. As stated above, in 2023, the applicant asset limit for a senior in KS is $2,000 and in MO is $5726. Medicaid, however, allows a greater portion of the couple’s assets to be protected for the non-applicant spouse. This dollar amount, the CSRA, is determined by the Centers for Medicare and Medicaid Services and is updated annually.
In order for an individual to be eligible for Medicaid, a nursing home resident must have no more than $2000 of “non-exempt” or countable assets. If the nursing home resident is married, assets of both spouses count toward the $2000. limit. This fact is shocking to many couples. In addition, even if the couple entered into a pre-nuptial agreement, the assets of both spouses count toward the $2000. The federal and state law is unambiguous on this issue. All is not lost. Spousal impoverishment is not the only answer. The spouse of the nursing home resident, called the community spouse, can complete a process called a Division of Assets to prevent impoverishment.
Division of Assets describes the process of splitting the couple’s assets when one of the two spouses needs nursing home care. First, all assets of both spouses are considered in the Medicaid eligibility equation, regardless of how the assets are titled. An asset is not protected simply by removing the name of the ill spouse from the asset. In addition, an asset is not protected for Medicaid eligibility purposes because the asset is titled in the name of a revocable living trust. Quite the opposite is true in Kansas.
Next in the division of assets process, certain assets are considered exempt. This means that the community spouse can keep these assets, and the assets are not part of the eligibility equation. For example, the primary residence is exempt, and the community spouse may remain living in the family home. The family car is also exempt. In addition, the pre-paid irrevocable funeral plans for both spouses are exempt. In Kansas, the retirement assets (IRA, Pension, 401K) of the community spouse are exempt. This last exemption is a significant benefit for Kansans. Notably, the retirement assets of the community spouse are not protected in the adjacent state of Missouri. Income producing assets are also exempt in Kansas, such as rental properties, businesses, and farms. Non-exempt assets include cash, CDs, bank accounts, stocks, bonds, annuities, jewelry and gun collections, boats and trusts.
Once a list of all non-exempt assets is complete, the total asset value is divided by two. One half of the value, up to a total of approximately $148,620 (in 2023) of the non-exempt assets, is allocated to the community spouse. The least that the state allows the well spouse to retain is $29,724. In other words, if the combined assets of both spouses is $29,724 or less, then the community spouse can keep the total of $23,844. The community spouse has 90 days after Medicaid eligibility to change the title of these assets into his or her name. The second half of the assets is allocated to the spouse in the nursing home. To qualify for KanCare, the spouse in the nursing home may have only $2000 in his or her name. The process of reducing the assets to $2000 is called Spend-Down.
Spend-Down can be accomplished in several ways. The couple may purchase personal supplies, hearing aids, adaptive equipment, eye glasses, furniture, funeral plans and clothing. In addition, the couple may make home improvements or purchase a more reliable vehicle. Legal fees can also be part of spend-down. The couple may also purchase a Medicaid compliant annuity or loan assets in return for a Medicaid compliant promissory note. The loan or annuity is used to take an asset and turn it into income for the community spouse. Both loans and annuities must be Medicaid compliant.
Once spend-down is complete, the couple can apply for Medicaid benefits. Additional factors to consider include: whether either spouse is a veteran, whether the couple has a child with a disability and whether the couple has transferred assets for less than fair market value within the past five years. Each of these factors requires additional analysis and the assistance of an elder law attorney is encouraged.
The Gift Myth
The distinction must be drawn between the IRS and its view of gifting and the Medicaid program and its view of gifting. While an individual may gift up to $17,000 per year (and a couple $34,000) and not be subject to a federal gift tax, this gift tax rule will not trigger immunity from the a transfer penalty in the Medicaid program. If an individual gives away assets, including a gift of $17,000 or less, within the 5 year look-back period for Medicaid eligibility, the gift will be subject to a transfer penalty.
The information noted above is a lot….we know. Our experts can assist you through this process and help you to ensure care for your loved one and peace for yourself.
For additional information, please feel free to contact Shepherd Elder Law Group.