Articles

Medicaid and Nursing Home Costs

By Joseph T. Buxton, III

As our society ages and individuals are living for longer periods of time, the risk of long-term care expenses becomes more evident. In cases where the individual or a couple has insufficient assets to pay for long-term care ($5,000 to $6,000 a month) and long-term care insurance is not available to protect against the risk, Medicaid becomes the source of assistance.

The Medicaid system is established under Federal law and is administered jointly by the Federal government, the State medical assistance department, and the local social services agency. Under Federal guidelines, State and local administration of Medicaid varies from state to state and benefits that are available in one state may not be available in another. For example, the State of Virginia permits the healthy spouse (the community spouse) to keep the lesser of ½ of the couples’ savings up to $90,600, whereas the State of West Virginia permits the community spouse to keep up to the entire $90,600 of the couples’ savings and investment assets, when qualifying the institutionalized spouse for Medicaid benefits.

With the risk of long-term care increasing as individuals age, the need for individuals to consider planning options to protect their assets from nursing home costs grows. A recent case in Pennsylvania underscores the need for long-term care planning. In the case of Pernav v. Department of Public Welfare, et al., No. 2207CD2001, Mr. and Mrs. Pernav resided in New Jersey until Mrs. Pernav’s health deteriorated to the point where she required long-term care. She was admitted to a nursing home in Pennsylvania, near her children. Her husband continued to reside in the family home in New Jersey until the time of his death, when the home passed to the children. The State of Pennsylvania took the position that Mrs. Pernav should have elected to take her statutory share of her husband’s estate and her failure to do so constituted a transfer of assets and resulted in a period of her ineligibility for Medicaid long-term care assistance.

In a Virginia, a couple’s home is an exempt asset for Medicaid purposes as long as the community spouse continues to live in the home. Under Virginia law, however, when a husband or wife dies, the survivor has a statutory right to a share of the deceased spouse’s estate. For a married couple, without children, the share is one-half, with children, the share is one-third. Even in cases where the healthy spouse (the community spouse) leaves the property to children or other beneficiaries, and the State may claim that the failure of the institutionalized spouse to claim their statutory share of the deceased spouse’s estate will constitute a disqualifying transfer of assets to the children, and disqualify the surviving parent for Medicaid benefits for a period of time.

Had Mr. Pernav, in the case above, executed a disability planning will whereby his assets would have been placed into a testamentary supplemental needs trust (SNT) for the benefit of his institutionalized spouse, the trustee could have used the income from the trust to provide for the needs of the Pennsylvania spouse and, in all likelihood, satisfied the institutionalized spouse’s right to elect against her husband’s estate. In this way, the trust principal would have been protected and the institutionalized spouse continued with Medicaid assistance. Conversely, had the couple transferred their home by life estate deed to their children well in advance of the need for long-term care and retained a life-interest in the property, the property could have been an exempt asset and either party or both eligible for Medicaid assistance for long-term care costs without penalty. Moreover, if the couple had purchased, while healthy and eligible, long-term care insurance, it may have been possible for the family to retain or protect all of their assets for the use by the healthy spouse and ultimate distribution to their children, without having to rely on the Medicaid system at all.

The Medicaid rules are very complex with many exceptions and opportunities for the preservation of assets if planning is done in advance. In the case where a spouse is disabled and requires institutionalization, the assets of both husband and wife are considered in determining the eligibility of the disabled spouse. Property that is essential to the support of the healthy community spouse or used in a business or trade are usually excluded in determining Medicaid eligibility, regardless of its value or rate of return. A farm, a small family owned business, and the like, are examples of assets that are excluded in determining Medicaid eligibility. Also excluded is the family home, if the well spouse lives in the home, plus an automobile used by the healthy spouse (of any value), prepaid final or funeral expenses for either spouse, the income of the healthy spouse, small amounts of paid-up life insurance, and one-half of the savings or investment assets, including IRA’s and 401k’s of both spouses, up to a maximum of $99,540.00, when retained by the healthy spouse. All other assets would be considered available resources to be applied against the costs of the institutionalized nursing home bound spouse.

If Medicaid assistance may be required or understanding of the rules is important to you, it is vital that you consult with an experience elder law professional to determine how the law and the Medicaid rules may affect you and your family.

Joseph T. Buxton, III is the senior attorney and president of Joseph T. Buxton III, PC, an estate planning and elder law firm with offices in Yorktown and Urbanna, Middlesex County, Virginia.