Law News and Tips
Many baby boomers are finding themselves stuck between their children’s generation and that of their parents. We were recently caught in that dilemma with my in-laws. It turned out that the amount of their Social Security checks roughly equaled the premiums on their Medicare insurance. That didn’t strike me as such a good deal.
I think a lot of people are getting stuck in this conundrum. It’s a difficult place to be, and the rules governing Medicare and Medicaid are impossibly confusing. The US Supreme Court once referred to the Medicaid rules as “Byzantine construction… almost unintelligible to the uninitiated.”
Those are pretty harsh words from the Supreme Court. In my career I have done a lot of tax law. I can say that the Medicaid rules make tax law look fairly simple. However, without getting into the deep thicket of Medicaid details, I think we can break Medicaid down into two general categories.
When most people think of Medicaid, we think of the program implemented to assist financially distressed individuals to pay for their medical needs. It covers a limited number of treatments. In order to qualify, the applicant has to be financially needy in one of two ways.
The first classification of qualified applicants is those individuals who are “categorically needy.” People are “categorically needy” when they have less than $1,000 of “countable assets.” In addition, they cannot have monthly income equal to or greater than $834. Individuals who fall into this category are the people we would typically think of as Medicaid qualified.
There is, however, a second class of Medicaid beneficiaries. These individuals are referred to as “medically needy.” In Missouri (and the laws vary somewhat from state to state), “medically needy” applicants must have less than the $1,000 of countable assets. However, with regard to income, “medically needy” individuals simply must not have enough income to cover their qualified medical expenses. For instance, if the cost for a person in a nursing home is $6000 per month and they only earned $3,000 per month, Medicaid can make up the difference. That person would fall into the “medically needy” category.
In both of the classifications, there is a limitation on what are “countable assets.” Countable assets are any assets an applicant owns (or owned during the five years immediately preceding the application for Medicaid benefits where the assets were not exchanged for something of value – that is, gifts), but it excludes certain assets. For instance, a person’s house is not included in “countable assets” for qualification purposes, but the State will put a lien against the house for any Medicaid benefits paid. When the house is sold after the recipient’s death, then the State will collect any Medicaid amounts it paid out of the sales proceeds. So the exclusion of the house from countable assets is only temporary.
People for years have been trying to get around the Medicaid rules to have the government pay for their nursing home costs. When I started practicing law 35 years ago, it was pretty simple. Congress caught on, though. First, they made it illegal for grandma to transfer assets to qualify for Medicaid. If she broke the law, surely they’d put her in one of those nice prisons with good medical care. That seemed like a good option to some clients.
Congress caught on, though. So they made it a crime for family or advisors to help mom or dad plan to qualify for Medicaid. As you can imagine, this was disturbing to a lot of influential people. The concern was that it would paralyze legitimate planning for fear of violating the law. So once again, Congress caught on.
Beginning in 2006, when an individual applies for Medicaid, he or she has to add back the value of any assets transferred for less than fair market value during the immediately preceding five-year period (the “look back.”). If an asset was transferred for less than fair market value during the look back period, then the government calculates a penalty by dividing the value of the gift by a Medicaid factor. This calculation determines the number of months that the applicant will be disqualified. The disqualification basically runs from the date when the value of the applicant’s countable assets drops below the maximum permitted amount. It turns out that the disqualification can run for longer than five years. Timing an application is critical!
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