How to Spend Down Your Assets for Medicaid

Everyone knows that health care is expensive, and many people worry that they will lose everything when they get ill or older and need long-term care.

You may have heard about the concept of a Medicaid spend down, which requires you to "spend" away your own assets to become eligible for the social program. But it may not be as scary or devastating as you think.

The key is to start planning now for the future and the possibility that you, or a loved one, will need some type of long-term care services. It will save you a tremendous amount of grief, anxiety and confusion, and it will help ensure that there will still be an inheritance left for the family.

Medicare Isn't Long-Term Care
A common misunderstanding people have is that if they have Medicare, everything, including long-term care, is covered and they’ll never have to worry about Medicaid. Medicare is the federal program that provides health care insurance for people aged 65 and older, as well as some younger individuals with disabilities or other conditions. Medicaid, on the other hand, is a federal-state hybrid that provides health care coverage to individuals who have limited income and resources.

In truth, Medicare generally doesn’t cover long-term care. It only covers some medical services in this setting, such the price of physical therapy or the changing of sterile dressings. Basic Medicare, or Medicare Part A, does pay for some short-term stays in a skilled nursing facility, but only if you come from the hospital after a three-day stay there.

Medicaid to the Rescue
If you don't have enough savings to cover the cost of a nursing home, you can become eligible for assistance from Medicaid. State-run Medicaid programs are required to cover skilled nursing home care, according to the American Health Care Association.

To qualify for these services, you will have to meet a state’s level of care criteria and financial eligibility requirements. These requirements can be tricky because there is more than one avenue to qualify. Plus, each state has its own specific rules. Ultimately, depending on your assets and a variety of factors, you may be required to contribute to the cost of your care.

Buck Up for Spending Down
The truth is that Medicaid is needs-based, so you will need to show you have insufficient assets to pay for your own care. A single individual aged 65 years or older can’t have an income of more than $2,742 per month. Asset limits – the value of your assets like investments and some possessions that help determine your Medicaid eligibility – are a little more complicated and determined by state rules.

Many individuals who apply for Medicaid realize they have too many assets to qualify for the program’s benefits. The process of reducing an individual’s assets to qualify for Medicaid is referred to as "spending down."

The good news is that spending down doesn’t have to mean that you will eventually lose everything and have nothing left to leave to your heirs.

Some assets are exempt from the spend down. These are called “non-countable assets” and can, for example, include your home, one car, household furnishings and pre-paid funeral and burial arrangements. It is important to note that each state's Medicaid program has individual laws that govern aspects of how to spend down. So, individuals should consult their respective state laws with a Medicaid planner or estate planning attorney before they apply.

IRAs and 401(k) accounts are often considered countable assets, unless they are currently paying out – that is, you are getting money from them. Investments including stocks and mutual funds are also considered countable assets.

You can pay down your own legitimate debt or your spouse’s debt, but these costs aren’t part of the spend down. The permissible expenses include mortgage payments, rent, utilities, home maintenance, credit cards, taxes, car payments and caregiving services. Some states allow a certain amount set aside as pre-payment of future debt, such as mortgage payments, automobile loans and bank loans.

In general, says Leigh Davitian, founder and chief executive officer of The Dumbarton Group in Washington, D.C., “State and federal law allow for a range of permissible expenditures that will reduce the value of the applicant’s estate.”
There are opportunities to protect some assets prior to applying to Medicaid by giving up ownership. For instance, you can establish an irrevocable trust to which you can transfer your property. Note that this cannot be changed after you create it, and the assets will be out of your control.

Because of that, notes Michael Botta, co-founder of Sesame, a health care marketplace based in New York City, it is essential to designate a trusted friend or family member to manage this trust. You also can gift family members up to $17,000 a year without having to pay a gift tax.
However, there is a catch to these actions.

Look Ahead to Plan for "Look-Back"
When you apply for Medicaid, there is a "look-back period," designed to identify any efforts, innocently or not, to hide assets or gift them to meet the asset limit. This review begins on the date of your Medicaid application, and it generally goes back five years.

For example, Medicaid will be looking for money given to a granddaughter for a down payment on a house or a valuable painting sold to a nephew at a fraction of its worth. The purchase of a car for a relative or caregiver may be acceptable, but only if it is used as part of your care, such as trips to the store, pharmacy or doctor’s office.

“Medicaid will scrutinize these things closely, so you will need documentation and proof. It’s essential to be absolutely honest and transparent,” Davitian says.

Keep in mind that this rule varies from state to state, so know your locality’s rules and requirements.

If Medicaid finds violations during the look-back period, you may have a penalty period of Medicaid ineligibility. If the violations are severe enough, you could be banned indefinitely from the program. This is one reason to engage an expert who understands the Medicaid application and spend-down rules and processes. Trying to navigate the system on your own or making assumptions about how to protect or disperse your assets could mean trouble down the road.

“Applying for Medicaid is very complex and confusing. The biggest mistake is not knowing what your state requirements are,” says Diane Omdahl, Wisconsin-based president and co-founder of the Medicare consulting firm 65 Incorporated. “I have referred many people to the law firm I used with my own parents. They know the rules and how to ensure you have an accurate application. Paying a bit more upfront for professional guidance can save you later on.”
Consult the American Council on Aging's website to find a reputable professional Medicaid planner.

Planning Should Start Yesterday
If you or your loved one have significant savings, it may be tempting to consider paying out of pocket and avoiding the hassles and red tape of dealing with Medicaid and the spend down. However, a stay that stretches into years can eat up your savings and assets pretty quickly.
The annual cost of nursing home care is approximately $108,408 for a private room. Assisted living can cost $4,500 per month or more, according to Genworth Financial.

“One pitfall people fall prey to is thinking that they’re not ‘poor’ and don’t need Medicaid,” Botta says. Then they or a loved one has a health issue and discovers how “shockingly expensive” long-term care can be.

Source: https://health.usnews.com/senior-care/articles/what-is-medicaid-spend-down