Medicaid Coverage for Long Term Care

Medicare and Medicaid are terms that often confuse people. Medicare is a federal program financed by the Social Security system and the Medicare insurance premiums that are paid by workers prior to age 65. Medicaid, on the other hand, is a state and federal program for lower income persons. It is generally administered by the states, and eligibility is limited by the income and resources of the applicant. Though both Medicare and Medicaid are government entitlement programs, it is helpful to think of Medicare as an insurance program, which it is, even though it has a large government component.

Medicare is a health insurance program providing benefits to people 65 and older, and also to some disabled persons. Medicare does not pay for long term “custodial” care like long term nursing home care. Medicare can sometimes pay nursing home expenses for a limited time after a patient leaves the hospital and is admitted to a nursing home for skilled nursing services or for rehabilitation. To be eligible for Medicare benefits for rehabilitation, the patient must have had a three day hospital stay and a doctor must have directed that the patient get rehabilitation or skilled care in a nursing home after leaving the hospital. Up to the first 20 days of nursing home care may be paid by Medicare, with up to another 80 days being subject to a co-pay of $128.00 per day (2008). Many Medicare supplement policies will pay this co-payment. Medicare is strict in its approval of Medicare coverage, and often coverage will not last even as much as the first 20 days.

Medicaid pays many medical expenses not paid by Medicare, but Medicaid is available only for eligible people who have limited resources and income. The chief difference for nursing home services is that only Medicaid pays for “custodial care,” which is the routine nursing services provided in a nursing home.

Medicaid coverage for long term care in Tennessee is limited to nursing home care. Medicaid is also available for needy individuals who are not confined to nursing homes, but the eligibility and coverage rules are different from the nursing home rules. Assisted living facilities are not covered by Medicaid in Tennessee, though they are in some other states.

For those who are both medically and financially eligible, Medicaid pays all the recipient’s nursing home and medical expenses that are not paid by Medicare, except prescriptions. Persons who receive both Medicare and Medicaid are called “Dual Eligibles.” Since January 1, 2006, dual eligibles no longer have prescription coverage through Medicaid, but are automatically enrolled in Medicare Part D prescription coverage without charge. The prescription benefits under Medicare Part D for dual eligibles are generally better than is available for Medicaid recipients who are not on Medicare.

Financial eligibility for Medicaid is dependent on the recipient having limited income and assets. An individual applicant for Medicaid may generally have no more than $2,000 in “available assets”, though some important assets, such as the family home and one automobile are not counted. All assets owned by both spouses may be counted, but married couples benefit from rules designed to prevent “spousal impoverishment.” In Tennessee, the well spouse is allocated half of the available assets up to a protected amount of $104,400, and for those with fewer assets, the well spouse is allocated a minimum of $20,328 of the “available assets” in addition to the exempt assets. (2007)

Medicaid applicants with more than $1,911 per month in gross income (the “income cap”) are generally ineligible for coverage, though the applicant’s income may be put into a “qualified income trust” so that he may qualify. The well spouse is allocated a minimum of $1,711 of the couple’s income before any money is paid to the nursing home, and the well spouse’s allocation can rise to $2,541 for those who have high costs of housing.

The following is a short overview of the rules and regulations for Medicaid coverage of expenses of long term care in a nursing home. This outline is prepared primarily for Tennessee residents, but much of what is included is based on federal law. 

1.  Medical Requirements.   
In general, the applicant must be certified by a doctor (in a document called the Pre-Admission Evaluation, or “PAE”) as needing institutionalized care.  The PAE must be done within 90 days prior to the application for Medicaid.  If the elder is not certified as needing nursing home care, the application will not be approved.  The applicant must require in-patient nursing care and be unable to perform at least one of the activities of daily living (ADL) or have a serious cognitive disability. Serious dementia, including Alzheimer’s disease, is generally considered a condition serious enough to warrant certification for nursing home care.

2.  Income Cap Limitations. 
In about 20 states, including Tennessee, a Medicaid applicant who has more than 300% of the federal SSI benefit amount ($1,911/month in 2008) is not eligible to receive any Medicaid benefits, but there is an approved approach to overcome this problem.  Federal law allows the nursing home applicant to place his regular income into a “qualified income trust” (“QIT,” also called a “Miller trust”).  The Medicaid recipient’s nursing home and other expenses are paid from the QIT, with the balance remaining in the QIT after the Medicaid recipient dies being paid over to the state. There is no limitation on the amount of income a nursing home Medicaid recipient’s spouse may receive in his or her own name (the “name on the check rule”).

3.  Asset Limitations.  
There are strict limitations on assets the Medicaid recipient may own.  In general, Medicaid rules allow an institutionalized individual who is unmarried to have a maximum of $2,000 in available assets.  (If the institutionalized person is married, see next paragraph.) Some assets may be considered exempt or “not available.”  Examples of these exempt or non-available assets are the family home, household furniture, one car, and certain other assets that are illiquid (i.e., not readily saleable, in spite of efforts to do so). If the home or other assets are sold during the elder’s lifetime, the sales proceeds may cause the elder to lose Medicaid until the money is spent down to $2,000.

4.  Spousal Resource Allocation by DHS (not applicable if patient is unmarried). 
In general, for persons institutionalized in 2008, Tennessee Department of Human Services (DHS) Medicaid rules allow the well spouse to keep half of the available assets, with the well spouse being allocated a minimum of $20,880 and a maximum of $104,400.

      A Resource Allocation is required to be made as of the date the ill spouse enters the hospital or nursing home and remains for more than 30 days (sometimes called the “snapshot date”).  DHS totals all the available assets owned by either spouse on the snapshot date, sets aside half the assets for the well spouse (if the total is above the minimum amount) and re quires the Medicaid applicant to spend down his half to $2,000 before the applicant can be approved. If the institutionalized spouse is incompetent and has assets in his separate name with no power of attorney, it could cause significant problems with making any required allocations to the well spouse.

5.  Spousal Income Allowance  (not applicable if patient is unmarried).  
 If the ill person is legally married, the well spouse is allowed to keep for her own needs all of the income that is paid to her in her separate name (“name on the check rule”).  If her separate income is insufficient to live on, DHS will allocate the well spouse an income allowance from the institutionalized spouse’s income so that the well spouse has a minimum of $1,711.00.  Larger amounts, up to $2,541/month may be reallocated under certain circumstances, and if even more income is needed to support the well spouse, the spouse may request a “fair hearing” to increase the spousal allowance.

6.  Medicaid Eligibility Planning. 
The chief reason for Medicaid eligibility planning is to shorten the time before an elder is eligible for Medicaid, particularly if the elder has, or soon will have, very high costs of care.  A secondary reason is to protect assets for the care of the community spouse, if any, or to preserve some family assets the elder wishes to pass on to children.  The chief reason for Medicaid eligibility planning is to shorten the time before an elder is eligible for Medicaid, particularly if the elder has, or soon will have, very high costs of care.  A secondary reason is to protect assets for the care of the community spouse, if any, or to preserve some family assets the elder wishes to pass on to children.  There are spend-down possibilities that are not penalized by Medicaid regulations, and proper planning with the help of an elder law attorney will often disclose others. Here are a few examples:

• Purchase of exempt assets and services that will be needed by either spouse in the future, such as an irrevocable prepaid funeral and burial plot for each spouse. 

• Pay existing bills.

• Care agreements.  Family members may now be spending large amounts of time and money helping to care for the elder.  Sometimes a child gives up a job or cuts back her hours to help a parent, a child might move in with the parent to provide assistance, or the parent might move in with the child. Medicaid regulations presume the time and money family members give to help the parent is a gift, but a written agreement, signed in advance of the payment for rent or personal services, can overcome that presumption. These caregiver agreements must be carefully drafted to assure that the agreement is acceptable to the Medicaid agency.  It is important to recognize the money paid for services rendered must be treated as taxable income to the recipient. 

• Permitted transfers of the home.  Federal law permits the elder to transfer the elder’s family home to certain people without penalty, including transfers to the well spouse, a caregiver child who has lived in the family home (though there are significant restrictions on such transfers), and a transfer to the elder's sibling who owns a part interest in the home and who has lived for at least one year.  Even permitted transfers may have negative tax implications, however.

7.  Recent Change to Federal Law Prohibits Most Gifts. 
The Deficit Reduction Act of 2005 (“DRA 2005”) on which went into effect on February 8, 2006, greatly limited gifting of assets as a Medicaid planning tool. (DRA also made other significant changes to Medicaid law.)  (Note:  Tennessee has announced that the DRA 2005 penalties are being invoked retroactively to transfers on or after February 8, 2006.)

a.   Gifts Prior to the Passage of DRA 2005 on February 8, 2006:  Only gifts that totaled $3,394 or more in any one month cause a period of ineligibility under the prior rules.  Larger gifts disqualify the applicant from receiving Medicaid until the penalty period expires. The period of ineligibility or penalty for gifts prior to 2/8/06 begins on the date of gift and continues until the penalty period expires.  The length of time the penalty lasts for such gifts depends on the amount of the gifts.  For example:   a gift of $33,940 causes an ineligibility period that lasts 10 months, beginning in the month the gift was made. In the 11th month, if the applicant is otherwise eligible, he can qualify for Medicaid. DRA 2005 prohibits the states from imposing any more than a 36 month look-back period for all gifts prior to 2/8/06, except gifts to or from certain trusts (60 month look-back applies). Note, however, that the Tennessee Department of Human Services has implemented rules that require a five year disclosure of gift look-back. Though these rules appear to be in violation of federal law, DHS rules apply the same penalties to gifts made prior to February 8, 2006, as after that date.   

b.   Gifts Made after February 8, 2006:  The DRA requires that any gifts made by the Medicaid applicant or his spouse after passage of DRA 2005, except those made to certain exempt recipients (spouse, disabled persons, etc.) cause the applicant to be ineligible for Medicaid beginning on the date the applicant has $2,000 or less of countable assets and is otherwise eligible for Medicaid.  In other words, the penalty for a gift begins, not when the gift is made, but when the spend-down is completed and the applicant is out of money. The look-back period for gifts made after February 8, 2006, is 60 months, so a gift now will cause ineligibility any time within the next 60 months the applicant has completed the spend-down and applies for Medicaid. The length of the new penalty is the amount of the total of all gifts within that 60 month period divided by the average daily cost of nursing home care for the state. The DRA makes no such exceptions to the kinds of gifts that create this penalty, and even gifts to churches could cause the applicant to be ineligible for Medicaid unless the states establish “hardship” exceptions.

8.  Estate Recovery. 
The states each have “estate recovery” programs to recover amounts the state paid for Medicaid benefits paid to the nursing home or for home and community-based Medicaid.  The state may seek recovery from all assets in the “probate estate” of any person over 55 years of age for whom long term care Medicaid benefits were paid by the state. The family home is often the only asset that was exempt during the recipient’s lifetime, and it will be subject to estate recovery subject to certain limitations. Under current Tennessee law, only assets in the Medicaid recipient’s sole name at the time of his death are subject to estate recovery, with the state’s rights being superior to whatever the will might provide. The states have the right under federal law to expand its estate recovery efforts to include any property in which the deceased Medicaid recipient had an interest at the time of his death, even property titled jointly with the spouse or another person with rights of survivorship, but currently Tennessee has not yet passed legislation allowing such “expanded” estate recovery by the state.

Social Security Disability Benefits

The Social Security Disability Income (SSDI) program pays cash benefits to people who are unable to work for a year or more because of a disability. Benefits continue until you are able to work again on a regular basis, or until you reach retirement age. At that point, the disability benefits automatically convert to retirement benefits, but the amount remains the same. After receiving SSDI benefits for two years, you also become eligible for health insurance coverage under Medicare. The disability program also includes a number of work incentives to ease your transition back to work. As of September 2000, some 6.6 million disabled workers and their dependents were receiving benefits through the program.

Who is eligible?
As with retirement benefits, you must have accumulated a certain number of work credits before you can qualify for disability benefits. However, fewer credits are required to qualify for the disability program than for retirement. You can earn up to four credits per year of employment. How many credits you need to qualify for disability depends on the age you become disabled.

Before age 24 You may qualify if you have six credits earned in the three-year period ending when your disability starts.

Age 24 to 31 You may qualify if you have credit for having worked half the time between age 21 and the time you become disabled. For example, if you become disabled at age 27, you would need credit for three years of work (12 credits) out of the previous six years (between age 21 and age 27).

Age 31 or older In general, you will need to have accumulated the number of work credits shown in the chart below. Unless you are blind, at least 20 of the credits must have been earned in the 10 years immediately before you became disabled. If you are disabled by blindness, your work credits can be from any time after 1936.

Certain members of your family may qualify for disability benefits on your work record should they become disabled. The amount of these benefits depends on your earnings record. These family members include:

• Your spouse who is age 62 or older, or any age if he or she is caring for your child who is under age 16 or disabled and also receiving checks;

• Your widow or widower or divorced spouse (if the marriage lasted at least 10 years) age 50 or older should he or she become disabled. The disability must have started before your death or within seven years after your death;

• Your unmarried son or daughter, including an adopted child, or, in some cases, a stepchild or grandchild.

When is a child entitled to disability benefits?
Children under age 18 who are disabled may be eligible for childhood disability benefits if their parents have a disability or are deceased and were insured at the time of death. An unmarried disabled child who is older than age 18 may be eligible for benefits if the disability began before age 22. There is no upper age limit for childhood disability benefits.

In addition, unmarried children are entitled to child's insurance benefits on the Social Security record of their disabled or deceased parents if the child is under age 18 or between age 18 and 19 and a full-time student.

Who is "disabled"?
Social Security uses a strict definition of disability. The program does not pay for partial disability or short-term disability. To qualify for Social Security benefits, your disability must prevent you from doing any substantial gainful work, and it must last or be expected to last a year or to result in death.

Despite the rule that the disability must be expected to last a year, you should apply for benefits as soon as the condition becomes disabling and your doctor is willing to state in writing that it is expected to last at least a year. If it turns out that you recover sooner than expected, Social Security will not ask for its money back.

Older workers who become disabled tend to have an easier time having their claims approved. The SSA recognizes that it is more difficult for older workers to be retrained or to find new employment. In addition, the agency knows that a disabled worker who is, say, 60 years old and will be receiving retirement benefits in a few years anyway will cost it less in benefit outlays than a younger worker would.

The amount of disability payments
As with other Social Security benefits, the amount of your disability payments is based on your age and your earnings record. The calculations are the same as those for retirement benefits, although fewer work credits are needed to qualify for benefits. You can obtain the SSA's estimate of what your disability benefits would be by requesting Social Security Statement SSA-7004 (formerly known as the Personal Earnings and Benefit Estimate Statement) from the SSA.

Your spouses and minor or disabled children are also eligible for benefits. The most that you and your family can receive, however, is either 85 percent of your salary before you became disabled or 150 percent of your own disability benefit, whichever is less.

In most cases, the SSA allows you to supplement your benefits with a small amount of income (in 2008, up to $940 a month or $1,570 for the blind).

Beneficiaries who are eligible for more than one Social Security program -- say, disability and retirement benefits -- cannot collect more than one Social Security benefit simultaneously. If you are eligible for two benefit programs, you will receive the higher of the two benefit amounts, but not both. The exception is Supplemental Security Income, which you can receive while collecting benefits from another Social Security program. However, you are permitted to collect disability payments from a private insurer, the Veterans Administration, or other source at the same time that you are receiving Social Security disability benefits. This holds true for workers' compensation benefits as well, although your Social Security disability benefits will be reduced if the total of your workers' compensation and disability benefits exceeds 80 percent of your average wages before you became disabled.

Applying for benefits
Unlike applying for retirement benefits, the application process for disability benefits is complicated and time-consuming. Before you can collect benefits, you have to have been disabled for at least six months. However, since the application process itself can take up to six months, do not wait for the six-month period of disability to elapse before applying for benefits; do it as soon as you become disabled.

The initial application can be made by you or an attorney at your local Social Security Office. If the office determines that you have sufficient work credits to collect disability benefits, it will forward your application to a Disability Determination Services office in your state, which will make the decision about whether you meet Social Security's criteria for disability. This decision is made by a doctor and a disability evaluation specialist. They may request additional medical records and/or request a medical evaluation or test. This exam will be paid for by Social Security.

Appealing Social Security decisions

If your application for benefits is denied or you are receiving less than you believe you deserve, you can appeal. A large percentage of decisions are changed in the appeal process. For example, almost half of all disability claim appeals are resolved in favor of the beneficiary. There are four stages of the appeal process, and you must go through each before you can move to the next. They are: request for reconsideration, a hearing before an administrative law judge (ALJ); a request for review of the ALJ's decision by the Social Security Appeals Council in Washington, D.C.; and, finally, a lawsuit filed in federal court. At each stage in the process, you have 65 days from the date on a written notice of the Social Security's decision at the previous stage to let the SSA know that you are appealing to the next stage.