The Cost of Medicaid: Eligibility and Asset Protection

Nursing homes are rarely anyone's first choice for aging loved ones, but sometimes these facilities offer the best option in difficult situations. When individuals become too old or too ill to take care of their day-to-day needs, nursing homes can provide the necessary support.

Unfortunately, though, these homes are also incredibly expensive, costing thousands of dollars per month. As a result, nursing home care can eat away a lifetime of careful savings in no time, leaving little for family members. This is a particular problem when one spouse is entering a nursing home while the other remains in the community. Despite the fact that a so-called "community spouse" is afforded some financial protections, he or she may be forced to drastically reduce his or her standard of living to before the spouse in the nursing home is eligible for Medicaid assistance.

However, through careful Medicaid planning, you can take some steps to protect your assets.

A Basic Overview of Medicaid Benefits

Medicaid is a medical assistance program for low-income individuals, funded by both the national government and individual states. Medicaid eligibility is based on income and financial resources; to qualify for Medicaid assistance, an applicant must meet established financial criteria. For married couples, the assets of both spouses are considered when determining whether one spouse entering the nursing home is eligible for Medicaid assistance.

Individuals or couples with significant assets are not eligible for Medicaid assistance until they "spend down" their assets to the point where they meet the financial requirements. However, there are restrictions on the way that someone can spend down assets. Notably, an applicant cannot simply give away assets to friends or family members or place assets in a trust in an effort to become eligible for Medicaid without paying thousands of dollars to a nursing home.

Every Medicaid application is subject to a "Look Back" Period. When applying for Medicaid assistance, an individual must disclose all transfers to individuals or trusts over the 60 month period prior to the application.

Generally, any assets transferred during this time must be exchanged for fair market value. If a transfer is made for less that the fair market value, the individual will be subject to a "penalty period" and ineligible for Medicaid assistance for a set amount of time.

Effective Medicaid Planning Can Protect Familial Assets

Although there are significant restrictions on protecting assets from the costs of nursing home care, there are some steps that an individual or family can take. One of the most effective things anyone can do is begin planning early; well before it's time to consider nursing home care, discuss your options and your personal situation with an attorney.

Among other things, an attorney can advise you on ways to maximize your non-countable assets. Certain types of assets are not considered when determining whether an applicant meets the asset requirements for Medicaid eligibility. For example, a home where your spouse resides and a single automobile are not countable assets. By investing in these non-countable assets (re-roofing your house or purchasing a new automobile), you may be able to prevent some assets from consideration.

If your spouse no longer resides in your house, you may have alternate ways of protecting your home. Although generally, a person seeking Medicaid assistance cannot simply transfer assets like a house to his or her children to shield these assets from consideration, there are limited exceptions.

In New Jersey, a Medicaid applicant can transfer his or her equity interest in a home where he or she resides (or resided before entering a nursing home) to:

  • A child under the age of 21
  • A child of any age who is blind or permanently disabled
  • A brother or sister who already had an equity interest in the house and who has resided in the house for at least one year before the applicant entered the nursing home
  • A child who has resided with and provided care to the applicant for at least two years, thereby permitting the applicant to remain at home

Each exception comes with particular restrictions though, and you must be certain that you adhere to these restrictions to ensure that the transfer does not result in a penalty period. Before taking any actions, make sure that you understand the full consequences; speak with a knowledgeable elder law attorney.