What Will Medicare or Medicaid Pay For?

Medicare will pay for a stay in a nursing home of up to 90 days that immediately follows a hospital stay of more than 3 days and focuses on recovery and rehabilitation. Medicare does not, however, pay for custodial or long-term care in assisted-living facilities. Payment for assisted living is usually out-of-pocket, although long-term care insurance may cover nursing home care. Medicare does not pay for any care received outside of the United States.

MEDICAID

Medicaid is a needs-based public assistance program with stringent eligibility criteria and should be viewed as the payer of last resort. Medicaid payment may be available for stays in facilities licensed as nursing homes (if the individual qualifies for benefits) but not assisted- living and congregate facilities. The federal government funds Medicaid but it is administered by states, which have latitude in implementing policy guidelines.

Every state offers multiple Medicaid programs for the elderly and each program has its own eligibility requirements. The Medicaid program has different names in different states. Although there are many variations among states, basic eligibility rules limit both assets and income. As a rule of thumb, liquid assets may not exceed $2,250 ($3,000 for couples in most states) and income may not exceed a capped amount or must be spent down on medical needs.

Per federal guidelines, home equity of $636,000 or more disqualifies an individual for Medicaid benefits. States have the option to set a higher home equity limit of $955,000 and California has no limit for married couples.53 Fortunately, the equity in a senior’s home is exempt if a spouse or minor or disabled child resides in the home Because a home with less than the allowable amount of equity is a non-countable asset, a senior might be able to reduce countable assets by transferring value into the home, such as paying off outstanding home loans, buying a larger home, or paying for repairs or renovations. Payments from a reverse mortgage do not

necessarily disqualify a Medicaid recipient, but any income must be spent in the month in which it is received; the remainder is considered a liquid asset. If at any time the recipient accumulates $2,000 or more in liquid assets, eligibility can be lost.

MEDICAID LOOK BACK

A person cannot immediately qualify for Medicaid by transferring or gifting assets to someone else, such as a child, because there is a five-year look- back period for eligibility.54 A real estate professional should make clients aware of this look-back provision if they, or their loved ones, are selling to enter a nursing home and expect Medicaid to cover the expense. In most states, Medicaid will not kick in until all liquid assets are spent down.

MEDICAID ESTATE RECOVERY

Federal law requires states to recover payments made to Medicaid beneficiaries for nursing home facilities, home care, and related hospital and prescription drug expenses. States also recover payments made to permanently institutionalized individuals.

Medicaid recovers expenses through two types of liens:

• Estate recovery lien placed on the property of the deceased
• Tax Equity and Fiscal Responsibility Act (TEFRA) lien placed on the property of a living beneficiary

When a Medicaid recipient dies, the state files a claim in probate court. Surviving heirs are not required to use their own funds to repay the debt owed to the state; however, if the home is subject to an estate recovery lien, the heirs may want to use their own funds to pay the Medicaid claim and keep the home. States are required to waive recovery of expenditures if it would result in undue hardship or impoverishment of the spouse or heirs— for example, when a family farm is the sole income-producing asset of the survivors.

Regulations on the use of Medicaid cost recovery vary widely from state to state. It is important for the real estate professional to be aware of state regulations when working with a client who anticipates selling a home before moving into a care facility and plans to apply for Medicaid benefits. The seller or family would also be wise to consult with an attorney specializing in elder care issues.