One out of every two people will require long-term care.
When planning for the reality 50 percent of us will require long-term care, and possibly Medicaid assistance, it is critical to understand how the Department of Social Services examines the look-back period associated with each application.
Under current rules, Medicaid applicants for long-term care assistance in Connecticut cannot have assets in excess of $1,600 in order to qualify for Medicaid benefits.
A married couple who are both receiving long-term care in a nursing home may each have up to $1,600, or $3,200 total.
When only one spouse is receiving long-term care (called the "Institutionalized Spouse" by DSS), he/she may keep up to $1,600, while the healthy spouse (called the "Community Spouse" by DSS) may keep one-half of the assets, up to $113,640 for 2012.
For example, if a married couple has a total of $200,000 in assets, the community spouse may keep one-half of the assets ($100,000, in this case) because it does not exceed $113,640, while the institutionalized spouse may keep up to $1,600.
If a married couple has a total of $500,000, the community spouse may keep only $113,640 because one-half of the assets is $250,000 and would exceed the maximum of $113,640.
The institutionalized spouse may keep up to $1,600 in this case as well.
Once an applicant is eligible to receive Medicaid benefits, any income the applicant receives must be spent down on his or her medical care to only $60 per month for 2012, which the applicant may keep as a personal needs allowance.
The personal needs allowance is typically used for hair appointments, cable television and/or telephone services.
When submitting an application to receive Medicaid benefits from the state, the applicant must have spent down his or her assets to $1,600 or less, not including certain exempt assets such as personal items, a prepaid funeral and burial contract, a car worth $4,500 or less in equity, and life insurance not exceeding $1,500 in face value.
The funds used when spending down to the $1,600 asset limit can be spent on anything for value for the applicant.
This simply means the funds cannot be used to make gifts or to transfer assets for less than fair market value (for example, selling your home for $1), without creating what is called a penalty period, which is explained below.
DSS reviews all transactions, including gifts to family members (please note transfers between spouses are exempt transfers), made by an applicant within the appropriate look-back period preceding the date of application for Medicaid.
In 2006, the look-back period was extended from 36 months to 60 months, or five years, for all transfers made on or after that date. DSS will calculate a penalty period during which an applicant is ineligible to receive Medicaid benefits if it discovers gifts or transfers for less than fair market value were made during the look-back period.
The penalty period is determined by dividing the total value of gifts made by the applicant by the average monthly cost of long-term care in the state, which is currently $11,183.
The resulting number represents the number of months an applicant will be ineligible to receive Medicaid benefits beginning with the first month in which the applicant would otherwise be financially eligible to receive Medicaid benefits.
For example, if an applicant made gifts totaling $111,830, the penalty period would be 10 months.
The penalty period begins to run on the date the applicant has spent down his or her assets and would be otherwise eligible to receive Medicaid benefits.
Therefore, once the applicant has less than $1,600 in assets, the applicant would be ineligible to receive benefits if a penalty period exists.
The applicant must wait until the penalty period expires for all gifts before becoming eligible for Medicaid.
This calculation of the penalty period often forces the recipients of gifts to return the gifts in order for the applicant to have enough resources to pay for care during the penalty period.
If someone plans to make a gift, it is crucial to make sure they either have enough assets to pay for care if they should need it during the next 60 months, or five years, or the recipient(s) of the gifts will be able to return it if the need for care should arise within five years.
If a gift were to be made in September 2012, that person would be able to apply for Medicaid in September 2017, if he/she meets all of the asset requirements and it is a medical necessity.
Given the 60-month look-back period will be with us indefinitely, it is important to plan for the future with the next five years in mind.
If you are considering gifting any assets, you should do so only after carefully evaluating your assets, your health and your goals for the next five years.