Long Term Care Partnership
Medicaid Spend Down: What It Is, What It Means, and How to Mitigate It.
A blog by Daniel Brookman of Stolly Insurance
Long-term healthcare which involves services not covered by Medicare or any Medicare supplement plans such as: personal or custodial care, in home healthcare, assisted living, or skilled nursing home care is a growing problem in this country. The Medicaid program, which does cover long-term care expenses, and is the single largest payor of these costs accounting for about half of all long-term care expenditures, requires some very strict provisions be met before picking up the bill. To help combat this increasing threat to the public coffers, the government has created a Long-Term Care Partnership Program that is a Federally-supported, and state operated initiative designed to protect one’s assets from the Medicaid spend down process. We’re going to start by offering some background on what Medicaid spend down is, how it works, and what the partnership program offers participants.
What is the Medicaid spend down process anyways?
When an individual has too many assets, generally anything over $2,000-$3,000, the excess must be “spent down” in order for that person to qualify for Medicaid. This is known as the impoverishment process. However, there are both countable and noncountable assets. Countable assets include: cash, bank accounts, annuities, retirement accounts, securities, second vehicles, and any real estate not acting as a primary residence. Noncountable assets include items such as: jewelry, household furnishings and appliances, one vehicle, primary residence*, and other personal property.
For example: Karen is 81 years old and lives in a state where the asset limit for Medicaid as a single person is $2,000. Her countable and noncountable assets are below.
|Furnishings & appliances||$8,800||X|
If Karen applies for Medicaid her noncountable assets totaling $91,450 will be disregarded, however the $124,000 of countable assets is above the $2,000 limit to qualify for Medicaid so Karen would have to first “spend down” $122,000 of her countable assets down before Medicaid would start paying for her care.
These rules do change when a spouse is involved to prevent impovershing the community spouse (spouse not applying for Medicaid). The community spouse resource allowance, or CSRA is set by the Federal government and the states are required to conform to it. The community spouse is allowed to keep 100% of assets up to the minimum of $24,180** and 50% of assets up to a maximum of $120,900**. So for example in a state where the maximum amount of assets to qualify for Medicaid was $2,000 and a couple has countable assets of $210,000 we could caluclate the amount of assets the community spouse would be allowed to keep like this.
Couple’s total countable assets = $210,000
Minus the CSRA maximum – $105,000
Minus the retention allowance – $2,000
Excess countable assets = $103,000
In this scenario the community spouse would be allowed to keep 50% of the couples total assets because it is under the Federal limit of $120,900, but the remaining countable assets would be subject to the spend down process. If 50% of the couples total assets exceeded $120,900, that amount would be included in the countable assets as well, but at the same time if they had less than $24,180 in combined assets the community spouse could keep the entire amount of countable assets up to $24,180.
It is important to note that some states allow the community spouse to keep 100% of the total assets up to the Federal CSRA limit of $120,900. In a state like this the community spouse would be allowed to keep $120,900 of the $210,000 of total assets.
What about income impoverishment?
Income impoverishment works the same way as asset impoverishment meaning that there is countable income like: salaries and wages, Social Security benefits, pension, alimony, child support, interests and dividends, or rents as well as noncountable income like: welfare, food stamps, housing subsidies, or earned income tax credits just to name a few. Virtually all of an individual’s countable income exceeding maybe a $40 per month personal allowance has to go toward paying for long-term care services. However, the community spouse can keep all of their own income or income that is payable to the couple jointly in order to avoid spousal income impoverishment.
How can Long-Term Care Partnership Help?
When you buy a long-term care insurance policy and it is partnership eligible in your state, you’re able to turn a portion of your countable assets into noncountable assets for the purposes of qualifying for Medicaid. Your countable assets will be protected dollar for dollar for the total amount of long-term care insurance benefit you used before applying for Medicaid.
For example: Susan purchased a long-term care insurance policy that is partnership eligible in her state with a total policy benefit amount of $145,000. Because her policy was required to have inflation protection to be partnership eligible, by the time Susan needed to use her policy her benefit had grown to $292,000. Susan’s assets after she exhausted all of her long-term care benefit and needed to apply for Medicaid are below.
|Furnishings & Appliances||$12,900||X|
|CD at the bank||$50,000||X|
So if we take Susan’s countable assets of $328,000 this is what typically would have to be spent down before she could qualify for Medicaid, but since she purchased a partnership eligible long-term care insurance policy these assets are disregarded up to the amount she used in long-term care benefit which in our example was $292,000. Therefore, Susan only has $36,000 in countable assets ($328,000 – $292,000 = $36,000) for the purposes of qualifying for Medicaid preserving $292,000 of her assets from the impoverishment process.
What should I do next?
If you’re anywhere between the ages of 45 to 65 and you haven’t discussed how to deal with non-reimbursed healthcare expenses in retirement you should consult with a professional to evaluate all of your options and see how one of these policies might fit into your retirement picture. Here at Stolly Insurance we are staffed with knowledgeable and friendly agents who can walk you through the process of determining what coverage is right for you.
*In order for a primary residence to be noncountable it must not have an equity interest exceeding $500,000-$750,000 depending on the state, but may still be uncountable if certain individuals remain in the home such as: spouse, children under age 21, blind children, or permanently disabled children.
**$24,180 and $120,900 are 2017 minimum and maximum limits and may be adjusted in the future to reflect cost of living changes.