Several years ago, after I had concluded an elder law presentation, an attorney in attendance approached me and recounted a conversation he had with the Director of Social Services for the nursing home where his mother was admitted (he was also a member of the Board of Directors for said nursing home). The Director explained to him that because his mother (a widow) had $500,000 in non IRA/retirement savings, she needed to pay the nursing home privately ("spend down") until she had no more than $14,000 in savings. He was further advised that only then would his mother be eligible for Medicaid. The attorney also told me that his mother had already expended $150,000 of the $500,000 on her care at the nursing home.
Sadly, even an attorney and his family can become victims of misinformation about the options available to a parent or loved one in a nursing home. This misinformation is often dispensed by non-attorneys, such as the Director of Social Services mentioned above, or those working in non-attorney firms that process Medicaid applications, who may be unfamiliar with all of the planning options available.
The fact pattern above is a classic example of a case requiring the implementation of a Medicaid crisis plan by a highly experienced elder law attorney. If and when a single individual (no spouse, divorced or widowed) needs to enter a nursing home for long term care, and he or she has assets or resources which are significantly greater than the amount permitted for Medicaid nursing home eligibility, the implementation of a Medicaid crisis plan is often the most logical and financially prudent option available.
In the simplest of terms, a crisis plan is a plan wherein, immediately prior to the filing of a Medicaid nursing home application, approximately 40-50 percent of one's assets are gifted to children and/or other loved ones. At the same time, the balance of one's assets are transferred to the same children and/or loved ones that received the gift of assets, in consideration of a promissory note or annuity agreement signed by the children or others in favor of the Medicaid applicant. The promissory note or annuity must comply with the requirements of the Deficit Reduction Act of 2005 (DRA). The transfer is a loan that will be repaid during the period of ineligibility for Medicaid described below.
Once the gift and loan has been made, the application for nursing home Medicaid is filed. Because a gift (uncompensated transfer) has been made, the application will be denied and Medicaid will calculate the period of ineligibility created based on the dollar value of the gift. For example, if the applicant has $500,000 of resources and makes a gift of $250,000, in Westchester County, said gift, utilizing the divisor of $11,768 per month (the Medicaid regional nursing home rate for the Northern Metropolitan region), would create a period of ineligibility for Medicaid nursing home of 21.24 months. Thus, the Medicaid applicant would have to privately pay for nursing home care for 21.24 months. Said payments will be made by using the applicant's monthly income, such as social security and/or pension along with the funds transferred pursuant to the promissory note being repaid to the applicant. This calculation requires a variety of factors to be considered, such as the private pay cost of the nursing home, the monthly income of the applicant and an actuarial calculation of the promissory note and/or annuity payment to be made during the period of ineligibility for Medicaid. The amount paid to the nursing home must always be less than the nursing home's private pay rate, pursuant to Medicaid regulations.
Once the ineligibility period imposed by Medicaid has expired, the Medicaid application is brought up to date and resubmitted, and the applicant will then be approved for nursing home Medicaid. Implementation of a Medicaid crisis plan allows the protection of approximately 40-50 percent of the Medicaid applicant's savings. In some cases, it can also protect significantly more, if the applicant for Medicaid does not survive the period of ineligibility created. If the potential applicant is married, spousal refusal is normally the best option.
Thus, as can be seen from the above, the implementation of a Medicaid crisis plan, when possible, is an extremely valuable tool in helping to prevent the unnecessary dissipation of all of one's life savings in the event nursing home care is required. However, if one has engaged in Medicaid asset protection planning significantly in advance of needing nursing home care, the ability to shelter and protect virtually all of one's life savings from the cost of care is even more likely. Planning well in advance of needing care is still the best course of action.