Medicare gets a lot of news coverage, but its cousin Medicaid remains something of mystery to most people. The Medicaid program is the largest single source of funding for nursing home care in the U.S., but there are many myths about exactly who qualifies for it and what coverage it provides. Here are five common misperceptions, followed by the real story:
1. I don’t have to worry about Medicaid, because Medicare will cover all my nursing home expenses.
Actually, Medicare’s coverage for nursing homes is quite limited. Medicare covers only up to 100 days of skilled nursing care per illness. That means that after about three months, Medicare’s coverage runs out.
Further, to qualify for Medicare, you must enter a Medicare-approved facility within 30 days after a hospital stay, and the hospital stay must have lasted for at least three days. And the care in the nursing home must be for the exact same condition as the hospital stay.
2. I can’t qualify for Medicaid unless I’m broke.
Medicaid is designed to help needy but deserving people to pay for long-term care, but you don’t have to be completely destitute to qualify. In general, Medicaid applicants can have no more than $2,000 in “countable assets” in order to be eligible, but this figure is higher in some states and there are a number of important assets that simply don’t count toward this limit. For example, your home generally won’t be considered as an asset if your home equity is less than $543,000 – and this year, states have the option of raising that limit to $814,000.
Further, there’s no limit at all on your home equity if your spouse is living in the home, or if you have a child living in the home who is under 21 or disabled.
In addition, your spouse can keep one-half of your joint assets, up to $117,240 in some cases.
3. The best way to qualify for Medicaid is to transfer assets to my children.
It’s not so simple! Although you could give away a lot of assets in order to try to qualify for Medicaid, the law imposes a penalty on people who transfer assets without receiving fair value in return.
Basically, when you apply for Medicaid, the state will look back at any such transfers you’ve made over the last five years, and impose a penalty in the form of a period of time in which you’re ineligible for benefits. The length of this period is determined by how much you gave away – the more you gave away, the longer you’ll be ineligible.
However, there are exceptions to this rule. For example, you can generally transfer money to your spouse without incurring a penalty.
4. If I signed a prenuptial agreement saying that certain property belongs only to my spouse, then it won’t count as an asset of mine in determining whether I’m eligible for Medicaid.
Not necessarily! A prenuptial agreement only works to keep property separate in the event of a death or a divorce. What property “counts” for Medicaid purposes is determined by Medicaid law, and this law trumps what’s written in a prenuptial agreement.
5. I can give up to $14,000 a year to each of my family members without incurring a Medicaid penalty.
Unfortunately, that’s not true. You can give away up to $14,000 a year to anyone you want without incurring a gift tax or having to file a gift tax return. But under Medicaid law, a gift of $14,000 (or any other significant amount) could still trigger a penalty if it was made within five years of the time that you apply for Medicaid benefits.
As you can see, Medicaid can be an important part of planning for long-term care, but the rules are very difficult to navigate on your own. If you’re considering long-term care options, it’s critical to consult first with an elder law attorney.