It is not unusual for individuals to apply for Medicaid and discover that they own too many assets or have too much monthly income to meet the eligibility requirements. Medicaid is a need-based government program, meaning that your assets and income have to be below a predetermined limit in order for you to be eligible to receive Medicaid benefits.
Federal and state laws have established the eligibility criteria for Medicaid. In Colorado, to be eligible for Medicaid, a single person must have less than $2000 in assets and no more $2313 in monthly income. A married couple must use a specific formula to determine how much of their assets they can keep.
You may be required to "spend down" a portion of your assets before you are eligible for Medicaid. Spending is a way of reducing the value of your assets so that you can become eligible for Medicaid. There is a misunderstanding that the only method by which you can reduce the value of your assets is to spend them on the medical care of the Medicaid applicant. However, in reality, there are many ways to spend that do not involve paying medical expenses.
What Does Spending Down Your Assets Mean?
Spending down your assets simply means reducing the amount of assets you own in order to qualify for Medicaid. One of the biggest misconceptions people have is that you have to go broke in order to qualify for Medicaid. But this is simply not true.
There are many ways to qualify for Medicaid benefits quickly, while legally sheltering your assets from Medicaid spend down. This is perfectly legal and does not involve hiding anything from the Medicaid agency.
Proper Medicaid planning must be done lawfully and with consideration for both federal and state-specific Medicaid rules and laws. So, while federal guidelines may say one rule applies, it is very important to know what your state's rule have to say with reference to those federal Medicaid rules.
Your assets must also be under a certain limit to qualify for Medicaid. In Colorado, the asset limit is $2000. Having assets above the limit does not mean that a person cannot become eligible for Medicaid benefits because certain assets are exempted or not counted towards the asset limit. After considering non-counted assets, if a person's assets exceed $2000, then they will have to spend down their assets to qualify for Medicaid. However, asset spend down must be done with caution because there is a look back period for reviewing past transfers. During this look back period, if a person sold or gifted assets for less than fair market value, then a period of ineligibility will be applied.
Income Spend Down
Colorado Medicaid applicants must have monthly income of less than $2313 per month in order to become eligible for Medicaid. If a person's income exceeds this qualification limit, he/she can still qualify via spending down. This option is called the "Medically Needy Pathway" in many states. It may also be be know as Excess Income, Surplus Income, Share of Cost, or Spend Down. Whatever be the name, the program allows Medicaid applicants to income above the $2313 limit on expenses and medical bills, like prescription medications, medical charges, doctor's appointments and health insurance premiums. So long as all income above the limit is spent on these medically necessary expenses, they will become eligible for Medicaid after a "spend down period" of between 1 and 6 months.
Not every asset you own is counted toward the $2000 assets limit. It is crucial to know which assets are countable and which are non-countable before applying for Medicaid because if you are above the limit when you apply, it may be much more difficult to qualify than if you had taken action before you applied.
Non-Countable assets are exempted or not counted towards asset limits. Non-countable assets include the primary home of the Medicaid applicant or their spouse. Certain states allow "return home intent" which means you intend to return home after your nursing home stay. Medicaid considers this intent because the program wants to ensure you have a home you can return to. However, for exemption purposes, there is a limit on the equity value of your home. The equity value is a home’s value minus debt against it. As of the writing of this article, the equity value cannot be more than $ 595,000 or $893,000 depending on the state. However, there is no limit on the equity value if the applicant’s spouse lives in that home. Some other exempt assets include an automobile, pre-paid funeral and burial expenses, life insurance policies (max. cash value is $1,500), term life insurance, appliances, household furnishings, personal items, jewelry, and clothing.
Countable assets are counted towards the asset limit and sometimes referred to as liquid assets, meaning assets that can be easily converted to cash. These include bank accounts, cash, and real estate including vacation houses that are not the primary residence of a applicant. Mutual funds, stocks, certificates of deposits, and bonds are also part of countable assets.
Not all assets count when determining eligibility for Medicaid benefits. Many assets are considered non-countable for the purpose of determining Medicaid eligibility, including:
- Your principal residence;
- Personal property;
- Household goods and furnishings;
- One car per family;
- Prepaid funeral and burial policies; and
- A limited amount of cash.
There are also other types of assets that may be considered non-countable. However, these determinations will need to be made on a case-by-case basis and in accordance with the Medicaid rules for the state in which you reside.
Asset Protection Strategies
The following is a list of some of the strategies available to you to shelter your assets from Medicaid spend down. However, your unique situation should always be reviewed by a qualified Medicaid planning attorney to determine the best path for you to take.
Make Allowable Spend Down Payments and Purchases
Some payments for permissible expenses and purchases of non-countable assets can be made to reduce the value of your assets to qualify for Medicaid, for example:
- You can pay your nursing home bills;
- Pay outstanding debt like mortgage payments and credit card bills;
- Pay property taxes, income taxes, and capital gains taxes;
- Pay for home repairs;
- Prepay funeral and burial expenses;
- Pay legal fees and medical expenses;
- Pay travel expenses;
- Purchase a new home;
- Purchase furniture;
- Purchase household goods and personal effects (like TVs and computers); and
- Buy a new car.
Invest in Annuities
Investing a significant amount of money in an annuity for your spouse which guarantees a specified amount of income for a specific length of time, is an excellent approach to spending down assets for married couples.
This is an excellent strategy because your spouse's income will not be counted against you when determining your eligibility for Medicaid. However, the annuity you invest in has to be transferable and your state's Medicaid agency needs to be the primary beneficiary after your spouse passes away.
Pay For Caregiver Services
Many states permit Medicaid applicants to pay for caregiver services, especially when those services will enable the applicant to stay at home rather than in a more costly nursing home. This might also be applicable even if the caregiver is an immediate family member. It should be noted, however, prepayment for these services is not permitted.
Other Asset Sheltering Strategies:
- Converting countable assets like cash and investments into non-countable assets: Some transfers made to a spouse are allowed, as long as they are for the spouse's benefit. Similarly, transfers made to a blind or disabled child are allowed.
- Create Medicaid appropriate income trusts: Trusts made for the benefit of a blind or disabled child, or for the sole benefit of a disabled individual under the age of 65 are allowed.
- Making gifts: It is possible to make appropriate and allowable gifts for the purposes of Medicaid spend down if done properly. But be careful, because if you do this the wrong way you could be ineligible for Medicaid for up to 5 years.
Determine your Asset Limit
Before applying for medicaid, it is important to determine the asset limit as it varies for married applicants and single applicants and from state to state.
Most married couples, when both spouses are applicants, can retain up to $3,000 of the countable assets (combined). However, for an individual applicant, this rule is based on the state in which the applicant resides. The asset limit is also based on the applied Medicaid program.
The standard asset limit for single Medicaid applicants is $2,000 in countable assets, but this also depends on the state of residence.
For More information on Medicaid income and asset spend-down contact our qualified and experienced Colorado trust and estate planning attorneys through the contact link on our website.
Consult with an Experienced Medicaid Planning Attorney
Proper Medicaid planning doesn't have to be confusing or difficult. If you know the rules, apply the appropriate strategies, and try to plan in advance of any sickness or disability, you can qualify for Medicaid. Again, we generally prefer a Medicaid trust to avoid having to spend down all of your hard earned assets. To learn more about the types of trusts available to you, please visit our page on Colorado trusts here.