Overview of Medicaid Eligibility

Introduction

Medicaid is a medical assistance program for those without other means to pay for necessary medical care. Unlike Medicare, Medicaid requires no specific contribution before one is entitled to benefits. Entitlement is based upon need alone.

The administrative structure of Medicaid is also different from Medicare. Whereas Medicare is operated exclusively by the federal government, Medicaid is operated primarily by the states. The federal government, however, reimburses 50-80% of the funds paid out by a state for Medicaid as long as the state complies with requirements in the federal Medicaid statute regarding services, eligibility, estate recovery, and other matters.

The discussion below addresses only federal requirements. If you need more detailed information about your state’s laws, find contact information on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.

Community Medicaid vs. Long-Term Care

Many people think of Medicaid only in connection with nursing home care. Most Medicaid recipients, however, are not older people but rather younger disabled persons and families receiving public assistance. These persons all receive what is called “community” Medicaid benefits.

Medicaid for persons in nursing homes is called “institutionalized” or “long-term care” Medicaid. There are important differences between community Medicaid rules and long-term care Medicaid rules. For example, in all states, the Medicaid program must try to recover what it spends on long-term care benefits from the estate of a recipient after they die. In most states, however, there is no estate recovery for expenditures for community Medicaid.

The rise of home care as an alternative to institutionalization has created an overlap of community and long-term care benefits. Some states now have special programs that allow increased benefits to elders in their homes to avoid the added cost of nursing home care.

Contact your local agency to learn more about what your state may offer for long-term care in the home. If you don’t already have contact information, find it on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.

Financial Eligibility

To receive Medicaid, an individual must prove financial need. This can be done in a couple of different ways.

Disabled persons who receive Supplemental Security Income (“SSI”) and financially needy persons who receive Aid to Families with Dependent Children (“AFDC”) automatically receive community Medicaid. In both cases, qualification is based upon the fact that the individual already has proven financial need by qualifying for either SSI or AFDC. They are considered “categorically needy.”

Those who are not categorically needy must satisfy Medicaid’s separate criteria for poverty. These consist of both income and asset standards.

a) Income

Income standards for Medicaid are based on the Federal Poverty Level. In cases where medical expenses are very high, however (such as nursing home care), individuals whose income exceeds the income standard can qualify for benefits. Financial need exists in these cases because income is inadequate compared to the cost of necessary medical care. Such persons are considered “medically needy.”

Individuals who qualify for Medicaid as medically needy must pay a certain amount of their monthly income toward medical costs before Medicaid becomes available. This is called a “spend-down” or “deductible.” In community cases (i.e., cases other than nursing home care), the amount of the spend-down or deductible is the difference between the individual’s monthly income and 133% of the AFDC income limit for the state where they live.

In Massachusetts, for example, the income limit for AFDC eligibility is approximately $392.50. 133% of this is $522. Therefore, the deductible for community Medicaid in Massachusetts is the excess of the applicant’s monthly income over $522.

In many states (including Massachusetts), the Medicaid deductible is assessed based on a six-month eligibility period. This requires the individual to pay six months‘ worth of deductible before receiving any Medicaid benefits. Once that amount has been paid, the individual receives Medicaid without further deductible for the rest of the six months. At the end of the six months, a new deductible must be met, and so on at six-month intervals.

The deductible for long-term care benefits is calculated somewhat differently. Instead of using the AFDC standard, the state uses a much lower figure, a “personal needs allowance” or “PNA.” This ranges from $30 to $75, depending on your state. (Check out the Bet Tzedek Legal Services chart to see your state’s figure.) Under a special federal law, individuals receiving service-connected Veterans Administration benefits must keep at least $90 per month as a PNA. Still, this provision does not affect other applicants.

Once the PNA is established, the monthly deductible for the individual is equal to all income except the PNA. This is called the “patient paid amount” or “PPA.” Medicaid pays the institution only the difference between the monthly cost of care and the individual’s PPA.

The PPA may be reduced or eliminated if the recipient is married and the spouse has a low income. This is an important rule explained in the Assets for Married Couples discussion.

Unlike community Medicaid, states cannot use deductible periods longer than one month in nursing home cases. The individual will remain eligible for Medicaid each month they pay the PPA to the nursing home.

b) Assets

In most states, Asset standards for community Medicaid and long-term care benefits are $2,000 for individuals and $3,000 for couples. (A few states have different standards. Check out the Bet Tzedek Legal Services chart to see whether your state is one of the exceptions.)

Asset limits for couples are very different in nursing home cases and, in some states, in long-term home-care cases. The recipient’s spouse can keep part of the couple’s assets for their financial security, up to a maximum of $79,020, or even higher in low-income cases. To learn more about how assets are counted for married couples, visit our Assets for Married Couples page.

There also are rules that determine whether particular assets are countable or not. A home, for example, is not countable for purposes of Medicaid eligibility. The same property would be countable if it were an investment property instead of a personal residence. For more information about countability, go to our Countable Assets page.

Penalties

Depending upon local state rules and the kind of care needed, an individual may be disqualified from receiving Medicaid benefits for some time if they gave property away to anyone other than a spouse to meet the Medicaid asset limits. This period of ineligibility is called a “transfer penalty” or simply a “penalty.” It means that even if the individual meets all the eligibility criteria, he or she cannot receive Medicaid benefits until the penalty is over.

Asset transfers to qualify for nursing home benefits are subject to penalties in all states. Transfers to qualify for community Medicaid (including assisted living, home care, and other long-term options outside of a nursing home) may or may not be subject to penalty, depending upon the local state rules. Regardless of the kind of benefits requested, each state has unique regulations for determining how long the penalty lasts and exactly what types of transfers of assets incur a penalty.

The principal behind Medicaid penalties is to deny benefits in proportion to the amount of time in a nursing home that would have been paid for by the gift. This is done by coming up with an average daily cost of care in a nursing home and dividing the gift by that figure:

In Massachusetts, the state has set the “average daily cost of care” at $150 per day. If someone gives away $150,000 in Massachusetts, they will be denied Medicaid nursing home benefits for 1,000 days: $150,000 ÷ $150 = 1,000 days.

After the penalty is over — in the above example, after 1,000 days — the individual will not be denied Medicaid anymore, even though they gave away property.

Penalties start when the person transfers the property, not when they enter the nursing home. Thus, if the person in the example above does not enter a nursing home for 1,000 days after making the gift, they would not be denied Medicaid benefits because of the transfer.

a) Medicaid Planning

The ability to wait out Medicaid penalties has given rise to a law specialty known as “Medicaid planning.” Medicaid planning is a form of asset preservation that seeks to avoid the loss of homes and estates to pay for nursing home care by transferring such property to heirs without losing future Medicaid eligibility. Such planning has come under increasing political attack in recent years despite the continuing need to protect middle-class estates from being destroyed by medical costs associated with long-term care.

An increase in Medicaid planning has caused numerous changes in the law that have toughened penalties and increased the financial risks to those who do not know the Medicaid laws extremely well. Unfortunately, while lawyers who practice Medicaid planning are one of the chief targets of the political attacks upon such practice, tougher laws have increased the pressure on individuals to obtain knowledgeable legal counsel in such matters.

As a result of the above facts, ElderNet takes the position that competent legal counsel is extremely important for any individual contemplating any asset transfer with the expectation of later qualifying for Medicaid. This is so whether or not Medicaid nursing home benefits are the primary reason for the transfer of assets.

b) Penalties for Married Persons

Property transfers by married persons affect both the donor and their spouse. If the husband gives away his separate property, and the wife needs nursing home care during the penalty period, she will be denied Medicaid benefits and vice versa. The couple is treated as a single financial unit when either applies.

Transfers between spouses, however, do not incur a penalty. The reason for this rule is that the assets of both spouses will be counted for purposes of any future Medicaid application by either of them. Thus, the gift to a spouse does not remove the asset from being counted, and there is no reason for a penalty.

Medical Eligibility

In addition to financial eligibility requirements, penalties, and look-back periods, the Medicaid program has a medical screening system to ensure that only “necessary and reasonable” medical care is paid for. Some aspects of this system operate similarly to the limits imposed by Medicare and private insurance, consisting of detailed lists of covered and non-covered medical treatments.

In long-term institutionalized care cases, the medical screening process focuses on clinical thresholds to determine whether the individual needs the high level of services provided in nursing homes. An individual who would benefit in some respects from nursing home placement but who does not meet the threshold requirement for institutionalized care under Medicaid will be denied benefits in such a facility. Thus, to obtain nursing home benefits from Medicaid, individuals must show that they are both financially and medically needy enough to require such assistance.

Other Restrictions and Requirements

In addition to the general requirements discussed here, many other specific rules and regulations determine whether a particular individual is eligible for Medicaid. Some of these rules are set by federal law, and some are set by the state where the applicant lives. Contact your local agency for more information about your state’s Medicaid eligibility rules. If you don’t already have contact information, find it on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.

The Medicaid Application

Because financial limitations are so important to Medicaid eligibility, applying can be complicated. The application process, which may take from weeks to months to complete, allows the state agency to scrutinize the potential recipient’s income and assets to see whether he or she is sufficiently needy to qualify for benefits. In long-term care cases, medical screening also is done at the application stage, and the individual is investigated for past transfers of assets.

The first step in any application is to be certain that the agency understands whether the applicant is for community Medicaid or long-term care benefits, as explained above. Some states use completely different forms for institutionalized and community-based applications. Others simply provide boxes to mark on a unified form. Check with your local Medicaid agency to find out the rule in your state.

a) Application for Nursing Home Benefits

An application for nursing home benefits may require extensive documentation of financial transactions for 36 months (or, in the case of trusts, 60 months) before the application date. The required documentation may include all bank account activities, investments, real estate purchases or sales, gifts of money or assets, retirement savings plans, insurance policy transactions, or other financial activities during the prior period.

One thing that consumers can do to address the documentation problem is to begin keeping all financial records for at least five years. Having the necessary statements on hand at the time of a Medicaid application can be a huge relief, saving weeks in the application process.

b) OBRA-93

Changes in federal law enacted in the Omnibus Budget Reconciliation Act of 1993 (OBRA-93) substantially increased the risk of disqualification for individuals who apply for Medicaid nursing home benefits without a detailed understanding of Medicaid law. One important amendment was the removal of the cap on Medicaid penalties. Another was to begin treating the filing date of the first application submitted by an individual as a “baseline application date.”

The combined effect of the above changes exposed unwary applicants to the risk of penalties much longer than the 36-month or 60-month wait that they might have expected. Under the new law, a trivial error in the timing of the original application — that is, filing it a single day too soon — now can result in years of additional disqualification from nursing home benefits if the applicant or their spouse transferred large amounts of assets before the application date. There is no equality of treatment for similarly situated individuals under this new law, and mistakes can be devastating.

To better understand what it is like to apply for Medicaid benefits, contact your local Medicaid office and request an application form. There, you will see exactly what is required of you, and you can get an idea of how difficult it may (or may not) be to complete an application. If you don’t have contact information for your state, find it on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.

Most lawyers specializing in Medicaid law can assist with Medicaid applications. If assets have been transferred in recent years, or if there are any unusual circumstances regarding assets or income, qualified counsel may be indispensable at the time of an application.

Estate Recovery

“Estate recovery” refers to state laws that allow the state Medicaid agency to file a claim against the estate of an individual who received benefits during their lifetime. The amount of such a claim is the amount spent on that individual’s care by the program.

In light of the extremely low asset limit for Medicaid eligibility, the only assets of value that a Medicaid recipient may have at death are those not counted for purposes of Medicaid eligibility. Of all such assets, a personal residence is usually the only one of significant value; thus, as a practical matter, estate recovery concerns the treatment of the personal residence after death.

To assist with recovery against the personal residence, many states impose a lien on the property while the recipient is alive. Each state has its procedure for liens. Check with your local agency to learn more about whether your state has such a policy and what it may be. If you don’t have contact information for your state, find it on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.

Federal law requires states to pursue estate recovery in all institutionalized cases, and it also allows estate recovery in community cases. OBRA-93 expanded the scope of estate recovery to include a non-probate property at the state’s option, such as life estates, jointly-held interests, and property in trust. However, only a handful of states have sought to expand estate recovery beyond the probate estate. Of these, only one or two have successfully done so. To find out the status of estate recovery in your state, check with your local agency. If you don’t have contact information for your state, find it on the State Medicaid Toll-Free Lines page of the Health Care Financing Administration website.