Given the rising costs of care for seniors, it’s no surprise so many Americans are turning to government assistance programs like Medicaid for help. While Medicaid is extremely useful for covering nursing home costs, the program has very strict income and asset restrictions. Furthermore, state Medicaid programs heavily scrutinize purchases and asset transfers in the years preceding an application for Medicaid, so you have to be very careful in the years leading up to your application for benefits.
If you are contemplating applying for Medicaid in the next five years, it’s important you have a spend down plan to ensure you meet the qualification standards without risking ineligibility or transfer penalties.
Medicaid Spend Down Rules and Gifting
Before you’re eligible for Medicaid benefits, you’ll need to “spend down” your assets to the point that you have a demonstrable need for government assistance. However, Medicaid imposes strict rules on what you can and cannot spend assets on in the process of spending down. Failure to heed these rules may result in disqualification for program benefits.
Some popular examples of exempt assets and services that you can pay for in the process of spending down assets for Medicaid include:
- Prepaying for funeral expenses (referred to as pre-need contracts)
- Paying off debt, such as a home mortgage, credit card balance, or car loan
- Paying for home repairs (e.g. making the home handicap accessible, replacing flooring, fixing the roof, repairing the foundation, etc.)
- Replacing an old vehicle
- Purchasing personal items like clothing, furniture, electronics, etc.
- Paying for medical care and equipment that isn’t covered by Medicare or Medicaid, such as a visit to the dentist or eye doctor
- Paying for in-home care (note that you may pay a family member to provide in-home care, but you should formalize the agreement in writing and document your payments)
- Purchasing a new home
Note that gifts and donations are not included on this list. To prevent seniors from gifting assets to family members or trusts in order to avoid spending down assets, Medicaid programs don’t allow gifting non-exempt assets within five years of applying for Medicaid. Breaking the gifting rule results in a transfer penalty, a period of time during which you cannot apply for Medicaid benefits.
There are only four exceptions when it comes to gifting for Medicaid spend down:
- You may transfer assets to your spouse
- You may transfer assets to a child who is permanently disabled or blind
- You may transfer assets to a trust for whom the sole beneficiary is younger than 65 and permanently disabled
- You may transfer your home to a child who is under 21; to a child who has lived in the home for at least two years prior to your moving into a nursing home, and who provided you with care that allowed you to live at home during that period; or to a sibling who has an existing equity interest in the home and who lived there at least a year before you moved into a nursing home
Given the implications of improperly using or transferring assets, it’s important to meet with an experienced financial planner to create a spend down plan for Medicaid benefits. If you have substantial assets or a complex estate plan that requires gifting (notably gifting to minimize estate taxes), you should also discuss your plans with an experienced attorney.
How Much Money Can You Have in the Bank to Qualify for Medicaid?
Medicaid spend down requirements vary from state to state. In Arizona, you must have $2,000 or less to qualify for Medicaid benefits. Individuals who have more than $2,000 would be required to spend down their assets until they meet the qualification threshold.
This question is often accompanied by another one — does Medicaid actually check your bank account? The short answer is no, the case worker usually won’t check your bank account balance. However, in the long run, rest assured that any assets you fail to properly disclose to Medicaid will come to their attention.
How? For starters, Medicaid employs a strict audit system with supervisors who check your application and documents. Should a supervisor come across any red flags, they’ll launch a full audit to ensure you’re not defrauding the government.
Second, all financial institutions (including your local bank) report account information to the IRS and state revenue departments. The government may not move very swiftly and have difficulties when it comes to inter-agency cooperation, but at some point your undisclosed bank account will catch someone’s eye.
Medicaid Spend Down Exemptions
When applying for Medicaid benefits, the state Medicaid agency is primarily concerned with your liquid assets (property that can quickly be turned to cash). In determining your eligibility, the agency considers the following countable (non-exempt) assets:
- Bank accounts (checking, savings, money market, CDs)
- Retirement accounts (IRA, Roth IRA, 401k)
- Investments (stocks, bonds, mutual funds, brokerage accounts)
- Real estate other than your primary home (vacation homes, condos, land)
While determining your countable assets for Medicaid is certainly a nitpicky process, there are a number of exempt assets that you don’t need to worry about. These include:
- Your primary home
- Your primary vehicle
- Pre-need funeral contracts
- Term life insurance policies
- Permanent life insurance policies with a combined cash value of $1,500 or less
- Home furnishings and appliances
- Personal items, including jewelry and clothing
Note that in case of primary home, there may be a limit on the home equity value. If the applicant or the applicant’s spouse don’t currently live at home, the value cannot exceed $585,000 – $878,000 (depending on state limits). However, as long as the applicant’s spouse lives at home, there is no equity limit.
How to Qualify for Medicaid if You Have Assets
The income and asset restrictions for Medicaid are s. Unfortunately, if your asset value exceeds $2,000 or your income level exceeds the state limit, your application will be denied. Your only option is to spend down your assets and manipulate your income (lawfully) until you qualify.
There are online guides for creating a spend down plan, but this isn’t something you should attempt on your own. Even the simplest mistake can result in a transfer penalty that renders you ineligible for benefits for a period of time — even if you legitimately run out of assets during the penalty period.
Get Help With Your Arizona Medicaid (ALTCS) Needs
In Arizona, the medicaid program is referred to as ALTCS (Arizona Long-Term Care System). The ALTCS benefit has strict financial and medical eligibility requirements, as the benefit is intended to be used to help families afford costly medical and long-term care bills. While it is possible to apply on your own, it is highly recommended that you work with a long-term care professional in order to navigate this complex system. The experienced elder law team at JacksonWhite can make the process of long-term care easier for Arizona families.