Medicaid and the LGBT Community: Paying for Long-Term Care
June 2011 | Arlene Zarembka
The eligibility rules for Medicaid are complicated, and can contain traps for the unwary. This article provides an overview of the rules that apply to those in the LGBT community who might need Medicaid, particularly those who might need long-term care in a nursing home. The following article is directed at single persons, unmarried partners, and married same-sex spouses who live in states that do not recognize their marriage (i.e. who treat the married same-sex spouses as "unrelated" to each other). The Medicaid rules for individuals and same-sex couples who are treated by a state as "unrelated" are quite different from those that apply to opposite-sex married couples and to same-sex married couples whose marriages are recognized by their state. Because of the rapidly changing legal landscape for same-sex couples in the United States since the June, 2013 Windsor decision, be sure to consult with an attorney knowledgeable about the Medicaid rules in the state where you live before transferring or gifting any of your assets to your spouse/partner, or anyone else.
Difference Between Medicare and Medicaid
Medicare and private health insurance do not pay for long-term custodial care, whether in a long-term care facility or at home. Medicare pays only for limited rehabilitation services, whether in a nursing facility or at home. Those needing long-term custodial care in a nursing home must pay nursing home costs from their own income and assets (or with the help of Long-Term Care Insurance policies).
Medicaid does pay for long-term custodial care for eligible applicants, but only if the applicant is in a "Medicaid bed." Not all nursing homes have Medicaid beds, or, even if they do, their Medicaid beds may be filled. If an individual's monthly income exceeds the monthly nursing home cost, s/he will not be eligible for nursing home Medicaid. However, few people have sufficient monthly income to pay for nursing home costs, and must use their assets to cover the monthly shortfall.
Applying for Medicaid: Your Assets
Many people living in a long-term care facility eventually run out of sufficient assets to continue paying the monthly costs. At that point, a person can apply for Medicaid, which is available to help pay the costs of long-term residential nursing care for those who are disabled, blind, or (in most states) over 65 years of age, and who have very few assets and limited income. Some states, however, have a cap on the amount of monthly income an applicant can have, even if that income is not sufficient to pay for long-term care facility charges in the community where the applicant lives.
When applying for Medicaid benefits, the applicant must list all assets, including jointly owned accounts and property. S/he also must report any gifts or transfers of money or property, and any property sales, made within the preceding five years. Lying on the application is a crime.
After qualifying for Medicaid benefits, the applicant must pay virtually all of her or his income to the nursing home; Medicaid pays the rest.
Each state limits the amount of assets that a person who is medically eligible for Medicaid can own. An applicant's "countable" assets cannot exceed the maximum set by the state in which s/he lives, which ranges from a low of $999 to a "high" of $13,800 for eligibility for Medicaid nursing home benefits.
There are, however, some assets that are not counted in determining an applicant's assets. The most common exemptions include the following:
- Home: In some states the exemption applies to the applicant's home if the applicant intends to return to the home (even if the intent is unrealistic). In other states, the exemption applies only if the applicant reasonably can be expected to return to the home within six months. The home also is exempt if the applicant's spouse, minor or disabled child, or child who was providing care for the applicant, continues to live in the home. As noted later in this article, the home is not exempt for same-sex spouses, even in states where such marriages are legal.
- One vehicle per household.
- All household goods, furnishings, and personal effects (except items of unusual value).
- Prepaid burial plots, including costs of the casket, headstone, and opening, closing, and lining the grave; or a whole life insurance policy with a face value of no more than $1,500; or up to $1,500 for irrevocable funeral arrangements.
- Some other exemptions might apply, depending on the state and other factors.
Transferring or Gifting Assets
In general, a person cannot give away money or other assets in order to qualify for Medicaid long-term care benefits. Transferring assets or giving money to another person can result in a substantial delay in eligibility for Medicaid benefits. Do not transfer or give away any of your money or assets to anyone else (including your partner) until you have consulted with an attorney to determine the possible consequences of such a transfer or gift.
If, within the five years preceding an application for Medicaid for long-term care, the applicant gives away or transfers any money or property to another, or sells any property for less than its fair market value, the applicant usually will be ineligible for Medicaid nursing home benefits for a period of time, even if s/he no longer has sufficient income and assets to pay for nursing care. The period of ineligibility (called the "penalty period") will start when the applicant is medically eligible for and applies for Medicaid. The penalty period is calculated based on the value of money or property transferred or gifted (or the value of property sold for less than its fair market value) during the five years before the Medicaid application. A common misconception is that person can "gift" $13,000 per year to another person without any adverse Medicaid consequences–this is not true. The tax ramifications, or lack thereof, of gifting money to someone are completely different than the Medicaid restrictions.
In most states, the five-year "lookback" includes transfers of money, financial accounts, real estate, or other assets to the person's same-sex spouse, or to a same-sex or other-sex domestic partner. Kathleen Sebelius, Secretary of Health and Human Services, recently announced, however, that the Centers for Medicare and Medicaid (CMS) will be notifying states that they have the option to treat same-sex domestic partners in the same manner as opposite-sex spouses with regard to transfers of assets between domestic partners. Since some states now recognize same-sex marriages or domestic partnership, one or more of those states, as well as some other states, might decide to apply some or all of the asset rules that married heterosexual couples can use to same-sex couples. All assets belonging to either spouse in a married heterosexual couple are considered available to the Medicaid applicant; either spouse can transfer assets to the other spouse without penalty. To avoid impoverishing the spouse who remains living at home in the community, there are procedures that allow the assets to be divided in a way that maximizes the assets that the non-institutionalized spouse can keep.
Since CMS has not yet issued any policy statements, and it does not appear that states will be required to adopt CMS' new policies, legal advice from an attorney knowledgeable about Medicaid in your state is necessary before proceeding with any transfer of assets between partners.
The CMS regulations might not provide any protection, however, for transfers of assets between unmarried partners, in a case where a formerly same-sex couple now is a female and male couple because a transgender partner has changed her/his gender identity. It remains to be seen whether the regulations will provide allow for protection for such couples, and whether states will adopt such protections if allowed by CMS.
While many same-sex partners hold all or most of their assets jointly, as a sign of their commitment to each other, owning assets jointly could have unintended consequences if one of the partners suffers a serious injury or a long-term debilitating illness (such as a stroke, or Alzheimer's disease or another progressive dementia). The state Medicaid program might consider all of the assets held in joint financial accounts to be available to the partner with disabilities, thereby requiring both partners to become impoverished before the partner with disabilities can become eligible for Medicaid.
Moreover, if a Medicaid applicant owned a joint account with another person, and if the joint owner withdrew funds from the joint account during the preceding five years and did not use the funds for the applicant's needs, a state might consider the withdrawals as transfers of assets, which could result in the applicant facing a period of ineligibility for Medicaid nursing home benefits. If an applicant removed her/his name from a joint account within the preceding five years, this also might be considered a gift or transfer of assets to the joint owner.
After a Medicaid beneficiary dies, the state can recover the Medicaid benefits that the state paid on behalf of the recipient from the beneficiary's estate. This "recovery of assets" can include a claim against the beneficiary's home, up to the total Medicaid benefits paid. If the Medicaid beneficiary owned a home jointly with a partner, the state may demand that the surviving partner either reimburse Medicaid for the benefits paid to the deceased partner, or else force a sale of the home to recoup the Medicaid benefits paid. Each state has its own policy regarding recovery of Medicaid benefits from a home that was jointly owned with a non-spouse.
As with transfers of assets between same-sex partners before death, Secretary Sebelius has announced that CMS also will issue rules allowing states not to pursue estate recovery against a home in which the surviving same-sex partner continues to live after the death of the Medicaid recipient. Again, it does not seem that states will be required to treat a surviving same-sex partner the same as a surviving spouse of a heterosexual marriage.
The Inheritance Trap
If a Medicaid recipient receives an inheritance, this often will cause the recipient to lose her/his Medicaid eligibility until s/he spends down the inheritance to below the assets that s/he is allowed to have in her state. In most, if not all states, a beneficiary cannot turn down or give away the inheritance in order to qualify or maintain eligibility for Medicaid nursing home benefits.
Medicaid Planning Strategies
Supplemental Needs Trusts
It is not advisable to leave all or part of your assets outright to a partner who has serious disabilities or a progressive disease, or who is elderly and may need Medicaid –the inheritance may delay or jeopardize her/his eligibility for nursing home Medicaid. Instead, a properly drafted Supplemental Needs Trust (also called a Special Needs Trust) can provide that your assets will be used after your death to supplement your partner's public assistance benefits (such as Medicaid or Supplemental Security Income), rather than replacing the benefits, while, at the same time, protecting your partner's eligibility for public assistance benefits. The assets and income of the trust can be used to pay for activities and needs that Medicaid or other programs do not cover, improving the partner's quality of life. Establishing such a trust means that the inheritance is not counted by public assistance programs when determining your partner's eligibility.
Splitting Joint Accounts
If a couple already has joint accounts, and it becomes apparent that one of the partners may need long-term custodial care in the future, the partners should consider whether it is advisable to "split" their joint accounts, so that each partner owns her/his own assets separately from the other. If each partner contributed a certain percentage to an account, any split of that account should be in proportion to the percentage that each contributed to the account.
Whenever splitting accounts, partners should ask an attorney to prepare a document (to be signed by each partner and notarized) memorializing the underlying facts concerning the accounts–either that the non-contributing partner was on the accounts solely as a convenience, or the portion of each account that was distributed to each partner, based on each partner's contribution to the account. Such a document would provide evidence that dividing the joint accounts into separate accounts did not constitute a gift by either partner to the other. (The strategy of splitting joint accounts is most likely to be successful, from a Medicaid-eligibility perspective, if it is done as early as possible, to maximize the likelihood that the splitting of accounts occurred more than five years before either partner applies for Medicaid.)
Whether or not it will be necessary or advisable to split joint accounts may depend on the regulations that CMS issues regarding transfers of assets and estate recovery, and the policies a state adopts in response to those regulations.
Expenditures of Income/Assets for Another Person
Many LGBT couples use their income or assets for both partners' benefit. If one of the partners starts to decline, and anticipates needing nursing home care in the future, none of the declining partner's income or assets should be used for the partner's benefit–unless an attorney knowledgeable about Medicaid assures you that this will not adversely affect the declining partner's eligibility for Medicaid. Otherwise, a state might impose a penalty period if the declining partner applies for nursing home Medicaid, on the grounds that expenditures of the applicant's income or assets for her partner's benefit during the five years preceding the application constituted a series of "gifts" to the partner.
There are various other strategies involving the assets of a person with disabilities that can be used to help the person qualify for Medicaid. However, seek the advice of a Medicaid attorney in your state to see what other strategies might work in your state.
Remember, never make any decisions regarding Medicaid planning, including transferring any money or other assets, without first consulting with a knowledgeable attorney.
Arlene Zarembka is currently located in Missouri and has been practicing law for 37 years. She primarily practices Estate Planning and Elder Law, providing comprehensive legal counsel and practical advice regarding estate planning, Wills, Trusts, Supplemental Needs/Special Needs Trusts, Powers of Attorney, Living Wills (end-of-life wishes), Beneficiary Deeds, Beneficiary Designations, as well as other documents. She is a cooperating attorney for ACLU-Eastern Missouri, Lambda Legal and the National Center for Lesbian Rights. Her website is: http://zarembkalaw.justia.net/