Residential care for older adults can cost up to $8,000 a month, and few couples can afford that expense for very long. Medicaid offers a safety net, but until the late 1980s, spousal impoverishment was a recurring problem.
Elder Law Answers reports that before 1988, Medicaid regulations required a couple to pay out-of-pocket until they essentially ran out of money. As a result, the healthy spouse could be left with barely anything for their own expenses.
The 1988 ruling, however, protects a certain amount of an older couple’s assets, providing some security for the healthy spouse.
Those rules initially did not apply to in-home care. But the American Council on Aging reports that in 2014 the Affordable Care Act allowed couples to apply for a waiver allowing the benefits to apply to in-home and community-based services.
Supplemental Security and Spousal Impoverishment Standards were adjusted and extended through the recent federal government spending bill. Qualifying for the benefits relies on a complex formula with many factors, but essentially the individual needing care is required to financially contribute a certain amount based on income. The healthy spouse is guaranteed a minimum monthly allowance, which in 2023 is at least $2,288 (more in Alaska and Hawaii).
In addition to the monthly maintenance amount, some assets owned by the couple are protected—including a couple’s primary home, vehicle, furniture, appliances and personal possessions. However, the home protection generally counts only as long as the healthy spouse continues to live in it.
The American Council on Aging offers strategies to legally protect the home from Medicaid estate recovery. One suggestion is to transfer sole ownership of the home to the healthy spouse, or to other trusted loved ones. The organization also offers additional advice for older couples to consider before one or both needs long-term care. These planning strategies include:
- Irrevocable funeral trusts: These can pay for a Medicaid applicant’s future funeral costs.
- Spousal asset transfers: Under the 2023 rules, the healthy spouse can have up to $148,620 in most states. Transferring assets to the healthy spouse can protect those assets from counting toward the qualification limit.
- Medicaid Compliant Annuities: A lump sum is paid to an insurance company, which then pays the healthy spouse a monthly allowance. This is not allowed in all states.
- Spend down assets: Assets can be spent to remodel the home to improve safety and accessibility, pay off the home mortgage and other debt, or purchase medical equipment, such as hearing aids or dentures.
- Medicaid divorces: The legal termination of a marriage can protect the assets of the healthy spouse and reduce the countable assets of the Medicaid applicant.
- Medicaid asset protection trusts: These are irrevocable trusts that protect assets from counting toward the asset limit, and preserves those assets for family members to inherit. This kind of trust needs to be established before the 60-month “look-back” period.
- “Half a loaf” strategies: One example is a combination of giving part of a Medicaid recipient’s assets to family, and purchasing an annuity with the rest to create a monthly income stream for long-term care until the look-back period has passed.
- Home protection: Medicaid applicants can establish a special deed that automatically transfers the home to a loved one upon the Medicaid recipient’s death. That way, it’s not part of their estate and won’t be taken for reimbursement.
“While all of these planning techniques do not require professional Medicaid assistance, persons in doubt of the Medicaid rules in their state should strongly consider talking with a Medicaid planner,” the American Council on Aging recommends. “Incorrectly implementing a planning strategy can result in unknowingly violating Medicaid’s look-back period, resulting in Medicaid disqualification.”
It’s not pleasant to think about you or your spouse needing long-term care, but it’s a reality for many older couples. Planning ahead to make sure finances are secure can reduce some of the stress if and when that need arises.