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Retirement Weekly: Do I have to spend my assets before Medicaid will pay for my spouse’s nursing home?

Dear Harry,

My spouse is going to have to move to a nursing home. When spending down assets for the sick spouse to qualify for Medicaid does it have to be done before sick spouse is sent to a nursing home or can it be done even after the sick spouse is admitted to a nursing home?

Dear Reader,

Unfortunately, the rules for Medicaid coverage of nursing home care are very complicated and contain many traps for the unwary. Medicaid is the federal-state safety net program for healthcare. Unlike most health insurance, it pays for nursing home care. But to qualify, nursing home residents must prove that they are impoverished under Medicaid’s arcane rules. To complicate things further, the rules differ somewhat from state to state.

Read: So long, senior centers and nursing homes. Older adults don’t want to spend their time in places where they are seen as victims in decline.

In most states, in order to be eligible, the nursing home residents must have “countable” assets of less than $2,000. Almost all assets are counted against this limit except for the resident’s home, which is not countable as long as its fair market value (less any mortgage) is less than $955,000 (in 2022). (In some states this limit is $636,000.)

Further, if the nursing home resident is married, their spouse — known as the “community” spouse — is limited to $137,400 (in 2022) in countable assets. This is known as the community spouse resource allowance or “CSRA.” In some states, however, the limit is half of whatever assets the couple owned when the ill spouse moves to a nursing home up to the cap of $137,400. In those states, timing can be issue. I will get back to that after discussing spending down, to which you refer.

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The process of spending down to which you refer is spending savings until the couple’s assets are below the combined limit of $139,400. So, for instance, if one member of a married couple moves to a nursing home and they have $200,000 in combined savings and investments outside of the home, they will need to spend down approximately $60,000 before the nursing home spouse will qualify for Medicaid coverage. Until the date the combined total of the couple’s assets falls below the asset limit, they will have to pay out-of-pocket for the nursing home spouse’s care.

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This spending can be for anything that benefits either spouse, whether it involves paying off debts, such as a mortgage or line of credit on the house, fixing up the house, buying a car, or even the well spouse taking a much-needed vacation. The only thing they can’t do is give the money away. That would cause a penalty of a period of ineligibility for Medicaid. (There are some exceptions to this transfer penalty such as transfers to trust for sole benefit of disabled individual.)

In terms of your specific question, the sooner they spend the money down, the sooner the nursing home spouse will qualify for Medicaid coverage and the sooner they will be able to stop paying the nursing home out-of-pocket. So that would argue for spending down earlier rather than later, even starting before the ill spouse moves to a nursing.

However, it can be difficult to gain entrance into a nursing home if the patient can’t pay privately for some period of time. In most cases the patient cannot apply for Medicaid benefits until they move to a nursing home and the nursing home doesn’t want to be left high and dry if the resident’s application is rejected for one reason or another. Nursing homes are reassured if the prospective resident can pay privately for at least a short period of time. So, being able to show excess assets on a financial disclosure statement before moving to the nursing home can help gain entrance. (This is less likely to be an issue for patients moving from hospitals to nursing homes where Medicare will pay for skilled nursing care for up to 100 days.)

All of this discussion presupposes that the ill individual is in a state that permits the community spouse to keep the couple’s assets up to maximum CSRA amount. If they are in a state that allows the community spouse to keep only half the couple’s assets as of the date the ill spouse moves to the nursing home, then they almost always should wait to begin the spend down until after the move occurs.

Going back to our example, in these states if the couple has $200,000 in countable assets on the date the ill spouse moves to a nursing home, the community spouse will be permitted to keep $100,000 as their CSRA and have to spend down $98,000, the remaining $100,000 less the $2,000 the nursing home spouse can keep.

If, on the other hand, the couple had already spent down $60,000 so they only had $140,000 when the ill spouse moved to a nursing home, the community spouse would only be allowed to keep $70,000. So, in these states it often makes sense to delay the spend down until after the nursing home placement occurs. If the couple knows that a nursing home placement is imminent it can even make sense to delay paying bills in order to build up accounts to a higher level on the date of nursing home move when the determination of the CSRA will occur.

But as is often the case in the field of Medicaid planning, the best strategy may be different in different situations.

For those with a greater level of assets, it can make sense to begin the spend down early since it won’t have any effect on the CSRA. For instance, if the couple has $400,000 in countable assets, spending down $100,000 before the nursing home move will have no effect on the CSRA because they would still have $300,000 which is more than twice the upper limit of $137,500. For those with limited assets there’s a floor CSRA of $27,480 (in 2022). So, if the couple, for example, has just $50,000 in countable assets, it won’t matter when they spend down since the CSRA will always be the minimum of $27,480.

To learn whether your state permits the community spouse to keep the maximum CSRA of $137,400 or just half of the couple’s assets up to that amount, the American Council of Aging maintains a website that provides this information for all states here.

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