Understanding Medicaid Spend Down and the Look-Back Period
As family caregivers are intimately familiar with, long-term care is extremely difficult to navigate in the U.S. Medicare — which most Americans rely on for health care as they age — does not consider long-term care to be medical care and, therefore, does not cover the associated costs. In-home paid care and long-term care facilities are prohibitively expensive for most Americans, with the median annual cost of an assisted living facility in Florida at $48,000, according to Genworth’s cost of care survey.
When it is no longer possible for an aging individual to stay at home, many families must turn to Medicaid for their long-term care needs. However, given Medicaid’s focus on providing health care to low-income individuals, there are strict financial eligibility requirements before one can qualify for Medicaid-funded long-term care. This makes proactive planning crucial for all families.
Medicaid Long-Term Care Eligibility
When a senior requires Medicaid-funded long-term care, a financial resources cap is applied. This cap is in place to prevent wealthy people from taking advantage of government-funded facilities, the idea being that if you have sufficient resources you should be able to privately pay for long-term care support.
However, this financial limit is incredibly low and creates numerous challenges for many families. This limit varies by state. As an example, Florida’s 2022 asset limits are:
- $2,000 for individuals
- $3,000 for married couples when both spouses are applying for Medicaid long-term care support
- $2,000 for a married person who’s applying and $137,400 for their spouse who’s not applying for support
In practice, these strict Medicaid limits prevent many lower and middle income families from accessing the long-term care support they require. Fortunately, with proper planning families can still access the Medicaid long-term care support they require. More information about Florida’s Medicaid long-term care coverage can be found here.
Spending Down Assets for Medicaid
If a senior is in need of Medicaid long-term care, but has assets too high to qualify, they might need to look at spending down their assets for Medicaid coverage. A Medicaid spend down is when an individual chooses to lower their assets to the Medicaid eligibility level, allowing them to qualify for Medicaid support. Medicaid’s intent is for this money to be spent on health care and living costs until the applicant’s assets are low enough for Medicaid eligibility to kick in.
The intent is not for an applicant to give this money to family but rather for it to be spent on costs that Medicaid would otherwise be covering. As a fraud prevention measure, certain financial transactions, like monetary gifting, are prohibited in the years leading up to receiving Medicaid support.
Medicaid considers two categories of assets: countable and non-countable assets. This describes which assets they’ll consider in judging an individual’s eligibility for Medicaid support.
Countable assets are assets that Medicaid does consider when determining an individual’s eligibility. They can include:
- Bank accounts
- Retirement accounts
- Investment accounts
- Second homes
Non-countable assets are assets that Medicaid does not consider when determining an individual’s eligibility. They can include:
- Primary home
- Personal belongings
This can change slightly for married individuals whose spouse is not in need of Medicaid-funded long-term care. According to AARP, “Medicaid requires states to protect the income and assets of spouses of nursing facility residents (called the ‘community spouse’) to prevent spousal impoverishment.”
Medicaid Five Year Look-Back Period
Medicaid intends for all countable assets above your state’s limit to be spent on health care costs. However, many families will want to make different decisions and spend their money according to their own wishes. With proper planning, this is possible.
When Medicaid is reviewing an individual’s eligibility for long-term care support, they review the last five years of the applicant’s financial activity. (The only exception is California, which has a more lenient look-back period of two and a half years.) This is called the Medicaid five year look-back period. In these five years before applying for Medicaid, an individual cannot gift or transfer assets out of their name or sell assets for under fair market value. This is to prevent people from giving away all of their assets to family right when they need long-term care to “artificially” appear eligible for Medicaid support. Medicaid wants to ensure that people aren’t abusing the system and accessing care for which they wouldn’t otherwise be eligible.
The penalty for violating the five year look-back is an extended period of time that one is made ineligible for Medicaid. The period of ineligibility is determined based on the dollar amount of the assets transferred and varies state by state.
Because of this, proactive planning is imperative. If you or a relative anticipate requiring Medicaid long-term care support in the future, you should ideally plan more than five years in advance. This allows your family to keep assets in the family and not have to do a Medicaid healthcare spend-down. Before the five year look-back period comes into effect, families can do what they wish with assets, transferring and spending them freely.
Medically Needy Path to Medicaid Eligibility
If your care recipient requires Medicaid long-term care support now, but has assets above the eligibility limit, you can look to the Medically Needy Pathway. “This pathway allows persons who are categorically eligible for Medicaid (i.e., elderly), but not financially eligible, to qualify for Medicaid (including long-term care) by spending ‘excess’ income on medical expenses,” according to the American Council on Aging. The individual will pay for a portion of their care, and Medicaid will cover the rest. This will continue until assets are within the Medicaid eligibility threshold, at which point Medicaid will cover all costs.
Since Medicaid eligibility laws vary state by state, it is important to consult an elder care attorney or well-versed financial advisor in your state. They can help you to understand the specific steps that must be taken in order to qualify and ensure you do not violate the five year look-back period and incur an eligibility penalty.
Navigating long-term care planning is tremendously challenging, and can be very isolating. You’re not alone in this. Aidaly Advocates are here to help you understand the options and resources available to you as you make plans for your family’s future.