01 Dec 15 Common Mistakes When Completing A Nursing Home Medicaid Application Or Planning For Eligibility
The cost of long-term care is great (average is around $7,500/month in Texas). As a result, many apply for long-term care Medicaid for governmental assistance to help pay the facility and drugs. It is not unusual for us to receive calls after either a facility or applicant has submitted an application and made a costly error that could result in ineligibility (resulting in financial responsibility ranging from the difference between the applicant’s income and the private pay rate to as much as the full monthly private pay rate plus drug costs for each month of ineligibility).
The following are some of the most common mistakes that we see:
- Intent to Return Home
A homestead is generally a non-countable resource if the applicant is either married or if an applicant is single and has an intent to return home (if single, the equity limit in Texas is $688,000 in year 2023, no limit if married and only one spouse needs care). There is a box on the application asking if the applicant intends to return home. There is also a separate form (Notice of Intent to Return Home) to be signed. Many think the applicant will never return home – so they say there is no intent to return home by error or mistake. Each month that there is no proof of intent to return to the homestead would result in ineligibility. Furthermore, it usually takes the state over 3 months to respond. So, if an applicant didn’t realize his or her mistake until receipt of the letter of denial, this would result in an obligation to pay the facility privately for those months of ineligibility until the error is corrected.
- Homestead is in a Revocable Living Trust
As indicated above, a homestead is generally a non-countable resource. However, if the applicant has deeded his or her homestead to applicant’s revocable living trust, then it would count as a resource which often creates ineligibility.
- Failure to take advantage of spousal prevention of impoverishment rules and other options
It is not unusual that a spouse of the applicant can keep more resources than the “maximum” if their combined monthly income is low enough. Even if the combined incomes are too great, it is not unusual to purchase a Medicaid compliant annuity in the name of the spouse living in the community to achieve eligibility. Sometimes the community spouse can even try to increase the income allowance.
- Failing to consider cash surrender value of life insurance policies
If the applicant has one or more life insurance policies with a total face value that exceeds $1500, then the cash surrender value counts as a resource. If the applicant examined that before applying, then there are many options to solve the problem so that eligibility could be obtained.
- Failure to take advantage of trusts
If the applicant’s income is too great, a qualified income trust (QIT), formerly known as a “Miller” trust, could be used. If the applicant’s assets are too great and the applicant is under 65, a trust with a payback provision or a pooled trust can be utilized. If the potential applicant plans 5 years in advance, certain irrevocable trusts can be used for the resources to not count, and it can be done without adverse tax consequences.
- Failure to take advantage of exceptions to transfer penalty rules
In addition to certain trusts, transfers to a spouse or to a disabled child or to certain accounts for the benefit of a grandchild’s, etc. education are just a few of the exceptions. Also, sometimes the applicant can create a “sole benefits” trust if his or her child is receiving Social Security Disability.
- Failure to timely apply
A failure to timely apply could result in the loss of months of eligibility. Also, some make the mistake of applying too early (should not apply until the applicant is in a facility that accepts Medicaid and in a Medicaid bed assuming medical necessity). Sometimes uncompensated transfer should be reviewed as there could be an uncompensated penalty if one applies too soon.
- Paying the bills of someone other than the applicant
Long-term care Medicaid is means-tested. So, if an applicant pays a child’s or grandchild’s bills within the 5-year look-back period, the government presumes this was purposefully done to reduce resources so that the government would pay for the applicant’s care.
- Paying your child as a caregiver
In most states, this is a common spend-down strategy. However, in Texas it is considered a duty of a child to take care of his or her parent. So, this could result in a transfer penalty creating ineligibility based on the amount paid. However, there are some Medicaid waiver programs where a child can be paid through a Medicaid managed care agency. Furthermore, if the potential applicant lives with his or her child, the potential applicant can pay fair market rent to reduce assets which would not be considered a transfer penalty as an uncompensated transfer.
- Failing to identify all closed accounts
Since the government is concerned about uncompensated transfers, it checks with the IRS regarding all sources of income (including dividends and interest) within the 5 years prior to application. A failure to identify the closed accounts and where the proceeds went could delay eligibility. Thus, it is a good idea to keep 1099s for 5 years prior to an application.
- Making annual exclusion gifts
Although an individual can gift up to $17,000 (going up to $18,000 in 2024) annually per year, per person without reporting the gift to the IRS, this would be presumed to have been a gift (if applying for long-term Medicaid care) to reduce resources to get below the resource limit so that eligibility could be achieved if made within 5 years of the application. Uncompensated transfers could result in a transfer penalty if made within the 5-year lookback period.
- Failing to take IRA required minimum distributions
Under Texas Medicaid rules, a traditional IRA is not counted as a resource if it is in payout status. The timing of the required minimum distribution is also important in determining eligibility based on income.
- Failing to purchase an annuity within an IRA if the IRA applicant is not old enough to take a RMD or the applicant owns a Roth IRA
Annuities within IRAs do not count as a resource. However, timing is critical.
- Looking at only the net (not gross) income of the applicant
Usually a Medicare B premium (often $174.70 or more in 2024) and sometimes a Medicare D premium is withheld before a Social Security income deposit is made into an applicant’s bank account. Some even withhold income taxes. Medicaid considers those premiums and taxes withheld as part of the gross income. If the gross income is over the income cap (currently $2742 per month, going up to $2829 in year 2024), then there is ineligibility (unless a qualified income trust received that income). IRA required minimum distributions could also result in ineligibility since it would be income in the month of receipt.
- Using the balances shown on a statement instead of reconciling for end of the month balances
Medicaid looks at end-of-the-month balances on all financial statements to determine balances as of 12:01 am on the first day of the month to verify resource eligibility. If a statement cycle runs mid-month to mid-month, the ending balance shown on the statement may not be the balance as of 12:01 am on the first day of the month and could put the applicant over the resource limit. Furthermore, checks that are written in a month that do not clear until the next month should be reviewed since Medicaid looks at the date of the check.
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