Counting on Medicaid? You Might Need To Spend Down.

Long term care in a nursing home facility is ridiculously expensive. All but the wealthiest families would see their assets and income wiped out if they had to pay for it themselves. So how do normal families afford the care their loved ones need? They don’t. Most families rely on government assistance, specifically Medicaid, to pay for long term care.

Medicaid is the single largest payer of nursing home bills in America. Although it was designed to be a last resort for people who have no other way to finance their long-term care, it has evolved into a program that almost all seniors end up taking advantage of.

In order to qualify for Medicaid, an individual must have a low income and be under the age of 21 or over the age of 65, or disabled or blind. The exact income eligibility requirements vary from state to state.

If you have more income or assets than the program allows, you don’t have to go bankrupt before applying, you can do what is known as a spend down.

Spending down applies to two things: income and assets.

An income spend down is a month to month thing. Say, for example, that the income threshold for Medicaid coverage is $500 per month, but you get $600 in income per month from Social Security and your pension. The Medicaid rules allow you to spend the difference between your income and the coverage threshold and then qualify for assistance. It works basically like a deductible. You spend $100 per month paying off a medical bill or paying for medicine, and then Medicaid will kick in.

Spending down assets is a bit more complicated. If you have assets that you would like to pass on to your family instead of selling off to pay for your medical care, you should consider working with an experienced estate planning and elder law attorney. If not transferred properly, the government might force you or your loved one to pay it the value of assets transferred to family members.  

For example, say you own your home, and would like to see another member of your family move into it after you are no longer able to live there. Gifting it to a family member will mean you have to pay taxes on that gift. Selling it to a family member for less than it is actually worth could put you or your family member on the hook for the full value of the home. Transferring the home to an irrevocable trust may be an option that allows you to live in the home but no longer have it counted as one of your assets.

It is never too early to start thinking about how you are going to pay for long term care. Planning ahead can make the difference between passing on your family home to the next generation and seeing it auctioned off to the highest bidder.