Why Would I Not Apply For Medicaid Benefits When My Parent Is In A Nursing Home?
Why Would I Not Apply For Medicaid Benefits When My Parent Is In A Nursing Home?
Nursing home bills in Alabama range from a low of $60,000 a year to a high of $100,000+.
So why in the world would you ever NOT apply for Alabama Medicaid when you are paying out this kind of money every year.
Especially if your parent has drained his or her resources and so would qualify (a single person must have $2000 in assets or less — the rules are different for married couple).
Alabama Medicaid Penalty Period.
This can be a little confusing so to understand it we must back up and talk about gifts under Alabama Medicaid.
So what is a gift under Alabama Medicaid?
If during the correct time period your parent has made an “uncompensated transfer of property” — what us normal folks call a “gift” — then Alabama Medicaid will say this is an improper transfer.
A gift is anything where your parent gives away money or assets for less than their true value.
Here are some examples:
- So if your mom has a $100,000 house and she “sells” it to you for $1, then the gift is the difference or $99,999.
- If she gives you $20,000 in cash, the gift is $20,000.
- If she sells her neighbor a $15,000 car for $5,000, then she made a gift of $10,000.
It doesn’t matter who the “gift” is to — you, family, friends, or a complete stranger.
The only thing Alabama Medicaid cares about is whether full value (“fair market value”) was received in return. If not, then it is a gift.
OK, what is the time period that Alabama Medicaid looks at for gifts?
When your parent is in a nursing home and is “otherwise qualified or eligible” and applies for Alabama Medicaid, then the agency “looks back” 60 months at all financial transactions.
So for this rule we are looking backwards in time.
Here are a few examples:
- Bob goes into a nursing home and still has $100,000 in a CD in his name. He applies for Alabama Medicaid. He will be denied because he has too much money (more than $2,000). So Medicaid does not “look back” because you have to be qualified.
- Susan goes into a nursing home and is qualified financially. This happens in June 2013. So Alabama Medicaid looks back 60 months (5 years) back into June 2008 to see if there were any gifts made.
Once we know the total of the gifts made during the 60 months prior to applying (or when you might apply) for Alabama Medicaid then we can figure out the impact of the gifts.
So what do we do with all of the gifts your parent made during the prior 60 months?
We add them all up and then we divide them by $5400.
This is the amount that Alabama has determined is the normal cost of a nursing home.
This is lower than most nursing homes but the state has an incentive to keep this lower as you will see.
The answer to the math problem of (total gifts during 5 years) divided by ($5400) gives us the number of months that Alabama Medicaid says your parent (who only has $2,000) must pay the nursing home bill, regardless of the cost.
Let’s look at some examples:
- Your mom gave away $54,000 during the 5 year period and she is otherwise qualified. Her nursing home bill is $8,000 a month. The penalty period is $54,000 divided by $5,400 which equals 10 months of penalty period. So she (or you) must pay the $8,000 nursing home bill out of your own bank account for the next ten months. The $54,000 gift “cost” $80,000.
- Your dad gave away a $540,000 house to you and your brothers and is now qualified for Medicaid. We take the $540,000 and divide it by $5,400. This gives us a penalty period of 100 months. So even if his nursing home bill is $9,000 a month, you and your brothers (or someone — not the government) must pay $9,000 a month for 100 months which equals $900,000.
So what do we do?
The answer is we plan for Medicaid in the future but if the gifts have already happened and we can’t return the gift, then we carefully choose when we apply for Medicaid.
When we apply for Alabama Medicaid determines when the 60 month look back period starts so we choose the start date that helps us the most
Here’s what I mean.
When your parent has:
- Given away assets and
- Is in the nursing home
Then one of the few things you can control is the timing of when to apply for Alabama Medicaid.
Knowing the correct moment to apply can make all the difference in the world.
Do understand there are issues that must be considered before making this decision that cannot be covered in this article and before you apply, or don’t apply, you need to get with an Alabama elder law lawyer.
You can reach us at 205-879-2447 and ask for Carolyn to set up a short phone consultation or an hour long in person meeting.
So let’s look at an example to illustrate the importance of timing:
- Your father gave away $220,000 in gifts in August 2008. He is qualified and in the nursing home now. Your brother is helping you pay for dad’s nursing home care. Dad’s bill is $7,000 a month and his income is only $1,500 a month leaving a $5,500 deficit you and your brother are paying out of your own pockets.
- So your brother says “Hey sister, we have to get Dad on Medicaid now. This bill is killing me and my wife is telling me her brother’s cousin’s neighbor said we need to apply for Alabama Medicaid right now.”
So, should you apply in June 2013?
Let’s see what will happen.
- If you do this in June 2013, the look back period is 60 months back to June 2008.
- The gift took place in August 2008 which is within the “look back” period.
- So if you apply in June 2013, the penalty is the amount of the gift ($220,000) divided by $5,400 which is a little over 40 months.
- 40+ months times the $5,500 deficit means you and your brother are going to pay over $220,000 in care over the next 3+ years (and remember nursing home bills go up every year, not down).
What if you wait, and continue to privately pay until September 2013?
- The look back period is 60 months and goes back to September 2008 (60 months).
- The gift took place in August 2008 which is outside the look back period.
- So since the gift is outside the 60 months, Alabama Medicaid does not consider this an improper transfer or gift.
- Since it is outside the look back period, there is no penalty period.
- So by knowing the right time to apply for Medicaid benefits, you and your brother paid a few extra months of nursing home bills but saved yourself several hundred thousand dollars.
As mentioned above, there are other things to consider and each situation must be looked at individually, but hopefully this shows you the power of having proper advice and guidance when making what seems to be an easy decision — when to apply .
Here’s the bottom line — when you are making any decisions with Alabama Medicaid you need to find the right guide as the wrong decision can cost you hundreds of thousands of dollars.
What assets should be given away?
How should they be given away — to the kids or to a trust?
If a trust, can a normal estate planning “living trust” work? (Hint: No. It must be a special type of trust that estate planning lawyers do not use).
How do I coordinate veteran benefits (such as VA Pension/Aid & Attendance) with applying for Alabama Medicaid?
If my parent is in a nursing home, or about to go in a nursing home, how do I know what is allowable to spend down my parent’s assets?
How do the rules work if my mom is going in a nursing home but my father is still healthy at home?
And, to circle us back to the title, why would I not apply for Alabama Medicaid when my parent is in a nursing home?
Now you know — when doing so at the wrong time would trigger the penalty period and it makes sense to not start the penalty period.
(Sometimes it does make sense to start the penalty as soon as possible — this is when you need to make sure you have a roadmap of what to do and when to do it).
If we can help you understand your options, give us a call.
Or, if you are ready to sit down and have a very candid conversation about your options — then call us at 205-879-2447 and ask to speak to Carolyn Allcorn who can schedule your appointment.
If you are not yet ready to chat or meet but you want more information, contact us and let us know you would like us to mail you an information package and we will be happy to do so.
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