Medicaid, also known as medical assistance is a joint federal-state program that provides health insurance coverage to low-income children, seniors and people with disabilities. In addition, it covers care in a nursing home for those who qualify. Medicaid is a state administered program and provides more comprehensive coverage than Medicare, particularly with regard to nursing home care. However, not all nursing homes participate in the Medicaid program. There are no limits on the maximum length of a Medicaid recipient’s stay at a facility.
The Federal government pays roughly one-half of the costs, while the State covers the remainder. In Illinois, the agency that administers Medicaid is the Illinois Department of Public Aid (IDPA). In the absence of any other public program covering long-term nursing home care, Medicaid has become the default nursing home insurance of the middle class.While Congress and the federal Health Care Financing Administration set out the main rules under which Medicaid operates, each state runs its own program. As a result, the rules are somewhat different in every state, although the framework is the same throughout the country. The following describes some of the basic rules regarding Medicaid in Illinois.Resource (Asset) RulesIn order to be eligible for Medicaid benefits in Illinois a nursing home resident may have no more than $2,000 in “countable” assets. While a Medicaid applicant may be eligible even if these assets exceed the limits, the applicant will be required to “spend down” these assets. This means that the cost of care must be paid for by the Medicaid applicant to the extent that the assets exceed the $2,000 limit.The spouse of a nursing home resident–called the ‘community spouse’– is limited to one half of the couple’s joint assets up to $84,120 (in 2000) in “countable” assets (see Medicaid, Protections for the Healthy Spouse). The $84,120 figure changes each year to reflect inflation. In addition, the community spouse may keep the first $17,400, even if that is more than half of the couple’s assets. These figures change annually and are found in the Department of Human Services policy manual. Basic Medicaid information is also available at [http://www.state.il.us/dpa/mednews.htm].
All assets are counted against these limits unless the assets fall within the short list of “non countable” assets. These include:(1) Personal possessions, such as clothing, furniture, and jewelry with an equity value of no more than $2000. However, wedding rings, engagement rings and items required because of an individual’s medical or physical condition are exempt regardless of value.(2) One motor vehicle if it meets any one of the following criteria: A) If it is necessary for employment B) If it is necessary for transportation for medical treatment of a specific or regular medical problem C) If it is modified for operation by or transportation of a handicapped person or D) If it is necessary because of terrain, remoteness or similar factors to provide necessary transportation to perform essential daily activities.A motor vehicle owned by a nursing home resident is also exempt if transferred to a spouse. In all other cases the exemption is limited to $4,500.(3) The applicant’s principal residence, provided it is in the same state in which the individual is applying for coverage although some limitations, discussed below, exist.(4) In Illinois, up to $1,500 of revocable burial expenses are exempt and up to $4,120 in irrevocable prepaid expenses are exempt. However, the amount of the revocable expense exemption is reduced by the amount of irrevocable expenses. In all cases, expenses for burial space or plots and other customary items such as a casket or headstone are completely exempt.(5) Assets that are considered “inaccessible” for one reason or another. These assets often come in the form of specific types of trusts.The HomeNursing home residents do not have to sell their homes in order to qualify for Medicaid. In Illinois, the home will not be considered a countable asset for Medicaid eligibility purposes as long as the nursing home resident intends to return home. The home may also be kept if the Medicaid applicant’s spouse, sibling, minor or disabled child lives there. However, if the applicant leaves the home with no intention of returning, the property must be counted as an asset.The Transfer PenaltyThe second major rule of Medicaid eligibility is the penalty for transferring assets. Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed a penalty on people who transfer assets without receiving fair value in return.This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in Illinois. The period of ineligibility starts on the first day of the month of the transfer.
Example: If a Medicaid applicant made gifts totaling $90,000 in a state where the average nursing home bill is $5,000 a month, he or she would be ineligible for Medicaid for 18 months ($90,000 ÷ $5,000 = 18).
Another way to look at the above example is that for every $5,000 transferred, an applicant would be ineligible for Medicaid nursing home benefits for one month.In theory, there is no limit on the number of months a person can be ineligible.Example: The period of ineligibility for the transfer of property worth $400,000 would be 80 months ($400,000 ÷ $5,000 = 80).
However, the IDPA may look only at transfers made during the 36 months preceding an application for Medicaid (or 60 months if the transfer was made to certain trusts). This is called the “look-back period.” Effectively, then, there is now a 36-month limit on periods of ineligibility resulting from transfers. This means that people who make large transfers must be careful not to apply for Medicaid before the 36-month look-back period passes.Example: To use the above example of the $400,000 transfers, if the individual made the transfer on January 1, 1998, and waited until February 1, 2001, to apply for Medicaid — 37 months later — the transfer would not affect his or her Medicaid eligibility. However, if the individual applied for benefits in December 2000, only 35 months after transferring the property, he or she would have to wait the full 80 months before becoming eligible for benefits.Exceptions to the Transfer PenaltyTransferring assets to certain recipients will not trigger a period of Medicaid ineligibility. These exempt recipients include:(1) A spouse (or a transfer to anyone else as long as it is for the spouse’s benefit);(2) A blind or disabled child;(3) A trust for the benefit of a blind or disabled child;(4) A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:(1) The applicant’s spouse;(2) A child who is under age 21 or who is blind or disabled;(3) Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances);(4) A sibling who has lived in the home during the year preceding the applicant’s institutionalization and who already holds an equity interest in the home; or(5) A “caretaker child,” who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant’s institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.Congress has created a very important escape hatch from the transfer penalty: the penalty will be “cured” if the transferred asset is returned in its entirety, or it will be reduced if the transferred asset is partially returned.Is Transferring Assets Against the Law?
You may have heard that transferring assets, or helping someone to transfer assets, to achieve Medicaid eligibility is a crime. Is this true? The short answer is that for a brief period it was, and it’s possible, although unlikely under current law, that it will be in the future.
As part of a 1996 Kennedy-Kassebaum health care bill, Congress made it a crime to transfer assets for purposes of achieving Medicaid eligibility. Congress repealed the law as part of the 1997 Balanced Budget bill, but replaced it with a statute that made it a crime to advise or counsel someone for a fee regarding transferring assets for purposes of obtaining Medicaid. This meant that although transferring assets was again legal, explaining the law to clients could have been a criminal act.
In 1998, Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment protection of free speech, and she told Congress that the Justice Department would not enforce the law. Around the same time, a U.S. District Court judge in New York said that the law could not be enforced for the same reason. Accordingly, the law remains on the books, but it will not be enforced. Since it is possible that these rulings may change, you should contact our office before filing a Medicaid application.Treatment of Income
The basic Medicaid rule for nursing home residents is that they must pay all of their income, minus certain deductions, to the nursing home. The deductions include a $30-a-month personal needs allowance, a deduction for any uncovered medical costs (including medical insurance premiums), and, in the case of a married applicant, an allowance for the spouse who continues to live at home if he or she needs income support. A deduction may also be allowed for a dependent child living at home. A deduction is also allowed for community spouse maintenance needs. The allowance in 2000 was $2,103 and is adjusted annually. This allows the Medicaid recipient to exempt some of his/her income for the purpose of spouse maintenance.
Example: if Mr. X resides in a long term care facility such as a nursing home and has monthly income of $1,600 and his spouse has income of $800 a month (from pension or social security for example) then the difference between the spouse’s $800/mo. Income and the $2,103 allowance (in 2000) may be contributed by Mr. X to his spouse and he may deduct that amount, up to the total allowance, from his income for asset calculation purposes. Under the facts of the example, this would allow Mr. X a $503 community spouse deduction and $30 personal needs deduction. The amount of Mr. X’s income in excess of the deductions ($1,600-$503-$30= $1,067) must be “spent down” or paid to cover the medical expenses each month. A similar deduction exists for dependent family members including dependent adult children, dependent parents or dependent siblings.For Medicaid applicants who are married, the income of the community spouse is not counted in determining the Medicaid applicant’s eligibility. Only income in the applicant’s name is counted in determining his or her eligibility. Thus, even if the community spouse is still working and earning $5,000 a month, she will not have to contribute to the cost of caring for her spouse in a nursing home if Medicaid covers him.Protections for the Healthy SpouseThe Medicaid law provides special protections for the spouse of a nursing home resident to make sure she has the minimum support needed to continue to live in the community.
The so-called “spousal protections” work this way: if the Medicaid applicant is married, the countable assets of both the community spouse and the institutionalized spouse are totaled as of the date of “institutionalization,” the day on which the ill spouse enters either a hospital or a long-term care facility in which he or she then stays for at least 30 days.
In Illinois, the community spouse may keep one half of the couple’s total “countable” assets up to a maximum of $84,120 (in 2000). Called the “community spouse resource allowance,” this is the most that Illinois allows a community spouse to retain without a hearing or a court order.
Example: If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple’s assets have been reduced to a combined figure of $52,000 — $2,000 for the applicant and $50,000 for the community spouse.In all circumstances, the income of the community spouse will continue undisturbed; he or she will not have to use his or her income to support the nursing home spouse receiving Medicaid benefits. But what if most of the couple’s income is in the name of the institutionalized spouse, and the community spouse’s income is not enough to live on? In such cases, the community spouse is entitled to some or all of the monthly income of the institutionalized spouse as described above in “treatment of income.”..In exceptional circumstances, community spouses may seek an increase in the income allowance either by appealing to the IDPA or by obtaining a court order of spousal support.Estate Recovery and Liens
Under Medicaid law, following the death of the Medicaid recipient a state must attempt to recover from his or her estate whatever benefits it paid for the recipient’s care. However, no recovery can take place until the death of the recipient’s spouse, or as long as there is a child of the deceased who is under 21 or who is blind or disabled.The IDPA is permitted to seek recovery of paid benefits in all of the benefit recipient’s probate property. Given the rules for Medicaid eligibility, the only probate property of substantial value that a Medicaid recipient is likely to own at death is his or her home.
In addition to the right to recover from the estate of the Medicaid beneficiary, IDPA must place a lien on real estate owned by a Medicaid beneficiary during her life unless certain dependent relatives are living in the property. If the property is sold while the Medicaid beneficiary is living, not only will she cease to be eligible for Medicaid due to the cash she would net from the sale, but also she would have to satisfy the lien by paying back the state for its coverage of her care to date. The exceptions to this rule are cases where a spouse, a disabled or blind child, a child under age 21, or a sibling with an equity interest in the house is living there.
Whether or not a lien is placed on the house, the lien’s purpose should only be for recovery of Medicaid expenses. The IDPA may seek to enforce the lien at any time there is a transfer of the real property, in cases of fraud, or at the time of death of the owner.

Until fairly recently, most people in need of long term care had few alternatives to entering a nursing home and wreaking havoc on family finances. Today, long term care can be obtained in various settings and we frequently help clients preserve assets and avoid impoverishing a spouse who remains at home. Yet, most people who need long term care eventually must turn to Medicaid for funding.When first enacted with Medicare in 1965, Medicaid extended basic health care to poor people, especially children. Over the years, Congress has greatly expanded Medicaid, and it now also funds long term care in nursing homes, assisted living facilities, private homes, and other settings. While all Medicaid applicants must satisfy very restrictive financial criteria, not every Medicaid recipient will qualify for all benefits because each Medicaid program has its own eligibility criteria.As Medicaid eligibility rules are byzantine and complex, it’s nearly impossible to do effective Medicaid planning without expert guidance. Thus, the uninitiated often spend everything on nursing home care, even though elder law attorneys can help most individuals protect part of their hard earned savings and still qualify for Medicaid to fund long term care.Although federal rules set basic standards, states have substantial leeway to fine tune available Medicaid benefits and qualification requirements. Since Medicaid programs vary by state, Medicaid planning should be based on the law of the state in which an individual will receive long term care, and Medicaid recipients who change states must qualify anew. Therefore, as with wills and powers of attorney, Medicaid planning may require significant change when seniors move from Florida or other states to be closer to their children.Depending on the kind and extent of impairments, individuals can receive long term care in many different environments. Still, most people either enter a nursing home or assisted living facility or receive care at home. Fortunately, Medicaid can fund each of these arrangements.Care Options and Medicaid CoverageNursing homes have a poor popular image, probably due to their decidedly institutional look and feel. Unfortunately, however, they usually are the only option for people who need substantial assistance with many activities of daily living. Assisted living facilities are an intermediate step more akin to a senior citizen apartment building with dining, activities, and staff on site. Without question, assisted living facilities offer nicer amenities than nursing homes, but because only limited care is available, they usually won’t accept people who need substantial aid. As professional round the clock care is extremely expensive but Medicaid coverage is modest, home care usually works only when provided primarily by family with paid home health aides as supplements.New Jersey Medicaid pays for long term care in nursing homes, assisted living facilities, and private homes, but not all states cover costs in each of these venues. Medicaid is divided into two broad categories: long term care and other care. Other care includes the usual diagnostics, preventive medicine, surgeries, and treatments that we all need from time to time. Long term care Medicaid covers nearly all nursing home costs, most assisted living facility charges, and some home health aide and other expenditures to help an individual remain in a private home. All Medicaid applicants must satisfy financial eligibility criteria, but persons who seek long term care Medicaid benefits also must demonstrate that they can’t live independently.Medicaid Eligibility RequirementsTo receive Medicaid, an individual who demonstrates a medical need for long term care must satisfy financial requirements. Medicaid may fund nursing home, assisted living, or at-home care when an applicant’s countable resources and income do not exceed modest resource and income limits. Countable income and resources are cash and other assets that are available to pay for food and shelter. Resources are amounts owned at the outset of a month while income is received during the month. Because Medicaid has few exemptions, receipts that wouldn’t be taxable income (e.g. gifts, Social Security, and tax exempt interest), security deposits, and jointly owned property generally are countable.An unmarried person can qualify for Medicaid funded long term care by reducing countable resources to the applicable resource cap of up to a few thousand dollars. However, Medicaid planning is more complicated for married people because their combined countable resources are taken into account. When only one spouse needs care, an allowance of half combined countable resources up to a cap is allowed to the spouse in the community. This community spouse resource allowance (“CSRA”) is intended to protect the spouse at home from being impoverished, but in high cost states like New Jersey, Medicaid planning to protect savings is essential to afford a community spouse a reasonable standard of living. While the CSRA cap is adjusted for inflation, it is $109,560 as of Spring 2011.Because couples typically must dissipate nearly all countable resources beyond the CSRA before Medicaid will pay nursing home charges, many people mistakenly believe that they must lose everything else when a loved one needs long term care. However, this merely illustrates the risks in acting on limited knowledge. Since excess countable resources need not be “spent down” only for long term care, we have many tools to help families preserve assets.Medicaid Planning to Protect SavingsDespite popular misconceptions, Medicaid planning does not involve hiding assets, particularly since making a false Medicaid application is a serious crime. Rather, we help clients preserve savings by maximizing CSRA and spousal income allowances, converting excess countable resources into exempt items, spending down fruitfully, and minimizing penalties when making gifts.Couples sometimes can increase a CSRA by borrowing (commercially or from loved ones) but the loan must be carefully timed and designed to be effective. Married Medicaid applicants also can preserve other resources as non-countable expenditures that benefit the community spouse. For instance, it can be beneficial to improve or buy a residence or vehicle for the community spouse.Gifts often are a key element in Medicaid planning. While more can be saved by gifting early, Medicaid gift planning can prove useful even after entering a nursing home despite the sixty month gift look back period. However, the Deficit Reduction Act of 2005 substantially changed the Medicaid planning landscape to impose stiff penalties when gifts aren’t properly timed. Giving too much or applying for Medicaid too soon after gifting can needlessly trigger years of Medicaid disqualification. By the same token unduly small gifts may unnecessarily limit savings. No penalty results from qualifying gift to a disabled person or qualifying gift of a home to a caregiver child, but as with so many aspects of Medicaid planning expert advice is essential because technicalities abound.To facilitate gift planning, a power of attorney that explicitly authorizes Medicaid gifts must be in place before a donor becomes mentally incapacitated. Otherwise a family will have to convince a guardianship court to authorize Medicaid gifts, which may prove difficult. Although a well designed Medicaid plan can preserve considerable amounts, everything can unravel if assets aren’t titled properly. Thus, it is crucial to ensure that wills, trusts, and beneficiary designations and default rules don’t cause distributions to a Medicaid beneficiary on death of a community spouse or other loved one. Similarly, addressing Medicaid estate recovery early can prevent substantial liens when a Medicaid recipient dies. Avoiding these traps for the unwary may require new deeds, account registrations, beneficiary designations, wills, and trusts.ConclusionNo longer synonymous with nursing home entry, long term care can now be delivered in several other less institutional settings. Despite sky rocketing health care costs, elder law attorneys can help families obtain Medicaid to avoid financial ruin when a loved one needs long term care. However, because eligibility rules are complex and arcane with many traps for the unwary, effective Medicaid planning nearly always requires professional guidance.© 2011 by Lawrence A. Friedman, Esq.[This article originally appeared in New Jersey Lawyer Oct. 10, 2005, but the author has updated it to 2011.]