If you or a loved one needs long-term care, the cost can be astronomically high. Unfortunately, Medicare does not cover the cost of long-term care—but Medicaid does. In fact, this government program is the top payer in the nation for long-term care services.
However, navigating the Medicaid system can be a challenge, to say the least. “Medicaid is a monolith of a program,” said elder law attorney Eric Goldberg, Goldberg Law Group in New Jersey. Gaining a basic understanding, though, of how it works can pay off if you or a loved one needs it.
Here’s what you need to know about how Medicaid can cover the cost of long-term care.
What is Medicaid?
Medicaid is a joint federal-state program that provides health coverage for low-income individuals and families. There are strict limits on income and assets to be eligible. Don’t confuse Medicaid with Medicare, the federal government’s health insurance program for adults 65 and older.
Federal law requires states to provide certain benefits under Medicaid. However, each state manages its own Medicaid program, so the type and scope of services covered by Medicaid can vary state to state. That said, all state Medicaid programs provide long-term care services to seniors and disabled people who meet their eligibility requirements.
What is Medicaid long-term care?
Typically, long-term care is defined as assistance with activities of daily living: bathing, dressing, eating, mobility, using the toilet, and transferring in and out of bed or a chair. Medicaid long-term care is defined as assistance for people with disabilities or chronic conditions who require a level of care equivalent to what is provided in a nursing facility, according to the American Council on Aging’s MedicaidPlanningAssistance.org service.
However, the federal government doesn’t clearly define what nursing facility level of care is, so it’s up to states to define what that level of care is. Often, that level of care involves needing assistance with a certain number of activities of daily living.
What type of long-term care Medicaid covers
Depending on the state, Medicaid may cover long-term care in a range of settings.
Nursing homes: All state Medicaid programs cover the cost of long-term care in nursing homes for those who meet eligibility requirements, which vary by state. The nursing home must be a Medicaid-certified facility that accepts Medicaid as a form of payment (not all facilities do). As long as eligibility requirements are met, people can’t be denied care in this setting and will automatically receive services without being put on a waiting list.
Medicare.gov has a Nursing Home Compare tool you can use to find Medicaid- and Medicare-certified nursing facilities in your area.
Home and community based services: Most states offer Home and Community Based Medicaid Waivers that allow people to receive care at home or in a community-based setting such as an adult foster care home, assisted living facility or memory care facility rather than in a nursing home. However, the settings that are allowed vary by state and even within states.
Waiver programs can target specific populations (such as those with dementia) or limit the number of participants who can enroll, which means people can end up on wait lists for years to receive HCBS Medicaid benefits, according to MedicaidPlanningAssitance.org. Also be aware that only the cost of care services in assisted living and other community-based facilities are covered by Medicaid—not room and board.
You’ll need to contact your local Area Agency on Aging office to find out if there are assisted living facilities in your area that accept Medicaid.
For those who receive care at home, Medicaid may cover a range of services, including assistance with activities of daily living, assistance with instrumental activities of daily living such as house cleaning and shopping, meal delivery, home modifications and transportation. Depending on the state, Medicaid may even pay family members who provide care.
[ Keep Reading: What to Know About the Different Types of Long-Term Care ]
How to qualify for Medicaid long-term care
To qualify for Medicaid long-term care, you must be 65 or older, permanently disabled or blind. You also must be a resident of the state in which you are applying for Medicaid. Then you must meet functional and financial requirements.
Functional requirements: Applicants must need a nursing facility level of care to qualify for Medicaid long-term care coverage. However, there isn’t a federal definition for nursing facility level of care, so states can establish their own definition. Typically, states require that applicants need assistance with a certain number of activities of daily living.
Financial requirements: There are limits on both the income and assets an applicant can have to qualify for Medicaid. The income limit can vary by state, but it typically is $2,382 per month for an individual. If an applicant is married, only the applicant’s income is considered—not the spouse’s income. For state-specific income limits, visit MedicaidPlanningAssistance.org.
The asset limit is typically $2,000 for an individual, but there are some assets that are exempt. For example, a home is exempt as long as the applicant is living there and it is the applicant’s primary residence, estate planning attorney Goldberg said. Personal belongings, an automobile, prepaid funeral expenses and life insurance policies with cash value no greater than $1,500.
Be aware that married couple’s assets are considered jointly owned and counted toward the Medicaid asset limit. However, Medicaid does allow the spouse who isn’t applying to keep one half of the marital assets, up to a maximum of $130,380. “For instance, if the marital assets are $300,000, the community spouse—the spouse who is not applying for Medicaid—can keep up to $130,380,” Goldberg said. “If marital assets are $100,000, they can keep $50,000. So it doesn't matter how much you have. You can only keep up to $130,380.”
MedicaidPlanningAssistance.org has a Medicaid Eligibility Test you can use to determine whether you’re eligible for Medicaid long-term care.
Can you spend down assets to qualify for Medicaid?
You can spend down non-exempt assets such as cash in savings accounts and investments. However, be prepared for Medicaid to scrutinize your spending, said Andrew Hartsfield, an elder law attorney with Hartsfield & Hartsfield Law in Tennessee. You can’t just go on a spending spree buying gifts for friends and family. Typically, the spending must be for the applicant’s benefit and on Medicaid-allowable items, such as the following:
- Debt, including car loans, mortgages and credit card debt
- Home repairs and modifications
- Medical devices not covered by insurance
- Prepayment of funeral and burial expenses
- Payments for caregiving services, including services provided by a relative (there should be a written caregiving contract)
- Purchases of exempt assets, such as a home and personal belongings
- A Medicaid compliant annuity
An annuity can be a good option for those with $50,000 or more in assets, Hartsfield said. For Medicaid spend-down purposes, you must buy a Medicaid compliant annuity that is a single premium immediate annuity—meaning it’s purchased with a one-time lump sum payment and is immediately converted into a stream of fixed monthly payments. And there are other requirements that must be met for an annuity to be Medicaid compliant. Medicaidannuity.com is a source for Medicaid compliant annuities that Hartsfield recommends.
Can you transfer assets to qualify for Medicaid?
You don’t necessarily have to spend down all of your assets to qualify for Medicaid. It is possible to transfer assets to, say, family members, but it takes advanced planning.
To prevent people from simply giving away assets to qualify, Medicaid has what is called a “look-back period.” It will look back over the past 60 months from the time you apply (30 months in California) for any asset transfers or sales of assets well below their market value.
“Anything that is given to another individual or a cash withdrawal is presumed to be given away to qualify for Medicaid earlier when you can't explain it, or you can explain it but it's not acceptable to Medicaid,” Goldberg said. “For instance, ‘I gave it to my daughter because she wanted to buy a new house,’ that is not an acceptable reason for Medicaid.”
If any unacceptable transfers are found, there is a penalty that amounts to a period of time in which the applicant is ineligible for Medicaid long-term care. The penalty period is calculated by dividing the total amount of assets transferred by the average cost of nursing home care in the state where the applicant lives.
You can shield assets by transferring them to an irrevocable trust. Trusts are subject to the look-back period. So this must be done as part of a long-term care planning strategy well before there’s any need for long-term care. It’s best to work with an elder law attorney to create a trust or to implement any asset-transfer or spend-down strategies for Medicaid.
How to apply for Medicaid long-term care
You can contact your state Medicaid office. However, you can get more assistance with the application process—and help qualifying—by working with an elder law attorney, Goldberg said. He recommends finding a Certified Elder Law Attorney through the National Elder Law Foundation.
There also are a variety of other professionals who are certified Medicaid planners and can help families qualify for Medicaid. MedicaidPlanningAssistance.org has a form to connect with a Certified Medicaid Planner.
[ Keep Reading: 10 Money Mistakes to Look Out for if Your Parent Has Dementia ]