When Both Spouses Need Care – Part 2

In my blog post last week, I wrote that in cases where both spouses need long term care, spending down the assets and then applying for Medicaid for both of them at the same time may not be the best approach.  It may actually be better to apply for the first spouse as quickly as possible and then spend down the remaining assets on the second spouse’s care before then applying for Medicaid for that spouse.  This week I will begin to tell you why.

As I have written previously about Medicaid, spending down means spending your income and assets such that you receive equal fair market value in product or service for the money that left your accounts.  As part of the Medicaid application process, an applicant must produce 5 years of statements for every asset dating back from the first month for which you are seeking Medicaid eligibility.  This is what is called the Medicaid look back.

If, during that 5 year period, money has left your accounts for which you did not receive equal fair market value back – or you cannot prove that you received fair market value – then that is considered a transfer for less than fair value.  Medicaid adds up these transfers and divides by another number – what the State deems to be the average cost of long term care statewide – to arrive at the Medicaid penalty.  This is a period of ineligibility for Medicaid.  The more money transferred for less than fair value the longer the penalty.

This penalty period of ineligibility, however, does not begin when the violating transfer is made.  Instead, it only begins after one applies for Medicaid, meets all the other requirements and produces all the required documentation.  Only then is the application approved with a penalty.  This then means that Medicaid does not start paying for care as of the date requested.  One must continue to pay for care at the higher private pay rate for the entire time frame of the penalty period after which the State will begin to pay for care.

If, in our married couple situation, we wait to apply for both spouses at the same time and then penalties are assessed, there will be no funds to cover the time frame of the penalty.  If Mom and Dad are in a facility together, the facility bill will need to be paid by other family members.  For example, if a personal guarantee was signed by son or daughter upon the parents entering the facility, that is who would be personally responsible for paying the bill because Mom and Dad will have already spent down their own assets.

Let’s look at a common scenario.  Mom and Dad made gifts to children and grandchildren over the past 5 years.  We know that there will be Medicaid penalties.  So, how does filing one application at a time solve this problem?  Next week I’ll answer that question.