When Both Spouses Need Care – Part 3

In my past 2 blog posts I was explaining that when both spouses need long term care the common thought is to spend down all the assets for both of them first and then apply for Medicaid for both at the same time.  That may not, however, be the best approach because of the way the Medicaid penalty works.

Let’s look at a typical example in which Mom and Dad have made gifts over the past 5 years.  When they apply for Medicaid they will need to produce financial records detailing all monies transferred into and out of their accounts dating back 5 years from the date they want Medicaid to start.  If they have made gifts and other transfers for less than fair value (eg. cash or other transactions that can’t be documented) of $100,000, that would result in a Medicaid penalty of about 8 months.

If we apply for Medicaid and are approved for our requested start date, it will be with a penalty – or waiting period – of 8 months.  That means Medicaid won’t start paying for another 8 months.  Mom and Dad’s care will continue to be billed at the private pay rate, which averages $15,000 per month per person.  But, of course, they don’t have the funds to pay for that care any longer because they had to spend it all down in order to be financially eligible.  Which is why they should apply one at a time.

If we know there will be a penalty of 8 months, which will cost $120,000 in care at the private pay rate, it is best to get to Medicaid for one spouse as quickly as possible leaving  enough funds to pay for care during the time frame of the penalty.  When the rest of the funds are then spent down, an application for the second spouse is then made.  Some of the second spouse’s 5 year look back period will overlap with the first spouse’s 5 year look back and some or all of the transactions that caused the penalty will again be seen by Medicaid.  However, if a penalty has already been assessed for these transactions on the first application, Medicaid can’t assess another penalty for the same transactions when the second spouse applies.

Managing the assets and the timing of each application can help insure that the penalty will run when Mom and Dad still have their own assets to cover it.  Other family members will not need to chip in to cover the cost of care.  Using a Medicaid annuity can help get to Medicaid even faster and preserve more assets to cover a longer penalty if that is necessary.

The only catch is that Mom and Dad need to put this plan in place while they still have enough assets to cover both their care and the penalty.  In other words, waiting too long after you have already spent down a significant part of your assets may leave you short of the funds needed to make everything work out right.