TANSTAFL (The Medicaid Balancing Act)
By Tim Barkley. November 2019.
Susan sat across from the table and leafed through a manila file folder. “What do you need to know?”
“Well, to figure out whether and when Mom might qualify for Medicaid,” replied the lawyer, “we need to know what she owns and what it’s worth.
“There are two basic categories of assets: Exempt and Countable.” He stood up, went to the whiteboard in the corner, and wrote the titles boldly, underlining each.
“Exempt assets are assets that aren’t counted for Medicaid qualification purposes. Countable assets are.
“Medicaid requires that countable assets be reduced below certain levels before Mom can qualify. These levels are pretty low – $2,500 for a single person.
“Countable assets includes everything not exempt.”
The attorney picked up his marker, and under “Exempt,” drew the outline of an old-fashioned jalopy. Susan looked puzzled. “That’s a car,” he explained. She shook her head, and he laughed. “I’m an attorney, not an artist.”
“So I see,” she confirmed.
“Even if your mother can’t drive, she can keep a car. That’s because she might need it to get to medical appointments. It has to be a reasonable car – you can’t get Mom a Lamborghini – but she’s entitled to a car.
The attorney drew a semi-circle with a wavy line underneath it, wrote “RIP” on it. “Mom is entitled to prepay a funeral and burial before she applies for Medicaid. Again, there’s no limit, it just has to be reasonable.
“Mom can also keep reasonable personal property. Again, no exact value, but it must be ‘reasonable.’”
“What does ‘reasonable’ mean?” asked Susan.
“Well, ‘reasonable’ is in the eye of the beholder. Just assume that you’ll have to explain it to a judge or Medicaid case worker. If you can do that without blushing, it’s ‘reasonable.’”
“What about the house,” queried Susan.
“If Mom were still married and if your father were living in the house, it would be exempt – Mom could qualify for Medicaid and still keep the house. Unfortunately, that’s not the case.
“If the house were rented and producing net income, we could argue that the income should be applied to your mother’s cost of care, but that she should be able to keep the house. If she subjectively would want to return home, we can file a form with the Medicaid application stating that is her intent, and she can keep the house.
“Either way, though, Medicaid – actually, the Maryland Department of Health or MDH – will file a lien against the house. If you ever sell the house, or at her death, the lien has to be paid.
“That can actually work to your benefit, though. Medicaid doesn’t pay as much as a private pay patient, usually only about 50 to 60 percent of the private pay rate, and the lien is only for what Medicaid pays for your mother’s care. Let’s assume that your mother’s income is $1,000 per month, and the private pay rate was $8,000 per month.
“The Medicaid pay rate might only be $4,000 per month, so the shortfall if she’s on Medicaid would be only $3,000 per month, not the $7,000 per month at private pay rates. If the house is worth $300,000, then she wouldn’t go through the equity for 100 months if she’s on Medicaid – but she’d go through the equity in only 43 months at private pay rates.
“So, pardon me for sounding macabre, but you can save a lot of money by keeping the house for your mother’s lifetime and submitting to the Medicaid lien, unless she lives too long. That’s something to think about.”
“What about the investment properties?”
“Well,” ruminated the lawyer, “if they’re producing income, we might be able to get MDH to let us keep them, just like the house. That would be especially true if they have mortgages on them and are ‘underwater.’”
“No, they’re all paid off.”
“Well, I guess the most important question is whether you or your brothers want to be landlords. If not, then sell the properties.
“How much is your mother’s monthly income?”
“Right now, it’s about $4,400 from Social Security, a small pension and rental properties. But that goes up and down. If we rented her house, we could probably get another $2,200 a month, but we’d only net around $1,500 after taxes and insurance.”
“Then you can cover most of the cost of care in most nursing homes around the area, unless your mother needs specialized care. I’m not sure Medicaid is something to worry about now.”
“Well, that’s good, I guess,” Susan replied. “I just hear so much about the nursing home taking everything, and want to be sure we’re protected.”
“A common myth,” reassured the lawyer. “The nursing home just needs to get paid, so they can stay in business.”
“But if we’re covering Mom’s cost of care now, what’s to stop us from giving away everything so she can qualify for Medicaid in five years? You said something about that last time.”
“That might be workable. Let’s meet about that next week. But when we talk about that, remember, somebody has to pay for your mom’s care. There ain’t no such thing as a free lunch.”
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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