Deciding to place a loved one in long term care can be one of the most difficult decisions a person has to make. When, where, and how to pay for it are all common questions. The average cost for long term care in Pennsylvania is $3,995 per day but can easily run much higher. Even for couples who saved wisely, this amount can quickly deplete savings.
Medicare only covers a very limited stay in long term care under limited circumstances. Most long-term care stays must pay privately or qualify for Medicaid. While Medicaid (or Medical Assistance (“MA”) in Pennsylvania) will pay for long-term care, it is only available for individuals who meet the medical, income, and asset qualifications.
Most applicants meet the medical and income requirements but have too many assets to qualify for MA. Only certain assets are counted applying for MA. A personal residence, a vehicle, personal property, and income producing property are excluded and the individual will still qualify for MA. All of a married couple’s assets are counted, regardless of the ownership (with a few exceptions).
In addition to the excluded assets, Medicaid will allow the spouse to keep an amount of money to provide for their own needs (the “Community Spousal Resource Allotment” or “CSRA”). Currently this amount is one-half of the available resources, with a minimum of $26,076 and a maximum of $130,380.
Medicaid penalizes gifts made to qualify for Medical Assistance and has enacted a rule that any gifts within five years of the date of application will create a penalty period that must run before the individual will qualify for MA.
This penalty is calculated using an average daily rate (currently $364.90 per day). The value of each gift is divided by this daily rate to create a penalty period. It doesn’t matter when the gift was made, as long as it was within 5 years of the application date.
Because Medicaid reviews five years of transactions, planning must be done while the individual is healthy enough to stay out of long-term care, or enough funds must be available to pay privately through any penalty period. Gifting can be effective but comes with significant risks. Children can move, get divorced, have creditors, bankruptcy issues, or get sued. In any of those circumstances the funds can be lost, making the plan ineffective.
A more effective method for transferring assets is funding an irrevocable Medicaid Asset Protection Trust (“MAPT”). A Trust allows for the transfer of assets while protecting them for children and will avoid any need for an applicant to “spend down” those funds before applying to Medicaid.
Long-term care planning is complex and poor planning can lead to severe consequences. Before taking any steps towards long-term care planning, be sure to consult with an Elder Law Attorney.