How to Plan for Medicaid Long Term Care in Advance of Applying: Medicaid Planning

Summary

Planning to apply for Medicaid before you need it will give you time to learn about its benefits, financial eligibility rules and qualification strategies This way, you won’t have to figure it all out in a crisis. After doing your own research, you may want to consult a Medicaid Planning professional. Even if you pay for professional assistance, planning for Medicaid will likely save you time, money and headaches.

When and Why to Plan for Medicaid Long Term Care

The best time to start planning for Medicaid is before any kind of long-term care is needed and you or your loved one are still relatively healthy. The Medicaid application process is complicated and time-consuming, so starting in advance can help ensure care will be available when it’s necessary. Planning ahead can also help eliminate mistakes on the application, which is critical. Mistakes can lead to benefits being denied, which could be disastrous for seniors in a healthcare emergency.

Advanced planning for Medicaid also reduces the possibility of having to pay out-of-pocket costs if you or your loved one needs long-term care while the Medicaid application is being completed, or while you’re waiting for a response from the state Medicaid offices (both of which take a surprising long time). Long-term care is expensive (the average nursing home cost is close to $100,000 per year) and most Americans will need it at some point. Paying for it out-of-pocket could be a major hardship for many seniors and families, especially if they have limited financial resources.

For married couples where one spouse needs long-term care before the other, planning ahead can protect the financial resources for the spouse who will remain living at home. Planning in advance can also help protect some of a senior’s resources, including their house, for their family.

 

How to Plan for Medicaid Long Term Care

Step 1: Eligibility Criteria

Before you can start planning for Medicaid, you need to know what you’re planning for. Knowing the financial and medical requirements in your state, or the state where you might retire, is the first step.

Financial Criteria
The financial requirement for Medicaid can be thought of in two parts: an asset limit and an income limit. In general, the individual asset limit for all three types of Medicaid Long Term Care is $2,000 as of 2024. The individual income limit for Nursing Home Medicaid and Home and Community Based Services (HCBS) Waivers in most states is $2,829/month, and for Aged, Blind and Disabled (ABD) Medicaid it’s between $943/month and $1,751/month, depending on the state. It’s important to note that all these limits vary by marital status and state, and the differences between state limits have been increasing recently. In California, for example, there is no asset limit for all three types of Medicaid Long Term Care. In Illinois, the individual income limit for all three types is $1,255/month and the asset limit is $17,500. States update these financial limits once a year, but not all at the same time. Some states update on Jan. 1, others on April 1 and some on July 1.

To look up the specific financial requirements for your situation, use our Medicaid Eligibility Requirements Finder. You can also find the financial limits for all 50 states and Washington, D.C., plus more details about each state’s Medicaid program, with our state-by-state guide.

Functional Criteria
The functional, or medical, criteria for Medicaid Long Term Care also varies by state, and in some cases, it also varies by program or the type of long term care service you’re applying for within a program.

  • Nursing Home Medicaid beneficiaries in all states are required to need a Nursing Facility Level of Care (NFLOC), which means they need the kind of full-time care that is usually associated with a nursing home. But the exact definition of NFLOC, and how an applicant’s level of care need is measured, can change from state to state.
  • The majority of Home and Community Based Services (HCBS) Waivers beneficiaries in most states must also need a NFLOC to be eligible. However, there are certain HCBS Waivers in some states that are slightly less strict with their medical requirements and may only require beneficiaries to be “at risk” of needing nursing home placement, or some other level of care requirement just below NFLOC.
  • There is no functional criteria to qualify for Aged, Blind and Disabled (ABD) Medicaid and receive healthcare coverage for regular doctor’s visits, medication, short hospital stays, etc. However, to receive long-term care services and supports through ABD Medicaid, beneficiaries are required to show a medical need for that service or support.

Step 2: Your Finances

Once you’ve found the financial criteria for your state, you can look at your own finances (and your spouse’s if you’re married) and see how close you are to qualifying.

Single Applicants
To see how close you are to the asset limit, you’ll have to add up all your countable assets, which include all bank accounts, cash, certificates of deposit, retirement accounts, stocks, bonds or any other assets that can easily be converted into cash. An applicant’s home isn’t always a countable asset (more on that in Step 4), and neither is their primary vehicle, clothing, or essential home furnishings and appliances. There are other non-countable assets, like Medicaid Compliant Annuities, Medicaid Asset Protection Trusts and Irrevocable Funeral Trusts. Determining your asset total is an area where a Medicaid planning expert can really help.

You’ll follow the same process to see how close you are to the income limit. Add up all your countable monthly income, and most income is counted for Medicaid purposes: Social Security benefits, pension payments, IRA payments, wages, alimony, property income, etc. However, these rules for counting income are also state-specific, so you’ll want to be sure to check with the Medicaid offices in your state or a planning professional.

Married Couples, Both Applying
For married couples with both spouses applying for Medicaid, all of the couple’s assets count for both spouses. So, even if a banking account is under the name of one spouse only, it will still count against the asset limit for both spouses. The same is true for income for married couples – all of it is added together and must be under the state’s income limit for couples. The good news is, in most states the asset limit and the income limit for both Nursing Home Medicaid and Home and Community Based Services (HCBS) Waivers is double the individual limit. It’s not double for Aged, Blind and Disabled (ABD) Medicaid, which is intended for people with significant financial hardship.

Married Couples, One Applicant
For married couples with just one spouse applying for Nursing Home Medicaid or HCBS Waivers, the asset limit in most states for the applicant spouse is $2,000, as of 2024, but for the non-applicant spouse it’s $154,140. It’s lower in some states, but the minimum it can be is $30,828. This is known as the Community Spouse Resource Allowance. When it comes to income for married couples with just one spouse applying, the income of the non-applicant spouse does not count against the income limit of the applicant.

Paperwork
While you’re evaluating your finances, you should keep a list of all assets and income sources. You should also start gathering documentation related to these resources, especially year-end summaries. Medicaid applications require these documents detailing your financial holdings, usually going back five years from your application date. Gathering this paperwork is often the most time-consuming part of the application process, but our Medicaid Application Documents Checklist can help.

Why might you need documents going back five years? Step 3 explains.

Step 3: Look-Back Period


Here’s the short explanation of Medicaid’s Look-Back Period: It prevents applicants from simply giving away their assets to get under the asset limit and qualify for Medicaid.

In most states, the Look-Back Period is five years. This means Medicaid applicants are required to provide financial documents going back five years from their application date, so the Medicaid state officials reviewing your application can make sure you (and your spouse if you are married) have not simply given away your assets, or sold them at less than fair market value. This includes transferring ownership of a home, donating a vehicle and gifting money in any way, like paying for a grandchild’s education.

The Look-Back Period only applies to Nursing Home Medicaid and Home and Community Based Services (HCBS) Waivers. It does not apply to Aged, Blind and Disabled (ABD) Medicaid. However, ABD Medicaid applicants should be careful about giving away their assets. They may need Nursing Home Medicaid or HCBS Waivers, and they could be ineligible for those programs because they gave away assets to become eligible for ABD Medicaid.

 Penalties: The penalty for violating the Look-Back Period will be a period of Medicaid ineligibility that could last months or years. The length of time is determined by using the state’s “penalties divisor,” which varies by state, but often takes into account the dollar amount of the violating assets.

A few financial transactions are exempt from the Look-Back Period, but they have to be documented and approved by Medicaid. Married applicants are allowed to transfer a portion of their assets (up to $154,140 in most states in 2024) to their spouse using the Community Spouse Resource Allowance without breaking Look-Back Period rules (as long as their spouse is not also on Medicaid).

Applicants can transfer their home without violating the Look-Back Period if they use the Sibling Exemption, the Child Caregiver Exemption or a Lady Bird Deed, but those aren’t the only ways your home can be exempt from Medicaid’s asset limit. In fact, there are many ways the home can be exempt, and we’ll go over them in the next step.

Step 4: Understanding Home Ownership Rules in the Context of Medicaid

The home is usually your most valuable asset, and if it was counted toward Medicaid’s asset limit it would most likely put you or your loved one well over the limit. But there are many scenarios where the home is exempt.

  • If the Medicaid applicant lives in their home and the home equity interest is less than the home equity interest limit in their state, then the home is exempt. Home equity interest is the portion of the home’s equity value that the applicant owns minus any outstanding mortgage or debt on the home. The home equity interest in most states in 2024 is either $713,000 or $1,071,000, depending on the property values in the state.
  • If the applicant’s spouse, minor child, or blind or disabled child of any age lives there, the home is exempt regardless of the applicant’s home equity interest, and regardless of where the applicant lives.
  • If none of the people mentioned above live in the home, the home can be exempt if the applicant/beneficiary files an “intent to return” home and the home equity interest is at or below the state’s home equity interest limit. To learn more about “intent to return,” click here.
 Exception: These rules apply to all three types of Medicaid, with one key exception – ABD Medicaid applicants don’t have to worry about the home equity limit. Value does not matter regarding their home’s exempt status. 

The home can also be protected from the asset limit by using these three strategies:

  • Lady Bird Deed: Creating this kind of trust allows the homeowner and Medicaid recipient to maintain control of the home as long as they are alive, but transfers it to a named beneficiary immediately upon their death, and protects the home from the asset limit without violating the Look-Back Period.
  • Child Caregiver Exemption: If an adult child has been living in the home with the Medicaid beneficiary and providing them care for at least two years, the home can be transferred to that adult child and protected from the asset limit without violating the Look-Back Period by using the Child Caregiver Exemption.
  • Sibling Exemption: If the Medicaid beneficiary’s sibling has an equity interest in the home and has been living there for at least a year before the beneficiary moves out, the home can be protected from asset limits and transferred to the sibling without violating the Look-Back Period with the Sibling Exemption.

Step 5: Understanding the Basics of Medicaid Planning Strategies

Even if you have assets or income over the Medicaid limits in your state, there are still ways you can become eligible. These strategies can be complicated and they will probably require extensive documentation and paperwork. It’s highly recommended that you consult with a Medicaid planning professional like an Elder Law Attorney or a Certified Medicaid Planner before trying to use any of them, but it’s also a good idea to have a basic understanding of the most common strategies for yourself.

Strategies for Too Much Income

  • Married Medicaid recipients with a low-income spouse who is not on Medicaid  are allowed to give some of their income to their spouse, and that income will not be counted toward the income limit for eligibility. This is called the Monthly Maintenance Needs Allowance.
  • In some states, individuals with too much monthly income to be Medicaid eligible are allowed to spend that excess income on pre-approved medical and personal care expenses in order to become eligible. This is known as the “Medically Needy Pathway,” and states that offer this are known as Medically Needy states. The rest of the states are known as Income Cap states, and they have another way for people with too much income to become Medicaid eligible, which is described next.
  • States without the “Medically Needy Pathway” are known as Income Cap states. Residents of Income Cap states with too much income to be Medicaid eligible can deposit their excess income in a Qualified Income Trust and become eligible. Qualified Income Trusts are also known as Miller Trusts, QITs, Income Diversion Trusts and several other names, some of which are state specific. Money in the Qualified Income Trust may be used for some medical expenses, like those not covered by Medicaid or Medicare, but which expenses exactly depend on the state. After the Medicaid recipient’s death, money in the Qualified Income Trust will be given to the state to help offset the cost of Medicaid care.

Strategies for Too Many Assets

  • Married Medicaid recipients with a financially limited spouse who is not on Medicaid are allowed to give some of their assets to that spouse, and those assets will not be counted toward the asset limit for eligibility. This is called the Community Spouse Resource Allowance (CSRA). As of 2024, the minimum CSRA is $30,828 and the maximum is $154,140. Most states use the maximum figure, but it does vary.
  • The most common strategy to reduce excess assets and become Medicaid eligible is for the applicant to “spend down” those assets on themselves for such things as paying for long-term care out of pocket, home modifications, reducing debt or even taking a vacation. They shouldn’t spend on tangible items, like jewelry or a second car, since these can be counted against the Medicaid asset limit. And they can not spend on someone else’s healthcare, debt, home or anything else, other than their spouse, because it would be viewed as a gift and would violate the Look-Back Period (described above in Step 3). However, if they planned far enough in advance, they could gift money to anyone without violating the Look-Back Period.
  • Medicaid Compliant Annuities are another way to “spend down” excess assets without violating the Look-Back Period. Essentially, you pay a lump sum for the annuity, which is not counted against the Medicaid asset limit, but gets paid back to you in monthly payments which will be counted against the income limit. Those monthly payments will count as income, so it’s important to make sure they don’t push you over your Medicaid income limit. You also need to be sure the annuity is Medicaid Compliant under your state’s rules.
  • Irrevocable Funeral Trusts are also exempt from Medicaid’s asset limit and they do not violate the Look-Back Period. Individuals can use their excess assets to purchase one of these trusts, which will eventually be used to pay for their funeral costs, and get under Medicaid’s asset limit. As of 2024, most states have a $15,000 limit on Irrevocable Funeral Trusts, but that does vary by state. And Irrevocable Funeral Trusts are not exempt from Medicaid’s asset limit in two states – New York and Michigan.
  • Anything put in a Medicaid Asset Protection Trust (MAPT), including a home, a car, or large sums of cash, is exempt from Medicaid’s asset limit. The trust must be irrevocable (meaning it can not be changed or canceled) to be allowed by Medicaid. The real catch is that MAPTs violate the Look-Back Period. So, MAPTs can be a valuable tool if you plan well in advance (more than five years in most states), but they won’t make much sense if you’re not planning that far out. Another advantage of MAPTs is that they also protect assets from the Medicaid Estate Recovery Program, which is explained in the next section.

 

The Differences Between Medicaid Planning & Estate Planning

This article has focused on Medicaid Planning, which is preparing to apply and qualify for Medicaid. Estate Planning is preparing in advance to save and maximize your resources for your beneficiaries after your death. However, Medicaid Planning and Estate Planning do overlap in certain areas. And most Medicaid Planning should include some Estate Planning due, for the most part, to Medicaid Estate Recovery Programs (MERPs).

Every state has a MERP, and they are mandated by law to to try and collect reimbursement for the money the state paid for Medicaid care. They try to collect from the estate of Medicaid beneficiary after their death. The estate can include the Medicaid beneficiary’s home, money in bank accounts, items of value such as vehicles, cash and remaining funds in Qualified Income Trusts and Irrevocable Funeral Trusts.

 Important: Just because one’s home was protected from counting against the state’s Medicaid’s asset limit, that does not mean the home is also protected from the state’s Medicaid Estate Recovery Program.

There are several strategies to keep the home protected from your state’s MERP that have already been discussed in this article. The Child Caregiver Exemption, Sibling Exemption and Lady Bird Deeds can all protect the home from MERP without violating the Look-Back Period. Medicaid Asset Protection Trusts can also protect the home from MERPs, but they do violate the Look-Back Period.

If the home is not protected, some states will put a lien on it. The lien prevents the home from being sold until all debts are paid, which includes paying the state back for Medicaid coverage. However, states can not put a lien on the home if any of the following people still live there:

  • the beneficiary’s spouse
  • the beneficiary’s child who is under 21
  • the beneficiary’s child who is disabled or blind
  • the beneficiary’s sibling with partial ownership.

In fact, MERPs will not try to collect any kind of reimbursement if the deceased beneficiary’s spouse is still alive, or if the deceased beneficiary has a child under 21 or a blind or disabled child who is living. MERPs also have limitations when it comes to collecting reimbursement, but they vary greatly by state, as do most rules governing Medicaid Estate Recovery.

You can also protect assets from MERPs by using the Modern Half a Loaf Strategy. In short, you give some of your assets to your family knowing the gift will violate the Look-Back Period, but you keep enough assets to pay for your long term care until your period of ineligibility for violating the Look-Back Period is over. This is a complex strategy, and it is not advisable to try it on your own.

Spousal Refusal and Medicaid divorce are two more strategies to protect assets from MERPs, but neither are all that common. Spousal Refusal is when the spouse makes a legal declaration that they will no longer support their spouse who is on Medicaid, thereby protecting the spouse’s resources. But Spousal Refusal is only allowed in Florida, New York and Ohio. Married Medicaid beneficiaries can also protect assets for their “well” spouse (who is not on Medicaid) with a Medicaid divorce, which could put all of the assets in the well spouse’s name and protect them from having to pay for healthcare for non-well spouse.

 

Timing of Medicaid Planning

Planning for Medicaid can be broken down into three general time frames: 1) planning before the Look-Back Period, 2) planning during the Look-Back Period but not in crisis and 3) crisis planning.

Optimal Time – Before Look-Back
As we’ve been emphasizing, planning well in advance is best, and the optimal time to start Medicaid planning is before the Look-Back Period begins in your state, which is five years before the Medicaid application date in most states. Planning before the Look-Back Period allows you to use Medicaid Asset Protection Trusts without penalty, and you can freely gift money or other assets, like paying for a grandchild’s education or giving your niece a car.

The risk here, of course, is that you never really know when you’re going to need to apply for Medicaid Long Term Care. You might think you or your loved one is more than five years away from applying, but the need for long-term care might come sooner than you think, and giving away assets would be against Look-Back rules and could lead to a period of ineligibility.

Sufficient Time – During Look-Back
If you believe you or your loved one will be applying for Medicaid during the Look-Back Period in your state, but there is no urgent need for care, you still have enough time to plan ahead. You can fully evaluate your financial situation and start gathering official documents from all your bank accounts, retirement accounts, pension plans, etc. You also have time to “spend down” any excess assets on yourself or your spouse. And you can use a Lady Bird Deed to protect your home from the asset limit and Medicaid Estate Recovery Program in your state.

No Time – Crisis Planning
Sudden illness or other unforeseen circumstances may lead to an immediate need for Medicaid covered long term care. Planning in this kind of an emergency is possible, but it’s difficult to do while also submitting an error-free application in the shortest time possible. Consulting an expert in these kind of circumstances is highly recommended, and the different type of professional Medicaid planners are discussed in the next section.

 

Who Provides Assistance with Medicaid Long Term Care Planning

As you can see, planning for Medicaid is complex. Finding a professional to help you with the process is a great idea. Below are some of the most common types of professionals who can assist you with Medicaid planning.

Certified Medicaid Planners
As the name suggests, a Certified Medicaid Planner (CMP) has undergone a certification process and thorough testing to prove they are experts in the field of Medicaid Long Term Care applications, criteria, rules and benefits on a state and national level. That expertise is then put to practice every day as they work with Medicaid Long Term Care applicants. This makes CMPs knowledgeable on the latest changes and updates to Medicaid, which is being changed and updated on a regular basis. CMPs are efficient and accurate when it comes applications, and they should be near the top of the list for anyone who wants help planning for Medicaid.

Elder Law Attorneys
When it comes to understanding some of the convoluted Medicaid regulations or correctly filling out an application, Elder Law Attorneys can be extremely helpful. They understand Medicaid criteria, benefits and exceptions in the state where they practice law. If you have complex legal issues around your financial holdings or your marriage (such as wanting a divorce to protect assets for a spouse), hiring an Elder Law Attorney to help with Medicaid Planning is a good idea. However, most Elder Law Attorneys are more experienced with Estate Planning than Medicaid Planning, and they may not have a thorough understanding of healthcare needs or alternative care programs. An Elder Law Attorney is also likely to be the most expensive option when it comes to Medicaid Planning.

Geriatric Care Managers
These professionals usually provide multiple services, including healthcare assessments, planning and coordination. They are also known as Elder Care Managers, Senior Health Managers and Life Care Managers, and some of them offer financial help, as well. They are experts when it comes to managing healthcare and making sure their client’s best interests are the top priority. They are generally knowledgeable about Medicaid and local programs that might be used as alternatives to Medicaid, but they are not necessarily experts when it comes to all the nuances and complexities of Medicaid applications and regulations, strategies to become financially eligible or how to best maximize your resources.

Eldercare Financial Planners
For people with a variety of financial holdings and options who are planning well in advance, Eldercare Financial Planners could be a great fit when it comes to Medicaid Planning. They will be able to maximize your resources while bringing you to the state financial limits, and they can organize and provide all the financial documents and details needed for a Medicaid application. Eldercare Financial Planners are not necessarily knowledgeable about care needs, however, which may impact planning when it comes to long-term healthcare. And they don’t necessarily have insight into local programs that might be used as alternatives to Medicaid. Plus, like attorneys, financial planners are expensive.

Public Benefits Counselors
These professionals work for state Medicaid offices, Area Agencies on Aging and Disability Resource centers. They have a solid understanding of Medicaid criteria, benefits and the application process, as well as local programs that might be used as alternatives to Medicaid. They do not charge for their services, which is great, but it also means they are very busy and simply can not offer the same kind of thorough help that a private, paid Medicaid planning professional would deliver. Plus, they don’t help people who are over the asset or income limit figure out how to become financially eligible. In fact, they won’t help them at all. You need to be already financially eligible for Medicaid to get assistance from a Public Benefits Counselor, who are also known as Public Case Managers.