If you need to qualify for Medicaid coverage for long term care, you may be trying to think of smart ways to spend down your assets. Burial plans can be set up as exempt assets so that they are not counted when applying for Medicaid coverage. This way, you are able to preserve some assets that your family will need one day.

What is Medicaid?

First of all, let’s discuss what Medicaid does. Medicaid is a state and federally funded health insurance program serving low income families and individuals and those in critical need for medical care. Medicaid covers over 72.5 million Americans including seniors, disabled individuals, children, parents, and pregnant women. Disabled individuals and those age 65 and older are not affected by the new modified adjusted gross income (MAGI) qualification rules established by the Affordable Care Act.

Those who are determined to be “medically needy,” but whose income is too high to qualify for Medicaid may be able to qualify by “spending down” their assets to a level that makes them eligible for the state’s medically needy qualification standards.

What does “spend down” mean?

Spend down is the process of divesting an individual’s assets down to the amount that makes him or her eligible for Medicaid coverage for long term care. Spend down usually occurs as the individual pays for nursing home care expenses out of pocket until their assets have dwindled to the allowable limit.

Because of the high cost of nursing home care, which is usually between $6,000 to $7,000 per month, careful planning is essential before spending down.

How can I protect my assets from being spent on nursing home costs?

Most state Medicaid programs allow certain assets to be exempt from consideration, and thus protected from being spent out of pocket on nursing home costs. Before spending down, understand which assets are considered exempt, which are non-exempt, and how much you can preserve for your family.

Depending on the type of assets you are trying to preserve, the transfer of assets may need to be done up to 5 years before you apply for Medicaid coverage. Application for long-term services and supports (LTSS) will be denied if an individual’s assets have been transferred for less than fair market value within a five-year period before applying for Medicaid assistance. Planning ahead is essential if you wish to protect as many assets for your family as possible.

Most states follow the Social Security Administration’s (SSA) Supplemental Security Income (SSI) guidelines to establish Medicaid eligibility for seniors over 65 and for disabled individuals. The following states use their own rules to establish eligibility for Medicaid which are different from SSA’s SSI rules: Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, Virginia.

For specific information about your state’s Medicaid qualification and spend down rules, click here, select your state, and scroll down to “State Medical Assistance Office.” You can then visit your state’s health services website and/or contact your health services department for more information.

Will my spouse be affected by Medicaid spend down?

The spouse of the person in long term care is afforded some measure of protection from spousal impoverishment. As of 2016, here are Medicaid’s published Spousal Impoverishment Standards.

In general, what kinds of assets are exempt from being counted for Medicaid qualification?

Other than the income that your spouse is allowed, you can also set up certain assets as exempt from being counted, at least for the time-being, for Medicaid qualification. The following is by no means an exhaustive list, but gives you an idea of the types of assets that generally are excluded by the state’s Medicaid program. Every state has the ability to set its own qualification rules, but in general, exempt assets include:

• Your principal residence (subject to equity limits in some states) if you, your spouse, or dependent child still live in the house, or if you intend to return to the house.
• Personal property and effects, such as furnishings, belongings, appliances, and household goods. Some states place a cap on the allowable amount.
• Life insurance with a cash value up to $1,500. Term life insurance is generally excluded as an asset.
• A designated revocable account for burial funds with a value of up to $1,500 per spouse. Other burial funds, irrevocable burial contracts, and cash surrender value from life insurance will reduce this allowable amount.
• An irrevocable contract for burial space items (with no limitation on the amount) for you and your immediate family members including your spouse, your children (including adoptive and stepchildren), their spouses, your siblings and their spouses, and your parents. Burial space items include caskets, urns, vaults, burial plots, cremation niches, headstones, opening and closing of the grave, and perpetual care. Burial space items are counted as separate from burial funds.
• A larger irrevocable contract for burial funds for you and your spouse only that includes funeral service costs such as transportation of the body, embalming, cremation, flowers, clothing, services of the funeral director and staff, etc.
• One automobile (in some cases there is a limit on the market value) for spouse or child if used to visit the person who is ill.
• One wedding and engagement ring.
• A married couple can keep considerably more if one spouse is still well, and does not need Medicaid; in most cases half the assets up to a certain amount.

Non-exempt assets

Non-exempt assets are those that Medicaid considers as part of your accessible, countable assets when you apply for assistance. You will be expected to liquidate these types of assets to help you pay for long term care costs. Non-exempt assets will be considered as available to you to use toward paying the cost of your medical care. This includes money and a variety of real and personal property which can be valued and turned into cash. These include (but are not limited to):

• Cash
• Checking and savings accounts
• CDs, stocks, bonds, or mutual funds
• Retirement accounts including IRAs, 401(k)s, 403(b)s
• Prepaid funeral contracts that are not irrevocable (can be cancelled)
• Trusts (depending on how they are set up and your access to them)
• Property other than the primary residence
• Jewelry and valuable art or collections
• More than one vehicle, boats, RVs, etc.
• Cash surrender of life insurance with a face value of $1,500 or more

What is the difference between burial funds and burial space items?

These terms may sound similar, but they mean different things when it comes to Medicaid spend down rules. Both burial funds and burial space items can be placed into irrevocable contracts. The term “irrevocable” signifies that you cannot cancel or liquidate your assets within the contract for cash value. This irrevocable status excludes the contract from being considered as a countable asset for your state’s Medicaid program. “Burial funds” is a term that designates the services provided by a funeral home. “Burial space items” is a term that designates the merchandise and items associated with the burial of a body.

Burial funds may be purchased for both the Medicaid applicant and his or her spouse. Burial funds include any funeral goods and services sold by a funeral home. For example, burial funds may be set aside in an irrevocable contract to cover expenses such as embalming, burial clothing, preparation of the body for burial, cremation fees, transportation of the remains, limousines, honorariums, flowers, police escort, etc. The burial funds must be placed in an irrevocable prepaid funeral contract (maximum value determined by state), or they must be less than $1,500 if the funds are in a revocable account. An irrevocable contract allows more funds to be preserved from being spent on nursing home costs so that your family does not have to cover funeral and burial expenses.

Burial space items can be purchased for most of the applicant’s family members, including the applicant, his or her spouse, and their immediate family members along with their spouses. This is one of the few ways you can legally set aside some of your assets for your children. Burial space items must also be irrevocable contracts to be considered exempt. Burial space items include any merchandise or items associated with burial such as cemetery plots, vaults, caskets, urns, opening & closing of grave, cremation niches, headstones, grave markers, family estates or crypts, and perpetual care. Properly structured burial space contracts may be excluded as an asset regardless of value.

Be sure to consult an experienced prearrangement specialist or licensed funeral director to ensure that your contract meets all of your state’s requirements for Medicaid spend down.

Important Notice about Medicaid Eligibility Rules

Please be aware that Medicaid rules vary greatly from state to state and are constantly changing. The listed examples of exempt and non-exempt assets may vary from state to state and will often depend on a variety of individual factors. Most states follow the Social Security Administration’s (SSA) Supplemental Security Income (SSI) guidelines to establish Medicaid eligibility. The following states use their own rules to establish eligibility for Medicaid which are different from SSA’s SSI rules: Connecticut, Hawaii, Illinois, Indiana, Minnesota, Missouri, New Hampshire, North Dakota, Ohio, Oklahoma, Virginia. An attorney can assist you in designing a Medicaid plan that preserves as many assets as possible under the laws and eligibility requirements of your state. Always speak to a qualified attorney who is knowledgeable in elder law before spending down or transferring assets to qualify for Medicaid. The purchase of a prepaid funeral contract is an important part of your complete Medicaid plan, so be sure to consult a licensed funeral prearrangement specialist or licensed funeral director who can assist you in creating a properly structured prepaid funeral plan.