This week I’m sharing a blog on Medicaid from Dave Zumpano, who focuses in Medicaid planning. I’ll be sharing Medicaid blogs from Dave Zumpano monthly in this space.
Now, here’s Dave’s blog:
Blog Author: David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center
What do they really mean?
If you’re a Lawyers With Purpose member, you know the minimum months to qualify is a term we use to determine how many months that it will take to get a client’s excess assets down to zero by gifting money and paying for nursing home costs. It is then used to calculate the breakeven point (60 – minimum months to qualify = breakeven point).
Before a client can be eligible for Medicaid, their excess assets much be zero. We know that we want to protect as much money as possible and that to do that we have to give the excess assets away (we have already performed our spend down analysis at this point). If the penalty divisor for the state is $5000 / month, then we know that if we give away $5,000, then we must pay for one month of nursing home cost. At the point, we have already done the analysis to figure out the monthly deficit – that is, how much money will the client have to pay from their resources after their current living expenses, allowable Medicaid exemptions, and nursing home costs are taken into account. Let’s say that is $10,000. So we know that if we give away $5,000, we pay for one month of nursing home cost. If we have to pay for one month of nursing home cost we have to pay $10,000. If our excess assets equals $100,000, then to get through month one, we give $5,000 away, we pay $10,000, and that reduces our excess assets by $15,000 and leaves excess assets at $85,000. The next month, we do it again. We give away $5,000, we incur one month of penalty, and we pay $10,000 to the nursing home. That leaves us with $70,000 in countable assets. The next month we do it again. We give away $5000, we pay $10,000 to the nursing home, and our countable assets drop to $55,000. (Longtime members may remember this as the “MPS Dance.”) This continues until our countable assets drop to zero, then we add up how many times we had to do the dance, and that becomes our minimum months to qualify. A short cut is to take the total excess assets and divide by the amount needed each month, in this case $15,000. In our example, that will give us 6.67 months. In other words, we have to give away $15,000 for 6.67 times in order to get the excess assets down to zero.
This number is then used to calculate the amount of money we can protect – the penalty divisor times the minimum months to qualify. Here that would be $5000 x 6.67, which would equal $33,350. Because we give away $33,350, we know we will have to private pay for 6.67 months (the penalty). That money is protected because it will not need to be spent on the nursing home. Then we calculate the amount of money that is at risk until breakeven – that is, if the client or spouse goes into a nursing home prior to the breakeven point, then this is the amount that they will have to pay before Medicaid will begin to pay for their care. We know that we have to pay for 6.67 months of nursing home care in this scenario, so we multiply the cost of the care each month, $10,000, by the number of months we will need to pay for the care, 6.67, which gives us the total cost that is at risk to having to pay the nursing home as $66,700. So, worst case, they will have to pay that $66,700 to the nursing home in order to protect the $33,350. Not great numbers in this particular scenario, but it is still better that spending it all down and applying to Medicaid.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555