Are you looking for ways to spend down your assets so you can qualify for Medicaid coverage? Planning ahead for your funeral wishes can help! Prearranged funeral plans can be set up as exempt assets so they won’t be counted when applying for Medicaid coverage. Not only will a prearranged funeral plan protect your assets from long-term care costs, but it will also put more money in your family’s pocket and give them a clear understanding of your funeral wishes!
While each state has its own rules and regulations regarding Medicaid eligibility, the basics are the same across the country. Here are the basics of the Medicaid spend down program and how it may help you qualify for Medicaid.
What is Medicaid?
First of all, let’s discuss what Medicaid does. Medicaid is a state- and federally-funded program that provides health insurance for low-income families, individuals, and those in critical need of medical care. Medicaid covers over 86 million Americans, including seniors, disabled individuals, children, parents, and pregnant women.
Many states also offer “medically needy” programs as a part of their Medicaid coverage. These offer healthcare assistance to those who need medical help but whose income is too high to qualify. If you want to qualify for Medicaid’s medically needy program, you can “spend down” your assets to a level that makes you eligible.
To learn about your state’s Medicaid programs and eligibility requirements, click here.
What does “spend down” mean?
In order to qualify for Medicaid’s medically needy program, you must decrease your assets to the allowable limit (usually less than $2,000). This process of decreasing your assets to get long-term care coverage is called spending down. In most cases, spending down is done by paying for nursing home care expenses out of pocket until your assets have dwindled to the allowable limit.
However, nursing home care is expensive, so you may lose a large portion of your assets before qualifying for Medicaid. That’s why it’s essential to consider other options and make a plan before you need to spend 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. These assets won’t count toward your total, which could help you qualify for Medicaid sooner. Before spending down, take time to learn which of your assets are considered exempt, which are non-exempt, and how much you can preserve for your family. You can see some examples in the next section, but check your state’s specific rules about exempt assets.
Depending on your situation, you may need to transfer your assets up to 5 years before applying for Medicaid coverage. For example, if you apply for long-term services and supports (LTSS), you will be denied if your assets have been transferred for less than fair market value within five years of your application for Medicaid assistance. That’s why planning ahead before spending down is so important!
Most states follow the Social Security Administration’s (SSA) Supplemental Security Income (SSI) guidelines to establish Medicaid eligibility for disabled individuals and seniors over 65. However, some states have their own guidelines, so be sure to check your state’s specific eligibility requirements.
In general, what kinds of assets are exempt from being counted for Medicaid qualification?
Before you apply for Medicaid, you can set up certain assets as exempt from being counted for Medicaid qualification. The list of exempt and non-exempt assets below isn’t exhaustive, but it can be a good starting place. If you have questions about whether a specific type of asset is exempt, check with your state’s Medicaid program. Every state can set its own qualification rules, but these assets are typically exempt:
- Your principal residence (subject to equity limits in some states) if you, your spouse, or your 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 of up to $1,500. Term life insurance is generally excluded as an asset.
- A designated revocable (can be canceled) 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 (cannot be canceled) 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, grave opening and closing, and perpetual care. Burial space items are 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).
- One wedding ring and one engagement ring.
- A married couple can keep considerably more if one spouse is still well and does not need Medicaid. Learn more about Medicaid’s protections against spousal impoverishment.
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 assets to help you pay for long-term care costs. Non-exempt assets include (but are not limited to):
- 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
- 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?
Irrevocable contracts for burial funds and burial space items, which can’t be canceled or liquidated, are exempt from being counted as an asset for your state’s Medicaid program. But what are burial funds and burial space items?
Burial funds are funds set aside to cover the services provided by a funeral home. These cover funeral services and most goods a funeral home sells, like embalming, burial clothing, preparation of the body for burial, cremation fees, limousines, flowers, and much more. To be considered exempt, burial funds can only be purchased for the Medicaid applicant and their spouse. Burial funds must be placed in an irrevocable prepaid funeral contract (maximum value determined by state) or a revocable account of less than $1,500. Because an irrevocable contract has a larger maximum value than a revocable account, you can save more money from nursing home costs with an irrevocable contract.
Burial space items are merchandise and items associated with the burial of a body, like cemetery plots, vaults, caskets, urns, opening & closing of graves, cremation niches, headstones, grave markers, family estates or crypts, and perpetual care. Burial space items must be in irrevocable contracts to be considered exempt with no limit on the amount. Plus, you can purchase burial space items for almost all of your family members, including yourself, your spouse, and your immediate family members and their spouses. This is one of the few ways to legally set aside some of your assets for your children!
Consult an experienced prearrangement specialist or licensed funeral director to ensure your contract meets your state’s Medicaid spend down requirements.
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 various individual factors. Most states follow the Social Security Administration’s (SSA) Supplemental Security Income (SSI) guidelines to establish Medicaid eligibility. An attorney can assist you in designing a Medicaid plan that preserves as many assets as possible under your state’s laws and eligibility requirements.
Always speak to a qualified attorney who is knowledgeable in elder law before spending down or transferring assets to qualify for Medicaid. Purchasing 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.