PA Medicaid Nursing Home Eligibility: Who this article is for
PA Medicaid nursing home eligibility is an article for families that need assistance navigating the Medicaid planning, application, and approval process for Medicaid nursing home benefits in Pennsylvania.
Do you have a loved one in a skilled nursing facility? Is a family member about to be admitted into a skilled nursing facility? Do you want to financially prepare for the possibility that someone you love may need long term care services? If you answered yes to any of these questions, reading this article on PA Medicaid nursing home eligibility will be beneficial.
The contents of this article are not legal advice. You should speak with an attorney before attempting any of the planning solutions discussed in this article.
We invite you to read on and hope that you learn something about securing Medicaid benefits in Pennsylvania.
PA Medicaid nursing home eligibility can be divided into three main categories: resources, income, and asset transfers. Before digging into the resource, income, and asset transfer standards, we need to briefly explore the other eligibility standards for PA Medicaid nursing home eligibility.
The medical or health criterion is reasonably self explanatory. If your loved one will be a permanent resident at a Nursing Home, they are medically eligible for Medical Assistance.
Think about it. No one chooses to live in a Nursing Home. Given the choice, Mom or Dad would prefer to stay in their home or in an Independent or Assisted Living Community. So if someone needs to move into a Skilled Nursing Facility, it is a safe bet that they must be there and a safe bet that they qualify medically for PA Medicaid nursing home eligibility.
If Mom or Dad cannot live independently and need assistance with activities like bathing, dressing, toileting, and transferring, they meet the health criterion for Medicaid benefits. These activities are known as activities of daily living, or ADL’s. Assistance with multiple ADL’s is a reliable sign that your loved one likely meets the medial standard for Medicaid benefits. Assistance with activities of daily living is also a main eligibility standard for Department of Veterans Affairs Aid and Attendance Pension.
More formally, the applicant must meet the nursing facility clinical eligibility standard to be considered medically eligible.
Officially, a doctor needs to complete a MA 51 form before PA Medicaid nursing home eligibility can be granted. The MA 51 form will likely be completed at your loved one’s nursing home.
Pennsylvania has provided guidance for nursing facility clinical eligibility. The guidance is:
1) The individual has an illness, injury, disability or medical condition diagnosed by a physician; and 2) As a result of that diagnosed illness, injury, disability or medical condition, the person requires care and services above the level of room and board; and 3) A physician certifies that the person is NFCE; and 4) The care and services are either a) skilled nursing or rehab or b) health-related care and services that may not be as inherently complex as skilled nursing or rehab services but which are needed and provided on a regular basis in the context of a planned program of health care and management and were previously available only through institutional facilities.
The residency criterion, like the medical standard, is intuitive. A Pennsylvania resident is a person that lives in Pennsylvania, stays in Pennsylvania most of the time, and plans to remain permanently in Pennsylvania.
Residency is so easy to satisfy for PA Medicaid nursing home eligibility that when a person living in another state is admitted into a Pennsylvania Long Term Care facility, they are considered a Pennsylvania resident for Medicaid purposes.
If a person leaves Pennsylvania but intends to return, they are considered temporarily absent. If a person considered temporarily absent is receiving Medicaid services, they must inform the County Assistance Office in writing of the reason for the absence and the anticipated start and end dates of the absence.
Unlike some states, Pennsylvania effectively has no income test for PA Medicaid nursing home eligibility.
The average cost of a nursing home in Pennsylvania is more than $9000.00 per month. If a person’s monthly income is less than the monthly cost of the nursing home, they meet the income requirement for Medicaid in Pennsylvania.
Here is why we say that Pennsylvania does not have an income test. Think about it. How many people have a monthly income higher than $9000.00 per month? An extremely tiny percentage of Medicaid applicants have an income exceeding $9000.00 per month.
If the cost of the nursing home is $8000.00 per month and your income is $7999.00 per month, then you meet the income requirement for PA Medicaid nursing home eligibility.
The County Assistance Office will look at the applicant’s gross monthly income to determine eligibility. Most often, the income sources an applicant receives are Social Security, a pension, and maybe VA Aid and Attendance Pension.
When a married person applies for Medicaid benefits, the community spouse (the spouse not in the Nursing Facility) income is not counted in the determination for PA Medicaid nursing home eligibility.
This generous income rule becomes more significant when Medicaid planning is a consideration. We will speak in more depth about Medicaid planning but, for now, it is enough to know that converting net worth into income is a crucial component.
Resources are any real or personal property that an applicant has or can make available for their total or partial support.
What is real property?
Real property, most commonly, means the family home. The family home is often referred to as the primary residence. Real property also refers to non-resident property. Non-resident property means any other property that is not the primary residence. This could include a vacation property or even a second home that a child lives in.
What is personal property?
Personal property includes bank accounts, cash on hand, stocks, bonds, mutual funds, IRA’s, and certain types of Trusts. This is not an exhaustive list.
Countable vs. Excluded Resources
Some of your resources may be considered exempt by the County Assistance Office. This means that some resources are not countable when determining an applicant’s total resources and their overall PA Medicaid nursing home eligibility.
Countable resources are all assets that are not specifically excluded by law. That is simple but not very helpful.
Excluded resources include the following:
1) The Resource Allowance — $2400.00 for an applicant with a gross monthly income greater than $2199.00. The resource allowance for an applicant with gross monthly income below $2199.00 is $8000.00. This means that if a single applicant has countable resources that exceed those numbers, he or she must private pay at the nursing home until resources are spent down. A married applicant and his spouse can keep additional resources (see below). Without Medicaid planning (discussed later in the article), PA Medicaid nursing home eligibility requires almost total impoverishment.
2) The Primary Residence – If the person applying for Medicaid indicates that they intend to return to their home, the house is exempt regardless of whether the person ever actually moves back to the primary residence. Keep in mind that a very valuable house might not be totally excluded – the State does impose a maximum amount that can be excluded. Planning options for Medicaid applicants with a house that exceeds the threshold do exist.
If the principal residence is used by the applicant’s spouse, minor child, or disabled child, the house is exempt regardless of its value.
3) Property – Real and/ or personal property used in a trade or business that is essential to self support is excluded regardless of value.
4) Household goods and Personal Effects – clothing, jewelry, furniture, musical instruments, and recreational equipment are all exempt. However, the County Assistance Office will likely want to know and count your $50,000 painting or $25,000 ring as a resource.
5) Motor Vehicle – One motor vehicle is excluded. If you have multiple cars, the County Assistance Office will exclude the value of the most expensive car.
6) Life Insurance Policies – Exempt up to a maximum face value of $1500.00 for the applicant. If the face value of the policy exceeds $1500.00, or multiple polices exceed this limit, only the cash surrender value above $1000.00 is countable.
7) Term Insurance – Term insurance is an exempt asset. Term insurance does not accumulate a cash surrender value.
8) Burial Spaces – Burial spaces for the applicant and immediate family and spouses of immediate family are exempt.
9) Irrevocable Funeral Trust – Depending on the county, anywhere from $8000-$14000 can be used for burial purposes. Approximately $1500.00 for a revocable burial reserve is excluded.
10) IRA’s – The community spouse’s IRA or qualified retirement plan is exempt.
11) The CSRA – The community spouse’s community spouse resource allowance is exempt. The exact amount of the CSRA will depend on the total countable resources.
Transferring certain types of assets (income or resources) for less than fair market value, or gifting, results in a penalty period for the person trying to obtain PA Medicaid nursing home eligibility. This means that Pennsylvania will refuse to make Medicaid payments to the skilled nursing facility where the applicant resides. Unless the gift is cured, or returned, the applicant will need to private pay the cost of the skilled nursing facility.
What is fair market value?
The Pennsylvania Department of Human Services considers market value to be: 1) the documented value of income or a liquid resource (a bank account or stock, for example); 2) the appraised value (of real estate, for example); 3) the amount an individual can expect to receive for a property or other resource on the open market in their geographic area at a specific time.
Simply stated, if an applicant gifts money or property to anyone other than a spouse or minor or dependent child, and doesn’t receive anything in return, Pennsylvania Department of Human Services is likely to impose a period of ineligibility on that applicant.
The above is not a hard and fast rule, however. To receive a period of ineligibility, the transfer: 1) can’t be exempt (see above for a list of exempt transfers; 2) must be for less than fair market value; and 3) took place within the look-back period.
What is the look-back period?
Unlike the Department of Veterans Affairs for the Aid and Attendance benefit, federal Medicaid law mandates that states must look-back to see if assets were transferred for less than fair consideration.
The look-back period is 60 months prior to the date of application. If during the five years before the date of application, the applicant or the spouse made transfers on non-exempt assets and did not receive fair market value in return, a penalty period is triggered that will impact PA Medicaid nursing home eligibility.
How is the penalty period calculated?
The uncompensated transfer, or gift, is divided by the average cost of a skilled nursing facility in Pennsylvania. Here is an example using round numbers (actual numbers are slightly different).
Mr. Smith transferred $81,000 to his children one year ago. Mr. Smith was feeling generous and wanted his kids to use the money on their children’s college education. Mr. Smith received nothing in return for the gifts. The average cost of a skilled nursing facility is $9,000 per month.
The Pennsylvania Department of Human Services would calculate Mr. Smith’s period of ineligibility by dividing the $81,000 by $9,000.
The $81,000 gift / by the $9,000 cost of the facility equals a penalty period of 9 months. The 9 month penalty period would not begin until the later of these two options: 1) the first day of a month during which assets have been transferred, or 2) from the date Mr. Smith would otherwise have been eligible for Medicaid. More often than not, the penalty period doesn’t commence until the applicant is otherwise eligible.
Some gifts that are not exempt, don’t receive fair market value, and occur during the look-back period don’t trigger a penalty period. Gifts in any month that total $500 or less do not trigger a penalty period.
It is crucial to understand that the penalty period generally doesn’t start when the gift is made. Not understanding this concept can cost a family many tens of thousands of dollars.
Asset transfers that don’t trigger a penalty period
Not all transfers that occur during the look-back period and are for less than fair market value result in a penalty period. Transfers to a spouse are always exempt. Transfers to a minor child are exempt. Transfers to a disabled child are also exempt.
If an applicant can prove that they intended to receive fair market value in return for their asset transfer, no period of ineligibility is imposed.
Naturally, not all gifts are made with the purpose of qualifying for Medicaid. If the applicant can show that their gift was made for a purpose other than to obtain benefits, the transfer will be exempt. Proving this, however, is not easy. Nor should it be relied upon to qualify for benefits.
The Pennsylvania Department of Human Services may decide that imposing a period of ineligibility will result in undue hardship for the applicant. If the Department finds undue hardship, no penalty period is given.
Finally, if the gift is cured, no period of ineligibility is imposed. Partial cures should be sufficient to reduce the penalty period.
Exempt asset transfers and the primary residence
For many people, the family home is the main source of net worth. Often times, the house is worth more, and sometimes much more, than the rest of the assets combined.
Not all transfers of real estate trigger a period of ineligibility and adversely impact PA Medicaid nursing home eligibility.
One key planning technique is to transfer the primary residence to the community spouse after eligibility of the institutionalized spouse is granted. Contact VA Legal Team to discuss why this is beneficial.
If you are caring for Mom or Dad, transferring the house into your name may be an exempt transfer. The caregiver child must have lived in Mom or Dad’s home for at least two years and provided care that allowed the parent to remain in the home instead of a skilled nursing facility.
If an applicant owns their house with a sibling, and that sibling lived in the home for one year immediately prior to the applicant entering a nursing home, the transfer is exempt. As mentioned under the general asset transfer section, transfers of the house to minor or disabled children are exempt.
Possible Planning Solutions
Please understand that this article is not legal advice, though it is based on Federal and Pennsylvania law. Please also understand that this section is absolutely not legal advice. These techniques should not be undertaken without the guidance of an attorney experienced in Medicaid planning.
Our opinion is that the best and most effective way to plan for long term care is through advanced planning. By advanced planning we mean planning that occurs many years before an applicant enters a skilled nursing facility. Ideally, advanced planning should take place while the person is still healthy.
Trusts can be created to preserve Medicaid eligibility while avoiding the costly spend-down generally associated with PA Medicaid nursing home eligibility. If done properly, assets can be placed in a trust and those assets can still be used for the applicant’s benefit.
Medicaid defines a trust as “any arrangement in which a grantor transfers property to a trustee or trustees with the intention that it be held, managed, or administered by the trustee(s) for the benefit of the grantor or certain designated individuals (beneficiaries). The trust must be manifested by a valid trust instrument or agreement.”
A properly drafted Medicaid planning trust shields the principal of the trust from the Medicaid spend-down while allowing access to the income. The applicant cannot ‘touch’ or use the underlying assets titled to the trust. She cannot have access under any circumstances to the principal, regardless of whether the trustee has discretionary powers. But they can receive and use the income generated by those assets. This type of irrevocable trust is one tool used in asset and wealth preservation.
An irrevocable income trust is a type of advanced planning because the re-titling of assets from the applicant’s name to the trust is considered a non-exempt transfer of assets for less than fair market value. Therefore, if this transfer is completed during the look-back period, a period of ineligibility will be imposed. To avoid the penalty period, the applicant should create the trust outside of the 60 month look-back period.
What should be avoided when possible is the creation of a Medicaid trust that overlaps with the look back period. This isn’t always avoidable, and isn’t necessarily prohibitively damaging to the preservation of assets, but should still be avoided. A healthy person in their mid 60’s to early 70’s could be a good candidate for a Pennsylvania irrevocable trust.
Irrevocable income only trusts can also be called irrevocable grantor trusts (“IGT”). Irrevocable grantor trusts, however, do not always distribute income. The income generated from the assets can be accumulated and remain in the trust or even distributed to someone besides the applicant or the spouse.
Revocable trusts are very common in Pennsylvania.
A revocable living trust can be a useful part of estate planning. However, revocable trusts are not Medicaid planning tools. The grantor of the revocable trust still owns the assets in the trust. They have access and control over these assets. Re-titling assets into a revocable living trust is not considered a transfer of assets that results in a period of ineligibility for Pennsylvania Medicaid.
A family can also take advantage of special needs trusts depending on their particular circumstances. A discussion of the different types of special needs trusts is beyond the scope of this article.
Gifting vs. Trusts?
Perhaps the most common form of advanced planning is gifting. However, gifting from parents to children is usually not thought of as an advanced planning tool used to bring about PA Medicaid nursing home eligibility. Rather, gifting is generally done haphazardly and without a proper evaluation of the pros and cons of such a course of action.
The extent of the average person’s gifting analysis usually involves the following two steps: 1) I know that Medicaid and VA benefits have some net worth limit; 2) I know the IRS allows annual tax-free gifting below about $14,000; and 3) Therefore I should start gifting that amount to my children.
This type of thought process is very common and has many flaws.
Gifting to children can be problematic. If a parent gifts money to a child, the parent no longer controls how the money is used. If the child spends money unwisely, owes money, or is in danger of divorce, that gift may not end up with the child at all.
An irrevocable grantor trust holds several advantages to outright gifting.
1) The person making the gift can reserve a lifetime interest in the trust. For example, a parent transferring the primary residence into an irrevocable trust can reserve the right to remain in the house, without paying rent, for the remainder of their life.
2) Assets transferred into an irrevocable grantor trust in Pennsylvania cannot be accessed by creditors of children or divorcing spouses.
3) The assets placed into a trust are controlled by whomever the parent chooses. This is important when children or grandchildren are financially irresponsible. The person controlling the assets, called the trustee, can also be a bank or professional fiduciary.
4) Assets re-titled into the trust will not be part of the child’s estate if the child predeceases the parent.
5) The parent can receive income from the trust. Gifting to a child may jeopardize that income stream.
6) If the trust is drafted correctly, then beneficiaries can still receive a step-up in basis when the parent dies. This can be very valuable for real estate any other long-held investments.
Trusts can often save children from themselves. This is one advantage to trust planning. A parent can prevent a child from making a serious mistake with a large sum of money. And, even though the parent legally no longer owns the assets placed in the trust, they still retain a considerable amount of control over those assets through proper structuring of the trust document.
The creation of an irrevocable grantor trust by a Pennsylvania resident should not be undertaken without appropriate guidance. Contacting an attorney to properly structure the trust is beneficial and advised.
Crisis planning is so named because the family member is about to be, or already is, a resident of a skilled nursing facility. Because mom or dad is already a resident of a nursing home, advanced planning is not an option.
Please recall that the purpose of advanced Medicaid planning is to transfer assets far enough in advance of the need for skilled nursing that the 60 month look back period will not impact PA Medicaid nursing home eligibility. Therefore, occupancy in a skilled nursing facility disqualifies a family from advanced planning.
Fortunately, the Pennsylvania legislature decided that families and Medicaid applicants should still be permitted to engage in Medicaid planning despite the fact that Mom or Dad is already a nursing home resident.
Sometimes families think these “loopholes” are too good to be true. I’m sometimes asked if the planning techniques I offer are legal. The answer is most certainly yes. The Pennsylvania Code specifically provides for Medicaid planning.
Crisis Medicaid planning is different for a married applicant than a single applicant. Crisis Medicaid planning for a married applicant is extremely valuable. Single applicants can still engage in planning, though the planning is not quite as effective.
Crisis Planning for the married applicant
Please remember that the community spouse (the spouse not in a nursing home) can keep the Community Spouse Resource Allowance (the CSRA). The CSRA is a statutory amount that does not need to be spent down to qualify for Medicaid. The maximum amount a community spouse can keep as part of the CSRA is $119,220.
The CSRA in itself is valuable. But what about any excess resources the applicant owns that aren’t also exempt? Do those need to be spent down?
The answer is no. The excess resources above and beyond the CSRA and other exempt resources do not need to be spent down on the cost of care.
Federal law provides that a special type of annuity can be used to convert net worth into income. This annuity must meet very specific standards to be considered income and not a resource by the Pennsylvania County Assistance Office.
The annuity must be: 1) irrevocable and non-assignable; 2) actuarially sound; 3) provide for equal payments in equal amounts (no deferral or balloon payments); and 4) the Department of Human Services must be made the primary beneficiary up to the amount they pay the Nursing Home.
It is important to understand several points about these Medicaid compliant annuities.
Firstly, most insurance companies do not offer them. And your financial adviser may not have even heard of a Medicaid compliant annuity. They are rarely used by the public but often used by elder law attorneys. Secondly, this type of annuity should not be thought of as an investment vehicle. Its purpose is not to generate interest or appreciate in value. A Medicaid compliant annuity has one purpose: to convert net worth into income. Lastly, not following any of the annuity eligibility standards from the above paragraph can jeopardize Medicaid eligibility.
Determining the exact amount of net worth that needs to be converted into income must be carefully determined. It is crucial to determine the total, countable assets as of the “snap-shot” date. The snap-shot date is the first day the applicant became a resident of the skilled nursing facility. Applicants and families should be careful. Some nursing homes provide excellent advice about spend-downs and resource limits. Other times, the staff at a nursing home can provide disastrous advice that can cost families tens and even hundreds of thousands of dollars.
Crisis Planning for the unmarried applicant
Crisis planning for a married applicant can preserve nearly all of the family’s assets if done correctly and in a timely manner.
Crisis planning for the single applicant can save approximately forty to sixty percent of the assets that would have otherwise required a spend-down. That is still an excellent result but advanced planning is preferable.
The exact dollar amount that can be saved will depend on the applicant’s income and the cost of the skilled nursing facility. And, of course, if any gifting had been done that would trigger a period of ineligibility.
Crisis planning for a single applicant also involves a Medicaid compliant annuity. Counter-intuitively, however, a gift must be made to execute this plan. This is counter-intuitive because, as already mentioned, most gifting triggers a period of ineligibility.
The very general and basic idea is that a gift is made (usually to the applicant’s beneficiaries) and then the Medicaid compliant annuity is purchased to help the applicant private pay through the period of ineligibility.
It is important to realize that this planning is complicated, but it does work.
Receiving medical assistance benefits in Pennsylvania is very valuable. An applicant does not need to completely impoverish himself to receive Medicaid benefits. PA Medicaid nursing home eligibility is complex and exhausting. Understanding all the requirements and the different possibilities to preserve resources, including the family home, is not a simple task.
Hiring an attorney that understands the different options to qualify for Pennsylvania Medicaid benefits without private paying indefinitely may be the right choice for your family. Contact VA Legal Team today for a free case review.