Note: This article has been updated to include Medicaid figures for 2020.
There is a lot of confusion around the question of how Medicaid treats the home. A lot of people have heard that “the home is exempt from Medicaid,” but this is a misleading and incomplete statement. The equity in your house won’t make you ineligible for Medicaid, but its value is still vulnerable to Medicaid claims, once you no longer live there. Make sure you know the full story. Taking the proper steps to protect yourself and your family is of paramount importance if you need long-term care and are thinking about applying for Medicaid. (Note: Medicaid laws vary widely by state; in this article, we are referring to New York Medicaid)
The “home” discussed in this article is your primary residence, which Medicaid calls the “homestead”. The full story involves your situation when you apply for Medicaid, your situation while you are receiving Medicaid, and what happens when the home is no longer your primary residence. There is a big difference in the way that Medicaid looks at your home when it is your primary residence, and when it is not. To simplify our discussion, we’ll assume you are a single person, living alone.
First, let’s look at how to become eligible for Community Medicaid if you need home care.
In determining your eligibility, Medicaid counts your “resources” – cash, bank accounts, savings accounts, financial investments, cash value of life insurance, other financial assets, and any real estate except your primary residence (unless your home equity exceeds the 2020 limit of $893,000, in which case the excess over $893,000 is counted). You are eligible for Medicaid home care benefits if you have no more than $15,750 in countable resources (in 2020). So if you own your home and your equity is, say, $300,000, will you have to sell your home to qualify for home care services?
Answer: No. Medicaid won’t force you out of your house. Your home is an “exempt” resource for the purpose of determining Community Medicaid eligibility. But Medicaid will not forget about your home equity. There will likely be a day of reckoning ahead of you. Read on.
Part Two of the story is how Medicaid looks at your home once you are receiving benefits.
You are living in your home, and you need an aide to help you perform one or more activities of daily living (“ADL’s”). You need to implement an Elder Law plan to protect your resources. Once you reach the Medicaid eligibility level of $15,750, you are ready to apply for Medicaid benefits.
As soon you start receiving benefits, Medicaid starts counting. You are in your home and an aide is coming for a certain number of hours per day each week. Medicaid pays your aide – but they keep track of how much they are spending on your care.
Part Three, Scenario 1. You stay at home for several years under the care of the home aides provided by Medicaid, and then you pass on. Your Executor or Administrator is appointed and your residence is included in your estate. Now is the moment when Medicaid will come calling, to present its bill. Medicaid is a creditor of your estate, and it is entitled to be reimbursed for all of the expenses it incurred on your behalf.
Sorry, that is correct. Medicaid didn’t kick you out of your home when you needed care, but in essence, you were paying for your care all along, out of the equity in your home. And considering the high cost of care, Medicaid’s claim might easily eat up all of your home equity.
Ouch. Not so “exempt” after all, is it?
Part Three, Scenario 2. Let’s say, after several years of home care, you have to move into a nursing home because you can no longer be cared for safely at home.
Once you are in a nursing home, your home is no longer your primary residence, and therefore is no longer “exempt.” The home is now a resource, and you can only access Nursing Home Medicaid if you state that you intend to return to your home one day. Medicaid will pay for your nursing home care, but they will also place a lien on your residence, and will recoup the amounts paid on your behalf when the property is sold.
Double Ouch. Not “exempt” at all.
Can you protect the equity in your home, so you can use it later to maintain your lifestyle? In fact, you can. Implementing an Elder Law plan by transferring your home into an irrevocable trust means you no longer own your home – it belongs to the trust. There are also other strategies to protect your home that might be available under certain circumstances. Note: an Elder Law plan is often designed to function as an estate plan as well.
If you need long-term home care, New York’s Community Medicaid program covers that kind of care. And for Community Medicaid, there is no five-year “look back.” You can qualify for this type of Medicaid benefit very quickly if you take the right steps.
Implementing your Elder Law/estate plan by transferring your home to a trust is almost always one of the first steps we recommend. You can retain the right to live in your home as long as you want, so there is no change to your living situation. The only thing that changes is the name on the deed to your home. For many people, their home is their most valuable asset, so it’s extremely important to protect it.
If you eventually need to go to a nursing home, the five-year “look back” does come into play. This can complicate the situation if you transferred your home recently – so the sooner you take action, the better. You can act at any time. Don’t wait until you need long-term care.
The next time you hear “Your home is exempt from Medicaid” – you’ll know better.