Statistics tell us that approximately 25% of us will need some sort of extended long-term nursing care during our lives – and as our life spans increase with improvements in medical care, this number is likely to increase.

Most of us have experienced family or friends needing this type of long-term nursing care. Since Medicare doesn’t provide much in the way of long-term care benefits, the individual is left with three possible sources to pay for long-term care:

1. private payments from your savings and other sources
2. long-term care insurance coverage (LTCI)
3. Medicaid

Given the tremendous costs for long-term care, many individuals are faced with the distinct possibility that any savings that they have amassed over their lifetimes (and that they hoped to pass along to their heirs) could be quickly wiped out or drastically reduced with a stint in a skilled-care facility. Then who will take care of the sheep?

Medicaid

Briefly, Medicaid was originally introduced in 1965 (alongside Medicare) as a “safety net” for healthcare, primarily to help the poverty-stricken. Along in the late ’80’s, it became clear that this safety net could be beneficial to people of modest means as well. So the laws were adjusted to allow for additional beneficiaries of the program through some simple planning. Later during the early ’90’s, the eligibility requirements were tightened up a bit, but with planning, certain beneficiaries can still receive Medicaid benefits.

Eligibility for Medicaid is based upon the assets available to the individual – only about $2,000 is allowed to remain in savings vehicles. Community (joint, owned by both members of a married couple) accounts are subject to special rules, and depending upon how your state chooses to administer the program, half of these jointly-held accounts could be considered eligible assets. Other assets, including primary residences, annuities, and life estates, receive special treatment under Medicaid eligibility rules as well.

Retirement Accounts and Medicaid Eligibility

How are your IRA, 401(k), and other accounts viewed with regard to Medicaid eligibility? As a general rule, retirement accounts are included as available assets. Even if the individual is under age 59½ and otherwise ineligible for distributions without penalty. The retirement accounts must be liquidated before the individual can be eligible for Medicaid coverage.

One way to protect assets from liquidation is if the account is in periodic payment status. This might mean the account is subject to Required Minimum Distribution (RMD) either due to age 70½ requirement or if the IRA is inherited and subject to inherited RMD. In some states, an account in periodic payment status is considered an income source rather than an asset. The circumstances might help to protect the account’s assets from being included in total for Medicaid eligibility.

For example, if an individual was in RMD status due to being over age 70½, his account would be considered in payment status. If the account was worth $200,000, this amount would not be counted against him for Medicaid eligility, but the periodic income stream would be. If he is age 72, his annual required payment from the account would be roughly $7,812, which would be considered for his income budget, approximately $651 per month. If this was his only income, that amount would be paid to the nursing home – with the balance of the cost of the nursing care paid by Medicaid.

If the individual is married and the other spouse is not applying for Medicaid, there are allowances made for monthly minimum maintenance (of the non-Medicaid spouse) as well. In 2019, the maximum monthly maintenance needs allowance is $3,160.50. This is the most in monthly income that a community spouse is allowed to have if her own income is not enough to live on and she must take some or all of the institutionalized spouse’s income. The minimum monthly maintenance needs allowance for the lower 48 states remains $2,057.50 ($2,572.50 for Alaska and $2,366.25 for Hawaii) until July 1, 2019.

Not all states utilize a minimum and maximum income allowance. Some states use just one figure that falls somewhere between the federally set minimum and maximum figures. For example, as of 2019, New York, Texas, and California all use a standard monthly figure of $3,160.50 (the maximum), and Illinois uses a standard monthly figure of $2,739.

What About a Roth IRA?

So, if you’re thinking ahead you’re wondering how this impacts a Roth IRA… since a Roth IRA is not subject to minimum distribution rules. Rightly so – the Roth IRA is never in a payment status as long as the original owner is living. As such, your own Roth IRA assets are counted toward Medicaid eligibility status. These assets would have to be spent down before the individual could become eligible for Medicaid.

Bottom line…

So the bottom line is that you need to consider lots of things as you think about Medicaid eligibility. If you have significant assets available, you could be better off to consider a Long-Term Care Insurance (LTCI) strategy, as otherwise your assets might have to be spent down and quite possibly depleted. Unfortunately there isn’t a “rule of thumb” to use in determining whether LTCI makes sense. Each individual’s situation will be a little different, taking into account medical history, family medical history, asset base, age, etc.. This is the sort of analysis that you need to do as you near retirement age in order to consider whether or not LTCI or Medicaid could be a part of your future healthcare plans.