Medicaid is a public health care program in the United States that provides health insurance coverage to qualifying persons and families. Medicaid is awarded based on income levels and available resources, and is potentially available to people of all ages. Assets---including real property, stocks, and investments---and income from interest, trust funds and other sources are all considered when you apply for the program. Many people try to give away their assets to family members to “hide” resources so they may qualify.
Eligibility and Liquid Assets
Medicaid reviews your income and resources when determining your eligibility. "Resources" encompass any other source that could provide you with additional income, specifically, liquid assets. A liquid asset is any item you can sell with little or no loss in value---meaning, you receive the value of the item, or close to it, in cash. Real estate, mutual funds, the value of your life insurance policy, and the balance of any checking or savings accounts are all liquid assets. Even if you meet the income guidelines for Medicaid, your available resources can prevent you from being accepted. As of October 2009, you can have no more than $2,000 a month in income and resources as an individual, and no more than $3,000 as a couple.
Any income or liquid asset that you give to your family can be considered a gift under Medicaid guidelines. For example, giving your summer home to your children would be considered a gift, because the home could be sold for at or above value, and the money you receive would then count as income. Cash gifts, savings bonds and similar items are also considered gifts. This does not mean you cannot give your family members presents; items like MP3 players, books and clothing will not count against you for eligibility purposes. Not only are these items difficult to liquidate, they are considered personal belongings, not assets. Jewelry is the exception, as it is commonly used to hide assets because it is easily bought and sold.
Gifts and Eligibility
Nursing home residents have been trying to circumvent eligibility issues by passing off their assets to family members. This is potentially fraudulent if they can cover their nursing home costs by liquidating their assets. After the resident has used all of his available resources to cover the nursing home costs, he is then eligible for Medicaid and his costs would be covered by the program.
Medicaid requires that any nursing home resident who seeks coverage through the program must not give any of her assets to family members for the purposes of hiding her true resources. Any resident who wishes to transfer property must receive full value in return. This means that if you wish to give your home to your children before moving into a nursing home, your children must pay you the fair market value in return. You cannot simply give your home to them, nor can you accept less than market value.
To counteract giving gifts for the purpose of hiding assets, the Deficit Reduction Act of 2005 increased the stringency of gift-giving rules under Medicaid. The DRA specifically focuses on the transference of real estate and other assets owned by nursing home residents. Under the law, any Medicaid recipient who will be entering a nursing home and is seeking to have Medicaid cover the entire cost is subject to having all property and asset transfers reviewed. There is a five-year “look-back period,” meaning any transfers that occurred up to five years before the recipient applied for nursing home coverage will be counted. Any property or asset transference by the nursing home resident in which the resident did not receive full value in return is considered fraudulent for the purposes of qualifying for Medicaid.
Part of the penalty includes being declared ineligible for Medicaid for a potentially significant period. This is determined by calculating the value of the property or assets that were given away, and dividing it by the average cost of private nursing home expenses to see how many months would have been covered. Essentially, Medicaid calculates how long you would have been able to pay for nursing home costs privately using the income you would have received from selling the asset, and this is the length of the penalty period. When the penalty period is over, you will be able to apply for Medicaid coverage, and if you made no additional property transfers during that time, you will be accepted and your nursing home costs covered. Also, you could be declared ineligible for nursing home coverage for an indefinite period. In addition, you and any other person involved could receive fines of up to $10,000 for each transferred asset, additional fines, and up to five years of prison time for violating Medicaid's gift-giving rules.