Medicare will not pay for it. Medicaid will, once there is nothing left.

Part 1

The one large bill nobody insured

A household that has done everything right can still meet one bill it never insured. Not a hospital bill, which Medicare handles. The bill for someone being helped through an ordinary day, every day, for years.

That care is excluded from Medicare by name in federal law. Private health insurance does not cover it either. What is left is a short list: pay for it from savings, hold a long-term care insurance policy bought years earlier, be cared for unpaid by family, or qualify for Medicaid.

Medicaid is where most long stays eventually land, and it is worth being precise about what that means. Medicaid is a joint federal and state program for people with limited income and resources. The federal government sets an outer frame and each state builds its own program inside it, so eligibility figures, the treatment of particular assets and the aggressiveness of recovery afterwards all differ by state. Two families in identical circumstances on opposite sides of a state line get different answers.

This guide is educational information. It is not legal, tax or financial advice.

Part 2

What Medicaid asks before it pays

Medicaid pays for nursing facility care. It also pays, in every state to some degree, for care delivered at home under what are usually called home and community based services. Getting to either means satisfying two separate tests.

The income test asks what arrives each month. Pensions, Social Security and withdrawals all count. Many states cap countable income at a figure tied to the federal benefit rate, and states that do usually allow an income trust as the route through for someone over the line. Almost all of the income then goes to the facility each month anyway, leaving a personal needs allowance. Federal law sets only a floor for that allowance and each state sets its own, so what a resident keeps for everything that is not care varies considerably.

The resource test asks what is owned. The countable limit for a single applicant is low, in most states a few thousand dollars. Some things are not counted at all, and the usual list includes the home while the applicant or a spouse lives in it, one vehicle, personal effects and household goods, and prepaid burial arrangements. Everything else is countable and has to be spent before Medicaid pays anything.

The phrase for that process is spending down, and it is exactly what it sounds like. The money goes to the nursing home at private rates until it is gone, and only then does the program begin.

Part 3

The five years, and what they are counted back from

Federal law requires a state to look at everything an applicant or their spouse gave away, or sold for less than it was worth, during a defined window before applying. For anything disposed of on or after February 8, 2006, that window is 60 months.

The detail that matters most is what the 60 months is measured from, because the common understanding of it is backwards. The window does not run forward five years from the date of a gift. For someone entering institutional care it runs backwards 60 months from the date they are both in care and have applied for assistance.

Applying the same look-back to someone who is not institutionalized, meaning a person seeking help with care at home, is a choice each state makes rather than a federal requirement, and where a state does apply it the measuring date is different again. This is one more place where the state matters as much as the statute.

The practical difference is the whole thing. Money given to a grandchild for a house deposit is not safe five years after the gift in any sense the family controls. It is outside the window only if five years pass before the day the giver needs care and applies, and nobody schedules that day.

Part 4

The penalty, and the moment the clock starts

A transfer inside the look-back does not disqualify someone forever. It creates a penalty period, and the arithmetic is mechanical.

Take the total uncompensated value of everything transferred inside the window. Divide it by the average monthly cost of a private patient in a nursing facility in that state, as the state figures it at the time of application. The result is the number of months of ineligibility. Federal law forbids a state from rounding a fractional month down, so a partial month still counts.

So a $90,000 transfer in a state that reckons the average monthly cost at $9,000 produces ten months of ineligibility. A larger gift in a cheaper state produces a longer penalty than the same gift in an expensive one, because the divisor is smaller.

When the clock starts

This is the part that turns a rule into a crisis. For transfers on or after February 8, 2006, the penalty period begins on the later of two dates: the month of the transfer, or the date the person is otherwise eligible for Medicaid and would be receiving institutional care but for the penalty.

Read that second date carefully. The penalty does not run while somebody still has money. It starts only once they have spent down, are in a facility, and have been found eligible in every respect except this one. That is precisely the point at which they have no assets to pay privately and no program to pay for them.

One more clause governs several transfers rather than one. A penalty period cannot begin during another period of ineligibility, which means successive gifts produce consecutive penalties rather than overlapping ones. Three transfers do not run their three penalties side by side; they queue.

The waiver that has to exist

Federal law requires every state to have a process for waiving a transfer penalty where applying it would work an undue hardship, judged against criteria set federally. It is not discretionary for the state to offer one. It is, in practice, difficult to obtain and it has to be asked for, but a family told a penalty is simply the rule should know that an exception process is mandatory. The facility where the person is living may file that application on their behalf with their consent, and while it is pending the state may pay to hold the bed for up to 30 days.

Part 5

The transfers the rule does not penalize

Not every transfer inside the window creates a penalty. Federal law names exceptions, and they are narrower and more specific than most summaries suggest.

A home transferred to any of these carries no penalty:

• The applicant's spouse.
• A child of the applicant who is under 21, or who is blind or disabled.
• A sibling of the applicant who already has an equity interest in the home and who lived there for at least one year immediately before the applicant went into care.
• A son or daughter who lived in the home for at least two years immediately before the applicant went into care, and who provided care during that time that allowed the applicant to stay at home rather than go into a facility.

Separately, assets transferred to the applicant's spouse, or to someone else for the sole benefit of that spouse, are not penalized.

The last exception on the home list is the one families most often half-remember. It is not a reward for a child who helped. Every element has to be established: two years of living in the home, immediately before the move into care, with care actually provided, and of a kind the state accepts as having prevented institutional care. States ask for evidence, and a child who visited daily but kept their own address does not qualify.

Part 6

The arrangements that count as transfers anyway

Some arrangements are treated as transfers for less than fair market value unless they satisfy conditions written into the statute. Knowing which ones is less about planning than about not being surprised.

A revocable living trust protects nothing here. This is the most widespread misunderstanding in the subject. Federal law is explicit: the corpus of a revocable trust counts as a resource available to the individual, payments from it to them count as income, and payments from it to anyone else count as assets they disposed of. A revocable trust is an excellent tool for avoiding probate. It does nothing at all for Medicaid eligibility.

An irrevocable trust is treated differently, and the difference is not a shortcut. Where any circumstances exist under which the trust could pay something to the person, that portion counts as a resource available to them. A portion that could never be paid to them is instead treated as an asset they disposed of, on the date of the transfer into the trust, which puts it into the look-back and penalty machinery described earlier rather than outside it. Whether that helps anyone depends entirely on timing, drafting and the state, which is why it is legal work and not a decision to reach from a guide.

Buying an annuity is treated as disposing of an asset unless the state is named as remainder beneficiary in the first position for at least the total assistance paid, or in the second position behind a spouse or a minor or disabled child.

Lending money to family is treated as a transfer unless the note, loan or mortgage has a repayment term that is actuarially sound, provides for equal payments with no deferral and no balloon, and prohibits the balance being cancelled when the lender dies. A note failing any of those is valued at its outstanding balance.

Buying a life estate in someone else's home, a familiar arrangement where a parent buys an interest in a child's house, is treated as a transfer unless the purchaser actually lives in that home for at least a year after the purchase.

Part 7

The spouse who is still at home

When one spouse enters institutional care and the other stays home, federal spousal impoverishment rules apply. Extending the same protections to a couple where one spouse receives care at home under a waiver rather than in a facility is a choice each state makes, so whether they are available at all can depend on the setting of the care as well as the state.

These rules exist because the original design produced an outcome nobody defended: a couple's shared savings consumed for one person's care, leaving the other with nothing.

Two protections do the work. The spouse at home keeps a share of the couple's countable resources, called the community spouse resource allowance. And where that spouse's own income falls below a monthly floor, part of the institutionalized spouse's income can be directed to them instead of to the facility.

Both are bounded. The resource allowance is built as the greatest of several figures, including a statutory minimum and the lesser of half the couple's countable resources or a statutory maximum. The statute sets those bases at $12,000 and $60,000, and both have been adjusted for inflation for every calendar year after 1989, so the amounts a state actually applies are far above the numbers printed in the law. States also have room to set their own minimum above the federal floor.

Part 8

The house, during and after

The family home occupies a strange position. It is generally not a countable resource while the applicant or their spouse lives in it, which is why so many people conclude the house is protected. Two federal rules say otherwise.

The equity bar

A person cannot receive Medicaid help with nursing facility or other long-term care services if their equity interest in their home exceeds a statutory ceiling. Congress set that ceiling at $500,000 and allowed any state to raise it, but no higher than $750,000. Both figures have been indexed to consumer prices since 2011, so the operative amounts are higher than the ones in the statute. The bar does not apply where a spouse, or a child who is under 21 or blind or disabled, is living in the home.

Estate recovery

This is the rule that surprises families after a death rather than before one. Where a person was 55 or older when they received Medicaid assistance, federal law requires the state to seek recovery from that person's estate. Not permits. Requires.

What it does not do is happen immediately, and the limits on timing are federal rather than a matter of state generosity. Recovery may be made only after the death of a surviving spouse, and only at a time when there is no surviving child who is under 21, or blind, or permanently and totally disabled. Where the state placed a lien on the home, that lien is further barred while a sibling who lived there for at least a year before the move into care, or a son or daughter who lived there for at least two years and provided the care that kept the person out of an institution, is still lawfully living in it.

Recovery is limited to what was actually paid for nursing facility services, home and community based services, and related hospital and prescription drug costs, although a state may choose to go wider. For many estates the only asset of any size is the house, which is how a home that was never counted during life is sold afterwards to repay the state.

Part 9

The one afternoon checklist

Nothing here commits anyone to a course of action. It assembles the facts that any real conversation about this would start from.

• Write down what care actually costs where you live, for a nursing facility and for care at home. Both figures are local and neither is guessable.
• Look up your own state's Medicaid resource limit and income rule for long-term care. They are the two numbers that decide everything else.
• List any transfer of money or property in the last five years, including gifts to family, loans not repaid and anything sold below its value. That list is what a state would ask for.
• Check whether payments to a family member for care are covered by a written agreement. Without one they can be treated as gifts.
• If a couple is involved, find out what your state currently sets as the resource allowance for the spouse at home.
• Find out whether your state raised the home equity ceiling above the federal floor, and what the current indexed figure is.
• Ask what your state's estate recovery program reaches, and whether it uses the narrow definition of an estate or the wider one.
• If a revocable living trust exists, note that it does not affect Medicaid eligibility, whatever it does for probate.
• If a long-term care insurance policy exists, read what triggers it and what it pays per day, and check whether it is a partnership policy, which affects how assets are treated later.
• Take all of the above to an attorney who does this work in your state before making any transfer at all.