Why Do Nursing Homes Take Your House?

Many individuals worry about how nursing home costs might affect their homes, as the substantial expense of long-term care often leads families to explore financial assistance. This article clarifies how nursing home expenses are managed and the role a home plays in that financial landscape.

Understanding Nursing Home Costs

Long-term nursing home care represents a significant financial burden. A private room can exceed $10,000 per month, and a semi-private room averages around $8,500 monthly. These figures vary by location and care level.

Private savings and traditional health insurance like Medicare offer limited coverage for extended nursing home stays. Medicare primarily covers skilled nursing care for a short period, usually up to 100 days, following a hospital stay, with copayments after 20 days. It does not cover custodial care, which includes assistance with daily activities like bathing, dressing, and eating.

Due to high costs and limited coverage from private insurance or Medicare, many individuals turn to Medicaid for assistance. Medicaid is a joint federal and state program providing health coverage, including long-term care services. It serves as a payer of last resort for nursing home costs once an individual’s financial resources are depleted or meet eligibility thresholds.

Medicaid Eligibility for Long-Term Care

Medicaid serves as a safety net for individuals needing long-term care who lack private financial means. To qualify for Medicaid long-term care benefits, applicants must meet specific financial criteria for income and assets.

For 2024, the income limit for an individual applying for Medicaid long-term care is $2,829 per month, though this varies by state. Assets, including bank accounts, investments, and certain property, have strict limits. An individual can have no more than $2,000 in countable assets to qualify for Medicaid long-term care.

Countable assets include most financial accounts, stocks, bonds, and additional real estate beyond the primary residence. Certain assets are exempt. These include personal belongings, one vehicle, prepaid burial plans, and, under specific conditions, the applicant’s primary residence.

A primary residence is exempt if the applicant’s equity interest does not exceed a certain limit (e.g., $713,000 in most states for 2024). The home is also exempt if a spouse, a child under 21, or a child who is blind or permanently disabled lives there. If the applicant intends to return home, the home may remain exempt, even if temporarily in a nursing facility.

Medicaid employs a “look-back period” to prevent applicants from giving away assets to qualify for benefits. For most states, this period is 60 months, or five years, before the Medicaid application. Any asset transfers made for less than fair market value during this period can result in a penalty period, making the applicant ineligible for Medicaid benefits.

Special rules apply to married couples to prevent “spousal impoverishment” of the healthy spouse remaining in the community. The community spouse can keep a certain amount of income and assets, known as the Minimum Monthly Maintenance Needs Allowance and the Community Spouse Resource Allowance. For 2024, the community spouse can retain between $3,853.50 and $154,140 in assets, depending on the state and combined resources.

Medicaid Estate Recovery Program

While a home may be exempt for Medicaid eligibility during an applicant’s lifetime, the Medicaid Estate Recovery Program (MERP) allows states to recover costs after the recipient’s death. Federal law mandates this program, requiring states to seek reimbursement for long-term care services paid by Medicaid from deceased recipients’ estates. MERP’s purpose is to recoup funds spent on nursing home care, home and community-based services, and related hospital and prescription drug services.

For MERP purposes, an “estate” can include assets passing through probate and those passing outside of probate, such as joint tenancy, trusts, or life estates, depending on state law. The primary residence is often the most significant asset subject to recovery if owned by the Medicaid recipient at their death. States place a lien on the property to ensure recovery once it is sold or transferred.

Estate recovery occurs after the death of the Medicaid recipient and, if applicable, after the death of their surviving spouse. Recovery is deferred if a surviving spouse, a child under 21, or a child who is blind or permanently disabled resides in the home. Some states may also delay recovery if a sibling or an adult child who provided care to the Medicaid recipient resides in the home for a certain period.

States have procedures for identifying assets and initiating claims against the deceased recipient’s estate. This often involves filing a claim in probate court or placing a lien on real property. The amount recovered is limited to the amount Medicaid paid for services.

Certain limited circumstances allow for a hardship waiver or exemption from estate recovery. These waivers are considered if recovery would cause undue hardship to an heir, such as making them homeless or depriving them of basic necessities. The criteria for these waivers vary significantly by state and are not always easy to obtain.

Protecting Your Home and Assets

Proactive long-term care planning helps individuals protect their homes and assets from high nursing home costs and potential Medicaid estate recovery. Understanding and utilizing available strategies within Medicaid rules can preserve wealth. These strategies often require careful consideration and professional guidance due to their complexity and state variations.

One common strategy involves gifting assets, such as a home or financial resources, to family members. This must be done well in advance of a Medicaid application, outside the 60-month look-back period, to avoid a penalty period of ineligibility. Gifting assets during this period can result in Medicaid not paying for care, potentially leaving the individual responsible for substantial nursing home costs.

Another strategy involves establishing specific types of trusts, such as an Irrevocable Medicaid Asset Protection Trust. Assets transferred into an irrevocable trust are no longer considered owned by the individual for Medicaid eligibility, provided the transfer occurs outside the look-back period. This trust removes assets from the individual’s countable estate, protecting them from Medicaid eligibility calculations and potential estate recovery.

Purchasing a long-term care insurance policy can be an alternative or supplement to relying on Medicaid. These policies provide financial benefits to cover nursing home care, assisted living, or in-home care services, reducing the need to deplete personal assets. Premiums for these policies vary based on age, health, and the level of coverage chosen.

For married couples, understanding and utilizing spousal protection rules is another avenue for asset preservation. The Community Spouse Resource Allowance and Minimum Monthly Maintenance Needs Allowance allow the healthy spouse to retain a portion of the couple’s income and assets, preventing impoverishment when their partner enters a nursing home. Navigating these rules effectively impacts the community spouse’s financial well-being.

Given the intricate nature of Medicaid regulations and estate recovery laws, consulting with an elder law attorney or a financial planner specializing in long-term care planning is recommended. These professionals can provide tailored advice, help establish appropriate legal instruments, and ensure compliance with federal and state requirements, maximizing asset protection within legal bounds.