Health

Medicare vs. Medicaid: Get to know the fine print

By JAN WARNER AND JAN COLLINS, Special to the Times
Published March 27, 2007

In continuing to explore the issue of long-term care, including how to afford it and how to survive the maze of procedures and paperwork, we zero in this month on Medicaid and Medicare.

First, it is important to understand which program you're dealing with. Medicare and Medicaid have different missions and purposes:

- Medicare is a federal health insurance program that is uniform throughout the United States. Though some disabled people may qualify earlier, generally speaking Medicare serves those 65 and older.

The recipient's financial need is not considered by Medicare, which operates much like private insurance. Patients are responsible for premiums, deductibles and co-payments. Medicare is funded primarily through payroll tax deductions.

- Medicaid is a joint federal and state program. It varies from state to state, and financial need is a major factor in deciding who is covered.

Designed primarily to serve the poor, Medicaid's emphasis is on pregnant women, children, the disabled and the elderly. It is financed with state tax revenues and federal matching funds.

Because Medicaid is based on need, recipients must have limited income and "resources."

The matter of income

The definition of "income" and "resource" for the purpose of Medicaid eligibility can be tricky.

For example, receipt of an inheritance may not be taxable income, but it can be counted as income by Medicaid. Monthly income limits are based on federal benefit rates, which change annually.

Most Medicaid eligibility categories look at gross monthly income. This means that from Medicaid's standpoint, deductions are generally not allowed for taxes paid or other expenses.

Payments are generally considered to be income in the month in which they are received. But if some of the payment is unspent that month, the remainder becomes a "resource" that could cause disqualification from Medicaid benefits.

For example, if John Smith receives $1,000 in pension payments and $800 in Social Security benefits in March, his countable income would be $1,800 for March.

But if Smith spends only $1,200 in March, for Medicaid eligibility purposes, the unspent $600 will become a resource for April.

Subject to certain exceptions too complicated to detail here, any item received in cash or in kind during a month is evaluated under the applicable income rules of that particular program to see whether it should be counted as income.

What's a resource?

What is classified as a resource is decided using the rules of the most closely associated cash benefits program. A resource is generally defined by Medicaid as any asset available to support a patient financially, but federal law excludes the following assets as resources:

- Your home and contiguous land. This is limited to $500,000 in equity and subject to some exceptions, such as a spouse or disabled child living in the home.

- Household goods and personal effects.

- One automobile.

- Burial spaces and irrevocable "pre-need" burial contracts.

However, the values of even some excluded resources are limited to what is "reasonable" to the Department of Health and Human Services. For example, in most states, if you spend $175,000 to purchase a Rolls-Royce with the idea of converting the purchase money into an exempt resource, the value probably won't be deemed to be "reasonable."

The matter of trusts

Contrary to popular belief, transferring assets into trusts does not solve the Medicaid qualification problem. Medicaid's trust rules provide as follows when determining an individual's eligibility for Medicaid.

- Popular "probate avoidance" revocable living trusts do not shelter assets whatsoever for Medicaid purposes. All assets transferred into the trust are considered to be available resources for the owner.

- If properly created, a special needs trust for a disabled individual younger than 65 will not violate Medicaid rules as long as all amounts remaining in the trust at the death of the disabled person - up to the amount of medical assistance furnished by Medicaid - are repaid to the state.

Because Medicaid is so complicated, covers so many programs and varies from state to state, a determination of which rules apply to which programs is essential to beginning to unravel the puzzle.

Jan Warner is a member of the National Academy of Elder Law Attorneys; Jan Collins is editor of the Business and Economic Review published by the University of South Carolina. Write to them at the Web site www.nextsteps.net.

[Last modified March 27, 2007, 08:16:34]