Aging can be an onerous process.
It conjures difficult moments, hard questions, and even more challenging decisions.
There may come a time in your marriage where one of you would have a better quality of life in a nursing home or receiving full-time care. As you well know, this care doesn’t come cheap.
The average cost of a private room in a nursing home in Washington is $360 a day or $131,400 annually, according to Genworth—that’s more than many retirees will spend to fund their entire lifestyle each year. More alarming is that these costs for care have risen by over 10% since 2019.
Without ample resources to pay these exorbitant expenses, couples may need to turn to government assistance through Medicaid. But to qualify for Medicaid, applicants must have income and assets below specific amounts guided by the federal government and set by their state.
- What does that mean for one spouse who requires extra care and another healthy enough to live independently?
- Will the “healthy” individual have to deplete most of their savings for their spouse to qualify?
- What income, if any, can be protected?
Medicaid’s “spousal protection” provisions allow the independent spouse to retain a certain amount of joint and individual income. What are these spousal protection provisions, and how do they work? Let’s find out.
Medicaid Eligibility In Washington State
If you’re a Washington state resident, you likely know Medicaid by its other name, Washington Apple Health or simply Apple Health. There are three general long-term care programs Washington residents can qualify for:
- Institutional or Nursing Home Medicaid. This service only applies to those receiving care in a nursing home.
- Medicaid Waivers or Home and Community-Based Services. This service applies to home care, assisted living facilities, and adult day care or family home. Only a select number of participants can receive this type of care, and there are often waitlists.
- Traditional Medicaid (Aged, Blind, Disabled Medicaid). Anyone who meets the requirements can receive benefits.
How do you qualify for these programs? Medicaid considers both your income and assets.
The amount of income that Medicaid “counts” depends on the type of program your spouse wants to apply for (one of the above three).
For the first two options, Medicaid only looks at the applicant’s income, and they disregard the spouses’ income. This is a critical point! Spouses of applicants can keep their own income, but the agency imposes limits on the amount they can keep from the applicant’s income and joint assets. For traditional Medicaid, both spouses’ incomes are counted.
What counts as income?
- Any W-2 wages
- Investment income (retirement accounts, brokerage accounts, interest, dividends, etc.)
- Pension income
- Social Security income
Medicaid eligibility also rests on assets, and examples of assets can include:
- Savings and checking accounts
- Investment properties or other real estate besides your primary residence
Most primary residences are exempt from their countable assets if the applicant intends to live there. We’ll discuss more on your home’s value in this process below—stay tuned!
If you exceed these limits, there are still additional ways you may qualify. Check out more eligibility requirements for Washington residents on the state Medicaid website.
What Are Medicaid’s Spousal Provisions and How Do They Work?
In 1988 Congress wanted to solve a critical issue: spousal impoverishment. Spousal impoverishment describes a predicament where one spouse receives long-term care paid by Medicaid, and, after using all the resources to pay for care, the other spouse doesn’t have enough income left to support themselves.
Thankfully, spousal provisions allowed for the protection of a portion of the couple’s combined assets and some individual income as well, depending on different circumstances. And these protections don’t just extend to nursing home care; you may be able to qualify for protection if your spouse receives home care, assisted living, or community-based services as well. This recent change opened up more options for care and financial assistance.
There are a few different types of protections to be aware of, and they apply to both your income and assets.
Let’s start with income.
Income Protection and Medicaid MMMNA
While you may think we fell asleep with a finger on the “M” key, don’t worry, we didn’t. This long acronym stands for Minimum Monthly Maintenance Needs Allowance (MMMNA) and is the amount of your spouse’s income that you’re entitled to keep.
Remember, if your spouse is receiving Medicaid for long-term care, you can keep all of your income. So, if you have a part-time job and bring in $1,000 a week, Medicaid won’t “count” that $1,000 toward your spouses’ eligibility. The MMMNA comes in if you need more than your income to live.
The federal government sets a minimum and maximum MMMNA each July, and the exact amount you qualify for depends on your state. Through July 2022, the federal minimum amount is $2,177.50, and the maximum is $3,435.00.
To make it more confusing, each state can set its own minimum and maximum amounts or create one fixed amount within the federal limits. For Washington, the minimum amount mirrors the federal guidelines, and the allowance can be as high as $3,260 per month (factoring in housing costs).
What if you need more money per month? In some cases, the applicant spouse can transfer monthly funds to their non-applicant spouse that exceed the MMMNA limits. But that’s only permissible in states with both minimum and maximum limits, and often, the state will look at the non-applicant spouse’s housing or “shelter” or housing costs.
Suppose the non-applicant’s “shelter” costs—rent/mortgage, property taxes, insurance—exceed their MMMNA. In that case, they could receive income from the applicant’s spouse to make up the difference, so long as it’s under the federal maximum, which is $3,435.
What Assets Get Protection?
In addition to the MMMNA, a spouse can keep half of the joint assets, on which, of course, Medicaid imposes minimum and maximum limits. The agency will take a look at those assets after your spouse has been in nursing care for 30 days.
This number is known as the Community Spouse Resource Allowance. The federal limits for 2020 are as follows:
- Minimum: $27,480
- Maximum: $137,400
In Washington, a spouse is entitled to half of the marital assets up to a maximum of $130,380 and a minimum of $58,075.
Keep in mind that the state of Washington also has a 5-year lookback provision, which just means that you can’t sell assets for less than they’re worth to meet the asset limits. If you do, you’ll have to contend with a penalty and loss of eligibility.
What About Your Home?
Many couples may be thinking about how their home factors into Medicaid eligibility for long-term care. Federal law protects your home up to a certain amount of “equity interest.”
Let’s stop right there; what does Medicaid mean by equity interest?
The traditional way you think about equity in your house is the fair market value minus any debts like mortgage, home equity loan, etc., and that figure becomes the home’s equity value.
Simple enough, let’s move on.
But that’s not what Medicaid is referring to—though the equity value will come into play, so don’t forget what it is!
Your equity interest depends on whether you own the home by yourself or with another person, like your spouse. If you’re the sole owner, your equity interest is the entire home’s equity value. If you own the home jointly, your equity interest is only half of the home’s equity value.
Clear as mud, right?
In 2022, the minimum home equity interest is $636,000, and it can be up to a maximum of $955,000.
While that number may sound far-fetched, the median sale price for homes in Snohomish county is $651,000—an 18.4% year-over-year increase. At this rate, you could probably reach that equity interest.
So, if you and your spouse have $600,000 worth of equity interest, that won’t be part of your countable assets. Though, there are some exceptions to note. Many states have additional rules around counting home equity, and the primary contingency is that the spouse who needs care is likely to move back into their home.
Unfortunately, just the intent to move back home doesn’t often suffice; there has to be demonstrated proof that they will most likely return home.
How Can Couples Prepare For Long-Term Care Costs?
Long-term care is an expensive (and often overlooked) endeavor, making it an essential component of your retirement readiness.
Here are a few ways you could prepare.
- Purchase long-term care insurance – LTC insurance can protect you if you require long-term care services via home care, nursing care, assisted living, etc. The best benefit that this insurance can provide you and your loved ones is options. With insurance, you have more flexibility in the care you receive. It likely won’t cover all of your long-term care costs, but it could help keep your nest egg intact. Just make sure that the premium is less than 7% of your income—if it’s more, it’s likely not the right policy for you.
- Consider a life insurance rider – Adding a long-term care insurance rider to your life insurance policy allows you to tap a portion of the policy’s death benefit to pay for your care. Essentially, these products offer you a set amount of money you can access for LTC purposes. Keep in mind that your monthly premiums will likely increase.
- Look into the WA Cares Fund – This is the first state-driven long-term care program, where workers will pay anywhere from $.58 cents to $100 of earnings into a trust that you can access later. Every eligible participant can receive a lifetime benefit of $36,500. The WA Cares Fund begins this January 2022! While it may not cover everything, it’s another resource to help cover costs.
- Invest your HSA – A health savings account is an excellent way to prepare for healthcare costs in retirement. HSAs have triple tax benefits: you contribute with pre-tax dollars, investment gains are tax-free, and distributions for qualified medical expenses are also tax-free. You may also be able to use some HSA withdrawals to cover LTC insurance premiums! Keep in mind that you can’t invest in your HSA while enrolled in Medicare, so many people over 65 aren’t eligible for regular contributions, but you can withdraw money.
- Make a caregiving plan – Do you and your spouse want to age in place? Would you or your spouse benefit from an assisted living, memory care, nursing home, or another specialized facility? Do you expect your children to help out with some care? Now’s the time to ask and try to answer these challenging questions. Remember, it’s always better to plan when times are good, so you’re protected if something happens.
- Be flexible – When it comes to aging, there are no “definites,” only “maybes.” You want to save and prepare in a way that allows you to be flexible.
70% of people over 65 will likely require some long-term care throughout their golden years, so you’ll need to consider its impacts on your retirement plan. As a couple, you must be true partners in your financial plan and work together to protect one another as you age.
We would love to assist you in creating a plan that covers your health needs, no matter how they unfold. Schedule a time to speak with our team today.