Washington Medicaid Planning Guide

****Important Note: The following is a general guide, intended for illustration purposes only. Those who are considering a Medicaid application should consult the most up-to-date rules and income/asset standards, and should consult an attorney specializing in Medicaid benefits if they wish to review their own specific circumstances.****

Washington’s Medicaid benefit for long-term care is primarily administered under the Long-Term Services and Supports (LTSS) program. For seniors and other individuals with disabilities, this benefit may help pay for care in a nursing home, or in an alternative care setting such as an Adult Family Home or Assisted Living Facility. The benefit may also pay for personal care services in the home, up to an allowed number of hours.   

Functional Eligibility

To qualify, an applicant must meet the program’s functional criteria. This means they must establish that they are disabled enough to qualify for assistance, which is measured by the amount of assistance they require with certain “activities of daily living” (ADLs) identified by the program. These include eating, toileting, bathing, dressing, transferring, medication management, and personal hygiene. An applicant may also qualify with fewer ADL needs if they also have a cognitive impairment that requires that they have supervision. 

Example: Bob is a widower living alone at his home. He had a stroke and cannot return home from the rehabilitation center unless he will have assistance. He cannot bathe or dress without assistance, and he cannot transfer from his bed to his wheelchair without help. If he is financially eligible, Bob would likely meet the functional criteria to qualify for a Medicaid benefit to pay for caregivers to come to his home. The number of approved hours will depend on his needs.

Financial Eligibility

Single Applicants

An applicant must also establish that they have assets below the program’s threshold. For most single applicants, the asset limit is $2000 in “countable resources.” Some assets are not counted, such as personal effects, a car of any value, the home where the applicant resides or intends to return (so long as the equity in the home is less than $595,000), and certain qualifying burial funds. 

An applicant will, in most cases, pay most of his or her income toward the cost of care. This is called “participation.” For this reason, it only makes sense to apply for Medicaid when an applicant’s income is not sufficient to pay for the cost of care without the benefit. For example, the income limit for nursing home care is determined by the facility’s monthly rate plus the cost of the applicant’s medical expenses; in other words, if the applicant has enough income to cover his or her own care costs, then Medicaid is not an option. The income limit for care in an assisted living facility, adult family home, or at home is $6,815 per month.

Example: Amina has Alzheimer’s disease and needs care. Her daughter has located an adult family home with a room available. The private pay rate is $4000/month, but the facility accepts Medicaid whenever a resident is eligible. Amina has income of $1500/month from Social Security, and she has $10,000 in her checking account. The rest of her assets are non-countable (clothes, a TV, a $1500 burial fund). Amina will need to pay privately for two months (or spend down to $2000 in another way) before she will be eligible for Medicaid to pay for her care. Once she is on Medicaid, she will keep only $70 of her income (her “personal needs allowance”) and pay the rest toward “participation.”

Most gifts in the five-year period before an application will cause a delay of Medicaid coverage by 1 month for each $10,374 given away. Most transfers to trusts for the benefit of others cause this same delay. A transfer to a trust for the benefit of the applicant will result in the trust assets being treated as countable assets owned by the applicant. (There is an exception discussed below for trusts for the benefit of a disabled applicant under 65 years of age.)

Married Applicants

A married couple is treated differently in terms of the asset test. The applicant spouse may have up to $2000 in countable resources, but the non-applicant spouse (called the “Community Spouse”) is also entitled to have assets up to an additional $58,075. This limit may be up to $128,640 if the applicant is applying for benefits in a skilled nursing facility. The other difference is that there is no equity limit on an exempt home if the applicant is married.

Applicants must keep in mind that the asset limit includes assets in retirement accounts, as well as the cash-out value of annuities and life insurance policies. When retirement accounts belong to the applicant, they must be cashed out down to $2000 or less before qualifying, which can trigger significant income tax consequences. (Retirement accounts belonging to a spouse can often be converted to a qualifying annuity without triggering income taxes.) A CPA is an important resource for comparing the benefits of the Medicaid program for long-term care against the costs of liquidating retirement accounts on a short timeline.

Example: Cynthia has multiple sclerosis that has progressed to the point that she requires care outside the home. She and her husband Mike have spent down their countable assets on her care to about $60,000, except their IRAs. Mike’s IRA has a balance of $100,000; he can convert this to a qualifying annuity. Cynthia’s IRA has a balance of $500,000. If she liquidates this to meet her own $2000 asset limit, she will pay income taxes on the full amount in the year of withdrawal. Her CPA can help her decide if this will be worth the benefit of obtaining benefits for her care (vs. the private pay rate), or if she should instead pay privately for a longer period of time in order to stretch out the withdrawal of the retirement account over more than one year.

In addition to the non-countable resources listed above for single applicants, a couple may also disregard assets in a qualifying annuity. Such an annuity must start paying out immediately, and it must be irrevocable, non-assignable (i.e., it cannot be given away), paid out in equal periodic payments, and actuarially sound; in most cases, it must pay out to the beneficiary (the community spouse) over at least 5 years.

Gifts by the applicant and/or the community spouse within the 5 years before the application are generally subject to a penalty. It does not make a difference if the gift was from one spouse or the other’s separate property. For every $10,374 gifted, there is a 1-month period of ineligibility. 

Example: Daniel and his husband John gave their daughter gifts totaling $73,000 over the five years before a Medicaid application. Daniel would have a 7-month penalty period imposed ($73,000 ÷ 10,374 = 7 months), and would need to pay for care privately for 7 months going forward before Medicaid benefits would begin.

Some gifts are not penalized, such as those to a disabled child or gifts that can be proven to be for purposes other than Medicaid eligibility, which is sometimes the case when an applicant was very healthy at the time of a gift and would not be expected to be thinking about Medicaid. However, it is risky to assume a gift will be ignored because of this exception.  

Example: Karen, age 55, owns a beautiful beach house in Ocean Shores, in addition to her modest home in Tacoma. The property has been in the family for many years. She is disabled and knows that as she gets older the odds of her needing long-term care increase; she does not have sufficient income to pay for expensive care. She decides to give the beach house to her son, Frances, with the hope that she will not need to apply for benefits for at least 5 years going forward. At age 67, Karen decides to move into an Assisted Living Facility that will accept Medicaid. The gift of the beach house was outside the 5-year look-back period, and so it does not affect her Medicaid application.

Other Programs for Long-Term Care

Some Washingtonians may qualify for certain long-term care benefits through their eligibility for MAGI Medicaid, also called Medicaid expansion or “Obamacare.” These individuals must be under 65 and meet the MAGI income test.  People receiving long-term care exclusively through their MAGI Medicaid program eligibility are not subject to an asset test. This is important for low-income disabled individuals who are under 65. The income limit for this program for a single person is $1414. There is not a transfer penalty for gifts under the MAGI Medicaid program.  

Similarly, the Health Care for Workers with Disabilities (HWD) program has no asset test. Some people who qualify for HWD receive long-term care services because of their HWD eligibility, and do not need to first spend down to under $2000.

Very low-income seniors may qualify for long-term care benefits through the Community First Choice(CFC) program. The CFC program does not have a transfer penalty for gifts in the five years leading up to eligibility. 

Two relatively new programs in Washington are the **Tailored Supports for Older Adults (TSOA) **program, and the **Medicaid Alternative Care (MAC) **program. The TSOA program is designed to provide support for those who are functionally eligible for Medicaid and nearing Medicaid financial eligibility. For example, a single person may qualify if her assets are below $53,100. A married applicant may qualify if the couple’s assets are below $111,175. The applicant’s income must be under $2205/month. The benefits of the TSOA program are limited, but can provide critical support to help delay the need for Medicaid. There is no gifting penalty for TSOA.

The MAC program is for low-income individuals who are eligible for long-term care Medicaid benefits, but are receiving unpaid care from family or friends instead of Medicaid-paid services. The program is designed to help support this arrangement, since unpaid caregivers save the state a great deal of money as compared to Medicaid-paid care.

Additional Benefits for Applicants Qualifying for Long-Term Care Benefits in Washington

Most seniors qualifying for long-term care Medicaid benefits will also receive critical benefits to pay for the costs not covered by Medicare. For instance, once a person is deemed eligible for Medicaid coverage in a nursing home, his Part B Medicare premium, Medicare co-pays, and drug costs will also be covered. This is a significant benefit for individuals with high health care costs outside of their personal care needs.

Estate Recovery

The state of Washington has a right of recovery against certain assets owned by a Medicaid beneficiary when they pass away. Medicaid may assert a lien up the total amount paid for long-term care and related services after age 55. In most cases, there is nothing to recover; the individual applied for Medicaid precisely because they were out of money to pay for care. However, there are two key situations where the state may assert its right of recovery: 1) When the applicant had a home, treated as a non-countable resource at the time of application, and, less often, 2) when the applicant came into money after receiving Medicaid benefits, through the sale of a home, an inheritance, or receiving a settlement from a lawsuit.

Some families are surprised to learn that a home they are inheriting from a parent or other family member will be subject to a Medicaid lien. While the state may allow for certain permitted reductions in the lien amount to permit the family to pay for the final expenses and costs to close the estate, there is typically not a way to completely avoid a valid Medicaid lien. In certain circumstances, the lien enforcement may be delayed, such as when a disabled child lives in the home.

If the Medicaid beneficiary was married at the time of the death and the home was owned together with the spouse as community property, the lien can be avoided by transferring ownership to the well spouse. But even if that transfer is not made, the state typically agrees not to enforce its lien once a probate has been opened and notice of the probate has been provided to the Office of Financial Recovery (OFR). However, spouses and surviving family members should not assume that a lien will go unenforced or be released, and should work with OFR to come to a resolution before making plans for the home or the proceeds of an anticipated sale. 

Special Needs Trusts, ABLE Accounts, and Long-Term Care

Assets that are held in trusts for the benefit of the Medicaid applicant may not be countable if the trust meets specific criteria. For assets that originally belonged to the beneficiary, the assets must be placed into a qualified self-settled special needs trust before the disabled beneficiary turns 65. For assets that were gifted through an outright gift or as a bequest from a loved one to a third-party special needs trust, there is no age limit. It is imperative that the trust meet state law criteria, in order to not be counted. This generally requires that the beneficiary not serve as trustee or have the power to direct the distributions of the trust, and that the trust is used to supplement and not supplant the Medicaid benefits the person receives. 

The Achieving a Better Life Experience (ABLE) Act of 2014 opened the door to a new option, called ABLE accounts. These accounts may be opened by or for those who were disabled before the age of 26, even if the account is not opened until they are much older, and there is no transfer penalty for placing assets into an ABLE account, even if the beneficiary is over 65 and placing his or her own assets into the account. An ABLE account may hold up to $100,000, with up to $15,000 added each year from any source, plus certain additional earned income. Funds in the account may be used for “qualified disability expenses,” which are broadly defined and include education costs, therapies, training, housing, living expenses, legal fees, and other qualifying expenditures. The funds may be controlled directly by the beneficiary (or an account manager may be designated). ABLE accounts are a valuable new tool for Medicaid benefit planning for those who became disabled at a young age. For more information about Washington’s ABLE program, visit https://www.washingtonstateable.com/.

Top Five Medicaid Planning Mistakes in Washington

#1-Assuming a Facility Accepts Medicaid.

Many facilities do not accept Medicaid. Some levels of care, such as “Independent Living” do not qualify for Medicaid in any circumstance. Other levels of care may or may not be covered, depending on the facility’s policy. Some facilities participate in Medicaid for some programs (e.g., skilled nursing) but not for others (e.g., assisted living).

Although most skilled nursing facilities do participate in the Medicaid program, a growing number of facilities accept only Medicare (generally for rehabilitation) and accept only private pay for other long-term skilled nursing care. Or, they may have very limited beds available for those on Medicaid. 

Adult Family Homes and Assisted Living Facilities often do not accept Medicaid. This includes facilities billed as “Memory Care.” Families and applicants should not assume that a facility that previously accepted Medicaid still does; facilities may change their status to no longer accept Medicaid.

#2-Failing to Plan for Private Pay Requirements.

In Washington, Adult Family Homes and Assisted Living Facilities that participate in the Medicaid program may require, by contract, that a resident pay the private pay rate for a certain number of months or years before converting to Medicaid coverage. Families may be caught by surprise, having spent down resources on home care before seeking care in a facility. Other families may budget for the contracted number of months but run out of money too soon due to unanticipated increases in care costs. Others get part-way through a private pay window and then find they need to move (often because of increased care needs) and must restart the private pay requirement on the terms of the new facility. 

#3-Intertwining Assets with Adult Children.

It may seem perfectly reasonable to hold a joint account with an aging parent who needs help paying the bills. It may also seem like a great idea to co-own a home with an aging parent, especially when the adult child could not otherwise afford to live in the home. However, financial entanglements like these are often the set-up for difficulty qualifying for Medicaid benefits and untimely surprises when the beneficiary passes away. For example, forensic accounting may be required to determine which assets in a joint account are mom’s and which are daughter’s, with attention to any funds that were contributed by mom but used by the daughter for her own needs (triggering a gifting penalty). A home co-owned by father and son may be an exempt resource when dad applies for Medicaid, but when dad passes away his half of the home will be subject to a lien by Medicaid, causing great stress for an adult child scrambling for ways to repay the lien without selling the home.

#4-Waiting Too Long to Utilize Long-Term Care Insurance Benefits.

Some people think they should avoid a claim for as long as possible, so that coverage is not wasted on care that could be paid for out of pocket. A downside of this strategy is that many long-term care policies do not pay enough to cover the private costs of long-term care, once the care needs are relatively high, and so a Medicaid application is required regardless and the insurance premium is paid toward participation (without direct benefit to the insured).      

Example: Dorothy has a long-term care insurance policy. Her benefit pays up to $100/day, for up to 3 years. In 2017, Dorothy decides she can pay privately for her home care aid, so she will not make a claim yet. Instead, she will keep paying the premium so she has the policy when she really needs it. In 2020, she has a stroke and needs skilled nursing care. The private pay rate is $350/day. She has exhausted her savings on home care and cannot pay for the skilled nursing care, even with the help of the insurance policy benefit. She must apply for Medicaid, and gets no personal benefit from the policy she has paid for all of these years. She also continued to pay the premium for the years when she could have been using the benefit.

Washington’s Long-Term Care Partnership program incentivizes Washingtonians to carry long-term care insurance by allowing them to qualify for Medicaid with an increased asset limit matching the policy benefit amount dollar-for-dollar. For more information, see the website for the Office of the Insurance Commissioner: https://www.insurance.wa.gov/washington-state-long-term-care-partnership-program

#5-Risky Gifting.

A little bit of knowledge can be a dangerous thing. Families may hear about asset limits for Medicaid, and decide that gifting the assets to the next generation now will allow mom and dad to qualify later while protecting what they worked so hard to save. Some even know about the 5-year look-back, and attempt to outsmart the system by gifting everything and crossing their fingers, hoping care won’t be needed within five years. Meanwhile, gifted assets have a way of being spent, making a return of the gift impossible if things do not go as planned.

Instead, any gifting with Medicaid in mind should be made only after careful consideration and planning. A qualified attorney can help seniors decide if gifting might work for them, and can help identify the potential risks. Failure to plan can result in the State’s imposition of fines of 150% of the gifted amount, and can even bring the attention of Adult Protective Services, who monitor for financial exploitation of vulnerable adults.

****Important Note: The following is a general guide, intended for illustration purposes only. Those who are considering a Medicaid application should consult the most up-to-date rules and income/asset standards, and should consult an attorney specializing in Medicaid benefits if they wish to review their own specific circumstances.****