Qualifying for MassHealth Coverage for Long-Term Care: A Case Study

More and more people are living to an older age than any generation previously. As the population begins to age, planning for long nursing home stays is becoming a more relevant topic. MassHealth (also known as Medicaid) is an assistance program offered in the state of Massachusetts to help defray the cost of long-term care and supplement your income in order to pay the nursing home.

MassHealth is a poverty-based program and as such, you must be under a certain threshold in “countable” assets in order to qualify. The current numbers are $2,000 worth of assets allowed for the applicant spouse, and roughly $148,620 allowed for what is called the “community spouse,” i.e. the spouse staying in the community (and out of the nursing home).

Consider the five-year look-back

When applying for MassHealth, the state takes a look at the last five years of transactions and resource transfers to determine if there have been any disqualifying transfers or if there is anything that raises their suspicion. Hallmarks of this are large cash withdrawals that aren’t easily traceable, such as writing a personal check for $3,000 to your adult child. While the purpose of this personal check may have been to reimburse the child for money they advanced to pay for your new roof, MassHealth doesn’t know this and assumes that you are “gifting” money away to be used at a later date for your own benefit, and they can apply a penalty period.

Due to this five-year look-back, we recommend that clients begin considering implementing a specially-designed LAST™ Trust years before they will potentially need to enter a nursing home, in order to pass through the five-year look-back without issue. This, however, does not help people who have not done estate planning and find themselves in need of nursing home care. Their natural inclination may be to privately pay and spend down money until they meet the asset threshold. However, there are last-minute planning options that we can implement to preserve your money for your spouse and for future generations while still making you eligible for MassHealth.

All is not lost if you are within the five-year period

For example, a husband and wife recently engaged us to assist in a MassHealth application for the husband. They had previously set up an irrevocable trust, but it did not make it past the five-year look-back period. This meant we had to approach their situation as if they did not have anything protected at all. This husband and wife had various bank accounts, brokerage accounts, IRAs, and real estate. With their asset values approaching the $1M mark and well above the combined threshold of roughly $150,000 ($2,000 for the sick spouse and $148,000 for the community spouse), it may seem as if they are ineligible for benefits. This is where emergency planning comes into play.

First, we had them use their liquid assets (cash, investments) to purchase the home that they lived in (i.e. primary residence) from their child who was the current owner of the house. They did this at fair market value and with a properly negotiated purchase and sale agreement to ensure a permissible transfer for MassHealth purposes, and avoid triggering a penalty period. (Remember, penalty periods occur when you have made improper transfers within the five-year look-back period, which delay your eligibility for MassHealth, forcing you to privately pay for your care for a certain amount of time.)

So, by purchasing the home, our clients spent down their liquid assets and converted them into a primary residence, which is a non-countable asset and not liened by MassHealth when a spouse is currently living there.

What about all of the money that they have sitting in their IRAs (which were not applied towards the home purchase)? Believe it or not, all of this IRA money is considered an asset by the state. You cannot apply for MassHealth and still have an IRA account balance. What to do?

In this case, the couple will purchase an annuity within their IRA. This will convert what was considered an asset (the IRAs) into an income stream (the annuity) and therefore make it a non-countable asset. This brings their new total of countable assets down below the $150,000 threshold, and, barring any other issues, will make the husband immediately eligible for MassHealth.

Planning ahead to avoid MassHealth’s five-year look-back window is crucial, but if you are not able to get your planning in place before you or a spouse requires nursing home assistance, all is not lost. This couple would have lost out on hundreds of thousands of dollars if they had liquidated their assets and spent everything down by privately paying for the nursing home until they were MassHealth eligible. This is why it is always important to consult experts before applying.

To read more on how annuities can be used to qualify for MassHealth, read our recent blog, “Purchasing an Annuity: A Strategy for the Healthy Spouse, While the Other Is in a Nursing Home”.

This case study was written by Marc Cusano, Esq. and Courtney O’Riordan, Senior Paralegal, and has been updated to reflect 2023’s laws.