New York Estate Planning & Elder Law Blog
RULE OF HALVES
Many people find themselves going into nursing homes earlier than expected and without the appropriate planning. Things happen in life to derail our best laid or thought out plans. With more and more elderly Americans living longer, the need for nursing home care is increasing and will continue to increase indefinitely. Whenever someone does not properly plan for going into a nursing home, often their personal funds will be the basis upon which they will pay for their nursing home care. Certainly, there are those amongst us who purchase long term care insurance but for the majority of us, we rely on utilizing Medicare or private insurance or some combination of the two.
This is a misconception, insofar as the most that Medicare will pay for is 20 days for full nursing home care and up to 80 days partial care, for a total of 100 days. Moreover, this stay must be preceded by a three day hospital stay. Any more time in the nursing home requires that the patient either pay through private insurance or by private pay. Granted entry into a nursing home often comes as a surprise to many, but for those who have an idea that they may have to enter into a nursing home, they scramble last minute to dispose of their assets with the mistaken belief that they will be able to show to the government that they do not have any assets and are thus eligible for Medicaid, to pay for their further nursing home stay.
When people scramble last minute to dispose of their assets, Medicaid will penalize them by imputing assets to them that have been disposed of. So, for example, Grandma Christine has a terrible accident and has to go into a nursing home, long term. She goes through the requisite three day hospital stay and during the ensuing days transfers her home to her kids. To make the math simple, let us assume the house is worth $250,000, yet since she is seeking to preserve the value of the house she does not sell it through a normal sale for $250,000, instead she simply issues a quit claim deed. Under 42 U.S.C. § 1396p(c)(1)(e) the government imposes a penalty period whereby they are not eligible for Medicaid for a certain period of time, whenever someone transfer assets for less than its fair market value.
More specifically, the penalty period is determined by determining the amount of the uncompensated transfer and dividing it by the average cost of one month’s nursing home in the region in which the Medicaid applicant domiciles. So, the law assumes that any money that you give away, called an uncompensated transfer, divide that by two, and then in turn divide that by the cost of a month of nursing home care in the region. So, in the example above, Grandma Christine gave away $250,000, half of that is $125,000. Let us also assume that the average monthly cost for a nursing home is $12,500 (it is not, it is different for different regions throughout the state, as shown here). That means that she is ineligible for Medicaid for ten months. Real life calculations are much different, since Grandma Christine will be earning income during that time period, which will further affect the final time line. This method of determining Medicaid ineligibility, however, is called the rule of halves, which is a rough rule of thumb to utilize when making quick mental calculations on Medicaid ineligibility.