A Medicaid professional consultant helping an elderly woman to protect her assets and money from the nursing home spend down.

Medicaid Half a Loaf

Medicaid half-a-loaf is not as effective as Medicaid divestment and has a ratio of 1:1

Medicaid Half-a-loaf Planning

Medicaid half-a-loaf planning is a procedure that can be used to reduce the amount that must be spent down in order to be eligible for Medicaid. This begins with the determination of just how many resources are in excess of the allowed amount. This is not as effective as divesting assets, but it can be an effective way to preserve some of the estate. In essence, the benefit is a 1:1 savings, meaning one dollar is preserved for each dollar that is spent. If the costs of care were to increase during the period of ineligibility, this process would become less effective.

New DRA Rules Annul Medicaid Half-A-Loaf Strategy

Unfortunately, this strategy is no longer an option. Under DRA rules and regulations, the penalty period will not start until the applicant has already applied for Medicaid benefits and has qualified. This means that in order to qualify, all assets must have already been spent down or transferred. For example, if the patient made a $50,000 gift, the penalty period would not start until the individual spent down that amount. If the nursing home rate was at $5,000 a month, the applicant would not start the penalty for 10 months. Since the gift was already made within 60 months, there would be a Medicaid penalty period of 10 months after the initial penalty, leaving the individual waiting for 20 months.

Reverse Medicaid Half-A-Loaf

If clients still want to use this type of strategy, they will have to use reverse half-a-loaf planning. This means that the applicant will gift all of the excess assets to heirs. They will then be turned down by Medicaid because of that gift. After this, the heirs will gift back the money that will then be used to pay for nursing home care expenses. Not every state will allow this to be done.

Reverse Medicaid Half-A-Loaf Planning & Medicaid Compliant Annuity

There is also another strategy that many Medicaid applicants are using. It is known as reverse half-a-load planning with a Medicaid compliant annuity. This involves the applicant gifting money to heirs and then paying a premium amount into an annuity that is Medicaid compliant. Since the annuity is not an asset that can be counted, the gifts can be smaller amounts and the income that is earned from the annuity can then be used to pay for any costs of the nursing home that are incurred during the penalty period.

The applicant must first determine how much money must go into the annuity in order to pay for care. If we assume that the gift amount is to be $45,000, the applicant may decide that they will need $50,000 to pay for care in a nursing home. That gift money would then be placed into an annuity and the income it generates would be used to pay the nursing home costs. The key to using this strategy successfully is to avoid generating too much income because it will make the applicant ineligible for Medicaid.