How Not to Lose Medicaid (Part 5)

In last week’s post I explained that when the non-Medicaid spouse dies, the Medicaid spouse must receive at least a minimum amount of assets from the deceased spouse.  This is known as the elective share and in New Jersey is determined to be 1/3 of the deceased spouse’s estate less what the surviving spouse already has.

When the surviving spouse is receiving Medicaid, those assets could result in the loss of benefits – maybe.  Once the exact dollar amount of the elective share is determined, one option is to simply give those assets to the State of New Jersey and remain on Medicaid.  Why would someone do that?

In order to answer that question, we must first look to determine how much in Medicaid benefits the surviving spouse has already received.  This will tell us what the State will be looking to recoup once the Medicaid recipient dies under what is known as estate recovery.  While the State must wait until the Medicaid recipient dies to seek recovery, if we know that amount already approaches or exceeds the value of the elective share, there is no advantage to accepting the assets and terminating Medicaid.  Let’s look at a couple of examples.

Suppose the elective share amount is $100,000 and the amount of benefits that have been paid out already is $100,000.  The surviving spouse will now have to spend down those assets at the higher private pay rate and reapply for Medicaid once those assets are exhausted.  Even if the spouse dies before spending everything, the State under estate recovery will look to recoup what it paid.  In that case it is easier to just give the money to the State and remain on Medicaid.

On the other hand, let’s say the elective share is $400,000 and the amount of benefits paid out so far is $50,000 and increasing at the rate of $3000 per month.  In that case, giving the State $400,000 doesn’t make much sense.  You must give them the whole amount and there are no refunds if it turns out they didn’t pay out that amount in benefits.   The State can keep all of it.  

It would be better, instead, to terminate Medicaid and spend down at the private pay rate.  While we don’t know how long the surviving spouse will live, we do know it would take almost 10 years before Medicaid would pay out $400,000 in benefits.  Better in that instance to terminate Medicaid and accept the money.  Further planning using a Medicaid annuity may be able to protect approximately 1/2 of that money which would then involve reapplying for Medicaid.

A note of caution.  Each situation depends on many different factors and no two situations are identical.  It is best to be guided by an attorney well versed in the rules of Medicaid before making any decision.