Letting the Fox Guard the Hen House

I recently met with a woman whose husband requires nursing home care. The couple owns a house and has $200,000 in the bank. Upon learning that the woman had come to see me, the nursing home representative offered to help her apply for Medicaid and filed a Medicaid application on her behalf.

Why Did the Nursing Home File a Medicaid Application?
I found it odd that the nursing home would file a Medicaid application when it knew full well that Medicaid would not be granted unless something was done with the cash in the bank. Then it dawned on me: is it possible the nursing home filed such application to further its own interests?

The Medicaid Application Will Be Denied.
In this case, the Medicaid rules allow the couple to keep only $100,000 in the bank. Because they had $200,000, Medicaid would not begin to pay for husband’s nursing home care until the couple had spent the other $100,000, and the Medicaid application filed by the nursing home would be denied because the couple has too much money. With such denial would come a notice stating that the couple had to spend $100,000 and then reapply for Medicaid before the State could begin to pay for the nursing home costs.

Was the Nursing Home Pursuing It’s Own Interests?
I wondered, after hearing that the nursing home filed the Medicaid application, if the nursing home’s purpose was to get such a Medicaid denial notice in order to show such notice to the wife and tell her she needed to continue paying the nursing home until she spent $100,000 on nursing home costs.

A More Beneficial Alternative.
The other alternative that I had discussed with the wife was that she could use that excess $100,000 to purchase an annuity to provide her with additional income, thereby allowing her husband to qualify for Medicaid immediately.

Two Possible Courses of Action.
In other words, there are two courses of action available to the couple. One alternative is to pay to the nursing home $100,000 of the $200,000 in the bank and then apply for Medicaid. At that point, there is only $100,000 to cover the retirement needs of the wife living at home (husband’s needs will be covered because Medicaid will pay the nursing home costs.)

The other alternative is for the wife to use $100,000 to purchase an annuity that will return the full amount to her over a three to five year period. Those funds, together with the $100,000 remaining in the bank accounts, $200,000 in total, would be available to cover the retirement needs of the wife living at home. As in the first alternative, husband’s needs will be covered because Medicaid will pay the nursing home costs.

Which Would You Prefer?
Most people would prefer to keep $200,000 for their retirement years as opposed to keeping only $100,000. Because the Medicaid rules allow one to do so, why wouldn’t the nursing home, which offered to “help” the couple get Medicaid benefits, assist the wife to keep the full amount? Unfortunately, because Medicaid reimburses nursing homes at a slightly lower rate than a private pay resident, nursing homes prefer to have families pay privately for as long as possible and not take advantage of cost saving strategies like the one discussed above in which the wife got to keep $200,000 instead of $100,000.

However, it is a lot easier to live comfortably in retirement when you have $200,000 in savings than when you have only $100,000.

So, whenever a nursing home suggests that it will assist in applying for Medicaid benefits, one has to wonder: is this a case of the fox guarding the hen house?