The break-even point is the point at which it doesn’t matter whether the individual applies for Medicaid or continues to private pay. Either way, the individual is going to pay the same amount.
Let’s say that the minimum months to qualify is 20 months. The break-even point is 40 months. (60 minus 20). If at any time the individual goes into the nursing home and applies for Medicaid prior to 40 months, you will “flip the switch” and apply for Medicaid. The penalty period is 20 months, so the individual private will have to private pay for those 20 months. If that was done in month 10, then the individual will pay the penalty until the 30th month from the date of the funding of the iPug. (10 months plus 20 months penalty = 30 months from funding). The individual will begin to receive Medicaid benefits the 31st month. The individual does not have to wait until month 60 from the date of the funding to get their benefits in that scenario.
If the individual applies for Medicaid on the break-even point – month 40, they will still have a 20 month penalty, which will push them to 60 months from the funding date. If they don’t apply for Medicaid in month 40, then the individual would have to private pay for those 20 months until month 60. After which time, the individual will apply for Medicaid and Medicaid won’t see the transfer 61 months earlier. Either way it costs the same; it doesn’t matter whether you apply for Medicaid or not. (That said, know your local rules too - in Texas for example, there is a slight benefit for being on Medicaid and in the penalty period, so I would probably go ahead and apply at the break-even point for Texas residence).
Now, if the individual becomes ill in month 45 and goes to the nursing home and applies for Medicaid, then applying for Medicaid still triggers the 20 month penalty. This will push the Medicaid eligibility out past the 60 months to month 65 (45 months from funding plus 20 months of penalty). This is beyond the initial 60 months from funding, so you don’t want to apply for Medicaid after the break-even point. If the individual makes it past the break-even point before they need a nursing home, they will private pay the nursing home cost until month 60. After month 60 passes, the individual can apply for Medicaid and answer “no” to the question of have you given any money away in the last 60 months and avoid the 20 month penalty.
David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center