As long term care needs increase and families want to keep their loved ones at home, hiring home health aides often becomes necessary.  Paying an aide, however, if not done correctly, can cause Medicaid ineligibility years later, after funds run out.   Consider the following very common scenario.

Jane hires a home health aide at $700 per week cash, or $3000 per month.  She keeps the aide 3 years until her funds run out and now needs round the clock care.  A nursing home becomes the only option. 

She applies for Medicaid but is told, “Sorry, you’re not eligible for 15 months.  You’ll have to private pay until then.”   Of course, Jane has no more money.  She’ll have to come up with the funds some other way, perhaps from family members. But at $9000 per month or more that may not be possible.  How did Jane get into this mess?  Because Medicaid treated her payments to the aide ($108,000) as transfers subject to a penalty.

Qualifying for Medicaid requires spending down assets below $2000.  Transferring assets may cause Medicaid ineligibility if you do not receive something of equal value back.  Medicaid calls this a “penalty”.  However, and this is key, you must prove to Medicaid that assets transferred are not subject to a penalty.   

If you pay the aide cash (or by check) and don’t keep proper records Medicaid will assess a penalty.  The penalty is calculated by dividing the transferred amount by the average cost of nursing home care.  When one applies for Medicaid there is now a 5 year lookback period, meaning Medicaid will look back 5 years from the date of the application to find these transfers.  They will add together all the transfers made during that time.  The penalty will begin when all other assets have been spent down and the individual enters a nursing home and applies for Medicaid. 

Of course, that is exactly the time when you have no more money.  The State presumes you gifted the money and so will tell you to get it back, use it and then, after it’s gone to come back and they will pay for your care.  But, you didn’t gift the money so you can’t get it back.

So,how can you avoid Jane’s problem?  By keeping records to prove the payments were not gifts and not paying cash which is difficult to trace.  It is also a good idea to generate detailed invoices of the services which you purchased.    Another, perhaps better, solution is to hire a home health agency that will supply the aide.  It will cost more than hiring an aide directly but your contract with the agency will insure that Medicaid can never challenge the payments as gifts.  And, in the long run it may cost you less because you won’t be stuck with a Medicaid penalty.