A Primer on Medicare and Medicaid

by Raymond A. Harris

America’s health care system is in crisis. One only need to watch the evening news or read a newspaper article to sense this. At the heart of this issue is the meteoric rise of health care costs. The rising costs directly affect the two government programs that millions of Americans rely on: Medicare and Medicaid. Each program is based on vast amounts of legislation (federal and state), case law, and other rules and regulations that are beyond the scope of this article. This article will cover the basics of these two programs that are so vital to so many people.

Medicare

Medicare is an entitlement program funded entirely at the federal level. It is a social insurance focusing primarily on the older population. As stated in the Center for Medicare and Medicaid Services (CMS) website, Medicare is a health insurance program for people age 65 or older, people under age 65 with certain disabilities, and people of all ages with end stage renal disease.

The Medicare Program provides a Medicare Part A which covers hospital bills, Medicare Part B which covers medical insurance coverage, and Medicare Part D which covers prescription drugs. Not all medical costs will be covered, and there may be premiums, deductibles, and other fees associated with the program.

Medicare is administered at the federal level by the CMS. Locally, the various Social Security Administration (SSA) offices take applications, determine eligibility, and handle enrollment. There are many SSA offices located throughout Michigan.

Medicaid

Whereas Medicare is available regardless of income, Medicaid is for low-income individuals. It is a means-tested program that is jointly funded by the states and federal government and is managed by the states. As a result, the eligibility rules differ significantly from state to state, although all states must follow the same basic framework laid out in federal law.

Among the groups of people served by Medicaid are certain eligible U.S. citizens and resident aliens, including low-income adults and their children, and people with certain disabilities. Medicaid was created to help low-income individuals who fall into one of these eligibility categories pay for some or all of their medical bills. Medicaid is the largest source of funding for medical and health-related services for people with limited income in the United States. Because of the aging Baby Boomer population, the fastest growing aspect of Medicaid is nursing home coverage. (Note: not all nursing homes are covered via Medicaid as highlighted during the July issue of CoSozo Living.)

While the main criterion for Medicaid eligibility is limited income and financial resources--a criterion which plays no role in determining Medicare coverage--poverty alone does not necessarily qualify an individual for Medicaid. In fact, it is estimated that approximately sixty percent of poor Americans are not covered by Medicaid. Besides limited financial resources, an individual must fall into certain categories to be eligible such as persons sixty-five and older and those with disabilities.

In Michigan, the asset limits are as follows: a non-married individual may have up to $2,000, a home, and one car. Personal items such as household furnishings are exempt. Money in checking or savings accounts, 401(k)s, stocks, etc. are countable assets and must be under the $2,000 limit. Home values, although at one time unlimited in regards to Medicaid eligibility, now have a limit of $500,000.

If a person has excess assets, he or she can “spend-down” the excess to become eligible. Simply giving the excess away will result in a period of ineligibility which is determined by dividing the total gift amount by the current divestment divisor, which is currently $6,362 per month. For example, if a person gives a $60,000 gift to his or her child, there will be a 9.43 month ineligibility period. ($60,000 / $6,362 = 9.43 months). However, there are ways to reduce a person’s assets without incurring a penalty. He or she could apply the excess towards debt such as a mortgage or car loan, purchase a prepaid irrevocable funeral agreement, or make home improvements. Certain types of trusts can also be utilized to protect assets as well, but the trade-off is that he or she will lose control of the assets.

For a married couple, the non-Medicaid spouse, also known as the “community spouse,” may have up to $109,560 in assets to avoid impoverishment. This is in addition to the $2,000, home, and vehicle exemptions as explained above. The community spouse has one year from the date of the Medicaid spouse’s eligibility to re-title the assets to his or her own name.

In an effort to recover the cost of medical care provided to individuals, both the federal government and state governments have made changes to the eligibility requirements and restrictions over the years. Most recently, the Deficit Reduction Act of 2005 (DRA) significantly changed the rules governing the treatment of asset transfers as it relates to nursing home residents.

The DRA now requires that anyone seeking Medicaid must produce documents to prove that he or she is a United States citizen or resident alien. The DRA created a five-year “look-back period” which means that any transfers without fair market value (gifts) made by the Medicaid applicant during the preceding five years are penalizable, dollar for dollar. All transfers made during the five year look-back period are totaled, and the applicant is penalized that amount after having already dropped below the Medicaid asset limit. This means that after dropping below the asset level the Medicaid applicant then has to re-pay all transfers during the preceding five years by private-paying for nursing home costs.

In Michigan, Medicaid is administered by the Michigan Department of Community Health (MDCH) but the Michigan Department of Human Services (DHS) is responsible for applications. There are over one hundred DHS offices throughout Michigan.

Conclusion: Despite the ongoing budget crises, Medicare and Medicaid will continue to play a prominent role in health care in America for the foreseeable future. The two programs are quite different from each other but both play a vital role in ensuring that millions of Americans receive the care that they need.