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Paying a Family Member to Provide Care as a Medicaid Spend-Down Strategy

Paying family members to provide care is one strategy for seniors to “spend down” their assets and become Medicaid eligible. Which family members, what type of care, payment amounts, and documentation of care all need to fall within state Medicaid guidelines for this strategy to be allowed. Once the senior’s assets are spent and they enroll with Medicaid, there are multiple Medicaid programs that can be used to keep paying the family member caregiver if the senior remains living in the community.

How Paying a Family Member for Care Can Help with Medicaid Eligibility

Essentially, a senior applying for Medicaid can “spend down” or reduce their current assets to get under Medicaid’s asset limit by paying for a family member to provide care. By doing so, they reduce their savings (or “assets” in Medicaid terms) while still keeping the financial resources in their family. Often times, an adult child is providing this care for free and because of Medicaid’s Look Back Rules, their parent cannot gift them money. By entering into a Personal Care Agreement, they can paid them to provide care.

Payments for care / the spend down process can happen gradually, with seniors making weekly or monthly payments and slowly reducing their assets. It can also happen all at once if the senior lives in a state that allows lump sum pre-payments for longer periods of care. The dollar amount of these lump sum payments is calculated with actuarial life table and the market rate in the geographic area of residence.

The 2023 asset limit for Medicaid eligibility for an individual in most states is $2,000. For a couple in most states, it is either $3,000 or $4,000. California ($130,000 for an individual, $195,000) and New York ($30,180 and $40,820) are the major exceptions. There can also be some variance between the three Medicaid programs: Nursing Home Medicaid, Home and Community Based Service Waivers, and Aged, Blind and Disabled Medicaid. ABD Medicaid can also be referred to as Regular State Plan Medicaid, or regular Medicaid for seniors, but it should not be confused with the regular Medicaid that is available for low-income people of all ages.

Caregivers cannot be paid retroactively for this strategy to be allowed under Medicaid rules.

Jane is a 76-year-old Texas widow who has $40,000 in assets. The asset limit for Nursing Home Medicaid in Texas is $2,000 for an individual. Currently, Jane requires 80 hours of personal care assistance per month. Her daughter, Alice, provides the care and gets paid $24/hour, which is an average rate for a personal care assistant/home health aide in Texas in 2023. They create a Personal Care Agreement detailing the type and amount of care Alice will give, Alice’s pay rate and when Jane will make the payments – the first of every month for the upcoming month of care. Those payments will be $1,920 each (80 hours x $24/hr.). After approximately 20 months Jane will have paid Alice $38,400 of her $40,000. Now her remaining assets are under Texas Medicaid’s limit and Jane will qualify for Medicaid assistance.

How to Document the Process to Avoid Medicaid Violations

Caregiver payments must be properly documented to be allowed as a spend-down tactic under Medicaid rules. This can be done using a Personal Care Agreement (PCA). This is simply a written contract between a caregiver and a care recipient that details the care to be provided and payment for that care. These agreements are also known as Elder Care Contracts, Personal Service Contracts, Family Caregiver Contracts, and Life Care Contracts.

There is no standard PCA form that is used across the country, although some states have a standard form. This webpage has a free PCA template, but it is strongly recommended seniors consult with a Certified Medicaid Planner or elder law attorney to ensure if the form meets Medicaid’s standards. That being said, it is not a legal requirement to have a lawyer create a PCA. Also, some states require a Notary Public to witness the PCA signing, but if the applicant does not live in one of these states, it is not necessary to have the PCA notarized.

While there is no standardized PCA paperwork, all PCAs should contain the following information – detailed description of care to be provided, how often care will be provided, location where care will be provided, caregiver pay rate and frequency of pay, start and end dates, modification clause (allows either party to make changes to the PCA), termination clause (sets guidelines for ending the contract before the end date), and signatures of both the caregiver and the care recipient.

Improper documentation can result in Medicaid denials or penalty periods.

Without a PCA, payments made to caregivers could violate Medicaid’s Look-Back Period, which is intended to prevent applicants from simply giving away their assets to get under the asset limit and gain eligibility. Medicaid officials check this by “looking back” into the financial records of Nursing Home Medicaid and Home and Community Based Service (HCBS) Waiver applicants. The Look-Back Period does not apply to ABD Medicaid, but ABD Medicaid applicants should be careful about giving away their assets to reach the limit. They might eventually need Nursing Home Medicaid or HCBS Waivers, and giving away their assets could wind up violating the “Look-Back Period” if they do apply for those programs in the near future.

The PCA is documented proof that assets were spent on allowable care. Without that documentation, family caregiver payments could look like gifts, which are not allowed during the Look-Back Period. Violating the Look-Back Period could lead to a period of ineligibility for the applicant.

In 48 states and the District of Columbia, the Look-Back Period is 60 months (five years) long, which means Medicaid officials will look back into 60 months of financial records of applicants. The two exceptions are California and New York. In California, there is no Look-Back Period for Nursing Home Medicaid, and the Look-Back Period for HCBS Waivers is only 30 months. In New York, there is a 60-month Look-Back Period for Nursing Home Medicaid, but there is currently no Look-Back Period for HCBS Waivers. New York does intend to implement a 30-month Look-Back Period for HCBS Waivers in the future, but the soonest that would happen is March 31, 2024.

Which Family Members Can Be Paid as Caregivers

Any adult family member can be a caregiver – children, grandchildren, siblings, nieces and nephews. It would not make sense for a spouse to be a caregiver in this scenario where the caregiver payments are being counted on as a spend-down strategy, because Medicaid considers all assets of a married couple to be jointly owned.

The caregiver does not have to be related to the care recipient. They could be a friend of a family member, although the focus of this article is on family members as caregivers. Multiple family members can enter in concurrent Personal Care Agreements.

How Much Can Caregivers Be Paid

Caregivers must be paid no more than the average rate of a personal care provider in the same geographic area. If they are paid too much, Medicaid officials could consider the payments to violate the Look-Back Period, because the payment would be more than fair market value and considered a gift.

The caregiver should keep a daily log detailing all of the services they provided, the hours they worked, and the payments they received from the care recipient. This document, along with the PCA, can demonstrate the working relationship between the caregiver and the care recipient.

Medicaid Programs that Pay Family Caregivers Following Qualification

Reaching the asset limit means the senior is Medicaid eligible (as long as they also meet the income limit and functional eligibility criteria), but it probably also means they can’t afford to keep paying the family caregiver because they’ve spent down all but $2,000 of their assets, unless they live in one of the few states with a different asset limit. This won’t matter if the senior has enrolled in Nursing Home Medicaid, because the nursing home will provide full-time care and the family member will no longer be needed as a caregiver. But if the senior has enrolled in Home and Community Based Service (HCBS) Waivers, or Aged, Blind, and Disabled (ABD) Medicaid and is planning to live in the same setting where they’ve been receiving care from the family member, they will most likely continue to need that care. The good news is all 50 states and the District of Columbia have at least one Medicaid program, and some have several, that may pay the family member to keep providing care.

ABD Medicaid
ABD Medicaid will pay family members for providing personal care services in several states, with the amount of care usually dependent on the functional needs and circumstances of each individual. This is often done through consumer-directed programs, which allow ABD Medicaid beneficiaries to hire and pay caregivers of their choice. These consumer-directed programs include the Community First Choice Option, the Self-directed Personal Assistance Services State Plan Option and the Home and Community Based Services State Plan Option (not to be confused with Home and Community Based Service Waivers).

A drawback of ABD Medicaid is the more restrictive financial limits – the 2023 ABD Medicaid income limit for an individual in most states is either $914 / month or $1,215 / month, compared to the $2,742 / month for HCBS Waivers or Nursing Home Medicaid in most states. A major advantage is that ABD Medicaid is an entitlement, which means that all eligible applicants are guaranteed by law to receive benefits.

HCBS Waivers
The majority of states offer HCBS Waivers, and many of these Waivers cover personal care services and will pay family members to provide the care. As with ABD Medicaid, HCBS Waivers in many states allow for consumer-direction, meaning the Medicaid recipient can hire and pay caregivers of their choice, including family members.

Unlike Nursing Home and ABD Medicaid, HCBS Waivers are not an entitlement. Instead, each program has a limited number of enrollment spots. Once those spots are full, additional eligible applicants will be placed on a waitlist that can be months or even years long.

HCBS Waivers have various names across the country. In Ohio, for example, there’s a PASSPORT Waiver, while Alabama has an Elderly & Disabled Waiver, and Nevada has the Waiver for the Frail Elderly.

Adult Foster Care
In some states, family members can be paid as caregivers through Medicaid through an adult foster care program. The Medicaid beneficiary would move into the home of the family member (excluding spouses), and the home would then be considered an adult foster home. While Medicaid won’t pay for room and board expenses, it will pay the family member for the care they provide. This can also work if the family member (still excluding spouses) moves into the home of the Medicaid beneficiary.

At the time of writing Texas, Rhode Island, Ohio, Massachusetts, Louisiana, Indiana and Connecticut allow family members to be adult foster care providers.