Most families assume Medicare will cover dementia care. It won't. When your loved one needs long-term care in a memory care facility or nursing home, or requires full-time help at home, Medicare doesn't pay for it. That's where Medicaid comes in, and understanding how it works can save your family from financial devastation.
Medicaid is the government program that pays for long-term care when someone has limited income and assets. The reality is that most people with dementia will eventually rely on Medicaid because dementia care costs can easily exceed $80,000 to $120,000 per year. Even families with modest savings can burn through decades of retirement funds in just a few years.
Here's what to do right now:
- Calculate your loved one's current income and assets
- Schedule a consultation with an elder law attorney who specializes in Medicaid planning
- Gather financial documents from the past five years
- Understand your state's specific Medicaid rules
- Create a timeline for when you might need to apply based on current spending rates
Key Takeaway:
Medicaid planning isn't about hiding assets or gaming the system. It's about understanding complex rules, protecting some resources for a surviving spouse, and timing your application correctly so your loved one gets the care they need without unnecessary financial hardship for the family.
Why Medicaid Planning Matters for Dementia Care
Dementia is a progressive condition that typically spans 8 to 12 years or longer. Unlike a medical crisis that resolves in weeks or months, dementia care needs increase steadily over time until your loved one requires round-the-clock supervision and assistance.
The costs add up fast:
- Memory care facilities often range from $5,000 to $8,000 per month, with national medians around $6,450 in 2025 depending on location
- Skilled nursing homes: $8,000 to $12,000+ per month
- Full-time in-home care: $15,000+ per month
- Over a decade: $500,000 to $1 million total
Without Medicaid planning, families spend down retirement savings, sell the family home, drain college funds, and still run out of money before care needs end. Medicaid planning helps families understand the rules, protect what can be legally protected, and access benefits when they're needed without making costly mistakes.
The earlier you start planning, the more options you have. Waiting until a crisis happens limits your choices and can cost your family tens of thousands of dollars in avoidable spending.
Understanding Medicaid Basics: What It Is and What It Covers
Medicaid is a joint federal and state program that provides health coverage and long-term care services to people with limited income and resources. Each state runs its own Medicaid program within federal guidelines, so rules vary significantly depending on where you live.
Medicaid covers:
- Nursing home care (skilled nursing facilities)
- Memory care and assisted living (in some states)
- Home and community-based services
- Custodial care (help with daily activities and supervision)
Medicaid does NOT typically cover:
- Room and board in assisted living
- Private room upgrades in nursing homes
- All amenities in high-end memory care communities
The key difference: Medicare is health insurance for people 65+ regardless of income. Medicaid is a needs-based program for people with limited financial resources. Medicare covers short-term medical care; Medicaid covers long-term custodial care.
Medicaid Eligibility: Income and Asset Limits
To qualify for Medicaid, your loved one must meet strict financial requirements. These limits are surprisingly low, which is why planning matters.
Income limits
In most states, nursing home Medicaid has no income limit, but all income (except a small personal needs allowance of about $30 to $75 per month) must go toward the cost of care. For home and community-based Medicaid waivers, income limits vary by state but typically fall around $2,800 to $3,000 per month for an individual.
Asset limits
For an individual, the limit is typically $2,000 in countable assets, though some states allow up to $32,396 like New York. For married couples, the rules are more complex to protect the spouse who is not in a care facility.
Exempt assets:
- Primary residence (with equity limits, typically $730,000 to $1,097,000 depending on the state, and additional rules if the spouse doesn't live there)
- One vehicle
- Personal belongings
- Prepaid burial plans
- Certain types of trusts
Countable assets:
- Cash and bank accounts
- Stocks, bonds, investments
- IRAs and 401(k)s
- Additional vehicles
- Vacation homes and rental properties
If your loved one has more than $2,000 in countable assets, they won't qualify for Medicaid until those assets are spent down. This is where planning becomes critical.
The Five-Year Look-Back Period: What You Need to Know
The Medicaid five-year look-back is the rule that catches most families off guard. When your loved one applies for Medicaid, the state will review all financial transactions from the previous five years (60 months). If they find that your loved one gave away money or assets for less than fair market value during that period, Medicaid will impose a penalty period during which your loved one is ineligible for benefits.
Transfers that trigger penalties:
- Gifting money to children or grandchildren
- Transferring a house for free or below market value
- Making large purchases for family members
- Putting someone else's name on accounts and withdrawing funds
- Paying off a family member's debt
Important exceptions (typically no penalty):
- Transfers to a spouse
- Paying fair market value for goods and services
- Certain transfers to disabled children
- Transfers into specific types of trusts if done properly
- Spending money on your loved one's own care
How penalty periods are calculated:
The penalty period is calculated by dividing the total amount transferred by your state's average monthly cost of nursing home care. For example, if your loved one gifted $100,000 to children three years ago, and your state's average nursing home cost is $8,000 per month, the penalty period would be 12.5 months during which Medicaid won't pay for care.
The look-back period is why early planning matters. If your loved one is newly diagnosed and you're five years away from needing Medicaid, strategic planning with an elder law attorney can help position assets legally.
Special Rules for Married Couples: Protecting the Community Spouse
When one spouse needs long-term care and the other spouse (called the "community spouse") remains at home, Medicaid has special rules designed to prevent the healthy spouse from becoming impoverished.
Community Spouse Resource Allowance (CSRA)
The community spouse is allowed to keep a certain amount of the couple's countable assets, typically between $31,584 and $157,920 (2025 figures, adjusted annually). The exact amount depends on your state and how much the couple has in total assets.
Minimum Monthly Maintenance Needs Allowance (MMMNA)
The community spouse is entitled to keep enough monthly income to meet a minimum standard of living, typically around $2,644 to $3,948 per month (2025 figures). If the community spouse's own income is below this threshold, they can keep some or all of the institutionalized spouse's income to meet the minimum.
Protected assets
The community spouse can keep the home, one vehicle, and their personal belongings without affecting Medicaid eligibility for the institutionalized spouse.
These protections mean that married couples often have more flexibility in Medicaid planning than single individuals. An elder law attorney can help maximize what the community spouse keeps while ensuring Medicaid eligibility for the spouse who needs care.
Strategies for Medicaid Planning: What's Legal and What's Not
Medicaid planning involves understanding what you can and can't do to position your loved one for eligibility while protecting some resources for the family. Not all strategies are appropriate for every situation, and this is where professional guidance is essential.
Legal strategies include:
- Spending down on exempt assets (home repairs, vehicle, prepaid funeral)
- Purchasing Medicaid-compliant annuities
- Paying off legitimate debt
- Making necessary home modifications
- Establishing certain trusts (well before look-back)
- Converting assets for the community spouse
Illegal or risky strategies to avoid:
- Hiding assets or failing to disclose accounts
- Transferring assets hoping Medicaid won't find out
- Giving away large gifts shortly before applying
- Creating fake expenses
- Using "loopholes" that seem too good to be true
Medicaid fraud is a crime with serious consequences. Work with an elder law attorney to ensure every step you take is legal and properly documented.
When to Start Medicaid Planning: Earlier Is Better
The best time to start Medicaid planning is at the time of diagnosis, even if long-term care seems years away. Here's why timing matters:
Early-stage dementia (1 to 3 years after diagnosis)
Your loved one still has legal capacity to sign documents, make financial decisions, and participate in planning. This is the time to establish trusts, transfer certain assets if appropriate, and structure finances to maximize future Medicaid eligibility. You have the most options now.
Middle-stage dementia (3 to 7 years after diagnosis)
Care needs are increasing, and you may be starting to think about memory care or hiring in-home help. If you haven't done planning yet, do it now. Review assets, calculate how long they'll last at current spending rates, and consult an attorney about positioning for Medicaid before money runs out.
Late-stage dementia or crisis situations
If your loved one needs care immediately and you haven't planned, you can still apply for Medicaid, but your options are limited. You'll need to spend down assets quickly and carefully to avoid triggering penalties. An attorney can help navigate crisis Medicaid planning.
Even if you think your loved one has enough money to pay privately for years, meet with an elder law attorney anyway. Circumstances change, care costs increase, and having a plan in place gives you peace of mind.
How to Apply for Medicaid: The Step-by-Step Process
Applying for Medicaid is complex and paperwork-intensive. Most families benefit from working with an elder law attorney, but understanding the basic process helps you know what to expect.
- Determine which Medicaid program you need. Nursing home Medicaid, assisted living waiver programs, and home care waivers all have different eligibility rules.
- Gather required documentation. You'll need five years of bank statements, investment statements, tax returns, deeds, titles, insurance policies, and documentation of all asset transfers.
- Complete the application. Applications are submitted through your state's Medicaid agency, often online or in person.
- Submit supporting documents. Expect to provide verification for everything: copies of statements, receipts, legal documents, proof of identity.
- Wait for a decision. Processing times vary from a few weeks to several months depending on the state and complexity of your case.
- If denied, appeal immediately. You have the right to appeal. Work with an attorney to understand why and how to correct the issue.
During the application process, keep meticulous records, respond promptly to requests for information, and maintain copies of everything you submit.
Common Medicaid Planning Mistakes to Avoid
Families make costly mistakes when trying to navigate Medicaid planning on their own. Here are the most common errors and how to avoid them:
Mistake 1: Waiting too long to plan
Starting Medicaid planning in a crisis limits your options and can result in losing resources that could have been protected with advance planning.
Mistake 2: Gifting assets within the five-year look-back
Giving money to children or grandchildren within five years of applying triggers penalties that delay Medicaid eligibility.
Mistake 3: Assuming the house is fully protected
While the home is often exempt during application, Medicaid may place a lien on it after death to recover costs paid. Estate recovery rules vary by state.
Mistake 4: Not understanding spousal protections
Many married couples spend down assets unnecessarily because they don't realize the community spouse can keep a significant amount.
Mistake 5: Failing to report all assets
Medicaid conducts thorough reviews. Hiding assets or "forgetting" to report accounts will result in denial and potential fraud charges.
Mistake 6: DIY spend-down without legal guidance
Spending money incorrectly can hurt eligibility. Work with an attorney to ensure spend-down strategies are compliant.
Mistake 7: Not applying for benefits early enough
Some families wait until all money is gone. Medicaid can be retroactive for up to three months, but you need to apply before you're completely broke.
An elder law attorney can help you avoid these mistakes and navigate state-specific rules correctly. For more guidance on managing the financial side of care, see our article on financial planning for dementia care.
How to Find and Work with an Elder Law Attorney
Medicaid planning is complicated, and state rules vary significantly. Working with an elder law attorney who specializes in Medicaid is one of the best investments you can make.
How to find a qualified attorney:
- Search the National Academy of Elder Law Attorneys (NAELA) directory at naela.org
- Ask for referrals from your loved one's doctor, care facility, or local Area Agency on Aging
- Look for Certified Elder Law Attorneys (CELA)
- Schedule consultations with two or three attorneys to compare
What to bring to your first meeting:
- List of all assets, accounts, and their current values
- Income sources and amounts
- Five years of bank and investment statements
- Existing legal documents (wills, trusts, POA)
- Information about current and anticipated care needs
Questions to ask the attorney:
- How much experience do you have with Medicaid planning for dementia care in our state?
- What strategies do you recommend for our situation?
- What is your fee structure?
- How long will the planning process take?
- Will you handle the Medicaid application?
Be honest with your attorney about everything: past gifts, concerns about family dynamics, and your goals. They can only help you if they have complete information.
For comprehensive legal planning context, see our legal planning after dementia diagnosis guide.
How CareThru Can Help You Stay Organized During Medicaid Planning
Medicaid planning and applications require tracking extensive financial information, storing documents, and coordinating with attorneys, family members, and care providers. Keeping everything organized is critical to a successful application.
Centralize documents: Store copies of financial documents, legal papers, and medical records so they're easily accessible when your attorney or Medicaid caseworker requests them.
Track the application timeline: Document conversations with Medicaid staff and log tasks that need completion. Medicaid applications often require follow-up submissions.
Share with family and attorney: CareThru's shared access means everyone can see the same information, reducing back-and-forth and ensuring everyone stays on the same page.
Prevent delays: Having a system that tracks what's been submitted and what's still needed prevents delays in processing.
Frequently Asked Questions About Medicaid Planning for Dementia Care
How much money can my loved one have and still qualify for Medicaid?
For an individual, the asset limit is typically $2,000 in countable assets, though some states like New York allow up to $32,396. Exempt assets like a primary home (within equity limits), one vehicle, personal belongings, and prepaid burial plans don't count toward this limit. For married couples, the community spouse can keep significantly more, typically $31,584 to $157,920, depending on state rules and total assets.
What is the Medicaid five-year look-back period?
The look-back period is the five years before applying for Medicaid. During this time, any gifts or asset transfers for less than fair market value can trigger penalty periods during which Medicaid won't pay for care. The penalty is calculated by dividing the transfer amount by your state's average monthly nursing home cost. This is why early planning is critical.
Can I transfer my parent's house to avoid Medicaid estate recovery?
Transferring a house within the five-year look-back triggers penalties. However, certain transfers are exempt, such as transfers to a spouse, a disabled child, or a caregiver child who lived in the home for at least two years and provided care that delayed nursing home placement. Consult an elder law attorney before transferring property, as timing and circumstances matter significantly.
Does Medicaid cover memory care and assisted living?
It depends on your state. Medicaid covers nursing home care in all states. Some states offer Home and Community-Based Services (HCBS) waivers that cover assisted living or memory care, but availability is limited and waiting lists are common. Contact your state Medicaid office to learn what programs are available in your area.
What happens to my parent's house if they go on Medicaid?
While your parent is alive, the house is typically an exempt asset and doesn't affect Medicaid eligibility (within equity limits). After death, Medicaid may seek repayment through estate recovery, placing a claim on the home to recover costs paid for long-term care. Rules vary by state, and there are exceptions for surviving spouses and certain disabled heirs.
How long does it take to get approved for Medicaid?
Processing times vary by state, typically ranging from 45 to 90 days. Complex cases with extensive asset transfers or incomplete documentation can take longer. Some states offer expedited processing in urgent situations. Submit a complete, accurate application with all required documentation to avoid delays.
Can I be paid as a caregiver through Medicaid?
Some states have Medicaid programs that allow family members to be paid caregivers, often through Consumer Directed Personal Assistance Programs or similar waivers. Eligibility and payment amounts vary by state. This option is typically available for home care, not when your loved one is in a facility. Check with your state Medicaid office or an elder law attorney.
What if my loved one's Medicaid application is denied?
If denied, you have the right to appeal. Review the denial letter carefully to understand the reason, which might include excess assets, missing documentation, or penalty periods from asset transfers. Work with an elder law attorney to address the issue and file an appeal within your state's deadline, typically 30 to 90 days.
Disclaimer: This article provides general information about Medicaid planning for dementia care and is not a substitute for legal or financial advice. Medicaid rules vary significantly by state, and individual circumstances differ. Consult with an elder law attorney who specializes in Medicaid in your state to make decisions appropriate for your situation.
Sources
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- Kaiser Family Foundation. (2024). "Medicaid Financial Eligibility for Long-Term Services and Supports." Available at: https://www.kff.org
- National Council on Aging. (2024). "Medicaid for Seniors." Available at: https://www.ncoa.org
- American Bar Association. (2024). "Medicaid Planning and Elder Law." Available at: https://www.americanbar.org
- Genworth. (2024). "Cost of Care Survey." Available at: https://www.genworth.com/aging-and-you/finances/cost-of-care.html
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