This article provides an overview of how to create a Medicaid-friendly personal care agreement for family caregivers.
Long-term care is expensive. It can drain an elder’s assets at a shocking rate. Thankfully, Medicaid is available to cover costs for those who can’t afford it – as long as you follow their rules.
One common mistake people make is to give away gifts, which affects Medicaid eligibility for years to come. Payments to a family caregiver are considered gifts unless they’re done according to Medicaid’s requirements.
Fortunately, it’s not hard to set up payments properly if you know what to do. In this article, we’ll take a look at how to create a Medicaid-friendly personal care agreement.
A personal care agreement (sometimes called a caregiver contract or personal service contract) is a written agreement between a caregiver and the person for whom they’re caring. It defines the relationship with the caregiver as an employee and describes the specifics of the arrangement, such as duties to be performed, frequency of work, and rate of pay.
A personal care agreement (PCA) can prevent problems stemming from assumptions or misunderstandings among family members. It’s also a vital tool in protecting your loved one’s eligibility for Medicaid.
If your loved one pays for caregiver services without a valid personal care agreement in place, then later applies for Medicaid for long-term care, they may face a penalty period of ineligibility.
Medicaid has a lookback period of five years in most states, meaning that they examine all financial transactions from the date of application going back five years. They’re very interested in transfers of cash or assets.
If they find cash gifts – or assets sold for less than fair market value – the applicant is ineligible for Medicaid coverage for a period of time (unless the assets are returned). The more money transferred, the longer the period of ineligibility. The reasoning is that the assets could have been used to cover long-term care costs had they not been given away.
Without a written contract, payments to family caregivers are likely to be classified as gifts instead of service payments.
Transferring property (or selling it at less than fair market value) will likewise be looked at as a gift. If your loved one wants to trade their home for your care, it must be handled with a personal care agreement. Note that there may be special requirements for transferring property for care, so if you’re interested in this option, consult with an elder law attorney or Medicaid planner.
Many individuals aren’t initially eligible for Medicaid and must plan ahead in order to qualify for long-term care coverage. A popular part of the planning process is called Medicaid spend-down.
By carefully spending one’s assets on allowable expenses, an individual can work toward Medicaid eligibility. If your loved one needs care from a family member, paying for it can be an allowable expense, as long as it's done properly with a personal care agreement and related documentation.
In addition to the personal care agreement, you should keep documentation to prove you’ve been providing the services described in the PCA. This can keep Medicaid from challenging the validity of the agreement, and help the process run as smoothly as possible.
Documentation for privately paid family caregivers includes:
Job description detailing services to be provided (you may not need one if your PCA thoroughly covers this information)
The personal care contract can be specified to your needs and liking, but it’s important to include some key information. Missing one of these could potentially invalidate the whole thing.
Essential key information to include in a PCA:
Optional information to consider includes:
Future raises - Some contracts allow for pay raises over time.
There’s no standard form for a personal care agreement. As long as it covers the key information, is signed by both parties, and is notarized (if required in your state), you can come up with your own form or use a template.
Examples of personal care contracts for reference:
Don’t make these common mistakes with your personal care agreement.
Reasonable rates - Your loved one cannot pay a caregiver a rate higher than “reasonable” in their area. Find out how much it would cost to pay a comparable professional (a non-medical home care aide in most cases) to perform the same services and don't exceed that rate.
Retroactive pay - No states allow retroactive pay for any care provided prior to the contract’s start date, and the start date cannot be back-dated.
Notarization - Many states require that the contract be notarized to be valid.
A few states do allow property to be transferred (or a large lump sum to be paid), in advance as compensation for care to be provided in the future. Note that there are typically strict or complicated regulations involved with this, so be sure to consult with a Medicaid planner to ensure that you understand and comply with all of them.
There’s no law against signing a PCA with a spouse, but there’s not much reason to do so. Both spouses' assets are counted together when it comes to Medicaid eligibility. If you’re looking for ways to spend down your loved one’s assets for Medicaid eligibility purposes, consult with a Medicaid planner or eldercare resource planner.
In most cases, you don’t need to involve an elder law attorney with your personal care agreement. However, if you have complex circumstances it’s a good idea to err on the side of caution.
If you have power of attorney for your loved one, and you’re signing on their behalf, and your own as the caregiver, you should consult with an elder law attorney to ensure there’s no appearance of a conflict of interest to complicate matters down the line.
A personal care agreement is a useful document that can formalize the relationship between an older adult and their caregiver as well as define their duties, schedule, and compensation.
A PCA can clear up misunderstandings and assumptions and protect both your loved one and their caregiver. It can also make a big difference in securing Medicaid assistance for long-term care if needed. It makes sense to draw up a personal care agreement now to avoid any penalties in the future.
Laura Herman is an elder and dementia care professional who advocates for better senior care in America. This article has been reviewed by TJ Falohun, co-founder and CEO of Olera. He is a trained biomedical engineer and writes about the cost of healthcare in America for seniors.
