Care Agreements

Personal Care Agreements and Their Importance to Medicaid Eligibility

Parent's child is caregiver.

Care Agreements and Medicaid Eligibility

On the Getting Started as a Caregiver page, I shared how to determine what duties you should keep and what to give away.  I recommended once you made that determination to create a care agreement. The following information further details why having such an agreement is to your benefit. 

Medicaid’s Asset Limits

Medicaid has an asset limit of $2000 that applicants must meet to qualify for benefits. Since $2000 is a low number, most individuals do not qualify for benefits initially. The majority of seniors have retirement plans, property, personal valuables, or other valuables they have collected over the years that total more than $2,000. 

Need to Reduce Assets to Meet Medicaid Eligibility

To achieve eligibility, they need to reduce or eliminate their possessions (assets). As they eliminate assets, the process must follow guidelines acceptable to Medicaid. Selling off possessions for less than their value or giving items away as gifts to relatives is unacceptable. Another way to reduce funds is to transfer money from one account to another by giving a family member payment for bogus services.

Medicaid Looks-Back Over Five Years

When someone applies for Medicaid, part of the application process is a “look back” over the past five years to see how they spent their money.  Medicaid checks bank records to determine if it appears that past assets were gifted or inappropriately sold at less than value.   If Medicaid determines that an applicant has violated the “look back” rule, a penalty of Medicaid ineligibility results.

Patient Care Agreement Validates Use of Payments

If you are paying someone regularly to care for your family member, you run the risk of jeopardizing your ability to obtain Medicaid assistance. Medicaid may consider these payments as gifts, and hence, in violation of the look-back rule. On the other hand, a personal care agreement legitimizes the reason for payments made to the individual.  It provided proof of payment for services requested in advance and performed as agreed.  With a verbal agreement, there is no proof.

Record Daily Work Hours 

In addition to the written Care Agreement, caregivers should keep a daily log detailing the services provided, the hours worked, and payments received. The Care Agreement serves as further proof of the relationship between the Medicaid applicant (care recipient) and the caregiver, should Medicaid need it.

More than a Task List

How to Create A Care Agreement

Clarifying expectationsWhat is a Care Agreement?

     A care agreement spells out the details of the agreement between the caregiver and the family member related to the performance of personal care services and any instrumental activities of daily living such as managing finances, shopping, transportation, etc. Generally, a care agreement speaks to the following:

  • Date care starts (and if it’s for a specified time frame, include expected end date)
  • What tasks to perform – try to be somewhat specific but use terms broad in scope to cover group tasks (you can say vacuums all rooms rather than list each room, for instance), and add “or similar tasks to be mutually agreed upon by the parties.”
  • Hours of work (schedule and hours of availability)
  • Rate and frequency of pay
  • A statement that the terms of the care agreement can only be changed if both agree to do so in writing.

Caregiver provides daily walks per terms of care agreement

What Type of Tasks to Include

Activities of Daily Living

Instrumental Activities

Feeding, toileting, picking out what to wear, dressing, grooming, maintaining continence, bathing, walking, transferring, cleaning eyeglasses or helping with contacts, and oral hygiene

Managing finances, handling transportation, shopping, preparing meals, using telephone and other communication devices, managing medications, housework, and essential home maintenance.

How do They Work?

Care agreements formally establish a business relationship between the care recipient (employer/family member) and caregiver (employee). Based on the Agreement’s written terms and conditions, the caregiver receives pay for providing care services. Care agreements serve multiple purposes. The Agreement documents an honest working relationship by clearly establishing expectations between the employer and employee regarding pay and work.

Another way an individual may attempt to reduce assets is to pay the caregiver a high salary or hourly rate. Be careful what you pay the caregiver. Don’t pay an excessively high wage. The pay rate cannot be higher than the going rate others pay in the area.

You can pay weekly,  every other week, or pay one large sum at a particular time but the large sum cannot be for work performed before the care agreement went into effect.  

Paying a lump sum payment can be a red flag to the government that you are trying to get around Medicaid rules for becoming eligible. Therefore, you must be very careful how you calculate your pay.  I strongly recommend you consult a Medicaid specialist to help you determine how is the best way to do this calculation correctly. 

However, here’s how it’s done:

  • Use two factors; a reasonable hourly pay (market rate) and the life expectancy of the care recipient using an actuary life table (a table that calculates the remaining life expectancy of persons at various ages).
  • If a Medicaid recipient dies earlier than the calculated life expectancy, pay the remaining funds to Medicaid.

Both the caregiver and care recipient must sign family caregiver contracts. Some states require notarization to be Medicaid compliant.

Who Uses a Care Agreement?

The most common personal care agreements are between an aging parent and adult children. However, these contracts are also created for grandchildren caring for grandparents, nieces, and nephews caring for aunts and uncles and siblings caring for siblings. While this type of contract is generally between two family members, the caregiver does not have to be related to the care recipient. Rather, the care recipient could be a close friend or a private caregiver.

Personal care agreements between spouses as a “spend down” method for excess assets are not effective. The reason why is because Medicare considers all assets of a married couple as jointly owned.

What Should Be Included in One?

Care agreements should include the following information:

Job Functions Vs. Tasks

Make a list of the types of job functions needed but don’t try to list all the tasks required. Why would I recommend not listing all the job duties? Shouldn’t you tell someone everything they need to do? 

If you try to list each task, you’ll forget something. Then, if it’s not on the list, the caregiver may question if they are to do it. Instead, use terms that describe functions rather than tasks to prevent confusion regarding whether tasks can be added or deleted as the job changes over time.

When you’re writing the job description section, don’t write out the tasks in this manner:

Performs vacuuming, dusting, scrubs bathroom tubs, fixtures clean the toilet, washes dishes, etc.

Instead, think in terms of grouped tasks and list the duties like this:

Completes light housekeeping to include all rooms except the Master bathroom and bedroom, cleans all surfaces and fixtures in bathroom and kitchen including floors, baseboards, etc.   

Pay Rate and Frequency of Payment

The contract must include the caregiver’s rate of pay, which, as mentioned previously, must be no more than the going rate in the area in which one resides. Also included must be how often to pay the caregiver. For instance, is the caregiver paid weekly, every two weeks, once a month, or was the payment made in a lump sum?

Start Date / Length of Agreement

Include the date that care needs to begin in the Agreement. Remember, it must be a future date; you cannot backdate the contract. Also, it is important to include how long the Agreement will remain in effect. Will the period be short term, such as just a few years, or for its life?

Modification / Termination Clause

Include a clause allowing modification of the personal care agreement when both parties agree to the changes. If the Agreement is long term, I highly recommend reviewing the Agreement and modifying it as needed annually. I also recommend adding a clause that allows for the termination of the Agreement.


Both parties, the care recipient and the caregiver, must sign the personal care agreement. Some states require notarization for validity purposes.

Common Mistakes

When it comes to creating a formal care agreement and paying a caregiver, even a small mistake can cause a denial of long-term care Medicaid coverage. Below are common mistakes made (and should be avoided):

  • Paying a caregiver retroactively. Remember, care agreements pay caregivers for care planned for the future not previously provided. That’s why the Agreement has a start date for future care services.
  • The caregiver does not keep a daily log of services provided and payments received. Sometimes this log is needed for Medicaid to prove that payments were made to the caregiver for care services rather than given as a gift.
  • The rate of pay is not reasonable. If pay is higher than the going rate for the type of care provided, it can be considered a gift for Medicaid purposes.
  • Being unaware of the rules in the state in which one resides. For instance, some states require that the signed Agreement be notarized, and some states do not allow for a lump sum payment for services.

Is a Lawyer Needed?

No, it is unnecessary to hire an attorney to create a personal care agreement; however, it is a good idea in some situations.  The advice and guidance of a professional Medicaid planner can be very helpful. Doing so is particularly true if the care recipient plans to apply for long-term care Medicaid in the future. A Medicaid applicant may unknowingly violate Medicaid’s look-back rule by drafting a personal care agreement incorrectly. If so, Medicaid may penalize the applicant with an ineligibility period. Medicaid experts are aware of the specific rules regarding personal care agreements in the state in which one resides and can help ensure the contract is Medicaid compliant. For persons who plan to make a lump sum payment, it becomes even more important to consult a professional for guidance due to the higher risk of the payment looking like a gift, hence violating Medicaid’s look-back rule.



Date of Hire

Effective October 1, 2020, and until such time that either party chooses to stop this Agreement, Donna Steigleder will provide personal care services to her brother, Bobby, at his home located at # road name, City, State, Zip.

Hours of Work

While Donna’s hours may be flexible based on Bobby’s care needs and her needs at home, her hours will be Monday through Friday from 9:00 a.m. through 4:00 p.m. She may also occasionally work on weekends, depending on Bobby’s care needs and availability, a day later or come in earlier. However, most weeks, her total hours will average 35 hours.

Rate of Pay

Donna will be paid weekly on Monday for hours worked the previous week Monday.  Her workweek is Monday midnight through Sunday 11:59 p.m. Her hourly rate of pay is $12/hour. She is not eligible for benefits but as an hourly employee is entitled to overtime pay at one half her hourly rate of pay if she works over forty hours in a work week.  Federal, State, and required withholding taxes are deducted from her checks as required by law. 

Job Functions

Donna’s job responsibilities are to see to Bobby’s comfort and personal hygiene needs throughout the day to include assistance with mobility, nutrition, transportation to appointments as needed, assistance with accessing diversional entertainment, monitoring his health, ensuring his safety, and reporting any concerns that might surface to XXXX.   Duties may be modified, added, or deleted upon notification and with the Agreement of both parties. Either party may also terminate this Agreement immediately with or without notice; however, I request a two-week notice if possible to allow for time to obtain a replacement if Donna should decide to leave.