The Elderly and Health Care
For people nearing retirement age health care planning is an important, yet frequently overlooked, issue. Many people fail to develop a long-term health care plan until they need one. The problem with this practice is that last-minute planning typically does not provide comprehensive and cost-efficient health care coverage because, as recipients get older, planning options decrease while the cost of health care coverage increases.
Medicare and Medicaid are the two primarily government-administered health care programs. Almost everyone over 65 is eligible for Medicare, which is administered by the federal government. Medicare's coverage, however, is limited to roughly 40 percent of the total health care needs of an aged and disabled person. For covered services, Medicare still requires the recipient to pay substantial deductibles and co-payments.
Medicaid is a state-administered health care program for low-income individuals. Although Medicaid offers comprehensive coverage, including long-term care, the program has limits on the amount of assets and income a person may own or receive and still qualify for benefits. Because of this, one important part of many long-term health care plans is a strategy to transfer assets to family members until the recipient's assets and income fall below the Medicaid benefits eligibility threshold in order to become eligible for Medicaid without being forced to self-finance long-term care. This means that a long-term health care plan is especially important for couples, because if one spouse needs long-term care, both spouses must fall below the Medicaid eligibility threshold, impoverishing the spouse who does not require long-term care.
Of course, each individual must consider carefully the consequences of choosing to protect assets for Medicaid eligibility. One of the notable considerations is that the quality of care Medicaid patients receive is frequently considerably lower than the care non-Medicaid patients receive. Additionally, the impoverishment requirements of Medicaid mean that the Medicaid patient has few or no remaining funds for personal items while receiving long-term care. Therefore, all consequences of attempting to qualify for Medicaid should be examined against each individual's financial status, moral values, alternative forms of care, and physical needs before deciding to protect assets to achieve Medicaid eligibility. The remainder of this discussion focuses on how to protect assets and income from being exhausted by health-care expenses once the decision has been made.
Be "Paper Poor" or Pay: Funding the Cost of Nursing Home Care
Unfortunately, many older Americans eventually require nursing home care. Nursing home care is expensive, with costs averaging between $20,000 and $70,000 per year. Those patients who do not carry long-term care insurance too often face a financial crisis. They find themselves grappling with questions such as, "Where are we going to get that kind of money?" If they have sufficient savings, they lament spending their potential legacy. What about their children's inheritance or a planned bequest to a church or charity? What about providing for a surviving spouse?
"Poor" seniors need not worry. The government pays the nursing home bills for senior citizens who qualify for Medicaid. The amount of assets a senior citizen may have and still be eligible for Medicaid changes depending on the applicant's specific characteristics and state law. Some states also include the individual's income when determining eligibility. However, in general, the following assets are exempt, meaning they are not counted when determining Medicaid eligibility:
- A home, as long as either non-institutionalized spouse continues to live there or the unmarried nursing home patient intends to return and live there after being released from the nursing home;
- A car, if there is a surviving spouse living at home;
- Household goods;
- Wedding rings;
- Burial plots;
- Some funeral expense accounts; and
- Some life insurance policies.
If an individual has more than the specified amount of non-exempt assets, he or she may still be able to qualify for Medicaid coverage. With careful planning, seniors may be able to transfer some of their non-exempt assets or convert them into exempt ones. By disposing of or protecting enough of their assets, individuals can reduce their countable assets and qualify for Medicaid coverage.
Common strategies seniors use to make themselves "poor" on paper, include giving gifts, placing non- exempt assets into trust, and converting non-exempt assets into exempt ones. An attorney can help devise a strategy, using these and other techniques, to protect assets. Here follows an overview of these strategies, but you should also consult your attorney to get specific information and advice on these matters.
Gifts are irrevocable, and the assets given are lost to the gift recipient forever. Nonetheless, if one's goal in protecting assets is to save the children's inheritance, it may be prudent to give the inheritance money now as a gift. Placing assets into an irrevocable trust is another way for seniors to make themselves 'paper poor." Properly drafted irrevocable trusts, which deprive the grantor of access to and control over the principal, prevent inclusion of that principal in the $2,000 limit on non-exempt assets.
However, gifts and trusts do pose some problems. Be sure to avoid federal gift tax. Also, be aware that federal law makes it illegal for a lawyer or other advisor to earn a fee for counseling someone to transfer assets in order to become eligible for Medicaid. The law only imposes criminal sanctions, however, if you transfer assets within a certain period of time called a look-back period. There are two look-back periods: One goes back 36 months and the other 60 months. The 60 month period is used to disqualify people who have made a transfer to an irrevocable trust within the 60 months prior to filing an application for Medicaid, and the 36-month period applies to other transfers. If you transfer assets within the look-back period, you will have to wait to become eligible for Medicaid. This waiting period is based on a simple formula that takes the amount of assets transferred and divides that number by the average cost of care in your state. The resulting number equals the number of months that the applicant will have to wait until benefits can be received. Before transferring assets, you should carefully consider this ineligibility period.
The simplest strategy is to convert your non-exempt assets into exempt assets. If you do not own a house or a car, buy one. Homes and cars are exempt while the cash in your bank account is not. If you own a home, pay off the mortgage or make improvements. If your car is not paid for, pay it off. Maybe buy a more expensive one. Household goods (including oriental rugs, fine arts, and antiques that are not deemed investments), wedding rings, and burial, plots are exempt. Buy them if you do not own them yet.
When contemplating your future, do not overlook health care planning. It should be considered carefully, along with wills, living trusts, and durable powers of attorney in anticipating future needs, If these are matters affecting you presently, or matters you are planning for in the future, consider calling our office to take advantage of the expertise we can offer.
At your request, we can provide additional information about the following related topics:
Preventing Spousal Impoverishment - tips on protecting your assets when one spouse needs long-term care and the other remains independent; and
Long-Term Care Insurance - private insurance policies that pay a portion of your total nursing care expenses.
Contact our office for further advice on how to best plan for your future.
Legal advice varies depending on the facts; for that reason, the information contained in this bulletin should not be acted on without consulting a lawyer.
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