How to Let Medicaid Pay for Your Long Term Care
‘Medicaid Planning’ has come to mean planning to transfer your assets to loved ones in order to qualify for Medicaid coverage of your long term care (LTC) costs. That’s because annual nursing home costs about $75,000 nationwide and can easily eat through assets and savings. This article explains some key issues involved in arranging to let Medicaid pay for your long term care.
Paying for your long term care for just a year or two can deplete your savings or cut into your intended legacy to your children. Looking to begin paying LTC insurance too late in life can also leave you paying very high premiums since your chance of needing LTC increases to over 50% in your 70s.
If your wealth rises into the millions, you can probably pay all your LTC costs directly - and not ruin you legacy. But many people have assets near or well below a million dollars -including their home -which will be substantially wiped out if they have to pay LTC costs themselves. To try to protect those assets, these people are the ones who often do Medicaid planning.
So what is involved in Medicaid Planning?
Medicaid is now paying nearly half of all nursing-home bills after residents run out of money. So why not 100%? Well, you have to be poor before Medicaid with pick up the bill for you.
Most states require nursing-home residents to spend virtually all of their assets - down to as little as $2,000 — before they may qualify for free Medicaid services. Couples have a higher retained allowance if one spouse is healthy enough to remain at home.
That ’spend-down’ means that your assets will pay for the expenses Medicaid spends for you until you are down to $2000. It’s only then that Medicaid picks up the bill itself. That’s because Medicaid was intended to provide health care for the poor.
Can’t I just transfer my assets to a loved one and say I’m broke?
Yes and no! Medicaid anticipates you’ll do this. So to frustrate this ‘Medicaid Planning’, the government now requires that all asset transfers be completed 5 years (called the ‘look-back’ period) before applying for Medicaid.
Anything you transfer within the 5 year look-back period will penalize you from immediately collecting free Medicaid benefits. The penalty requires you to pay whatever Medicaid benefits you receive for a number of months equal to the value you transferred (within the look back period) divided by the monthly Medicaid benefit your state allows. So if you give $60,000 to family members in a state paying $6,000 monthly Medicaid benefits, you - or you family - will have to pay for the first 10 months of Medicaid benefits you get.
An approach to safeguard your assets within the 5 year period:
You never know when you’ll need to begin LTC. Because of that you may consider setting up an irrevocable trust to remove assets from your estate but earmark trust income - but not principal - to you for living expenses to live at home. You can also leave some unprotected assets for your use and for initial long term care costs.
If you require long term care before the 5 year look-back period passes, then the trust beneficiaries can take an advance on their trust inheritance or sell the house to raise cash for care costs. If you make it beyond the 5 year look-back period, the trust principal is protected and you can receive Medicaid benefits as soon as any unprotected assets are spent down for Medicaid costs.
Make a relative a paid care-giver:
If you need help within the 5 year period, you can draw up a care-giver agreement to pay a relative for care-giving services - such as driving to medical appointments, helping with household chores and coordinating or providing care for you. These ‘reasonable’ payments help draw down your assets closer to the point of Medicaid eligibility while passing cash on to a family member.
You can see that effective Medicaid Planning requires you to start transferring assets earlier than 5 years before you reach a serious need for comprehensive long term care. Since you don’t know when you’ll need LTC, the earlier you start transferring assets - the better.
