People often believe that the Medicare program will pay for all or the majority of their nursing home (or other long-term care) expenses. Unfortunately, this belief is misplaced and can have serious negative consequences to a family's financial circumstances.
Medicare is insurance available to all persons over age 65 who qualify for Social Security, as well as those who are under 65 and who the Social Security Administration determines to be disabled. Medicare will not pay for nursing home, assisted living or home health care on a long-term basis. Medicare will only pay for this type of care for up to 100 days, and only for the purpose of providing rehabilitation following a three-day or longer hospital stay.
According to a recent Harvard University Study, 69% of single people and 34% of married couples would exhaust their assets after 13 weeks in a nursing home. As such, and with the rising costs of long-term care, many people cannot afford to pay privately for home health care, assisted living, or nursing home care.
So if Medicare is not generally the program to look at for long-term care help - then what is? Enter Medicaid.
Medicaid is a federal government program that provides financial assistance to persons age 65 and over, or those under 65 who are disabled and who are in need of substantial medical assistance. Medicaid is a needs-based program - a person must have a medical need for the assistance and must be of limited financial means before he or she may qualify.
"Medicaid planning" involves either spending down or otherwise protecting a person's assets so that he or she has minimal assets and can meet the financial criteria for Medicaid qualification (which can be as low as $2,000 for a single person).
Medicaid planning can be divided into two types: pre-planning and crisis planning. Pre-planning is for those individuals who have not yet begun to spend their assets on private care, but may need to in the coming years. Crisis planning is for those individuals presently using their life savings for long-term care (either at home or in a facility) with a substantial risk that they will run out of money. In either instance, significant program penalties (to eligibility) can be imposed when transfers (for example, gifts to family members) are made or the wrong financial products are purchased.
To determine whether Medicaid planning is necessary or appropriate, it is important to take age, medical needs, monthly expenses and income into consideration. Such planning may be best served when attorneys, CPAs, financial planners and insurance professionals work together collaboratively to ensure that the numerous pitfalls that exist in this area are avoided. This is because Medicaid planning may involve the proper transfer of assets, purchase of financial products, or otherwise disposing of assets. Doing so without adequate professional planning will very likely have negative tax and other implications for the transferor as well as the recipient.
Due in large part to the rising costs of long-term care and the fact that we are an aging population, understanding and considering Medicaid planning is becoming more and more critical. Given that many, if not most, people do not have sufficient assets to pay privately for long-term care, Medicaid planning is a very appropriate consideration for these individuals.