How does Medicaid factor into financial planning?
Feb. 13, 2015 at midnight
In continuation of the series on estate and life planning, this column focuses on how Medicaid factors into financial planning for long-term care. Basically Medicaid is the United States' health care safety net. It is an insurance program for low-income and needy people that provides health-related coverage for children, many seniors, and/or people who are disabled.
A widespread and dangerous misconception is Medicare will cover long-term costs. In reality, Medicare benefits for long-term care are very limited. Medicare pays only for skilled care that is deemed "medically necessary," and it does not cover personal care required by most seniors with chronic, custodial care needs.
Seniors should have a plan for paying for long-term care, should the need arise. Some seniors, however, may be forced to rely on Medicaid if they don't have enough income to purchase long-term care insurance, have enough assets to pay for care themselves, or they are uninsurable.
In the past, Medicaid planning was considered a viable tool for long-term planning; however, local estate planning attorney Pamela Orsak advises against this. Medicaid planning (which was really planning to make asset transfers) used to be the primary tool used by seniors considering long-term care costs, but since law and rule changes enacted in the last decade, other tools usually work better. Medicaid "planning" is actually a misnomer as most seniors do not plan to go on Medicaid, but instead have an imminent care need and there are no other options. Orsak said a better alternative is to obtain a long-term care insurance policy.
To qualify for Medicaid, a senior must be at what the government considers poverty level - less than $2,000 in countable assets (countable assets do not include one's personal residence) and around $2,000 or less in monthly income.
Even though a senior may be considered well off upon entering retirement, medical and long-term care costs can reduce assets to the poverty level thus triggering the safety net of Medicaid. However, some seniors purposely transfer or retitle assets in an attempt to qualify for Medicaid, and this can be riskyfor a number of reasons:
Recipient of the transfer may not manage assets well
Recipient of the transfer gets divorced and the ex-spouse is now entitled to part of the transferred assets
Required care may not be long-term
Medicaid regulations may change
Transfers trigger capital gains taxes
Facilities that accept Medicaid may not be the most desirable
Also, other methods of spending down assets are more beneficial to the senior such as using cash assets to make substantial improvements and repairs to the home, like making it safer and easier to navigate should the senior become wheelchair bound.
Another risk in dependence on Medicaid for long-term care is estate recovery. Federal law requires states to seek recovery for Medicaid benefits by placing a claim against any assets that pass through probate upon the death of the recipient. Even assets not counted during eligibility, such as the home, may be included in the recovery process.
Because estate and lifetime planning can be overwhelming and wrought with pitfalls, Orsak advises seniors to enlist the help of professionals including an estate planning attorney, a financial advisor, a life insurance agent and a long-term care insurance agent.
Sources: Pamela Orsak, The Law Office of Pamela D. Orsak, Victoria; Kaiser Foundation. Medicaid Primer 2009 (2008)
Wendy McHaney is a certified senior adviser and the owner and director of operations of Senior Helpers. For more information about Senior Helpers, visit seniorhelpers.com/victoria