Medicare and Medicaid Do Not Have Your Back
Most of us probably think that between Medicare and Medicaid, our long term care needs will be taken care of as we age. I know I thought so. However, once I started doing some research, I found out I’m not as well protected as I thought.
Did you know that Medicare doesn’t cover long-term care at all (see below for details) and for Medicaid to cover nursing home care, you have to qualify financially? This can leave a lot of us out in the dust, scrambling for care when the time comes. But it gets worse.
The difficulty of qualifying for Medicaid isn’t the only factor, Medicaid can even put one’s assets at risk, which is a real eye-opener. Instead of going in blindly, let’s take a look at how estate planning can safeguard these assets so that if needed, we can use Medicaid safely.
Medicare Will Not Cover Long-Term Care
Let me take Medicare off the table right up front. Here’s why: nursing home care is considered “custodial care.” This includes helping seniors with daily activities and may not even involve daily medical assistance. So since these services aren’t medical care, they are covered by Medicaid, not Medicare. So if you were hoping Medicare would have your back here, you’re out of luck. And the kicker is, Medicaid will only cover these expenses for qualified individuals who cannot afford to pay for long term care.
That Leaves Medicaid
So what most of us are left with is Medicaid deciding whether or not we can have long-term care. But how do they make these decisions? Medicaid uses rules to decide who does and doesn’t qualify for coverage based on the size of an estate.
If there are assets associated with an estate, they will take that value into account. And it’s all based on Medicaid’s estimate of their value. They may even estimate assets to be worth more than they really are — or may not take into account the difficulty involved in cashing out those assets (nor the fact that we don’t WANT to cash them out).
Believe me, I’m not trying to scare you. Instead, let’s look for solutions. Smart estate planning, like the ideas listed here, can make qualifying for Medicaid easier.
Know Which Assets Are “Not Counted”
The good news is, there are some assets that are exempt (not counted) from being included in the Medicaid limits. (Anything that isn’t exempt is counted an asset and will probably be taken into account.) Once you know what you have that’s not counted, you can plan how to handle what is.
Some exemptions include your place of residence (remember that vacation property or rental property is a counted asset), one vehicle, and life insurance policies with a value of under $1,500. Also exempt are some personal property items, assets held in trust and limited burial arrangements.
How to Handle “Counted” Assets
It seems that Medicaid will let you use assets to pay off debt, like a mortgage or medical bills. Also, paying for expected expenses, such as funerals and real estate taxes, is another way to use assets in a way that is financially beneficial while remaining eligible for Medicaid.
Also, if there is a living spouse who does not require long term care, they can use assets to make purchases that won’t be counted by Medicaid during the qualification process. With the help of an attorney, assets can also be invested in annuities that comply with Medicaid laws. And, win-win — these annuities can serve as a source of income to the spouse.
The important thing is to talk to someone as soon as possible. That’s my plan. With the help of an estate attorney or financial planner, assets can be used in specific ways to decrease the size of the estate. And then I learned this scary thing: unprotected assets can be seized to help cover the cost of care. Did you know that? The right decisions now can also keep these assets from being seized for this reason.
Gifting Can Protect Your Assets
This got me kind of excited: another way to prevent Medicaid from seizing your assets is to make financial gifts to family and friends. This strategy can be complicated because the timing of these gifts is important, but I like giving things away so this made a lot of sense to me — and I can start now.
Since Medicaid has a look-back period of five years, any gifts made from the estate must be made at least five years prior to your qualification for Medicaid. And that timing is super important so don’t get it mixed up. If Medicaid investigates, and you know they will, and finds that assets were transferred or gifted during the five years before your application, they can legally seize those assets to pay for care. So be generous sooner rather than later.
Trusts Can Help — But They’re Complicated
In addition to giving assets away, there are certain types of trusts that can be used to protect them. I looked into this and the process is pretty complicated with lots of rules including the fact that the 5-year look-back period can still put assets in trust at risk.
First of all, trusts have to be irrevocable, meaning once you set them up, you can’t undo them. There are also trusts that can be set up to provide for disabled children or spouses. Like I said, confusing. If this is something you’re interested in setting up, contact a lawyer that specializes in elder care law so that all the i’s are dotted and t’s are crossed. This probably isn’t something you want to tackle yourself since one small mistake can torpedo all your plans.
Keep the Government Out With Long-Term Care Insurance
Of course, if you want to keep Medicare and Medicaid out of the picture completely, you do have other options. And long-term care insurance is one of them. This policy can pay for a nursing home or other care options for you.
However, all this protection isn’t guaranteed and doesn’t come cheap. Policy qualification and premiums are dependent on how old you are and your health when you apply for coverage, so here again, sooner than later is the best advice I can give you.
Ultimately, planning ahead is the best way to protect your assets and be sure you’re ready if you find you need long-term care. A knowledgeable estate attorney and financial planner are helpful resources as you navigate preparing your finances for the possible eventualities of the next season of your life.