In my experience as an elder-care lawyer, most people who have a financial advisor or financial planner don’t give much thought to information about long-term care benefits from Medicaid. They assume it doesn’t apply to them.
That can be a costly and life-changing mistake. So let’s clear up some common misconceptions about Medicaid and long-term care.
Note: Medicaid is a federally funded program administered at the state level. The information provided here is based on Ohio’s Medicaid regulations, and some of the details may vary from state to state.
1. Medicaid isn’t just for poor people
It’s true that Medicaid was designed to provide access to health care for people who otherwise wouldn’t be able to afford it, but it was also designed to help three other groups: people who are blind, disabled and elderly.
That message often gets lost behind news headlines about the Medicaid expansions that were provided for people with low incomes under the Affordable Care Act (Obamacare).
But elderly people who need long-term care are, in fact, among the intended beneficiaries of Medicaid.
2. You probably don’t have too much money to worry about Medicaid
There is a threshold at which you may not need to think about Medicaid, but it’s higher than most people realize. If your total assets don’t exceed $1.5 million – roughly the 92nd percentile in the U.S. – you can most likely utilize Medicaid benefits should long-term care become necessary, and advance planning can preserve a substantial amount of your wealth.
3. Having a long-term care policy doesn’t mean you’ll never tap Medicaid long-term care benefits
Long-term care policies are beneficial. They cover many expenses and open the door to even more opportunities to gift and protect your assets. But such policies have limits on the amount and duration of the expenses they’ll cover. If you have the foresight and ability to purchase long-term care coverage, you’ll also benefit by planning what to do when the long-term care policy is exhausted.
4. You don’t have to sell your house
In its early years, the Medicaid regulations were written in such a way that people were spending down everything they had – including their homes – in order to qualify for long-term care benefits.
But the rules were amended in 1988 to make sure that if one spouse needs to go into a nursing home, a large share of the couple’s assets can be structured to support the other spouse in their own home.
The program specifically allows the spouse who remains in the community to keep the house as well as a Community Spouse Resource Allowance (MCSRA) of up to $137,400. With some advance planning and help from an elder-care attorney or other expert, many other assets can also be retained.
This isn’t a lawyer trick or a tax dodge; the rules were deliberately written to make this possible.
Even if you’re single and find yourself in a long-term care situation, you can protect your house by filing a “Letter of Intent to Return Home.” It does come with some caveats, but the result is the same: Medicaid won’t force you to give up your home.
5. Advice you get from long-term care facilities is more to their advantage than yours
It happens all the time that there is a medical event, and loved ones suddenly have to figure out how to pay for Mom, Dad or a spouse to move into a long-term care facility.
The facility may advise, correctly, that you can’t qualify for Medicaid if you have more than $2,000 in countable, available assets. But when the suggested solution is to liquidate your assets to pay for the nursing home care until there’s only $2,000 left, you should seek other counsel.
Facilities charge more to private-pay clients than they get through Medicaid reimbursement, so while I don’t think it’s malicious, they have financial incentive to use up your money first.
This doesn’t have to happen. Even without advance planning, an outside expert can help you preserve significant assets to support the spouse who remains at home while applying right away for Medicaid benefits to cover the cost of care. Securities offered through Regulus Financial Group, LLC. Member FINRA/SIPC. Investment advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Registration with the SEC does not imply any level of skill or training. Regulus Financial Group, LLC and Regal Investment Advisors are affiliated entities. JK Investment Group is independent of Regulus Financial Group, LLC and Regal Investment Advisors.
6. It’s not impossible to give away assets within five years of applying to Medicaid
This misconception comes from Medicaid’s Five-Year Look Back Rule, which applies a one-month delay in benefits for every $7,000 you’ve given away within the past five years.
But there are tools to manage the impact of this rule—if you know about them in advance.
For example, let’s say a couple has $200,000 in assets. You can put half of that into a Medicaid-compliant annuity or pooled trust. These vehicles legally convert assets into income, which isn’t covered by the look-back penalty. The other $100,000 can be gifted to your children.
When you apply for Medicaid, the gift to the kids will incur a penalty period of a bit over 14 months ($100,000 divided by $7,000/month). During that time, money from the annuity pays for the long-term care.
When the trust or annuity is exhausted, Medicaid benefits begin to pay the bills.
Known as the Rule of Halves Gift, this technique allows you to give away half of your assets (and often a bit more) within the five-year lookback period.
7.Planning for long-term benefits can begin right now
According to the U.S. Department of Health and Human Services, a person turning 65 today has nearly a 70 percent chance of needing long-term care services at some point; and 20 percent will use these services for more than five years.
With the cost of care and the complexities of the law, it’s definitely something that can and should be planned for in advance. The best time to begin planning is at least five years before you actually need long-term care.
But planning at any time is better than not planning at all.
My suggestion is to reach out to your advisors any time circumstances start to change for yourself, your spouse, a parent or other loved one.
To discuss how Medicaid long-term care benefits might fit into your financial plan, contact your JK Investment Group Wealth Advisor directly, or call us at 216-313-9999.
David S. Banas leads the Elder and Special Needs Law practice at Cleveland-based McCarthy Lebit Crystal & Liffman Co. LPA., focusing on planning for emergent and long-term healthcare issues. He is a past-president of United Cerebral Palsy of Greater Cleveland and the National Alliance of Mental Illness (NAMI) Geauga Chapter, and currently serves on NAMI’s advisory council.
Securities offered through Regulus Financial Group, LLC. Member FINRA/SIPC. Investment advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Registration with the SEC does not imply any level of skill or training. Regulus Financial Group, LLC and Regal Investment Advisors are affiliated entities. JK Investment Group is independent of Regulus Financial Group, LLC and Regal Investment Advisors.