How to Let Medicaid Pay for Your Long Term Care
by Shane Flait, ©2008

‘Medicaid Planning’ has come to mean planning to transfer your assets to qualify for Medicaid coverage of your long term care (LTC) costs. That’s because annual nursing home costs - about $75,000 nationwide[1]. Paying this for just a year or two can deplete your savings or cut into you intended legacy for your children. Looking for LTC insurance too late can leave you paying very high premiums since your chance of needing LTC is about 3 out of 4 according to a LTC study[2]

If your wealth rises into the millions then you can probably pay LTC costs and not ruin you legacy. But many people have assets at or well below a million dollars –including their home –which will be substantially wiped out if they have to pay LTC costs. And those are the ones who often do Medicaid planning.

So what is involved in Medicaid Planning?

Medicaid is 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 themselves.

Most states require nursing-home residents to spend virtually all of their assets -- down to as little as $2,000 -- before they may qualify. Couples have a higher 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 themselves. 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[3] 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 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 in the state you receive them. 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.

An approach to safe guard 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 - 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 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 – as driving to medical appointments, helping with household chores and coordinating or providing care. These ‘reasonable’ payments help draw down your assets closer to the point of Medicaid eligibility while passing cash on to a family member.

Shane Flait is a writer and educator. Get more info at www.EasyRetirementKnowHow.com