Everyone knows that health care is expensive, and many
people worry that they will lose everything when they get ill or older and need
long-term care.
You may have heard about the concept of a Medicaid
spend down, which requires you to "spend" away your own assets to become eligible
for the social program. But it may not be as scary or devastating as you think.
The key is to start planning now for the future and the
possibility that you, or a loved one, will need some type of long-term care
services. It will save you a tremendous amount of grief, anxiety and confusion, and
it will help ensure that there will still be an inheritance left for the family.
Medicare Isn't Long-Term Care
A common
misunderstanding people have is that if they have Medicare, everything, including
long-term care, is covered and they’ll never have to worry about Medicaid. Medicare
is the federal program that provides health care insurance for people aged 65 and
older, as well as some younger individuals with disabilities or other conditions.
Medicaid, on the other hand, is a federal-state hybrid that provides health care
coverage to individuals who have limited income and resources.
In truth, Medicare generally doesn’t cover long-term
care. It only covers some medical services in this setting, such the price of
physical therapy or the changing of sterile dressings. Basic Medicare, or Medicare
Part A, does pay for some short-term stays in a skilled nursing facility, but only
if you come from the hospital after a three-day stay there.
Medicaid to the Rescue
If you don't
have enough savings to cover the cost of a nursing home, you can become eligible for
assistance from Medicaid. State-run Medicaid programs are required to cover skilled
nursing home care, according to the American Health Care Association.
To qualify for these services, you will have to meet a
state’s level of care criteria and financial eligibility requirements. These
requirements can be tricky because there is more than one avenue to qualify. Plus,
each state has its own specific rules. Ultimately, depending on your assets and a
variety of factors, you may be required to contribute to the cost of your care.
Buck Up for Spending Down
The truth
is that Medicaid is needs-based, so you will need to show you have insufficient
assets to pay for your own care. A single individual aged 65 years or older can’t
have an income of more than $2,742 per month. Asset limits – the value of your
assets like investments and some possessions that help determine your Medicaid
eligibility – are a little more complicated and determined by state rules.
Many individuals who apply for Medicaid realize they
have too many assets to qualify for the program’s benefits. The process of reducing
an individual’s assets to qualify for Medicaid is referred to as "spending down."
The good news is that spending down doesn’t have to
mean that you will eventually lose everything and have nothing left to leave to your
heirs.
Some assets are exempt from the spend down. These are
called “non-countable assets” and can, for example, include your home, one car,
household furnishings and pre-paid funeral and burial arrangements. It is important
to note that each state's Medicaid program has individual laws that govern aspects
of how to spend down. So, individuals should consult their respective state laws
with a Medicaid planner or estate planning attorney before they apply.
IRAs and 401(k) accounts are often considered countable
assets, unless they are currently paying out – that is, you are getting money from
them. Investments including stocks and mutual funds are also considered countable
assets.
You can pay down your own legitimate debt or your
spouse’s debt, but these costs aren’t part of the spend down. The permissible
expenses include mortgage payments, rent, utilities, home maintenance, credit cards,
taxes, car payments and caregiving services. Some states allow a certain amount set
aside as pre-payment of future debt, such as mortgage payments, automobile loans and
bank loans.
In general, says Leigh Davitian, founder and chief
executive officer of The Dumbarton Group in Washington, D.C., “State and federal law
allow for a range of permissible expenditures that will reduce the value of the
applicant’s estate.”
There are opportunities to protect some assets prior to
applying to Medicaid by giving up ownership. For instance, you can establish an
irrevocable trust to which you can transfer your property. Note that this cannot be
changed after you create it, and the assets will be out of your control.
Because of that, notes Michael Botta, co-founder of
Sesame, a health care marketplace based in New York City, it is essential to
designate a trusted friend or family member to manage this trust. You also can gift
family members up to $17,000 a year without having to pay a gift tax.
However,
there is a catch to these actions.
Look Ahead to Plan for
"Look-Back"
When you apply for Medicaid, there is a "look-back
period," designed to identify any efforts, innocently or not, to hide assets or gift
them to meet the asset limit. This review begins on the date of your Medicaid
application, and it generally goes back five years.
For example, Medicaid will be looking for money given
to a granddaughter for a down payment on a house or a valuable painting sold to a
nephew at a fraction of its worth. The purchase of a car for a relative or caregiver
may be acceptable, but only if it is used as part of your care, such as trips to the
store, pharmacy or doctor’s office.
“Medicaid will scrutinize these things closely, so you
will need documentation and proof. It’s essential to be absolutely honest and
transparent,” Davitian says.
Keep in mind that this rule varies from state to state,
so know your locality’s rules and requirements.
If Medicaid finds violations during the look-back
period, you may have a penalty period of Medicaid ineligibility. If the violations
are severe enough, you could be banned indefinitely from the program. This is one
reason to engage an expert who understands the Medicaid application and spend-down
rules and processes. Trying to navigate the system on your own or making assumptions
about how to protect or disperse your assets could mean trouble down the road.
“Applying for Medicaid is very complex and confusing.
The biggest mistake is not knowing what your state requirements are,” says Diane
Omdahl, Wisconsin-based president and co-founder of the Medicare consulting firm 65
Incorporated. “I have referred many people to the law firm I used with my own
parents. They know the rules and how to ensure you have an accurate application.
Paying a bit more upfront for professional guidance can save you later
on.”
Consult the American Council on Aging's website to find a reputable
professional Medicaid planner.
Planning Should Start Yesterday
If
you or your loved one have significant savings, it may be tempting to consider
paying out of pocket and avoiding the hassles and red tape of dealing with Medicaid
and the spend down. However, a stay that stretches into years can eat up your
savings and assets pretty quickly.
The annual cost of nursing home care is
approximately $108,408 for a private room. Assisted living can cost $4,500 per month
or more, according to Genworth Financial.
“One pitfall people fall prey to is thinking that
they’re not ‘poor’ and don’t need Medicaid,” Botta says. Then they or a loved one
has a health issue and discovers how “shockingly expensive” long-term care can be.
Source: https://health.usnews.com/senior-care/articles/what-is-medicaid-spend-down
