Planning for Medicaid Eligibility
Unless you are very wealthy, the biggest threat to your assets is not estate tax or probate. It’s the cost of long-term care. According to the U.S. Department of Health and Human Services, 2 out of 3 people will require some type of long-term care services and support. 1 out of 5 will require more than 5 years of long-term care.
The average stay in a nursing home is about 2-1/2 years. In Oklahoma, that will set you back around $163,000 (the state average nursing home cost is $178 per day). For most people, long-term care will be the second biggest purchase of their entire lives, after their house.
With Medicaid paying 70% of the country's nursing home care cost, it's worth knowing how you qualify.
Medicaid is the only generally available government benefit program that pays long-term care. Medicare does not. Social Security does not. Private insurance and Medicare supplement policies do not.
Knowing the Difference Between Medicare and Medicaid
Some people mistakenly believe Medicare will pay for long-term care. But Medicare is an acute care benefit and only covers what is "medically necessary." This includes very limited long-term care for up to 100 days, and only if certain requirements are satisfied.
First, you must have been admitted to a hospital for at least three days, for care and not merely observation. Then, if you require skilled care and are admitted to a Medicare-certified nursing facility within 30 days of the hospital stay, Medicare will pay for the first 20 days. For the remaining 80 days, Medicare will pay a small portion and you will be responsible for the bigger portion (the patient part is around $170 per day). Some Medicare supplemental policies pay part or all of the patient portion for this 80-day period, but for those without a supplemental policy, most of the cost after day 20 will be out-of-pocket. Regardless, after 100 days all Medicare coverage will cease and you will be responsible for 100% of the cost.
First: Assessing the Risk
Understanding the Medicaid 5-year lookback. [8:59]
Pre-planning for Medicaid and what that means. [4:40]
Medicaid pays for 7 out of 10
Four Ways to Pay for Care
The reality is that there are four primary ways to pay for long-term care:
Long-term Care Insurance
Medicaid is the only generally available benefit program to pay long-term care costs. Medicaid pays the majority of long-term care costs in the United States, although it is important to understand when Medicaid will pay and what it will pay for. To qualify for Medicaid, your income and your assets (what Medicaid calls “resources”) must be below established maximum amounts, and you must meet certain other eligibility requirements.
There are a number of planning techniques that can assist seniors and their families with qualifying for Medicaid. Just because your income and assets are above the eligibility amount does not mean you can’t get qualified for Medicaid. The biggest hurdle, however, is the dreaded five-year "lookback."
For the vast majority of people, planning ahead - at least five years ahead - is the easiest way to protect a lifetime of work and savings.
The Medicaid rules permit individuals and couples to use trusts to own and manage property. Most people set-up trusts to carry out their wishes for distributing property and avoid probate.
But a properly designed trust can also protect your property against Medicaid. By creating a Medicaid protection trust, you can avoid probate, ensure your estate is correctly distributed, and avoid spending your life savings on long-term care.
A quick caution - to protect you against the cost of long-term care, your trust must be carefully and specifically designed for that purpose. Merely creating an estate planning trust will not help you with Medicaid.
Advance planning for Medicaid requires taking into consideration not just the traditional issue of who you want property to go to, but also:
who you trust to assist you with Medicaid protection
special tax issues concerning assets placed in a Medicaid protection trust
control over income and assets, and
planning long enough before the care need to avoid the lookback