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Estate: Don't Rely On Medicaid For Long-Term Care

Aug 17, 2007
Millions of retirees expect to rely on Medicaid to cover the cost of their long-term care needs. If you or your parents have that expectation then you must read this article. You shouldn't rely on this program and by doing so you may end up becoming dependent on family and friends for care.

Medicaid is a government program designed to provide medical care for those who are impoverished. The costs for this program are exploding. Federal Medicaid expenditures now account for the fifth largest budget item behind Social Security, defense, debt service and Medicare. Based on its current rate of growth, Medicaid expenditures will soon be greater then those spent on Medicare.

The majority of the cost is due to the growing number of Medicaid recipients. Currently, 1 in 4 nursing home residents are covered by Medicaid. That number has been growing almost 12% per year. Aging baby boomers will only increase this rate of growth further.

There isn't money in Federal or State budgets to cover this expected growth. In an effort to reign in costs, Congress is working on a bill that will make it harder to qualify for Medicaid.

Here are a few of the bill's provisions: 1) Medicaid coverage of nursing home care will be prohibited for those with home equity of $500,000 or more. 2) The 'look back' period for the transfer of assets will be extended to 5 years. 3) Certain annuities previously set up to shield assets from Medicaid would now have to name Medicaid as the beneficiary, with the remainder going to Medicaid after death. 4) States are given more leeway in reducing what they pay and limiting benefits for certain enrollees.

The purpose of this legislation is to keep people from 'gaming' the system. Medicaid is designed for the impoverished. It isn't designed for those who want the government to pay their nursing home costs while they pass on significant assets to their loved ones.

In the past, you could reduce your assets by gifting them to your loved ones. As long as you didn't apply for Medicaid within three years of that gift, it would not be counted as an asset. Now, you'll have to wait five years.

You'll no longer be able to buy an annuity, hoping that only the income will be counted, thus 'shielding' that asset. The government is eliminating this loophole.

If you live in a part of the country that has seen exponential real estate growth, such as Southern California, look out. Seniors in such places, even if they have few other assets, may be forced to sell their homes and spend that money before qualifying for Medicaid.

'Medicaid planning', the taking of steps to move and shield assets so that they aren't counted by Medicaid, won't be as effective as it was in the past. And qualifying for Medicaid is no cake walk.

In general, a person can only have $2,000 in what are referred to as resource assets in order to qualify. A resource is any asset that can be used to produce income. If both husband and wife attempt to qualify, the amount is $3,000.

The coverage for in-home care is very restricted in Medicaid. Plus, it will only provide limited funds specifically for care. That means it will continue to be your responsibility to pay the mortgage, taxes, insurance, utility and food bills. This is designed to shift care to those in nursing homes where it is cheaper.

If you need skilled nursing care at home, custodial care is also provided. But if you need custodial care alone, its coverage is very restricted. If you want to remain in your home, independent, as long as possible, then don't expect to rely on Medicaid.

For those needing care at a nursing home, Medicaid doesn't cover the entire bill. Any income you receive is first applied to the bill. This includes your Social Security, pension, annuity and other income. Medicaid then pays for the remainder.

The bottom line is that you and your parents should not rely on Medicaid to meet your long-term care needs. Nor should you rely on your ability to transfer assets to your loved ones and still qualify.
About the Author
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He will answer your financial question FREE at http://www.guardingyourwealth.net/
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