Medicaid Planning For Older Adults Looking To Save Between $200K–600K In Long Term Care Costs Over The Next 3-5 Years
The fact is when it comes to Medicaid, if you’re rich, you can afford to pay for long term care services, regardless of the services you need. You have the money.
Before you dismiss the topic based on the misguided notion that because you’re a solid middle-class citizen or resident, therefore Medicaid Planning is not an option for your parents or spouse, because the government feels you make too much money, READ THIS:
The fact is when it comes to Medicaid, if you’re rich, you can afford to pay for long term care services, regardless of the services you need. You have the money.
If you’re destitute, then you likely already qualify for Medicaid.
It’s everyone else (the middle-class) in between who gets blown up – and who may be the best candidates to benefit from Medicaid Planning.
The truth is, when the time comes we’re all going to need Long Term Care services. The question is: Will you be able to afford it?
Today, depending on the State you live in, hiring a home-health aide to pay for assisted living or skilled nursing home care, will cost you easily $200,000 to $600,000 over the next 5 years.
These costs represent entire life-savings for most people. What will they do when the time comes?
But before we get into it let me just say… it’s all way easier to understand than you might think: Medicaid.
No need for fancy words or complicated explanations filled with legalese and technical terms — let's break it down together…
Let’s start with the formal definition for Medicaid:
Medicaid consists of many programs. At its core, it is a joint federal (sets standard and funding) and state (sets eligibility and administers the programs) program that helps with long term care and medical costs for some people with limited income and resources.
The rules for who qualifies for Medicaid vary from State to State, but the program is designed to help those in need of necessary medical care. It's intended for individuals and families with low income, including certain low-income adults, their children, pregnant women, and people with certain disabilities.
But here's a cool fact: you don't have to be destitute to get Medicaid benefits. There are smart, ethical, and totally legal ways to make sure you can qualify for Medicaid benefits without having to spend down your savings first.
I have 2 goals as far as this article goes: The first is to answer the big questions about getting Medicaid to help with the long term care needs of your parents or spouse, clear up any confusion, and bust up some myths that might be floating around in your head.
My second goal is to give you a little nudge about talking to someone who knows a lot more about this stuff than me, like an elder law specialist or attorney who can give legal advice based on your specific situation.
If I can achieve either one of those two goals I’d be happy with the effort it took to put this together.
Alright, so let’s get going…
Much to their surprise, many people think that Medicare will actually cover for their long term care needs. When in fact Medicare only covers short-term care and a maximum of 100 days in a rehab or skilled nursing facility.
I’ve talked to families in complete shock and dismay as Medicare stops paying for these services and suddenly they are faced with daunting long term care costs they never saw coming.
The thing is, typically LTC (long term care) services begin way before you need a nursing home or skilled nursing facility – usually it all starts at home with the need of a home health aide to help with basic ADLs (activities of daily living).
These services are mostly broken down into:
Personal care
Companion
Respite
Homemaker
Most people are unaware that Medicaid can cover the cost of these services. But most of them don’t know where to even begin the process, plus there’s a lot of misinformation about what Medicaid will or will not cover as far as families' specific circumstances go.
Getting a better idea on how to navigate the existing support systems to make better decisions for your family is what it’s all about.
What Is Medicaid Planning?
Medicaid planning is the process of preparing and arranging a person's financial assets in a way that may help them qualify for Medicaid benefits should they need long-term care.
The ultimate goal of Medicaid planning is to legally restructure someone's finances so that they meet Medicaid's eligibility requirements without unnecessarily spending down all their assets.
This might involve setting up trusts, converting countable assets into exempt assets (assets that Medicaid does not count when determining eligibility), or making certain allowed transfers.
All in all, Medicaid planning is a smart, ethical, and legal approach to ensure that individuals can receive the care they need in their later years without losing the entirety of their hard-earned savings and assets.
It's also aimed at preserving some wealth to potentially pass on to heirs, all while staying within the legal and ethical boundaries set by state and federal Medicaid rules.
I’m not going to sugarcoat it… It’s true, Medicaid laws are complex, and can vary significantly by state.
Because of this you should definitely seek the assistance of elder law attorneys or Medicaid planning professionals to navigate this process. This is something I recommend everyone to do.
The two main programs we care about that focus on LTC (long term care) are:
The Medicaid Waiver / HCBS (helps pay for Home health care and ALF (assisted living facility) care.
The ICP (helps pay for rehab, nursing home, and skilled nursing care).
Quick Note:
Medicaid Planning is not Unethical or considered cheating the system. When done properly it’s not only legal and ethical, but SUPER SMART! Most people who need Medicaid Planning are middle-class folk who have worked very hard to save for retirement, but will not be able to afford the cost of LTC.
Important Medicaid Numbers
[As of January, 2024 – These numbers will often change]
I won’t go into details about what some of these numbers mean. But they’re not difficult to understand if you dig into it via your own research. Or better yet, ask an elder care attorney.
Income cap: $2,829 (gross)
Asset cap: $2,000 for an individual / $3,000 for a married couple.
Gift penalty divisor (avg monthly cost for nursing home care in Florida): $10,438
Personal Needs Allowance: $160 per month
Community spouse resource allowance (CSRA): $154,140
Minimum monthly maintenance needs allowance (MMMNA): $2,465
Maximum monthly maintenance needs allowance: $3,854
Home equity limit: $713,000
It’s important that you are at the very least familiar with these numbers.
Also,there are a few resources online I find helpful, but none better than Google search for specific terms.
As I mentioned before, middle-class families often find themselves in a challenging position, as they may have too many assets to qualify for Medicaid, but not enough to afford the long-term care costs out of pocket.
When it comes to Medicaid Eligibility, it boils down to:
Countable assets vs. non-countable (exempts assets)… and how you shift these(or not) into financial and estate planning tools that allow you to qualify.
Your future health needs (as you become more vulnerable)
And the complex dynamics of laws that dictate your decisions in the State you live in.
Here's a nifty 7 Point Guide that may come in handy if you’re currently looking into Medicaid Planning…
Use these tips to familiarize yourself with the process, but always consult with a professional before you take any action:
1. Understand Medicaid Eligibility Requirements
Asset Limits: Medicaid has strict asset limits to qualify for coverage. The exact amount varies by state, but typically includes a limit on countable assets.
Income Limits: Similar to assets, income limits are imposed to qualify for Medicaid, which also vary by state.
2. Spend Down Assets Legally
Paying Off Debts: Use excess assets to pay off mortgages, car loans, or credit card debt.
Home Improvements: Investing in the primary residence can be a way to spend down assets because the home is often an exempt asset, depending on its equity value.
Prepaid Funeral Expenses: Many states allow individuals to set aside money for funeral and burial expenses as an exempt asset.
3. Asset Transfer Strategies (Look-back Period)
Gifts and Transfers: Transferring assets to family members or into a trust can be a way to meet asset limits. However, Medicaid has a look-back period (typically 5 years) during which most asset transfers can penalize the applicant. Consult with your attorney on how to get around the 5 year look-back period.
Irrevocable Trusts: Setting up an irrevocable trust can protect assets from being counted for Medicaid eligibility, as the individual no longer has control over these assets.
4. Use of Annuities
Annuities: Converting countable assets into a Medicaid-compliant annuity can be another strategy. These are typically set up with the help of your Medicaid attorney.
5. Purchase of Long-term Care Insurance
Partnership Programs: Some states offer Long-Term Care Partnership Programs, allowing individuals to keep a portion of their assets that would otherwise be countable for Medicaid eligibility, based on the amount of long-term care insurance benefits used.
6. Legal and Financial Advice
Please Consult Professionals: Given the complexity of Medicaid rules and the risk of penalties for improper transfers, it's advisable to consult with an elder law advisor or an elder law attorney specializing in Medicaid planning.
7. Regular Review and Adjustment
Monitoring Changes: Medicaid laws and eligibility requirements change often. Regular reviews of your financial plan can ensure compliance, adapt to new regulations, and make appropriate adjustments.
In conclusion…
Now that you’re somewhat familiar with the overall scheme, Medicaid numbers, and the 7 point guide, you can start formulating where you’re at, even before you talk to a professional.
Keep in mind that effective Medicaid planning for middle-class families requires careful consideration of current assets, future healthcare needs, and the complex interplay of laws governing Medicaid eligibility… but you don’t have to do it alone.
Build yourself a legal, financial, and healthcare provider team and put them to work.
In the end, by adopting legal strategies to protect assets while ensuring eligibility, you can secure much-needed support for long-term healthcare needs without depleting your life savings, or your parents.
Till next week,
Stay in the know…
Claudio Alegre
P.S. Here’s my DIY Disclaimer on the topic… 🙂
This article is not designed to substitute for the advice of an Elder Law attorney in your state, who focuses on Medicaid Planning. Every case is unique and warrants proper review by a qualified and licensed professional.