Many people worry about how they will handle the expense of serious illness in their old age. It is hard to know how to plan and how much money may be needed to provide care. For many it is hard to save enough money to feel safe. In addition to your own savings, and long-term care insurance there are government programs that provide assistance with medical costs. The two most commonly known government programs are Medicare and Medicaid. It is easy to confuse the two.
Medicare for Illness
Medicare provides for the cost of hospitalization and doctors care for all elderly. You can purchase an optional additional outpatient medical benefit and an other program allows you to purchase coverage for medications. Medicare does not pay for long-term stays in assisted living facilities or nursing homes; there is only a limited coverage for rehabilitation after a hospital stay. Thus, Medicare would cover a hospital stay for a broken hip; a short stay in a facility providing a lower level of care to get the patient back walking again. It would not cover a long stay fro a chronic illness.
Preparing for Medicaid Eligibility
Medicaid provides greater assistance, including nursing home expenses, for elderly and disabled persons who are indigent and too ill to care for themselves.
Elderly and disabled persons who meet certain income and asset limitations, may qualify for Medicaid benefits to pay for medical expenses, including long term care in a nursing home. Medicare, the traditional government provided insurance for the elderly, does not pay for care in a nursing home, except in very limited instances. Therefore, if an elderly person is unable to pay for a nursing home stay and does not have long term care insurance, Medicaid eligibility is an important benefit. The Medicaid rules vary somewhat from state to state, but there are some general rules to understand.
A. Income A certain level of income will not make a person ineligible for Medicaid; however, the recipient must spend certain amounts of the income toward the cost of care before receiving Medicaid benefits. For instance, a person in a nursing home receiving benefits, must spend all but $30 of his or her income each month to pay the expense of the nursing home care, and then Medicaid will pay the remainder of the expenses. In addition, a spouse of a nursing home patient will be allowed to retain a certain amount of the couple=s joint income.
B. Assets The basic rule is that, to qualify for Medicaid benefits, a person can have a maximum of $2000 (“Reserve Allowance”), plus any exempt assets. Of course, the rules and the numbers change frequently. Some of the common exempt assets that a person can own and still qualify for Medicaid:
- The residence. This includes the land around it. It can be a mobile home. There are limits that change from time to time for the maximum equity in a home. However, the limit is usually high enough to be irrelevant for most applicants. The residence remains exempt even if the applicant no longer lives in the residence but hopes to return to the home or if the spouse or dependent child continues to live there. It will stop being exempt when the aid recipient dies – The state will expect the Estate to repay the cost of care from the value of the residence.
- One Car. The applicant may have a car of any value.
- Burial Arrangements. This includes an irrevocable prepaid burial contract and burial plots for the recipient and spouse.
- Interests in land. Medicaid does not count land that is co-owned, life estates, or remainder interests.
- Annuities, 401(k)s and other financial assets if they cannot be cashed. The income would reduce benefits paid. There are complex limits to these.
- Estate Recovery. An important aspect of the exemptions rules is the fact that the exemptions only last during the life of the recipient. When the recipient dies and the exempt assets go into the estate, they are subject to attachment by the State for recovery of the Medicaid benefits paid to the recipient.
C. Transfer of Assets. As people consider these rules that require impoverishment, one solution that is frequently considered is to make gifts of assets to children or other loved ones. There are many reasons this may not be a good idea. One is that there is a penalty for any transfer that is made within five years of applying for Medicaid if it is not exchanged for fair market value. There are also gift tax, income tax and family dynamics to consider in making such gifts. So, these decisions should only be made in careful consultation with a lawyer familiar with all the implications of this choice.
This is just a brief summary of the one aspect of this field. For current and detailed information applicable to your circumstances, you can call your local Social Services Department or look up rules at the following web sites:
This is information, not legal advice. We are offering some general information on a topic that may be of interest. This is not legal advice. Your circumstances will be different from anyone else’s. If you have questions about a specific issue or asset, please call our office and make an appointment for a consultation. We will be very happy to work with you to make a plan suited to your needs and unique situation.