Medicaid is a federal government program that provides financial assistance to persons age 65 and over, or those under 65 who are disabled and who are in need of substantial medical assistance. Medicaid is a needs-based program; a person must have a medical need for assistance and must be of limited financial means before he or she can qualify.
Medicaid is very different from Medicare. Medicare is health insurance available to all persons over the age of 65 who qualify for Social Security, as well as those under age 65 and who Social Security determines to be disabled. Medicare will not pay for nursing home care, assisted living or home health care on a long term basis. Medicare will only pay for this type of care for up to 100 days, and only for the purpose of providing rehabilitation following a minimum of a three day hospital stay.
With the national average cost for a private room in a nursing home over $75,000 per year, a recent Harvard University Study found that 69% of single people and 34% of married couples would exhaust their assets after 13 weeks in a nursing home. Thus, Medicaid planning has become an important consideration for many people.
“Medicaid Planning” involves either spending down or otherwise protecting a person’s assets so that he or she has minimal assets and can meet the financial criteria to qualify for Medicaid ($1500 for the Medicaid recipient). Medicaid planning can occur in either a pre-planning or crisis planning situation. Pre-planning is for individuals who have not begun to spend their assets for their care, but may need to in the future. Crisis planning is for those persons using their assets now for long-term care with a substantial risk that they will run out of money.
Sometimes life insurance can offer a benefit in a pre-planning situation. If an irrevocable trust purchases a single premium life insurance policy, it can replace a couple’s net worth and protect the cash value from Medicaid. However, in order for the policy to be completely protected, the five year lookback period would have to have run. In addition, if a five year long term care policy can be purchased, or a life insurance policy with a long-term care rider, all of a couple’s other assets not used to purchase the life insurance can potentially be protected, even for the five year lookback period.
Even when doing crisis planning, there are several opportunities to protect assets. While transfers to a child or an irrevocable trust create a penalty period, sometimes a planning strategy involving gifting and the use of an annuity can be a valuable planning tool. One strategy which has been recently confirmed as valid by a Court of Appeals is the purchase of a Medicaid Qualifying Annuity by the spouse not in the nursing home (the Community Spouse) with the excess assets over the amount the Community Spouse is allowed to keep. This converts those assets from a resource to an income stream, and the Community Spouse’s income does not need to be used to pay for the other spouse’s care.
Annuities or promissory notes are also used in a gifting strategy where at least half of a person’s assets can be protected from having to be spent on nursing home care. Because of the severe penalties for gifting in a Medicaid context, these strategies should not be undertaken without the advice of a Medicaid planning attorney.