Don’t Depend on Medicaid Coverage for Your Long-Term Care Needs
Are you financially prepared to shell out $67,000 plus annually to cover future long-term nursing home care expenses? If not, perhaps you are expecting Medicaid to cover the cost of your long-term care needs? If you or your parents have this same expectation then read on.
Medicaid is a public program that provides custodial care to those in need, but cannot afford to pay for care. The annual costs for this program are growing exponentially. In fact, Medicaid expenditures now account for the fifth largest budget item behind Social Security, defense, debt service and Medicare. And based on its current growth rate, Medicaid expenditures will soon exceed those spent on Medicare.
There just isn’t enough money in Federal or State budgets to cover this expected growth. In an effort to control costs, Congress passed a bill in February 2006 that makes it harder to qualify for Medicaid.
The purpose of this legislation is to keep people from cheating the system. Medicaid is designed for the poor, not those wanting the government to subsidize their long-term care costs while they pass on substantial assets to their heirs.
Here are a few of the bill’s provisions:
Home Equity Disqualification
Medicaid coverage of nursing home care is prohibited for those with home equity in excess of $500,000, or $750,000 at the option of each state. If you live in a part of the country that has experienced exponential real estate growth, watch out. People 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.
Extended Lookback Period
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.
As an example, suppose Janice transfers the title of her home, which is valued at $300,000, to her daughter. Janice then applies for Medicaid 36 months after the title transfer. Because she is inside the look back period, the house is still considered Janice’s resource. Janice has less than $2,000 in resources and would otherwise qualify for Medicaid right away. However, Medicaid will not pay a dime for her care until the equivalent spend down of her gift has been paid. In other words, the state considers the previous asset transfer to be a resource that should have been exhausted before Janice qualified for Medicaid assistance. This spend down requirement now becomes a penalty after the fact.
The penalty is determined in months of care and is calculated by dividing the amount of the gift by the state Medicaid rate, which in this example is $5,000 a month. Dividing the gift by the monthly rate yields 60 (5 years) penalty months. From the date that Janice would have been approved for Medicaid someone must pay for 69 months of her care before Medicaid takes over.
With a large gift, penalty periods could last five to ten years or more. If Janice applied for Medicaid 60 months and one day after making the gift there would have been no penalty.
Annuity Rule Changes
You’ll no longer be able to buy an annuity, hoping that only the income will be counted, thus shielding that asset. Instead, the government is eliminating this loophole by requiring that Medicaid be named as the annuity’s remainder beneficiary.
The bottom line here is that you should not rely on Medicaid to cover your long-term care needs. Nor should you rely on your ability to transfer assets to your loved ones and still qualify. Even before these rule changes, qualifying for Medicaid was hard enough.
* MetLife Mature Market Institute. “The MetLife Market Survey of Nursing Home & Home Care Costs,” September 2006.