August 20, 2016
Each year we spend a great deal of time
planning and budgeting for our vacation, our grandchildren’s college
fund, our taxes, etc. If you’ve been reading my columns, you’ve
heard me repeatedly say how important it is to plan for long-term
care (LTC). But I bet many of you still haven’t done that. So what
happens if you don’t have a LTC plan? Most people will spend down
their retirement savings and go on Medicaid. A plan you never
thought you would depend on.
Here are some facts to ponder.
On average, a 65-year-old male can live to 86.6 years of age and a
female to 88.8. Seventy percent of individuals over the age of 65
will need some type of LTC services. The No. 1 risk to your quality
of life, independence, standard of living, asset preservation and
legacy is a LTC illness.
Right now, the average cost of
nursing home care in the Rochester area is $12,000 per month;
assisted living, $5000 per month, and home care $25 an hour. How
long will your assets last?
You do have many planning
strategies to choose from to avoid going on Medicaid. They can
include LTC insurance, life insurance with a LTC component,
repositioning of assets or an irrevocable trust. But for the purpose
of this article, let’s assume that you haven’t done any planning at
What can you expect if you have to go on Medicaid?
Medicaid is the “payer of last resort.” It is a federal/state
program primarily designed to pay for nursing home care. It pays for
limited home care. Very few assisted living facilities accept
Medicaid. It is a means_tested program that requires certain income
and asset levels. It was created to help those who are impoverished
but many middle class families are relying upon it to pay for their
Social security, pension payments, unearned dividends,
disability payments, rental income and an inheritance are all
considered sources of income.
Bank accounts, securities, cash
value of life insurance, annuities and vacation homes are considered
resources. There is a five-year look back period along with penalty
periods for transferring assets. Medicaid looks back five years at
all your bank and financial accounts and will question any transfer
You apply for Medicaid through the Department of
Social Services (DSS) in the county that you reside. I completed my
father’s Medicaid application in Cortland County. After months of
gathering his financial information and providing descriptions about
transactions DSS considered questionable, he was finally approved.
Don’t throw anything out if you think Medicaid will be your LTC
plan! It will make it much easier for your adult children or an
attorney to complete your application. If you do go to an attorney,
you can pay approximately $6,000.
Certain assets are
considered exempt — a home (that is occupied by the Medicaid
applicant or his/her spouse, the applicant’s child under 21, an
applicant’s sibling who has lived there for one year with an equity
interest, or a caregiver child who has lived there for two years
prior to the applicant’s institutionalization), one automobile for
the community spouse, pre-paid funeral expenses, and life insurance
with a face value of less than $1,500.
An IRA is exempt if it
is in payment status. It will not be considered an asset but rather
income. However, Medicaid can require a higher required minimum
distribution (RMD) than the IRS.
The basic transfer and
penalty rules can be somewhat confusing. There is no five-year look
back period for home care like there is for nursing home care. For
any assets transferred within the five-year look back period, there
is a penalty period. The penalty period starts to run when the
applicant is in a nursing home, has assets no greater than $14,850
and the Medicaid application has been filed. The penalty period is
determined by dividing the amount of the transfer by the Medicaid
nursing home regional rate. The regional rate for Rochester in 2015
was $10,660. If, for example, an applicant transferred $106,600
within the five-year look back period, that amount would be divided
by $10,660 which means the applicant would wait 10 months to be
eligible for Medicaid.
I have often heard it said that
applying for Medicaid can be a demeaning and frustrating experience
probably because it goes against our natural inclination to be
independent and self-reliant.
So while you’re sitting in the
sun on that long-awaited vacation and relaxing with that pretty
umbrella drink, think about all that you saved and sacrificed to get
there. Don’t let the government take it away from you because you
did not plan for long-term care.