You’re active and in relatively good health. You’re finally enjoying the things you now have time to do as a retiree – or looking forward to those days coming soon. The last thing you want to think about is how you’re going to pay for long-term care.
Not only does this issue seem so far removed from your current lifestyle, but it’s a daunting one to think about.
However, those over age 55 can’t escape the fact that the longer they live, the likelihood increases that some type of long-term care service will be needed. It’s a real possibility that as people age, costs for in-home or nursing home care could consume their life savings. Not only is there a concern about having sufficient income to meet these needs, but the legacy they spent years building to pass on to loved ones could be easily devoured.
According to 2018 projections of health-care costs, a healthy 65-year-old couple today will need over $385,000 to pay for health-care costs during their remaining years. In light of this, another study revealed that nearly 80% of middle-income Baby Boomers have no savings assigned for long-term care. Even more alarming, over 80% of this segment also expressed that long-term care planning was currently not a high priority for them.
Medicare to the rescue?
Many are under the assumption that Medicare will help cover long-term care costs. This is a myth. Medicare is a federal health insurance program seniors receive at age 65 or older. Although it will help cover short-term nursing home costs after a major medical incident, it will not cover long-term care in nursing homes, assisted living facilities or at home.
What about Medicaid?
Medicaid is a combined federal and state health insurance program intended for low-income people and covers medical care costs and some types of long-term care costs. However, each state has its own eligibility requirements. The rules and standards established by each state are strict, so it’s not easy to qualify. Applicants must meet an asset limit amount designated by their state, which can often be an unattainable standard. Many find they must exhaust their assets by paying outright for nursing home care before they can be eligible for Medicaid.
How does the Medicaid “Spend Down” work?
Particularly for the elderly, a common option to qualify for Medicaid assistance is to “spend down” excess, non-exempt assets below the required state limits. As long as assets aren’t given away or sold for significantly less than they’re worth, most spending is fine. However, some methods of transferring assets such as gifting or using non-exempt assets to purchase other non-exempt assets could put someone in violation of state rules, so it helps to seek professional counsel in this area.
Consider the Medicaid “Look-Back Rules”
Unfortunately, spending down assets is not as straight forward as it looks since Medicare has set up an additional hurdle called the “look-back rules.”
Under the look-back rules, all qualifying assets must be transferred over five years (60 months) from the date of the Medicaid application. Any non-exempt assets held within this time period will be counted as ownership and a waiting period will be incurred before someone can qualify. The rules for calculating the waiting period are complex, but eligibility is generally denied until the look-back period is free of transfers of less than fair market value. States are strict, so it’s imperative applicants keep detailed records to prove where assets were placed in order to qualify.
Beware the future claims against your estate
Some assets are exempt from qualifying for Medicaid such as cars, personal belongings and primary homes. However, after you die, it’s likely the state will place a claim against your estate if you received long-term care through Medicaid while over age 55. This process is known as Medicaid estate recovery. However, if you still have a living spouse, minor children or disabled children, it will not attempt to do so. Only in the case of a living spouse will the state recover its costs from your estate once he or she dies.
The best plan is having a plan
Unfortunately, it’s impossible to put a dollar amount on the actual cost of someone’s long-term care. But one thing is for sure. The sooner you start planning, the better your options for the future. Whether it’s for you or a family member, it’s a good idea to obtain professional advice from a trusted estate planning attorney and/or financial advisor to get started and make sure you’re headed in the right direction.