Medicaid Planning: What You Need To Know
The federal government offers two programs designed to help older Americans cover their health care costs. Medicare is an insurance program that is open to all seniors age 65 and over. Medicaid is a health care program that is designed for low-income individuals who are eligible for Medicare but may not be able to pay the required premiums. Medicaid also covers the cost of long-term medical care, but this benefit is limited only to qualifying individuals. If you think you may require Medicaid to cover long-term care for yourself or your spouse, it’s important to understand how to plan for this future need.
How Medicaid Works
Medicaid is sponsored by the federal government but administered at the state level typically through social services or the health department. The program provides free or low-cost health care to qualifying participants and covers a wide range of services including lab work, x-rays, inpatient and outpatient health screenings, home health care services, prescription drugs and nursing care. In some states, Medicaid may also pay for hospice care, respite care, eye exams, eyeglasses and hearing aids. For seniors who require nursing services, Medicaid covers the cost of in-home nursing assistance, rehabilitation therapy following an injury or illness and long-term care at a state-approved facility.
Who Qualifies For Medicaid
Generally, Medicaid is open to individuals who are age 65 or older or those who are under 65 but are blind and/or disabled. Medicaid coverage is also limited to individuals whose income does not exceed state guidelines. In terms of long-term care planning, there are a number of factors that determine whether you qualify for Medicaid including income, marital status and the value of your assets.
In most states, a Medicaid applicant is allowed a maximum of $2,000 in countable assets in order to qualify for coverage. The limit is increased to $3,000 for married couples. If one spouse is already living in a long-term care facility, the asset limit increases significantly for the other spouse. For example, in the state of Florida, the non-institutionalized spouse may retain up to $113,640.00 in countable assets as of 2012. Depending on where you live, you or your spouse may be able to exempt some or all of the value of your home, cars, life insurance, burial plots and retirement accounts when applying for Medicaid coverage.
If the value of your assets prevents you from qualifying for long-term care coverage through Medicaid, you may be forced to “spend down” your estate before you can become eligible. Under a spend down program, you are required to cover a percentage of your medical costs each month before Medicaid coverage kicks in. If you’re concerned about depleting your assets to cover the costs of a spend down, you may be able to avoid this penalty by establishing a Medicaid trust.
A Medicaid trust allows you to transfer your assets to the control of a trustee who is responsible for managing your financial affairs on your behalf. The types of assets you may consider placing in a Medicaid trust may include your home, bank accounts and any other non-exempt property or financial holdings that may affect your eligibility. Income generated by the trust can be distributed to the Medicaid recipient or their spouse but the assets are no longer considered for the purposes of determining Medicaid eligibility.
Mistakes To Avoid
One of the biggest mistakes to avoid in Medicaid planning is miscalculating when you’ll actually need benefits. In 2006, the federal government initiated a new rule which penalizes individuals who gift assets or establish a Medicaid trust within the five years prior to applying for Medicaid. This five-year look back period begins on the day you apply for Medicaid coverage. If the state determines that you gifted or transferred any assets within the five-year window, your Medicaid eligibility will be delayed.
The length of time you will be ineligible for benefits depends on the value of the assets that were transferred or gifted away. In addition to establishing a Medicaid trust too late, there is also the danger of establishing it before you actually need it.
A Medicaid trust is irrevocable meaning that once the transfer of assets occurs it cannot be reversed. This could potentially be problematic if your financial situation drastically changes or you wish to sell one or more of the assets included in the trust. For example, you may be able to sell your home but the proceeds of the sale will remain in the trust which can potentially make it difficult if you wish to buy a new home later on.
If you think you may need Medicaid coverage to help pay for long-term care costs later on, it’s important that you learn as much as you can about how the process works in your state. Understanding the eligibility requirements can help you take the proper steps to safeguard your assets and ensure that you and/or your spouse are able to receive the type of care you need should your health begin to decline.