Chronic illnesses and injuries leave countless Americans disabled and in need of long-term custodial care, which could easily cost over $50,000 per year. Traditional health insurance plans do not cover custodial care because it is not “medical” treatment. Similarly, the Medicare program does not cover custodial care because it is not medical treatment. So, what options remain?
You can pay the cost yourself, quickly exhausting what you’ve taken a lifetime to save. Or you could try to qualify for Medicaid. However, Medicaid is a needs tested program and, in order to qualify, you cannot have “countable resources” exceeding $2,000. If you give away assets to get down to that $2,000, Medicaid penalizes you and denies you benefits for a period equal to the amount of the gift divided by the cost of care. Under the old law, the penalty period began to run when you made the gift. However, on February 8, 2006, the Federal government enacted a new law. That new law would have the penalty period only begin upon application for benefits.
Let’s look at an example: You give away $100,000 and the average cost of private pay in a long-term care facility is $4,000. The penalty period would be $100,000 divided by $4,000 or 25 months. Under the old law, if you gave away the $100,000 and waited 25 months, you could apply for benefits and there would be no problem because the penalty period already would have run. Under the new Federal law, you would have a penalty period beginning when you applied for benefits. So, even though you only have $2,000, the government would expect you to pay for 25 months of care at $4,000 per month!
Clearly this new law can create hardships. There are ways to avoid these hardships. First, there was some confusion in the passage of the new law and states must act to coordinate with the provisions of the new law. What this means is it may not be too late to plan under the old law, though this window is closing rapidly.
Second, if you plan ahead you can avoid the harshness of the new law. The new law, like the old law, will not consider gifts made more than five years before the application for Medicaid benefits. So, if you can give away assets five years before you have a need for benefits, there would be no penalty period. In fact, you would not even have to tell Medicaid that you had made that transfer because it was so long ago.
If you think there is a chance that you may need long-term care down the road and you want to preserve some of your assets for yourself, your spouse, or your descendants, pre-planning is essential. A qualified estate planning and elder law attorney can help you avoid the harsh application of the new Federal Medicaid rules.
Compliments of the McGee Law Firm, Attorney Brandon McGee
Written By: The American Academy of Estate Planning Attorneys