MEDICAID PLANNING

By Mark E. Henze

MEDICAID VS. MEDICARE

People often confuse Medicare and Medicaid … but the differences are very important! In general, Medicare is a program that is tied to Social Security and is simply a method of providing affordable health care for the elderly … often at a time when their medical needs would result in huge premiums if left to the normal health insurance market. Medicare becomes available at age 65 and will cover may health expenses, and with the proper addition of Medigap or Medicare Advantage or Supplement plans, will cover even more. HOWEVER, (with the exception of the first few days) IT DOES NOT COVER ANY COSTS OF INSTITUTIONAL HEALTH OR NURSING HOME CARE!

Today, any person who lives to his/her anticipated actuarial life expectancy will spend some time (whether it be a few months or ten or more years) in an institutional health facility. It’s almost a fact of life these days. In addition, most nursing homes now charge in excess of $10,000 a month for their services. Two years in one of these homes will cost you (and your estate) about $240,000. Ten years will require well over 1 Million Dollars. And if you think you had an estate to leave your spouse or children, it may simply end up going to long term nursing home care. I’m sure this is where you wanted all of your hard-earned retirement planning funds to go. And if you’ve simply set up a traditional estate plan with a Will, jointly owed real estate, and maybe a Living Trust, each of these will simply be disregarded in order to pay your nursing home expenses.

On the other hand, Medicaid can cover these long-term expenses. But only if you are basically destitute, with minimal monthly income, have no estate or assets, or HAVE DONE PROPER MEDICAID PLANNING. Medicaid is a joint Federal and State public assistance program that pays health care services for certain indigent people (including children, families, disabled, and the elderly. It is the only program (other than Long Term Care Insurance – which can be very expensive and may limit the amount of time and care it will cover), that can keep you from using your hard earned retirement and estate from paying these expenses.

WHY PLAN FOR MEDICAID?

It is disheartening to see so many carefully planned estates, especially with children or a spouse, totally decimated by the costs of long-term nursing home or other institutional care. There is nothing as painful as watching an anticipated and carefully planned estate disappear down the nursing home drain. Medicaid planning can help a person put away some or all of these assets for use by his/her family, rather than having it all purloined by his/her nursing home expenses. While depending on whether the planning was done timely and properly, one may not be able to protect all of the estate assets. Yet, every little bit that can be set aside to benefit his/her family helps. Here are some cases to consider:

CASE 1:   BILL is proud that he has built up retirement savings and has some other assets that he hopes to leave for his two children.   He is a widower or divorced and has no spouse. He is unexpectedly faced with an illness that will likely put him in institutional health care in the next few years. A friend suggests that he simply put his assets in a Living Trust … or simply convey those assets immediately to family members.   Upon entering the nursing home at a later date, he’d better hope that he can pay all of his nursing home expenses from his remaining assets, because he will be DENIED any Medicaid assistance due to the manner that he dealt with his assets.

CASE 2:   KAREN is married and her and her husband have put away a small amount of retirement and assets to eventually go to their children or provide for each other should something happen to the other spouse. Karen’s husband is diagnosed with a disease that requires him to enter a nursing home in the very near future. KAREN’S home is in her name alone. They have not done any Medicaid planning. When her husband enters the nursing home, he will have to use their estate assets (and possibly their home equity or sell the home) in order to pay the costs. Once those assets have been completely used up (even those solely in Karen’s name), Karen’s husband may be able to have Medicaid start paying the nursing home bills. Indeed, KAREN may be able to stay in the home for a while if she can afford it, but the state will eventually take and sell the home when Karen dies, leaves, or sells the home and will use the proceeds to repay every penny that Medicaid paid on behalf of her husband. Karen’s child ren are not happy!

CASE 3:   Recall that Bill has built up retirement savings and has some other assets that he hopes to leave for his two children.   He is a widower or divorced and has no spouse. Bill, however, is the type that plans for anticipated scenarios well in advance. Six years later he is unexpectedly faced with an illness that will likely put him in institutional health care. But, Bill has previous consulted with a Medicaid Planning attorney and has implemented a plan. Upon entering the nursing home five years later, he will do a few small things to make him eligible for Medicaid and Medicaid pays all of the costs of the nursing home. His two children have received a handsome estate and Bill (who is now in a place where he no longer worries about a big house, a fancy car, and traveling all over the world) has his care (essentially all of his living expenses) all paid for.

CASE 4:   KAREN and her husband have failed to do timely Medicaid Planning, but still engage a knowledgeable Medicaid attorney to do some crisis planning. Because they did not plan far enough in advance, they will not be able to protect their entire estate for the benefit of Karen or their children. However, they may be able to gift away some of their assets to their children resulting in being penalized and ineligible for Medicaid payments for a period of time. As a result, they will be required to pay for the nursing home expenses during that penalty period out of their remaining funds and then qualify for Medicaid at a later date. This involves specific and expert planning, but will likely allow them to transfer some of their assets so that they can be uses by their children instead of having it all taken for her husband’s nursing home care.   In addition, proper planning may allow Karen (non-institutionalized spouse) to keep more of the assets and more of their monthly income for her own use.

OBVIOUSLY, YOUR PLANNING OPTIONS BECOME MORE AND MORE LIMITED OVER TIME AND BECOME SEVERELY LIMITED IF YOU DO YOUR PLANNING SHORTLY BEFORE NEEDING NURSING HOME CARE!

PLEASE NOTE THAT EACH OF THESE SCENARIOS DEPEND COMPLETED ON EACH PERSON’S PARTICULAR SITUATION AND CIRCUMSTANCES AND SHOULD NOT BE USED TO PLAN OR PREDICT THE PLANNING NECESSARY IN YOUR OWN CASE WITHOUT OBTAINING EXPERT AND INDIVIDUALIZED PLANNING BASED UPON YOUR SITUATION.

One’s application for Medicaid is a complex process that depends upon your assets and income at the time of the application as well as a look back to see what you have done with your assets over the five years prior to your application. In the case of a married couple, the amount of assets that the spouse can keep, the amount of monthly income that they can use and not contribute toward the institutionalized spouses expenses, and the ability to continue living in the family home all depend upon a number of factors that you do not want to face without expert help and consultation.

WHEN SHOULD YOU DO YOUR PLANNING?

This is often the big question! For many individuals or families starting out, their focus is normally on their current livelihood and, possibly, planning for retirement. This is when estate planning typically gets ignored or possibly focuses on preparing a Last Will and Testament and, maybe, putting beneficiaries on retirement plans, life insurance, and accounts. Later in life, one typically devotes more concern toward providing an estate for their spouse and/or children in the event of their death. This is when we often see the creation of Revocable Living Trusts and more sophisticated estate planning. These methods often leave you in continuing total control over the estate. Sadly, this type of planning does nothing to help keep your estate out of the hands of the nursing home at a later date. Next, late middle age arrives and there is suddenly more concern about protecting one’s estate from the possibility of later health costs destroying what you have works so hard to build up. This is normally a great time to do some Medicaid planning. The final stage is when either you or your spouse has been or is about to be placed in institutional care (typically referred to as “Crisis Planning”). Sadly, the availability of Medicaid Planning (while still possible) has been severely limited. If you had a crystal ball, it is generally recommended that you begin understanding and seeking consultation regarding Medicaid Planning about ten (10) years before you think it is possible that you’d be referred to a nursing home. This often will involve investigating your family’s heritage and past medical history. It may also involve determining what assets you have available where you don’t mind giving up full control.

WHAT PLANNING OPTIONS ARE AVAILABLE?

Mark and Henze & Associates, P.C. believes that is important for clients to be aware of the issues concerning Medicaid and the costs of long-term nursing and institutional health care early on. Therefore, consultation with and educating clients even prior to putting any particular Medicaid plan in place is essential. This should also be done well before any need for such care is anticipated. In addition, the difficulties in creating a plan and performing the steps necessary to implement a plan are increased as time passes and the need for such care becomes more likely. Crisis planning is not only more difficult and time consuming, but also becomes more suspect, speculative and expensive.

Henze & Associates offers four different planning options, each becoming more time consuming and expensive. These are:

A) Basic Medicaid Consultation and Information Session: This involves a one hour (1 Hour) discussion and consultation session that will allow you to understand the basic issues and problems regarding the interaction of a possible future Medicaid Application and Estate Planning. This is helpful for anyone who sees the possibility that Nursing Home or Institutional Medical Care in the future (10 years off) and wants to consider or eventually do some preventative planning so that one’s estate is not devastated by the costs of such care.

B) Medicaid Evaluation and Planning Consultation: This service involves the actual collection of estate and financial information to analyze, consider alternatives, and actually put together a plan to maximize one’s estate and minimize the costs of Nursing Home or Institutional Medical Care in the future. This, again, is done in the future (6 to 10 years in advance, if possible) and plans to utilize Medicaid in a manner so that an existing estate plan is not devastated by the costs of such care. This involves more analysis and preparation of an actual plan that may include options and alternatives and will require complete disclosure of your current financial situation and anticipated estate desires.

C) Medicaid Planning and Implementation: This involves the actual work to implement and complete a previously developed plan. Here the actual plan will be put into place, with the possible reorganization, sale or transfer of assets and financial accounts to complete the desired plan. Sadly, actually implementing the plan requires one to either use a crystal ball to know when nursing home care will be required, or the willingness to do some hard planning when it seems that the planning might not be necessary.

D) Crisis Medicaid Planning at or Near Time of Application: This is emergency planning at or very near to the actual transfer of a client into a Nursing Home or Institutional Medical Care facility and involves the development and implementation of an immediate plan to keep one’s estate from being devastated by the costs of such care and to allow some remaining estate to exist and/or to minimize the amount of the estate that is required for such care.

IS MEDICAID PLANNING LEGAL AND ETHICAL?

Medicaid planning is legal and is done all the time within the bounds of the specific laws and regulations enacted by the Federal Government and your State. Medicaid planning also has the effect of discouraging attempts to hide and transfer assets and information required on one’s Medicaid application. Planning within the bounds of the law has also been ruled ethical. However, ethics can be personal thing. If you feel that the abnormally high costs of long-term care are ethical and warranted, and if you believe that it is more important and morally required that you pay these expenses (when government legislated options are available) rather than helping to provide for your spouse and children, then you may want to forego Medicaid planning.

However, this a field with complex laws and regulations. This is a difficult area and working with a knowledgeable attorney is a must and depending on your individual circumstances may be expensive. In addition, your ability to understand the basics of Medicaid eligibility and the concepts behind it early on is imperative in timing and completing effective planning. Generally, it is never too late to do this type of planning, but it does become more complex, difficult and less effective at the time that long-term care is needed.

Call us TODAY at 303-830-2811 to schedule at least an informative Basic Medicaid Consultation and Information Session.