Thursday, June 10, 2010

Medicaid Planning: An Overview

Planning for the eventual costs of long term care can be extremely complicated. Most people do not have the resources to self-pay nursing home expenses, which can be as much as $6,000 a month, at least not for very long. Likewise, long term care insurance, while very advantageous, is out of reach for many due to high premiums and lack of insurability.

Most families faced with placing a loved one in a long term care facility have no choice but to apply for Medicaid, the only public health benefit that pays for nursing home care. (Contrary to popular belief, Medicare will only pay for a very limited amount of time in a nursing home, and private health insurance usually does not cover anything.) In order to qualify for Medicaid, however, an individual may be forced to drastically spend down his or her assets, often to only $1,500.

Avoiding this spend down while enabling an individual to qualify for Medicaid is the goal of much long term care planning. Other goals may include increasing cash flow, providing for the safe management of assets for an incapacitated individual, avoiding probate and mitigating the possibility of a Medicaid estate claim after the individual's death. Care must be taken to work around various pitfalls in the Medicaid rules, which have gotten stricter in recent years as Congress attempts to discourage aggressive asset-protection planning.

As with any other type of financial planning, time is of the essence. The earlier a person starts, the more options he or she will have. In the world of Medicaid, this is especially true of making gifts. Currently, there is a harsh penalty for making gifts within the five year "look-back" period. This means that an individual should not start Medicaid planning when he or she is already in poor health and possibly even in a nursing facility. The most effective planning must be done well in advance of any need for long term care. Obviously, we do not live in a perfect world and many people will still fail to plan until a health care crisis rears its head. Fortunately, there are still opportunities to plan and avoid the worst of a Medicaid spend-down even in these situations.

Statistics show that well over 50 percent of Americans will need long-term care at some point in their lives. Many people do not give a thought to how they will pay for such care, or assume that someone else will take care of it for them if the time ever comes. Those who are willing to invest the time and money in proactive planning, however, are usually much happier with their outcomes than those who wait until the last minute.