Medicaid is a government health insurance program for financially needy individuals. It is funded with a combination of Federal and State funds. There are several different Medicaid programs. For the purposes of this article, I'm going to focus on Medicaid for long-term care.
Times Have Changed
Things have changed significantly over the past couple of decades, but many people still are under the mistaken impression that Medicaid will cover their long-term care, however, most of the time this will not end up being the case. When Medicaid was first created, there were very few options for long-term care. Generally, people were either receiving care in-home from a family member or they moved to a skilled nursing care facility. There weren’t assisted living communities, memory care communities, and the plethora of in-home care agencies that exist today. Medicaid has always been focused on nursing home care, but as care options have expanded, many people don’t understand this important distinction.
Rules Vary From State to State
Medicaid is Federal law implemented by the states. As a result, there are subtle, but often significant, differences in how Medicaid operates from one state to another. We also sometimes see differences from one county to another within North Carolina.
What Does Medicaid Cover
Before we address the “financially needy” component of qualifying for Medicaid, it’s important to understand what Medicaid actually covers…and perhaps more importantly, what it does not cover.
Medicaid covers skilled nursing facility care for those that are eligible. For most, Medicaid does NOT cover in-home long-term care or assisted living level of care. As discussed earlier in this article series, the overall long-term trends are for individuals to spend a longer amount of time with in-home care or assisted living care and shorter stays in skilled nursing facility care near end of life.
Technically there are some Medicaid programs such as the Community Alternatives Program (CAP) that provide for nursing home level care in your home if such care costs less than receiving the care in the nursing home but there are two major flaws to this program: (1) If significant care is needed, it will be difficult to receive nursing-home level care in the home at a cost that is less than a nursing home, and (2) the programs have low limits of how many people can participate at a time and therefore there are long wait lists for the programs—in larger counties, you may never make it to the top of the wait list. As a result, we do not recommend developing a long-term care plan that is dependent on Medicaid CAP or similar programs.
Unfortunately, because many people don’t understand the differences between assisted living care, memory care, and skilled nursing facility care, they are shocked to discover that there may be little or no assistance available to help with assisted living care.
Special Assistance (a.k.a. “Medicaid” for Assisted Living)
North Carolina has a separate program for in-home long-term care, assisted living, and memory care called Special Assistance. Special Assistance is administered by the Medicaid department and Special Assistance recipients receive a Medicaid card. As a result, many assisted living communities will tell prospective residents and their family members that they accept Medicaid. This usually is misleading to the family though—the family begins looking into Medicaid-eligibility (i.e., skilled nursing care Medicaid) which has totally separate and distinct rules from Special Assistance for assisted living or memory care.
Very few people qualify for Special Assistance because the program as a strict income cap. For Special Assistance eligibility, your gross income from all sources must be below $1,247.50 if you are in a regular assisted living or $1,580.50 if you are in a memory care or dementia care. [Note that if you are receiving Veterans Aid & Attendance pension benefits then some or all of the veterans benefits may not count towards your gross monthly income.] For many, their monthly social security benefit alone is higher than these income limits.
Unfortunately, the above income caps have not been increased in several years and aren’t expected to increase any time soon. As a result, very few people will qualify for Special Assistance for in-home, assisted living, or memory care.
Even for those that do qualify for Special Assistance, it may not be as beneficial as you’d like to think. The reimbursements that the assisted living communities receive from Special Assistance are extremely low and generally not enough for the community to cover operational costs. As a result, many communities have either stopped accepting Special Assistance, or if they accept it, they will still look to family members to contribute additional private pay in order to make ends meet.
Bottom line: Unless your gross income is below the income limits listed above, do not expect Medicaid or Special Assistance to assist with in-home care, assisted living, or memory care.
If your gross income is below the income-limits listed below, contact our office at 919-443-3035 for a complimentary qualification assessment call to determine if you should come to our office for a consultation to discuss Special Assistance eligibility in greater depth.
Qualifying for Medicaid Has Gotten More Difficult (And That Trend Is Likely to Continue)
In the past, if your parents or grandparents were concerned about planning ahead, reducing taxes, and protecting assets from long-term care expenses, they would typically do one of two things. The first and most common choice was to simply give it all away while they were living. They would sign the house over to their children or just gift all their bank accounts to their children.
If they ever needed long-term care, they could simply qualify for Medicaid, because they had no countable assets if they gifted the assets away 3 years ahead of time. Even if they did not plan, under the law prior to the Deficit Reduction Act of 2005, if one spouse got sick and went in to a nursing home, there were lots of options for sheltering assets.
The Deficit Reduction Act of 2005 extended the “lookback” period from 3 years to 5 years and made other rule changes making it more difficult to qualify and making it more important to plan ahead. And with our growing aging population, many are predicting that the Medicaid rules will need to be tightened up even more so if you’re currently in your 50’s, 60’s, or 70’s, we can’t be sure what Medicaid will even look like or what it will cover in 10, 20, or more years from now when you could potentially need care.
Over time, it also became apparent that giving everything away was not the best way to go. It is fraught with problems that I’ve written about in the past.
One of the biggest issues with regards to Medicaid planning is the increase in individual retirement accounts (IRAs) and 401(k) plans. Your parents or grandparents probably had little if any assets in IRAs or 401(k)s. If they’re like most of their generation, they spent their life working to secure a traditional pension for retirement. Since most of their assets were in the bank invested in CDs and savings accounts, there were minimal tax consequences of signing over the CD or savings account to their children.
Today, most retirees have sizeable IRAs and 401(k)s. What happens if you want to sign your traditional IRA over to your children while you’re alive? If you had a $450,000 IRA and transferred it to your child, you would have $450,000 of taxable income to report to the IRS. In the blink of an eye, you will have transformed $450,000 into about $300,000 after taxes. Your parents had already paid income taxes on the money they put into their CD or savings account. Your situation today is much more complex from a capital gains and income tax standpoint because of the appreciation in real estate and the wealth you have stored in IRAs and 401(k)s.
Recently, I met with a gentleman whose mother had transferred her home into her his name to protect it from Medicaid. Later, when the home was sold, the son was saddled with paying thousands of dollars in capital gains taxes—all of which could have been avoided if his mother had planned properly.
Your Long-Term Care Plan Should Not Depend on Medicaid
While some of our clients do still engage in Medicaid planning as part of their long-term care plan, we’re finding that it generally falls into one of the following categories:
- They already need long-term care or are expected to need long-term care in the near future and Medicaid planning may be the only option remaining (we call this “crisis planning”).
- They have other long-term care planning in place but choose to incorporate Medicaid planning as a contingency option in case skilled nursing care is needed. This gives the client maximum options and flexibility for how to pay for long-term care when care is needed.
- Due to a combination of factors ranging from income, net worth, health, age, and overall goals, they determine that Medicaid planning is still the best or only reasonable long-term care planning option for their specific situation.
However, in general, more and more clients are finding Medicaid planning to be a less than ideal first solution for the reasons discussed above:
- Medicaid primarily is for skilled nursing facility care, not assisted living, memory care, or in-home custodial care.
- Medicaid rules have become more restrictive and this trend is likely to continue in the coming years.
- People want to have more flexibility and more options—including the option to remain in their own home for as long as possible.
- Retirement plans such as IRAs and 401(k)s may make Medicaid planning impractical.
- Many don’t want to impoverish themselves and give up control of their assets during retirement (such as by transferring them to an irrevocable Medicaid trust or transferring them to family members).
We Can Help You Develop a Long-Term Care Plan
Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity, but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.
We’ve helped many clients take an interdisciplinary approach to their long-term care planning by exploring both legal and financial options. Usually, a well-rounded long-term care plan will involve a combination of legal, health care, and financial tools to meet your goals and maximize your protection. To get started, register an upcoming seminar to learn more or call our office at 919-443-3035.
Long-Term Care Planning Series
This article series explores how a well-rounded long-term care plan can help protect and preserve your independence and dignity while avoiding financial devastation and unnecessary stress to your family. This article series explores long-term care planning options beyond government assistance planning such as planning for eligibility for Medicaid or Veteran's Benefits.