Medicaid can help pay for custodial care in a nursing home, but it has many strings attached. Many people make mistakes that you can easily avoid.
In this episode of “Simply Money,” Mark Reckman walks through eight common Medicaid pitfalls you can avoid as you prepare yourself and your family financially if long-term care is needed.
Amy Wagner:
You’re listening to Simply Money; I’m Amy Wagner, along with Steve Sprovach. Medicare, Medicaid. First of all, there’s so many people that don’t even necessarily understand the differences. But when you get to the point where you need that government assistance of the Medicaid program, mistakes that we want to make sure that you do not make. Joining us is Mark Reckman, of course he’s our estate planning expert from the law firm of Wood and Lamping. Mark, I want to touch on initially the difference between Medicare and Medicaid, just so everyone’s on the same page.
Mark Reckman:
So Medicare does not pay for nursing home, for long-term care. Medicare is federally subsidized health insurance, just sort of like Blue Cross and Blue Shield. It pays for doctors and if you sign up, it pays for hospitals or you can sign up for extra coverage and pay for prescriptions. But if you are in a nursing home because of long term care needs, that’s not considered medical care. It’s considered custodial care. And Medicare does not pay for that, by the way, neither does your Blue Cross or your Humana or your Aetna or your AARP that only pays for healthcare. It doesn’t pay for custodial care. Medicaid does pay for custodial care, but only for those people who have no money. In other words, you’ve got to be broke to get Medicaid. And how that is measured is really complex.
Amy Wagner:
So let’s get into that Medicaid because understanding… And Mark, to your point, you could go into a skilled care facility, a nursing care facility, and not need Medicaid, but they are so expensive that you could quickly get to a point where your assets are gone and in Medicaid, you’re knocking on that door. So how do you make sure you don’t make mistakes here?
Mark Reckman:
Well, and in fact, Amy, you’re right, something slightly in excess of 50% of people in nursing homes are on Medicaid. For many of them, they were broke when they went in, for many others, they went in with money, but ran out of money because yeah, nursing homes cost anywhere-
Amy Wagner:
It can happen quickly.
Mark Reckman:
Between nine and $13,000 dollars a month.
Amy Wagner:
Yes.
Mark Reckman:
So you want to be on your game about this. And one of the common mistakes is people think it’s too late to do any planning, and that’s almost never the case. There’s always something you can do to help take advantage of the rules as written. I’m not talking about loopholes, I’m not talking about skirting the law. I’m talking about using the exemptions that the law provides to all of us. So even after a senior has moved into a nursing home, there are steps you can take to protect against expenses. For example, prepaying your funeral is something that the Medicaid rules allow. And if you go into a nursing home and spend your last dime there, then your loved ones are going to be stuck with the funeral bill. Medicaid allows you to prepay that all the way up to the very end.
Amy Wagner:
I know there are people who try to get around this system, if you want to say that Mark, from the standpoint of, they don’t want to spend all of their parents assets, maybe in a nursing home. And so if you just gift it to the children, then Medicaid will take care of you. But all of the money isn’t gone, it’s not quite so easy though.
Mark Reckman:
Well, that’s exactly right. Medicaid is not stupid. You can’t give away your money and claim that you’re broke. And so we have what we call the transfer rules and what the transfer rules say is that if you give away money for the purpose of qualifying for Medicaid, and if that’s done within five years of applying for Medicaid, then you’ll be penalized. And in essence, what that means is that they’ll deem you ineligible for Medicaid, for whatever. If you’ve given away a hundred thousand dollars, they would make you ineligible for Medicaid for the time that a hundred thousand dollars would’ve covered at the nursing home.
Amy Wagner:
Mark, I want to talk about another circumstance because this one happens far too often. You’re married. One of you ends up needing skilled care nursing home facility, the other person that remains in the home. So now you’re going through those assets so incredibly quickly paying for the person in the nursing home. How do you protect the person who isn’t there, who’s still living on their own?
Mark Reckman:
Well, in fact, that’s one of the big mistakes I see over and over again is people don’t take advantage of their protections the law provides for the spouse who’s not in the nursing home. You can purchase an annuity, which is a way to increase the income of the spouse living in the community. You can petition Medicaid for an increased allowance. In other words, when you go on Medicaid, the law provides that a certain portion of the money will be set aside for the spouse living in the community. There’s a formula that will give you that calculation.
But there’s an exception to that formula that will allow you to increase that allowance for the spouse and the community if the circumstances merit. It’s also true that they will increase the monthly income allowance. So the spouse in the community can get a larger chunk of the money in the bank, but they can also get a larger chunk of the monthly checks. There’s also a strategy that I don’t see as quite as often. There’s a strategy where the nursing home spouse living in the community can refuse to cooperate with the application process. That gets complex and it’s for a discussion for another day. But my point is we want to avoid the mistake of not protecting the spouse who’s left in the community.
Amy Wagner:
I also want to talk about timing here. When is the right timing to apply for Medicaid? Not too early, not too late. What’s just right?
Mark Reckman:
Well, that’s exactly right, Amy. And if you apply too early for Medicaid, it’s not generally a problem. Although there are a few circumstances in which it’ll get you in real trouble, but mostly it’s a mistake to apply too soon because it’s a big drawn out bureaucratic process. And if you apply too soon and get denied, you’re going to have to come back later and apply again. And this process is not something that you really want to do twice.
Mark Reckman:
Applying too late means that you’re not going to get the coverage started as early as it should. And this, by the way, is the same concept that applies with so certain social security benefits. If you retire and you don’t apply for social security, you’ll lose your social security until you do apply. And that same thing applies to Medicaid. That if you apply too late, you may lose some of the monthly benefits. Now Medicaid will allow you to go back three months. That’s helpful, but only three months. And so the right time to apply is when you run out of money within the next three months of that month is the window that you want to apply.
Amy Wagner:
And Mark let’s face it for most families, applying for Medicaid is unchartered territory, right? You never thought you were going to get here or maybe you knew you were, but you’ve never done this before. How do you get help? How do you figure out whether you’re doing this the right way and that everyone who needs to be protected is being protected?
Mark Reckman:
Well, there are professionals out in the community who do this, who offer this service. These are elder law lawyers or Medicaid specialists, Medicaid planners. And it is really wise to get expert help. It’s not cheap, but you’re going to spend the money at the nursing home anyway. And so it’s not going to cost you anything more than you would’ve already spent at the nursing home. So you can get professional help by going to a Medicaid lawyer. There’s also a service in town, an organization called ProSeniors, ProSeniors has a website and they have professionals online that will provide Medicaid advice for people who qualify. This is a not-for-profit organization that is funded by the federal government to provide free service for low-income people. They do a great job.
Amy Wagner:
All right. And Mark, I think it’s worth mentioning too. Wood and Lamping, your law firm, has a Medicaid handbook, incredibly easy to use, and super helpful during this time. It is free. You can Google it. You can go to Wood and Lamping’s website. You can call your office. That’s 513-852-6000, and ask for Sharon. She can get you a free copy. If you are kind of in this unchartered territory, I think that’s a great place for so many people to start. You’ve been listening to Simply Money here on 55 KRC, the talk station.
