Simply Money: Financial Implications for Long Term Medical Care

January 12, 2022

Active care, assisted living, and nursing homes can quickly decimate life savings. 

In this episode of “Simply Money,” Mark Reckman sheds light on the requirements for Medicaid and what they mean for you. Learn how you can financially protect yourself, your spouse, and your loved ones in the face of serious medical needs. 

Episode Transcription

Amy Wagner:

You’re listening to Simply Money Tonight. I’m Amy Wagner, along with Steve Sprovach. You can plan for retirement. You can make the best laid plans, but if something goes wrong, you or your spouse get sick, you need a long-term skilled nursing care, whatever that looks like, what you have saved can quickly be gone. Is there any way that you can maybe protect that?

Joining us tonight with some great insight into that is Mark Reckman. He’s our estate planning expert from the law firm of Wood + Lamping. Mark, I got to tell you, I’ve got very personal experience with this. My grandparents, from right here in Cincinnati, my grandpa worked for years and years and years [sic]. They lived well below their means in order to save. But when my grandpa was 86 years old, he was diagnosed with Parkinson’s. He had to go into skilled care facility. And my grandma decided she wanted to be closer to him, so she went into assisted living down the hall. And it was almost like you could watch money flying out the window, as quickly as that money that they had saved so earnestly for years and years and years went out the window so quickly.

Mark Reckman:

Well, and Amy to put some numbers on that phenomenon, skilled care here in the greater Cincinnati runs generally about $10,000 a month, sometimes 12. So you do the math, that’s over $120,000 a year for the skilled care.

Amy Wagner:

Yeah. Well into six figures a year, yes. It’s really crazy.

Mark Reckman:

And the assisted care costs about half that. So in your family’s case, they were paying five or $6,000 a month for grandma, if she was in an assisted care today, and $10,000 for grandpa. You add that together, you’re talking about $15,000 a month. And now a lifetime’s worth of savings might not even last you two years.

Amy Wagner:

And so I remember, maybe a year into this, sitting down with my father, who’s an only child, and him saying, “My goodness, everything that they have saved for is going to be gone. Is there anything that we could do to protect this money?” And at that time there really wasn’t, it was too late.

Mark Reckman:

Right. And one of the programs that is designed, a federal program, that’s administered by the states that’s designed to try to protect the spouse is the Medicaid program. Now, Amy, these programs are not designed to try to preserve money for inheritance.

Amy Wagner:

Yeah.

Mark Reckman:

But they are designed to try to avoid the impoverishment of the spouse who’s not sick, and perhaps still living in the community. It’s not a perfect program, but it does pay over 50% of the nursing home bills in the State of Ohio.

Amy Wagner:

So let’s talk about what is that program called? How can someone have access to it? Any more details that you have about that?

Mark Reckman:

Well, the program is called Medicaid. And specifically what we’re talking about today is the Medicaid benefit that pays medical bills, prescriptions, and nursing home bills.

Amy Wagner:

Sure.

Mark Reckman:

Now, Medicaid is a complex thing and there are programs that help people who are living in the community, to [sic] help people who were younger and disabled. I’m not talking today about those programs. Today, we’re going to talk about the nursing home benefits.

Amy Wagner:

Yes.

Mark Reckman:

So it’s a welfare program, Amy, and that has a lot of significance. What that means is that it’s a program to help people who are, in fact, broke. To qualify for nursing home benefits, you have to be poor. Now the state measures poor in two ways. They look at your income and they look at your assets, when they’re talking about nursing home benefits. These rules do not necessarily apply for the other programs. But nursing home benefits, you must be below certain levels on both your income and on your assets. And one of the most misunderstood principles in this process is what is called the five-year look-back rule, otherwise known as the transfer rule and people misunderstand this.

Amy Wagner:

Which I think for a lot of people… Well, for a lot of people who are trying to preserve that wealth for their specific of inheritance [sic]. So mom and dad are in a skilled care facility, it’s costing a ton of money. Can’t we go ahead while they’re still alive, gift this money, so that it appears that they have what they would need in order to then be eligible for Medicaid?

Mark Reckman:

Well, that’s exactly right. So the idea is in order to qualify for nursing home benefits, your total available resources, of the person in the nursing home, have to be below $2,000. And so how do you get down to $2,000? Well, the most common way, of course, is you spend your money one month at a time in the nursing home. And what people then ask me is, “Well, can’t I give my money away and therefore, accelerate that process? Give my money to my kids. Now, I’m worth only $2,000, and I’ll qualify for benefits.” Well, that’s not what the government wants. And rightly so, I think, because the idea is that this is a program to support people who are running out of money. And to artificially impoverish yourself clearly violates the basic principle that the program is based on.

Amy Wagner:

Absolutely.

Mark Reckman:

And so, they’ve developed what they call the five-year look-back rule. The five year look-back rule basically says that if you apply for Medicaid, you have a duty to report any gifts that were made within the five-year period prior to the day you apply. And if those gifts were made for the purpose of impoverishing yourself, then they will penalize you by making you ineligible for nursing home benefits. And how long you’re ineligible for nursing home benefits depends on how much money you gave away. And the penalty is designed to undo the purpose of a gift, and it works very well.

Amy Wagner:

Well, are there times, are there circumstances, though that money can be given and it not interfere with this?

Mark Reckman:

That’s right. There are some circumstances in which gifts are what we call proper, proper transfers.

Amy Wagner:

Okay.

Mark Reckman:

So for example, the big exceptions to this rule is that you can gift money, or transfer a house, to an adult child, if that child lived in the home of the parent, and provided care for the parent that kept the parent out of the nursing home for two years or longer. And we call that the two years of care rule. The idea here is that the state is basically saying, if you keep your mom or your dad out of a nursing home for two years, then you can get the house. But you’ve got to live in the house with them, and you have to prove that you provided the care that kept them out of the nursing home. Because ultimately, the idea is you’ve saved the state two years worth of nursing home benefits in exchange for which you would get the house.

Mark Reckman:

The second exception is that you can make transfers to a blind or disabled child.

Amy Wagner:

Okay.

Mark Reckman:

You can make transfers to a sibling who might have an equity interest in the house. This applies to real estate now.

Amy Wagner:

Okay.

Mark Reckman:

So if a brother and sister lived together, if both of their names are on the deed, and one of them goes into a nursing home, the nursing home resident can transfer his or her interest to his sibling without a penalty. There’s also an exception for what we call safe harbor trusts. These are trusts that are designed to support disabled children. We see this frequently with people who have kids who are [sic] down syndrome, or they’re totally disabled and unable to work for themselves for whatever reason.

Amy Wagner:

Okay.

Mark Reckman:

And last but not least, there’s an exception that applies to gifts that are made for non-Medicaid purposes. Now that’s not a very common one, it’s extremely difficult to prove that you made a gift for some reason other than Medicaid.

Amy Wagner:

Okay.

Mark Reckman:

But if you can, then that’s a proper transfer.

Amy Wagner:

All right. So some great insights tonight. If you have a family member who looks like they might be spending their money down, getting close to being eligible for Medicaid, what you need to know, what your family needs to know in order to protect them, to protect you. We’ve been talking to our estate planning expert, Mark Reckman for the law firm of Wood + Lamping. You’ve been listening to Simply Money Tonight here on 55KRC, THE Talk Station.

About the Author

Mark S. Reckman

Mark S. Reckman

Mark Reckman has been with Wood + Lamping since 1979

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