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RETIRING TO MEDICAID There are really only two rules that you need to understand very well to best understand the rules about Medicaid: 1. Nursing homes are hotels. 2. Everything that you do is voluntary. Let's go over the first rule. Imagine that you are registering to stay at a hotel. The manager of the hotel asks you how many days you are staying at the hotel. You respond 3 days. "Very well" says the manager, "how do you wish to pay for your stay?" "Pay!" you exclaim, "I am not paying for this!" What will the hotel manager do now? Will he call up the "hotel police" and send them to your home to break down your door to your house and seize your home, freeze and seize all of your bank accounts and hold everything that you own in order to pay for your 3 day stay at the hotel? NO, OF COURSE NOT. If you refuse to pay he will politely (but very firmly) ask you to leave. He will kick you out! Okay, let's try this again. You register to stay at a hotel. The manager of the hotel asks you how many days you are staying at the hotel. You respond 3 days. "Very well" says the manager, "how do you wish to pay for your stay?" You point out the window at the parking lot and say "I have a truckload of chickens out there, that is how I am paying for this stay." What will the manager say? Will he accept the truckload of chickens as payment? No, of course not. What does the hotel accept as payment? The hotel will accept cash or cash equivalents (credit cards, travelers checks, or sometimes checks), but they will not take a truckload of chickens. Okay, let's try this again. You register to stay at a hotel. The manager of the hotel asks you how many days you are staying at the hotel. You respond 3 days. "Very well" says the manager, "how do you wish to pay for your stay?" You pull out the deed to your home, slap it on the counter and say "here, this is how I am paying." What will the manager say? Will he accept the deed to your home as payment? No, of course not. The deed to your home may have greater value than the cost of the stay but what is wrong with it? That's right, it is not cash or a cash equivalent. Okay, let's try this again. You register to stay at a hotel. The manager of the hotel asks you how many days you are staying at the hotel. You respond 3 days. "Very well" says the manager, "how do you wish to pay for your stay?" You pull out your bankbooks and slap them on the counter and say "here, this is how I am paying." What will the manager say? Will he accept your bankbooks as payment? No! No! No again, of course not. The your bankbooks may have greater value than the cost of the stay but what is wrong with them? That's right, they are not cash or a cash equivalents. The manager of the hotel does not have access to the money in these accounts. They are totally worthless to the hotel. Okay, let's try this one more time. You are registering to stay at a hotel. The manager of the hotel asks you how many days you are staying at the hotel. You respond 3 days. "Very well" says the manager, "how do you wish to pay for your stay?" "Pay!" you exclaim, "I am not paying for this!" Before anyone can say another word a total stranger says "that's okay, I will pay." Now what will the hotel manager do? Will he call the police and have the stranger arrested? Will he refuse payment from the stranger? No, of course not! He could care less about the stranger or anyone else paying. What does the hotel manager care about? That's right, cash or cash equivalents. That's it, nothing else. Now remember rule number 1, nursing homes are hotels; they get paid like hotels and they kick you out like hotels if you don't pay to stay (however, to kick you out a nursing home will put you in an ambulance and deliver you to a responsible next of kin). Nursing homes don't want your house, your bankbooks, or a truckload of chickens. They want cash or cash equivalents and they don't care at all who pays as long as they get paid. Rule number 2: Everything that you do is voluntary. If you need to stay in a nursing home the administrator of the nursing home does not send out the "nursing home police" to your home to break down your door to your house and seize your home, freeze and seize all of your bank accounts and hold everything that you own, put you in handcuffs, strap you to a stretcher, and haul you off in an ambulance to the nursing home so that you pay for your nursing home stay. You, or someone else, pays the nursing home voluntarily or you do not stay there. Paying a hotel is voluntary and paying a nursing home is voluntary. But if the hotel or nursing home does not get paid, you do not stay. Now to better understand the qualifications for government assistance let's clear up some confusion about Medicaid. Medicaid is NOT Medicare. Medicare is a Federal program that is administered under the Social Security Administration. Medicare is used to pay for the health care costs of senior citizens regardless of their wealth, therefore Medicare will most likely be an important part of your retirement planning. Medicare, under limited circumstances will pay for only part of the first 100 days of long term care (skilled nursing home care). Medicaid is a Federal program administered in Ohio by the Ohio (and county) Department of Human Services. Medicaid, however, is welfare, just like the welfare for people on Food Stamps. To qualify for Food Stamps you cannot have resources (assets) or income over certain very low levels. Likewise for Medicaid you can't have total assets or income over certain levels. For senior citizens the main purpose of Medicaid is to pay for nursing homes for persons who cannot afford to pay out of their own assets or income for these very high costs. To qualify for Medicaid, a married couple may have: Exempt Resources: 1. The house (residence only) 2. One vehicle 3. Household and personal belongings 4. A pre-need irrevocable burial contract 5. Burial plots 6. Life insurance with a cash surrender value of less than $1,500 7. Up to approximately $90,000 in financial assets (assets in excess of $90,000 must be spent down to become eligible for Medicaid). Spending down is where money is spent solely for the benefit of the institutionalized spouse (in the nursing home) or community spouse (outside the nursing home). Any other purpose could be deemed an improper transfer resulting in ineligibility for Medicaid. Transfers to another, such as to a child or grandchild, must take place at least 3 years prior to application for Medicaid. The Department of Human Services considers the reason (graduation, birthday, wedding gift, etc.) completely irrelevant when considering transfers as improper. That means that if you make this transfer now and then have to go into a nursing home a year from now, the Department of Human Services will disqualify you from Medicaid for the value of the transfer divided by approximately $4,000.00 (Medicaid's cost for paying for your nursing home stay each month). For example: Your house is worth $120,000.00 at the time of the transfer to your son. $120,000.00 ÷ $4,000.00 = approximately 30 months of ineligibility. Considering that the average stay in a nursing home is 2.5 years you may never be eligible for Medicaid. "Selling" an asset (exempt or otherwise) to another, such as "selling" your house to your son for $1.00 is also an improper transfer. The Department of Human Services calculates the amount that is less than fair market value as the amount of the improper transfer. In the above example that would be $119,999.00 of improper transfer resulting in the same 30 months of ineligibility. Transfers to an irrevocable trust (revocable trusts, that is a trust where you have control over your assets in the trust, provide absolutely NO protection or advantage whatsoever when planning for Medicaid eligibility) must be at least 5 years prior to application for Medicaid. With an irrevocable trust you forever surrender control over all of the assets that you place in the irrevocable trust because you cannot be the trustee. This could create an incredible hardship to you if you desire to maintain your personal independence. Exempt Income: Approximately $1,700.00 in monthly income (generally regardless of sources) is exempt. The rest must be spent on the cost of the nursing home for the institutionalized spouse. For a single person the planning is much more simple: Exempt Resources: 1. A pre-need irrevocable burial contract 2. Burial plots 3. $1,500 in financial assets Exempt Income: $40.00 in monthly income The most important part of understanding how Medicaid works is to know that it is a completely VOLUNTARY system. No one forces someone to go on Food Stamps and no one forces you to go on Medicaid. Nursing homes can be paid in any one or a combination of three ways: 1. Private pay-you use your income and assets to pay 2. Payment from long term care insurance 3. Medicaid pays for qualifying applicants If you don't want to "retire to Medicaid" you probably should consider purchasing long term care insurance. I am an attorney not an insurance salesman (however, unfortunately, there are many estate planning attorneys with insurance agents in their firms - a terrible conflict of interest) so I can tell you without qualification that this type of insurance is the best possible method for the vast majority of people.
For a FREE copy of his one hour video taped seminar on Living Trust Arrangements, call David J. Bernstein at: 440-349-4889 Or to receive the FREE One
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