Your Long Term Care Plan with Phyllis Shelton

The Problem with Medicaid Planning

I received a question recently regarding trusts as they relate to the Medicaid lookback. This is such an important question because most people don’t know that there is a lookback period to determine Medicaid eligibility, the type of trust that qualifies, and the inherent challenges with Medicaid planning.

Does a trust have to be irrevocable to protect assets from the Medicaid 5-year lookback?

Yes, a trust must be irrevocable to accomplish the goal of the 5-year lookback period to apply for Medicaid without a penalty period. But beyond that answer, I must also explain that this is a sensitive topic, and maybe after I explain, you will be clear as to why and then I will offer a possible solution.

Setting up an irrevocable trust to protect assets from the Medicaid lookback period is part of what is known as Medicaid planning, which means intentionally planning to get someone on Medicaid to pay their long-term care. Planning to use Medicaid has these results:

1. It can limit care options dramatically vs. being a private pay patient. Some nursing homes only accept private pay patients. This is because the Medicaid reimbursement rate is much lower than what the nursing home needs to operate. 
2. By law, Medicaid cannot pay room and board in assisted living facilities - see the Washington Post April 2023 article "Assisted-Living Homes are Rejecting Medicaid and Evicting Seniors" which talks about assisted living facilities not being able to handle assisted living patients on Medicaid. 
3. Medicaid does cover some home care now, but it varies by state as states have had to get a special waiver from the federal government to cover it. It isn't consistent and can't be counted on like a private-pay patient, with the exception being New York, and even there, the liberal home care benefits are getting tightened up as it is such a financial burden on the state. 
4. The other side of this coin is that Medicaid patients take money out of state dollars and what I predicted many, many years ago is coming true. States are beginning to require people to have long-term care insurance privately or participate in a state-run program that is financed by a payroll tax. Washington did it and several other states like California, Minnesota and New York are considering it.

Bottom line: Under today's law, it is still possible to prevent Medicaid from looking at assets that have been transferred at least five years before applying for Medicaid. After approval, one's income still goes to the cost of care except for a small personal needs allowance.

Married couples are allowed to transfer income from the spouse needing care to the healthy spouse if that spouse has income below what is allowed for that spouse. But again, this is a very sensitive subject. I personally believe people are much better off with long-term care insurance to have maximum choice when care is needed.

See a List of State Medicaid Websites

The Case for LTCi Over Medicaid

Long-term care insurance (LTCi) covers the cost of care for people who need assistance with activities of daily living such as bathing, dressing, eating, or transferring. Medicaid is a government program that provides health coverage for low-income individuals and families, including some people who need long-term care.

Here are just a few of the reasons why you should consider purchasing long-term care insurance rather than relying on Medicaid:

• Long-term care insurance gives you more choices and control over your care. You can choose the type, amount, and location of care that suits your needs and preferences. You can also select the provider or facility that you trust and like – and who wouldn’t want more care choices? With Medicaid, you may have limited options and may have to accept the care that is available in your area.
• LTCi protects your assets and income. If you rely on Medicaid, you may have to spend down most of your savings and income to qualify for the program.  With long-term care insurance, you can preserve your wealth and income for yourself and your family.
• It reduces the burden on your loved ones. If you need long-term care, you may have to rely on your family or friends to provide some or all the care. This can be physically, emotionally, and financially stressful for them. With long-term care insurance, you can pay for professional care and relieve some of the pressure on your caregivers.
• Long-term care insurance gives you peace of mind. You never know when you may need long-term care or how much it will cost.  The monthly cost of eight hours of home care a day or the cost of a nice assisted living facility in 2021 was over $6000, according to Genworth’s Cost of Care Survey and can triple in the next 20 years to over $200,000 annually. With long-term care insurance, you can be prepared for the unexpected and avoid worrying about how to pay for your care.

There are laws and tax implications around long-term care insurance, Medicare, and Medicaid so you want to make sure that you’re consulting with the appropriate professionals to get the best advice. Elder Law Answers is a great resource for state-specific Medicaid information and special needs trusts for special needs children.

Long-term care insurance is not for everyone, but Medicaid has many limitations of its own. When doing your long-term care planning, you should compare different policies and weigh the benefits and costs of long term care insurance versus Medicaid before deciding what is best for you and your family. Long-term care insurance can provide more flexibility, security, and comfort when you need extended health care, so it is absolutely worth considering. To speak with a terrific long-term care insurance specialist on my team, click here.