Division of Assets and Medicaid Planning...
How to Pay for the Nursing Home Without Going Broke
One of the things that concerns people most about nursing home care is how to pay for that care.
There are basically three ways that you can pay the cost of a nursing home:
- Long Term Care Insurance - If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of the nursing home. Unfortunately, long term care insurance has only started to become popular in the last couple of years and most people facing a nursing home stay do not have this coverage.
- Pay with Your Own Funds - This is the method many people choose at first. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging around $4,200 to $5,000 per month in our area, few people can afford a long term stay in a nursing home.
- Medicaid - This is a primarily federally-funded and state-administered program which pays for the cost of the nursing home if certain asset and income tests are met.
Since the first two methods, (long term care insurance and paying with your own funds) are self-explanatory, we'll concentrate on Medicaid and Medicare and on the process known as division of assets.
What About Medicare?
There is a great deal of confusion about Medicare and Medicaid.
Medicare is the federally-funded health insurance program primarily designed for older individuals (i.e., those over age 65). There is a limited long term care component to Medicare. In general, if you've had a hospital stay of at least three days, and then you need to go into a skilled nursing facility (often for rehabilitation), then Medicare may pay for a while.
Typically, in that circumstance, Medicare will pay the full cost of the nursing home stay for the first 20 days and will continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible that's roughly $100 per day. Often times your Medicare supplement will pay the cost of that deductible. So in the best case scenario, Medicare may pay up to 100 days. In order to qualify for this 100 days of coverage, however, the nursing home resident generally must continue to "improve."
While it's never possible to predict at the outset how long Medicare will cover the rehabilitation, from our experience it often falls far short of the 100 day standard. But even if Medicare does cover the 100 day period, what then? What happens after the 100 days of coverage have been used?
At that point, you're back to one of the other alternatives...long term care insurance, or paying the bills with your own assets, or Medicaid.
What is Medicaid?
Medicaid is a benefits program which is primarily funded by the federal government and administered by each state. So the Medicaid rules may vary from state to state.
One of the primary benefits of Medicaid is that, unlike Medicare which only pays for skilled nursing, the Medicaid program will pay for long term custodial care in a nursing home.
Custodial care refers to assistance with the activities of daily living (i.e., activities like dressing, bathing, toileting, preparing meals and so on). The inability of some older persons to manage these activities on their own often results in the need to move to a nursing home.
Why Plan for Medicaid?
As life expectancies and long term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $4,200 per month or more for the cost of a nursing home, and those who can pay for a while may find their life savings wiped out in a matter of months, rather than years.
Fortunately, the Medicaid Program is there to help. In fact, in our lifetime, Medicaid has become the long term care insurance of the middle class. But the eligibility to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have. The reason for Medicaid planning is simple...you plan so that if you need it, you will be eligible to receive Medicaid benefits.
Exempt Assets and Countable Assets:
What Can You Keep and What is at Risk?
To qualify for Medicaid, you must pass some fairly strict tests on the amount of assets you can keep.
To understand how Medicaid works, we first need to review what are known as exempt and non-exempt (or countable) assets.
Exempt assets are those which Medicaid will not take into account (at least for the time being). For North Carolina, the following are the primary exempt assets:
- The Home, no matter its value. The home must be the principal place of residence. The nursing home resident may be required to show some "intent to return home" even if this never actually takes place.
- Household and Personal Belongings such as furniture, appliances, jewelry and clothing.
- One Car, there may be some limitation on value.
- Burial Plot for you and your spouse.
- Cash Value of Life Insurance policies as long as the face value of all of policies added together does not exceed $1,500. If it does exceed $1,500 in total face amount, then the cash value in these policies is countable.
- Cash (e.g., a small checking or savings account) not to exceed $2,000 in North Carolina.
All other assets which are not exempt (i.e., not listed above) are countable. This includes checking accounts, savings accounts, CDs, money markets, stocks, mutual funds, bonds, IRAs, pensions, 401Ks, 403Bs, second cars and so on. Basically all money and property, and any item that can be valued and turned into cash, is a countable asset unless it is one of those assets listed above as exempt.
While the Medicaid rules themselves are complicated and tricky, for a single person it's safe to say that you will qualify for Medicaid so long as you have only exempt assets plus a small amount of cash (i.e., $2,000 in North Carolina).
Does this mean that if you're single and need Medicaid assistance, you'll have to spend nearly all of your assets to qualify?
No. Actually there are a number of strategies which can be used to protect your estate. For instance, consider the following case study:
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The Elderlaw Firm of Dennis J. Toman, CELA, P.C.
Dennis J. Toman, CELA, J.D.
U.S. Trust Center, 301 N. Elm St.
Greensboro NC 27401
Certified Elder Law Attorney
National Elder Law Foundation