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The Long-Term-Care Puzzle Gets Tougher
New Medicaid law takes aim at those who try to protect their assets by giving money away.
May 2006
DO YOU THINK you should be able to
preserve your assets for an inheritance
while Uncle Sam picks up the tab for
your nursing-home stay? Or is it your
responsibility to spend your own money on longterm
care, even if it means your heirs get less or nothing
when you die?
No matter how you come down on these questions,
one thing’s now clear: It’s become much harder
to get the government to pay for a long stint in a
nursing home. In February, President Bush signed a
new law that imposes sharp limits on the ability of
people with homes and other assets to tap Medicaid
for help.
Before the law passed, many families could wait
until a relative was about to enter a nursing home
before taking action to safeguard assets with gifts to children, special trusts and other transfers. But the
wait-and-see option is no longer available. “It’s more
necessary to plan ahead,” says Harry Margolis, an
eldercare lawyer in Boston. “There is less we can do
in a crisis situation.”
With the government less likely to pay, it may be
time to consider a long-term-care insurance policy.
Another way to finance your own care is to draw on
the equity in your home. And if you consult with
an eldercare lawyer early enough, you could still
preserve some assets and qualify for Medicaid later.
To be sure, most retirees will not sustain huge
nursing-home expenses, which averaged $74,000 in
2005. But a protracted stay for the unlucky minority
could easily deplete a comfortable nest egg. Medicaid,
the federal and state health-care program for the
poor, has become the major source of financing for
long-term care. To qualify for Medicaid, most states
require nursing-home residents to spend virtually all
of their assets, down to $2,000, and to turn over all
of their income to the nursing home. A spouse who
lives at home can keep some joint income as well as
his or her own income, the house and half of the couple’s
assets up to about $100,000.
Those rules remain the same. The most important
changes are aimed at people who give away assets in
order to qualify for Medicaid. The new law extends
the “lookback” period from three years to five years.
If you give away assets during the five years before
you apply for Medicaid, it triggers a penalty period
during which you’re not eligible for assistance.
In the past, the penalty period began the day after
you transferred the assets and often expired before
you entered the nursing home. Now, the penalty
period begins the day you apply for Medicaid—when
you already need government aid.
To determine how long you would be ineligible,
divide the amount of money you gave away by the
average cost of a one-month stay in a nursing home
in your community. If you live in Boston, where the
average monthly cost of nursing-home care is about $7,480, and you gave away $112,200 to various family
members, you would be ineligible for Medicaid
for 15 months. That’s the number of months of nursing-
home care the gift money would have covered.
No one can predict for sure what will happen to
nursing-home residents who transfer assets within
the lookback period, spend any remaining money on
care and have no money left to pay bills during the
penalty period. The legislation calls for hardship
waivers if you’re truly destitute, although each state
could set its own criteria.
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