Once people reach their 50s and 60s, it’s common for them to start thinking about drafting a will, making gifts to their children and grandchildren from their estates. What is not so common is for older people to factor in their own future health care needs when they plan their estates. Unfortunately, failing to look at this issue in advance can easily result in having to spend the resources that people were hoping to pass on to their heirs. The good news is that careful planning beforehand can usually prevent or at least reduce this loss.
Statistics show why health care financial planning is so important. For example, someone who reaches age 65 is as likely as not to live for another 20 years. In fact, anyone who is 65 or older has a higher than 50 percent chance of spending at least some time in a nursing facility. These facilities can easily cost private-pay residents more than $6,000 per month.
Can’t Medicare and Medicaid cover the expenses incurred for health care, including such things as care and rehabilitation in a facility?
The answer can be complicated, partly because of the very different natures of the two programs. Medicare coverage is based on a person’s age (65 or over) or disability, and on whether a person qualifies for Social Security benefits accruing from a family member’s wages. There are no financial eligibility tests for Medicare. Medicaid, on the other hand, is a “needs-based” program. To qualify for Medicaid, a person must have very few assets and resources. The person’s age and Social Security eligibility don’t matter for this program. A few facilities do not accept Medicare benefits; many more reject Medicaid patients.
For a person who needs nursing home care, Medicare covers about three weeks’ residence under limited circumstances, and a small part of coverage for about three more months. Medicaid, however, covers both short-term and long-term care in a nursing facility.
There are obvious advantages in having Medicaid coverage for nursing facility care, which otherwise can be prohibitively expensive. To become eligible for Medicaid, some seniors are tempted to give away now the things they would pass on to their heirs at death anyway. This plan, which seems logical, is unlawful. Medicaid law is very harsh; it presumes that anyone who gives away assets for less than their full market value is doing so for the purpose of getting Medicaid coverage. The penalty for doing this is severe: the person will be denied Medicaid now AND, depending on the value of what was given away, denied for what may be a long time into the future. In the worst case, a person can then use up all of his or her resources, become unable to pay for needed care, and still not qualify for help from Medicaid.
What can someone do to protect his or her estate and still qualify for necessary financial support for residential health care? Fortunately, there are options. These options include establishing a Medicaid “income cap” trust, which protects some of the family assets. A range of other trust options also is available. These trusts can serve different purposes, depending on the intent of the person who wants to protect the funds.
Medicaid law is complex, and so is the setting up of a trust to protect assets for future heirs. A person who wants to explore the range of options available should speak with an elder law attorney who is familiar with health-care financial planning tools in general and Medicaid in particular.
Another option for some people is the purchase of long-term care insurance. Generally, these policies make sense only for people with substantial assets. Like life insurance, long-term care insurance is more expensive if you first purchase it when you are older or unwell. The Oregon Insurance Division offers information about this kind of insurance in a booklet entitled “Oregon Consumer Guide to Long Term Care Insurance”.
Legal editor: Janay Haas, July 2009