When planning for retirement, an often overlooked consideration is the cost of long-term care. The principal sources of payment for long term care are personal savings/income, Medicaid, and long-term care insurance. Texas Health and Human Services Commission records indicate the sources of payment for nursing home care nationwide are:
Medicaid 52%
Private Pay 35%
Medicare 9%
V.A. & other Public 2%
Private Health Insurance 2%
However, these figures do not include long-term care provided in private residences and personal care homes. When all is considered, the bulk of long-term care is provided by families and friends. When planning for retirement, it would be wise to plan for long-term care as well.
Many individuals postpone planning of this nature until it is too late. By the time they try to qualify for Medicaid they realize just what a tremendous task that can be. To be eligible for Medicaid you cannot have a monthly income exceeding an amount tied to the current poverty guidelines. Additionally the total value of savings, cash, investments, and other non-excludable resources are capped. Burial plans, automobiles and life insurance also have similar maximum values. This is complicated by the fact that the person applying must have been at this level for up to 60 months before the need for nursing home or home health care arose.
Gifting your property in order to reach this level is tricky for several reasons. There is a limit of $16,000 per gift annually without tax consequences. Additionally, gifting property now may result in the grantee having to pay substantial capital gains taxes.
Perhaps worse is that since 2005 the government can place a lien against your estate to recover monies you have received while on Medicaid.
Long-term care planning for most individuals should be planning for Medicaid avoidance, not Medicaid eligibility. In order to qualify for Medicaid an applicant must prove a “medical necessity for nursing home care” and establish financial eligibility. Impoverishing a person so as to make them financially eligible for Medicaid may serve only to strip them of their assets when they need them most.
94% of Texas nursing home facilities are Medicaid certified. The 6% that are not certified include some of the very best in the State. If you can afford to live in one of the better facilities you may prefer to do so rather than try to preserve assets for other family members.
“Medicaid beds” pay less than “private pay beds.” Therefore, many facilities have only limited numbers of “Medicaid beds.” You may have to go on a waiting list before a bed is available. One result of this is that to have a good choice of nursing homes, it may be necessary to go in as a “private pay” resident and have enough funds to pay privately until a “Medicaid bed” becomes available. However, recent case law may change this.
Another problem is that Medicaid does not pay for holding a bed if you go to a hospital temporarily. If when you are discharged from a temporary hospital stay, the nursing home does not have available “Medicaid beds,” then you may have to move to another facility.
Many people see Medicaid as a form of “welfare” and are resistant to applying for it, even if they would be eligible. Some nursing homes encourage these sentiments by having separate wings for their “Medicaid beds,” sometimes with lower quality floor coverings and other amenities. If you share these sentiments, then Medicaid may not be right for you.
An alternative to using your personal savings or Medicaid is planning with long-term care insurance. How do you know if long-term care insurance will work for you? A good approach is to plan for a worst case scenario and determine from that if you will be able to afford the cost of your care. However, what your worst case is will vary depending on whether you are married or single and the size of your financial portfolio. For a married couple the worst case scenario usually is for one spouse to need nursing home care, while the other spouse is able to continue living at home. This is financially the worst case, because the expenses of maintaining a residence and the lifestyle of a more or less active person continue, with the long-term care costs stacked on top. The amount of care you or your spouse may require will affect your scenario as well.
Factors to consider include the cost of nursing home care and your life expectancy. The Texas Department of Human Services has determined that the average cost for nursing home care is over $5,000 per month; but as with life expectancy, that is only an average. When planning, it is best to include scenarios that are worse than average.
Why should you consider buying long-term care insurance? The most common reason is to insure against impoverishment. However, you may just want to ensure that you do not have to use any of your life savings or assets to pay for your living expenses. Finally, you may want to leave an inheritance to your children or grandchildren. Another common belief is you can’t take it with you so you might as well spend it all before you go. Your choice to purchase long-term care insurance can only be determined by your personal values and goals.
In parting, I will add that if you are interested in long-term care insurance, then the younger you are when you purchase this type of insurance, the better, because the cost of the policy increases dramatically with age.
I hope the information provided here is helpful. If you have any questions regarding this, please consult with an attorney.
Sam A. Moak is and attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com