One of the greatest fears of older Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but also a tremendous financial price. Depending on location and level of care, nursing homes cost between $35,000 and $150,000 a year.

Most people end up paying for nursing home care out of their savings until they run out. Then they can qualify for Medicaid to pick up the cost. The advantages of paying privately are that you are more likely to gain entrance to a better quality facility and it eliminates or postpones dealing with your state’s welfare bureaucracy–an often demeaning and time-consuming process. The disadvantage is that it’s expensive.

Careful planning, whether in advance or in response to an unanticipated need for care, can help protect the estate of individuals who are elderly, whether for a spouse or for children. This can be done by purchasing long-term care insurance or by making sure an individual you receives the benefits to which he or she may entitled to under the Medicare and Medicaid programs. Veterans may also seek benefits from the Veterans Administration.

Medicaid 

For all practical purposes, in the United States the only “insurance” plan for long-term institutional care is Medicaid. Lacking access to alternatives such as paying privately or Medicare, most people pay out of their own pockets for long-term care until they become eligible for Medicaid. Although their names are confusingly alike, Medicaid and Medicare are quite different programs. For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an “entitlement” program. Medicaid, on the other hand, is a form of welfare — or at least that’s how it began. So to be eligible for Medicaid, you must become “impoverished” under the program’s guidelines.

Also, unlike Medicare, which is totally federal, Medicaid is a joint federal-state program. Each state operates its own Medicaid system, but this system must conform to federal guidelines in order for the state to receive federal money, which pays for about half the state’s Medicaid costs. (The state picks up the rest of the tab.)

This complicates matters, since the Medicaid eligibility rules are somewhat different from state to state, and they keep changing. (The states also sometimes have their own names for the program, such as “MediCal” in California and “MassHealth” in Massachusetts.) Both the federal government and most state governments seem to be continually tinkering with the eligibility requirements and restrictions. This has most recently occurred with the passage of the Deficit Reduction Act of 2005 (the DRA) which significantly changed rules governing the treatment of asset transfers and homes of nursing home residents. The implementation of these changes will proceed state-by-state over the next few years. Those who are not in immediate need of long-term care may have the luxury of distributing or protecting their assets in advance. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits. Giving general rules for so-called “Medicaid planning” is difficult because every client’s case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes, some rent. Still, a number of basic strategies and tools are typically used in Medicaid planning.

Transfers

Congress has established a period of ineligibility for Medicaid for those who transfer assets. This period of ineligibility is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in the state where the person is applying for Medicaid. The DRA significantly changed rules governing the treatment of asset transfers. For transfers made prior to enactment of the DRA on February 8, 2006, state Medicaid officials will look only at transfers made within the 36 months prior to the Medicaid application (or 60 months if the transfer was made to or from certain kinds of trusts). But for transfers made after passage of the DRA the so-called “lookback” period for all transfers is 60 months.

Another significant change in the treatment of transfers made by the DRA has to do with when the penalty period created by the transfer begins. Under the prior law, the 20-month penalty period created by a transfer of $100,000 in the example described above would begin either on the first day of the month during which the transfer occurred, or on the first day of the following month, depending on the state. Under the DRA, the 20-month period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage but for the transfer.

For instance, if an individual transfers $100,000 on April 1, 2006, moves to a nursing home on April 1, 2007, and spends down to Medicaid eligibility on April 1, 2008, that is when the 20-month penalty period will begin, and it will not end until December 1, 2009. How this change will be implemented from state-to-state will be worked out over the next few years.

Transfers should be made carefully, with an understanding of all the consequences. People who make transfers must be careful not to apply for Medicaid before the five-year lookback period elapses without first consulting with an elder law attorney. This is because the penalty could ultimately extend even longer than five years, depending on the size of the transfer.

One of the prime planning techniques used prior to the enactment of the DRA, often referred to as “half a loaf,” was for the Medicaid applicant to give away approximately half of his or her assets. It worked this way: before applying for Medicaid, the prospective applicant would transfer half of his or her resources, thus creating a Medicaid penalty period. The applicant, who was often already in a nursing home, then used the other half of his or her resources to pay for care while waiting out the ensuing penalty period. After the penalty period had expired, the individual could apply for Medicaid coverage.

Example: Mrs. Jones had savings of $72,000. The average private-pay nursing home rate in her state is $6,000 a month. When she entered a nursing home, she transferred $36,000 of her savings to her son. This created a six-month period of Medicaid ineligibility ($36,000 ÷ $6,000 = 6). During these six months, she used the remaining $36,000 plus her income to pay privately for her nursing home care. After the six-month Medicaid penalty period had elapsed, Mrs. Jones would have spent down her remaining assets and be able to qualify for Medicaid coverage.

While a person can generally give away approximately half of their assets, the exact amount depended on a variety of factors, including the cost of care, the transfer penalty in the state, income, and possible other expenses. One of the main goals of the DRA was to eliminate this kind of planning.

Transfers should be made carefully, with an understanding of all the consequences. In any case, as a rule, one should never transfer assets for Medicaid planning unless he or she keeps enough funds to (1) pay for any care needs he/she may have during the resulting period of ineligibility for Medicaid; and (2) feel comfortable and have sufficient resources to maintain his or her present lifestyle. MINIMUM 500 word Essay)
Is Medicaid planning ethical? In other words, if I have a lot of assets, should society condone the practice of allowing a person to employ strategies to deliberately impoverish himself/herself by giving away assets, etc. so that the government will then pay for nursing home care?AS PER THE SYLLABUS, ASSIGNMENT IS DUE BY 6pm SUNDAY 3/5/17. YOU CAN SUBMIT EARLY, , SO I EXPECT A WELL WRITTEN, POLISHED WRITING, FREE OF SPELLING AND GRAMMATICAL ERRORS. This is NOT intended to be strictly opinion. The issue of medicaid spending down is an issue that is highly disputed so I expect you to do the following: You are going to read your text and do research and first define medicaid (as opposed to medicare (hint-define that too!), support the definitions of course, tell me why people are on it (i.e., what age group and why do they need it, etc.) and then explain spending down and why people do it and which groups typcially do it (or does everyone do it?). Then I would expect you to tell me if there are any ethical rules/laws/regulations regarding this process (cite them of course) and then feel free to tell me if you agree with them. As with your other assignments, I expect you to provide a well thought out piece of work complete with citations, proof-read and at least 500 words. Good luck!