Merritt Personal Lines Manual: The Financial Impact
How will your client pay for a long-term stay in a nursing home -- or for someone to come to your client's home and help with the activities of daily living? There aren't a whole lot of choices. Your client can:
- use personal assets to pay for assistance;
- depend on relatives and friends for help and support;
- depend on government programs; or
- purchase LTC insurance.
Most people who have been independent all their lives would prefer to remain independent later in life, too. They'd rather pay their own way when the time comes to get custodial care.
Unfortunately, most retirees do not have large amounts of savings, cash or other assets. Approximately one in six retired people lives at or below the poverty level in the United States.
Unless you are quite wealthy, it won't take long to run through a lifetime of assets if you must move into a nursing home. You'll soon spend your nest egg and your children's inheritance. You may have to sell your home, your car and any investments you had hoped to pass along to your heirs.
After you've run through most of your assets, you will qualify for assistance through Medicaid, a state-funded and -operated program that receives some federal subsidies and provides health insurance for the financially needy. The Health Care Finance Administration reports that about half of all Medicaid spending goes to people who had financial resources when they entered a nursing home, but reached the poverty level while they were there.
Using up a lifetime of accumulated assets is a frightening scenario for a single senior citizen. But what if your spouse is still living at home and you must move into a nursing home? Will you have to sell the house to cover your nursing home costs? Where will your spouse live?
At one time, Medicaid rules did require you to liquidate virtually all of your assets -- including cash, investments (such as stocks and bonds), bank accounts, real estate and even some forms of cash-value life insurance -- to qualify for coverage. Fortunately, the federal government modified the requirements in 1993 to allow surviving spouses and disabled children to retain more of the family's assets.
Now, if you are married and you enter a nursing home while your spouse remains in your house, the at-home spouse is permitted to keep:
- one home;
- one car;
- the greater of one-half of the couple's assets or $75,740; and
- up to $1,919 in monthly income.
These amounts are indexed annually for inflation and are significantly lower for unmarried seniors. However, once neither spouse is living in or likely to return to the home and the house is sold, Medicaid may demand reimbursement for expenses associated with prior nursing home services.
An entire "Medicaid planning" industry has emerged in the estate planning field to help people avoid running through their life savings before qualifying for Medicaid. Some people are even tempted to give away assets so that they can qualify for Medicaid and still pass something along to their heirs. However, the government frowns on this: Federal provisions enacted in 1996 set criminal penalties for transferring assets for the sole purpose of qualifying for Medicaid -- penalties that include fines of up to $25,000 and imprisonment for up to five years.
