Taking Care of Mom and Dad: Medicaid

The other main federal health care program is Medicaid. This coverage has many limitations -- it doesn't pay for many diagnostic tests and treatments that most doctors and hospitals consider ordinary. For this reason, many doctors and some hospitals will not treat patients whose only insurance is Medicaid.

Qualification for benefits under Medicaid is based on financial need. You have to be extremely poor to qualify; if your parents are under 65 and own their home or have any private-sector retirement benefits, they probably won't qualify.

In some states, local programs administered at the state level take the place of Medicaid. The terms and conditions of these state programs may differ slightly from the federal program but, speaking broadly, the coverage is pretty much the same.

It's not great coverage.

These programs should be used as a last resort, because they typically offer only limited benefits, are expensive and usually include a waiting period before coverage kicks in. But at least they're there, if your parents need them. They can find out about these plans by calling their state insurance department.

Medicaid provides medical assistance to low-income families and individuals of all ages. The program works well for seniors who have run through most of their assets. In fact, the Health Care Financing 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.

A third of the $55-billion-a-year budget for Medicaid goes to those over age 65, primarily to support them in nursing homes.

Medicaid offers a minimum set of services including hospital, physician and nursing home services. State agencies have the option of covering an additional 31 services including prescription drugs, hospice care and personal care services. A result, Medicaid is the largest insurer of long-term care (LTC) in the U.S. -- covering the bulk of retirees in nursing homes. It covers 68 percent of nursing home residents and over 50 percent of nursing home costs.

Using up a lifetime of assets is a frightening scenario for an older person on his or her own. But what if one of your parents must move into a nursing home? Will your parents have to sell the house to cover the nursing home costs? Where will your other parent live?

At one time, Medicaid rules required people to liquidate virtually all 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 a person is married and enters a nursing home while the other spouse remains at home, the at-home spouse is permitted to keep the following:

• one home;
• one car;
• 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" specialty 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. The penalties include fines of up to $25,000.