This blog post lists key issues in bullet format and is not intended as a complete discussion of any issue. A more thorough consideration is helpful for any aspect that may pertain to your family’s situation.
Definition: “Medicaid planning” refers to the specialized field of financial planning that recognizes that it is possible to simultaneously keep financial assets while, at the same time, qualify for health care intended for the indigent. In the past Medicaid planning primarily referred to covering long term care (nursing home) costs. Now, in this post-ACA environment Medicaid planning more often refers to covering chronic ordinary medical costs not covered by other forms of insurance.
Background: The cost of medical care is astronomical for middle class Americans. Medical expenses have long been the #1 cause of personal bankruptcies and the primary drain on inter-generational wealth transfer for most families. Insurance policy deductibles have increased dramatically so that chronic medical expenses can bankrupt a middle class household over time. The cost of one year in a nursing home would wipe out the financial assets of a middle-income family and often eventually triggers a loss of the family home. It is natural for families to make financial plans to deal with these potential catastrophic expenses.
Legality and ethics: Federal law prohibits an adviser from collecting a fee for advising a client to transfer assets in order to qualify for Medicaid. Eldercare experts point out that Medicaid planning for long-term care is a form of elder abuse, especially in a system that has a two-tiered level of care among those who can pay for service and those who rely on Medicaid.
Age and family dynamics: This topic applies to middle class families. For practical purposes, let’s say this topic is important when inter-generational family net worth is between $150,000 and $1,500,000. (These are my numbers for the purpose of this general discussion; other advisers may use different numbers). Medicaid covers the complete range of medical services for low-income people of all ages but the primary discussion of Medicaid planning focuses on long-term care expenses of the elderly. Typically the adult children of aging parents lead the discussion. The interests of the children are distinct from the interests of the parents but the goal is to work together for the best collective and mutually agreed outcome.
Problem: Medicaid planning is controversial. It raises number of ethical and legal questions. Federal law passed in 2007 even restricts what I can say and write about the topic. Some elder care attorneys say that Medicaid planning is a form of elder abuse.
Obsolete advice: Much of the published advice and strategies for Medical planning are now obsolete due to changes in Medicaid law.
Opportunities: Medicaid law continues to allow a number of strategies to keep assets and still qualify for long-term care. The most common successful planning strategies use: 1) arrangements with a scope exceeding five years, 2) asset protection for a spouse, minor children or a disabled dependent, 3) house-sharing arrangements with a family member for providing care to aging relatives, 4) qualified income annuities for married couples, and 5) supplemental health insurance.
- It is possible to legally and safely keep assets while simultaneously receiving payments for medical expenses through Medicaid.
- The impact of Medicaid planning often boils down to the choice between preserving an inheritance for the children or spending all the parent’s accumulated net worth for health care in the final years of life.
- Consider all the issues as far before the need for medical care as possible.
- Planning should consider the ethical issues as well as the financial and legal aspects.
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