More and more of the people who come to us for financial advice are in the “sandwich generation” — those who are still serving as caregivers for kids at home but also providing care for elderly parents. For people in this expanding group — and actually, for anyone who is facing the likelihood of providing for the long-term, skilled care of a parent or other older relative — it’s really important to know some basics of what is and isn’t covered by Medicare; the financial requirements for obtaining Medicaid; and available methods for protecting your assets from being eaten up by the high costs of long-term care, particularly nursing home costs.
What Does Medicare Cover?
First, it’s important to understand that Medicare does not cover nursing home costs. That surprises many folks, but it’s absolutely true. Medicare will pay for a certain number of rehabilitative costs, but once people have exhausted those benefits, they must find another funding source.
At this point, most people turn to Medicaid, which is the government-funded program intended to provide for long-term, skilled care such as that provided by nursing homes. However, there are strict eligibility requirements for getting on Medicaid: For one, Medicaid recipients are allowed very few assets. In times past, families had a larger window to move assets out of the elderly person’s name and still qualify. But changes enacted in 2009 make advance planning almost essential for those who hope to avoid depleting an older person’s assets in order to qualify for Medicaid.
Understanding Medicaid Provisions, Plus Other Funding Options
Basically, Medicaid has a five-year “lookback” provision. If, for example, an elderly parent gifted away assets to children four years and eleven months before applying for Medicaid, those gifts would incur a penalty period during which no Medicaid payments would be made on the parent’s behalf. This means that if you intend to use gifting as a means to retain family control of the assets, you would need to complete the process at least five years and one day prior to applying for Medicaid.
Another option is to convert the elderly person’s assets to a type exempted from the Medicaid limits. These could include a vehicle, a home, a prepaid funeral plan, or a burial account of no more than $1,500. If the elderly person has outstanding debts like a mortgage or credit card balances, it also may be advantageous to use assets to pay these off.
Another way some families resolve the asset matter is by having the elderly person pay a child or other trusted person to provide extended care services. As long as the person is paying for legitimate services that are priced fairly for both the payor and payee, such payments would not be considered gifts and thus would not be subject to the five-year lookback provision. Care is required in establishing such arrangements, of course, so that the terms do not make it appear that money is being paid for nothing.
The other alternative is long-term care (LTC) insurance. These policies will cover nursing home and other long-term care costs, subject to the terms of the individual contract. Obviously, the younger the purchaser, the less expensive the premiums. Nevertheless, in certain situations, LTC insurance can be a good alternative to redistributing or even depleting assets.
If you or someone you love is facing the possibility of nursing home care, your best tool is advance planning. We can help you find the answers you need and develop a strategy that can help you preserve as much as possible of the assets your elderly loved one spent a lifetime accumulating.
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