An article in today's New York Times tells the story of a woman who was prompted to divorce her ailing husband in order to keep from being bankrupted by his anticipated medical and long term care costs.
Until Medical Bills Do Us Part
By NICHOLAS D. KRISTOF
Published: August 30, 2009
Most people understand that long term care is incredibly expensive, but I don't think they realize just how expensive. Think in terms of a general range of $60,000 - $100,000 per year, depending on location and services. In 2008, the average cost for a private room in a nursing home was $76,285, and I use that number because the semi-private rate is not much less. That's in today's dollars, not adjusted for inflation which will have occurred by the time you need the services.
People also need to understand that Medicare does NOT pay the cost of long term care. Let me repeat that: Medicare does not cover the cost of nursing home care. In 2005, Americans paid $206 Billion for long term care, and amount that does not include any services provided by people who were unpaid such as family members.
At the present time, Medicare (remember Medicare is not the same as Medicaid) will pay for a lifetime maximum of 100 days of rehabilitative stay in a long term care facility, with three key restrictions. First, there's a copay of $133.50 per day. Second, the placement must come after a hospital stay. Not coming out of a hospital? Then forget any reimbursement whatsoever from Medicare for in-patient therapy. Third, the care must be rehabilitative in nature rather than merely care taking. Not really a candidate for rehab? Then too bad, so sad. And after 100 days? That's the end. Medicare ain't gonna help you with any other long term care costs.
Overall, 75% of Americans will need long term care in the future. There are four ways to pay for costs of that care. They are (1) out of pocket, (2) long term care insurance, (3) reverse mortgages, and (4) Medicaid.
Over and over, I hear people using the term "Medicare" when what they really mean is "Medicaid". Medicaid will pay a limited amount for long term care. But indivuals are usually sadly misinformed about Medicaid, as well. They generally have no idea what the real benefits and restrictions are for Medicaid, or what you have to do to qualify for Medicaid.
To qualify for Medicaid, a person must spend down his or her own assets to poverty level. And, fundamentally (this is only a broad brush summary), current Medicaid regulations do not allow the surviving spouse to keep enough assets to take care of themselves in their own old age. This NY Times story tells of a woman who divorced her husband for the purpose of shielding enough assets to care for herself during her own lifetime.
It is good that the story also mentions the (very important) Five-Year Lookback Rule. Knowing that people will go to extreme measures to deliberately impoverish themselves in order to qualify for Medicaid, state Medicaid programs will examine all transactions you have undertaken in the last five years prior to your Medicaid application. If the Medicaid auditors determine that a transaction was done for the purpose of qualifying for Medicaid, they will go after the asset so that it can be sold and proceeds used to reimburse the government for the cost of benefits it paid on your behalf.
There are special trusts and things that can be done by legal specialists, but the bottom line is that if someone is trying to plan ahead to make themselves eligible for Medicaid, then it is extremely important that they not wait until there is a need, and especially not until there is a crisis. Better to do it now, before there is a need even on the horizon.
You heard me right. Exactly! The time to think about this is NOW, when you are healthy and do not have any current need at all. No matter what your age or health status -- even if you are 20 years old and in perfect health -- make an appointment today with your lawyer to discuss what documents you need to have in place so that your family will not be left destitute in case of a "worst case scenario".
MAKE THAT PHONE CALL!
I must add the disclaimer that this blog is for information only, is not intended to give legal advice or create an attorney client relationship, and it should not be relied on for legal or estate planning. Consult the lawyer of your choice to learn current laws and to discuss your individual needs.