The Medicaid program is very important in an elder law context because the program will pay for nursing homes. Most seniors will require living assistance at some point in time, so the connection is quite relevant.
If you are confused because you will qualify for Medicare coverage at the age of 65, this is understandable, but the truth is that Medicare does not work with nursing homes. If you require help with your activities of daily living, you would be receiving custodial care. Medicare will pay for convalescent care after an injury or illness, but it will not pick up the tab for nursing home.
You may be aware of the fact that Medicaid is a need-based program. Since it is only available to people with significant financial need, there is a $2000 limit on countable assets.
Before we move on, we should point out the fact that some of the things that you own are not considered to be countable. Your home is not considered to be a countable asset, but there is an equity limit of $828,000 in New Jersey in 2016. However, if a healthy spouse is remaining in the home while his or her spouse is entering a nursing home or assisted living community, there is no equity limit at all.
One vehicle that is used as a primary source of transportation is not considered to be a countable asset. Unlimited term life insurance is allowed, and you can maintain possession of your wedding ring, your engagement ring, and any heirloom jewelry that you may have in your possession. Personal effects and household goods are not countable either.
Giving Away Assets
When it comes to the assets that you have that are considered to be countable, a logical course of action would enter your mind. If you ever find out that you need long-term care, you could give assets to your family members. You would essentially be giving them their inheritances in advance.
This makes sense on the surface, but Medicaid does not want you to be able to give away assets after you become aware of the fact that you are going to require custodial care. To prevent this practice, the powers that be have installed a five-year Medicaid look-back.
If you give away assets within five years of submitting your application, it will be denied at first. A penalty will be imposed, and you would have to pay for your long-term care out-of-pocket during this penalty period.
The exact duration of the penalty would depend upon the amount of the divestitures. To explain by way of example, let’s say that the Medicaid program determines that the average annual cost for nursing home care in the state of New Jersey is $100,000.
For the purposes of our example, we will say that you gave away $200,000 within this five-year look-back period. Since $200,000 would pay for two years of long-term care at $100,000 per year, your eligibility for Medicaid coverage would be delayed by two years.
Putting it All Together
Let’s summarize all this information, because it is a lot to digest. Medicare does not pay for long-term care, and most senior citizens will need living assistance eventually. Paying out-of-pocket is not a very appealing prospect, because long-term care is extremely expensive.
The exact cost will depend upon the facility and the geographical area. Nationally, the average annual charge for a private room in a nursing home exceeds $90,000. Since the average length of stay is over two years, we are talking about some big numbers, and long-term care costs have been rising year-by-year.
Though Medicare does not pay for long-term care, Medicaid is a government health insurance program that will pay for custodial care. However, there is a $2000 limit on countable assets, because Medicaid is a need-based program.
You could give assets to family members so that you can qualify for Medicaid, but you have to act in advance if you want to become eligible at the right time, because there is a five-year look-back. Your eligibility would be delayed if you give gifts within five years of the submission of your Medicaid application.
If you would like to learn more about long-term care, Medicaid, and the Medicaid planning strategies that are typically implemented, schedule a consultation with our firm. We will sit down, gain an understanding of your financial situation and your estate planning goals, and will help you devise a custom crafted nursing home asset protection strategy. To get in touch, call us at (908) 222-8803 or send us a message through our contact page.