Medicare is a government health insurance program that is not based on financial need. The current age of eligibility is 65. If you have paid taxes on earnings over a number of years, you will qualify for Medicare as a senior citizen.
You must accumulate at least 40 retirement credits to qualify for Medicare. The maximum accrual is four credits per year. In 2016 you get one credit for each $1260 in qualified earnings.
The Medicaid program is a jointly administered state/federal government health insurance program. It is intended for people with significant financial need.
Why would Medicaid be relevant to you at some point in time if you are going to qualify for Medicare? Let’s look at the answer to this question.
Nursing Home Expenses
Medicare does not pay for long-term care. If you need help with your activities of daily living, this is considered to be custodial care. It is not defined as medical care or convalescent care under Medicare guidelines. Because of this, it is not covered.
If you are thinking that you will simply write a check if you need long-term care, you should be aware of the costs involved. Genworth Financial puts out an annual report that sheds a great deal of light on the subject. The most recent report looked at long-term care costs as they stood in 2015.
During that year, the average annual cost for a private room in a nursing home in the state of New Jersey was over $127,750. A semi private room averaged just under $117,000 annually. The average length of stay is around two years and three months.
This is a lot of money to come up with late in your life.
Medicaid Planning
If you can qualify, Medicaid will pay for long-term care. This is why many people who were never poor ultimately seek Medicaid eligibility.
You could essentially become poor paying for long-term care out-of-pocket. Once you had next to nothing left, you could qualify for Medicaid to pay for the remainder of your care.
This is one option, but many people take a different route. You can plan ahead with future Medicaid eligibility in mind. This would involve spending down. This term is largely self-explanatory: you spend or give away your assets in advance of applying for Medicaid.
Though spending down sounds like a simple solution, it is a bit more complicated than it may appear to be on the surface. This is because of the five year Medicaid look back period.
The Medicaid program examines your financial transactions going back five years from the date of your application. If you have given away assets within this period of time, a penalty will be imposed, and your eligibility will be delayed. The duration of the penalty will be tied to the cost of long-term care in the state of New Jersey as it compares to the amount of your divestitures.
Advance planning is the key. It is possible to obtain eligibility while keeping a significant store of assets in the family, but you must plan ahead effectively.
Given the state of long-term care costs, Medicaid is a solution for a very significant percentage of people who need living assistance. In fact, the majority of the long-term care that is received by seniors in the United States is being paid for by the Medicaid program.
Will I Ever Need It?
You may not be too concerned about long-term care costs under the assumption that it is unlikely that you will ever need help with your activities of daily living. In fact, according to the United States Department of Health and Human Services, 70 percent of people who are turning 65 today will eventually need help with their day-to-day needs.
This is a very significant percentage. If you go through life without making any preparations for possible future long-term care costs, you are gambling, and the odds are not on your side.
Our Firm Can Help
If you have concerns about nursing home expenses, you are not alone. There are 10,000 people applying for Social Security every day because of the aging of the baby boomer generation, so there are a lot of people out there who are bracing themselves for future long-term care costs.
A Medicaid planning strategy can allow you to get the quality care that you need without losing everything that you intended to leave to your loved ones. If you would like to get started, we would be glad to assist you. To set up a consultation, send us a message through our contact page or give us a call at (908) 222-8803.
Alan Augulis, Estate Planning Attorney
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