Retirement

Why Medicaid Shouldn’t Be Your Long-Term Care Plan

There’s a small industry of professionals who offer to help people of a certain age restructure their affairs so they’ll qualify for Medicaid. The goal is to have Medicaid pay for any nursing home care they might need.

The strategy isn’t a good one for many people.

First, let’s make a distinction clear. Medicare is the program that pays most of the medical expenses of those ages 65 and older. But it doesn’t pay for long-term care, except for up t0 100 days needed for rehabilitation after a hospital stay of at least three days. In short, Medicare doesn’t pay for custodial long-term care, such as extended stays in a nursing home or assisted living residence or home care.

Medicaid is the program that pays many medical expenses of those with low incomes and net worths. It will pay for nursing home care for beneficiaries who need it and for some limited home care.

It’s not easy to structure your finances to qualify for Medicaid. The rules are complicated, but the basic rule is you generally have to become impoverished on paper by giving away most of your assets. You also have to do this at least five years before you want to qualify for Medicaid.

Before taking this route, keep in mind that Medicaid’s reimbursements to nursing homes are much lower than the amounts nursing homes charge to non-Medicaid residents. Many nursing homes find it unprofitable to have too many Medicaid residents. The results are that it can be difficult for a Medicaid beneficiary to obtain residence in a high quality facility and facilities that accept a lot of Medicaid beneficiaries don’t provide the same level of care as other facilities.

In addition, Medicaid doesn’t reimburse beneficiaries for assisted living expenses. Most people who need long-term care reside in assisted living residences. A minority of those need help with activities of daily living are in nursing homes. So, a long-term care plan that relies on Medicaid is an inadequate plan for most people.

There is an advantage to Medicaid. As a recent article pointed out, federal law protects Medicaid beneficiaries who reside in nursing homes from eviction due to nonpayment of rent and other expenses. But the law doesn’t protect non-Medicaid recipients. It also doesn’t protect Medicaid beneficiaries receiving other types of long-term care, such care provided in assisted living residences.

It’s best not to rely on Medicaid as your long-term care plan. Instead, look at the other options. One option is self-funding through a combination of income (Social Security and pensions), home equity (through a sale or reverse mortgage), and an investment portfolio.

Another option is to take out a long-term care insurance policy to fund all or a portion of expected long-term care expenses. You can take out a traditional long-term care insurance policy that covers any type of long-term care but pays nothing if you never need long-term care.

But more people now choose one of the hybrid or linked policies, which are annuities or permanent life insurance policies that have some type of long-term care benefit added. There are many of these policies available, and their costs and benefits vary considerably. Work with an insurance agent who considers the offerings of multiple insurers, so you’re likely to find the policy that’s the best fit for you. Or consider proposals from several insurance agents.

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