Spending Down Assets

How would you pay for nursing home care or other types of long-term medical care? Many people believe that Medicare will cover the bills. But the fact is Medicare only pays a portion of your long-term care expenses – and that’s only for short-term skilled care and for the first 100 days.[1] With the average nursing home stay lasting 2½[2] years, it is no wonder that many people start out paying for much of their long-term care expenses out of their own pocket.

How will decisions about planning and paying for long-term medical care impact you? Let’s consider some of the issues you could potentially face by looking at a hypothetical couple:
John and Mary are both in their 60’s, happy and healthy, with two grown children. They have sufficient funds to maintain their current standard of living throughout retirement, and intend to leave some of this wealth to their children after John and Mary pass away.

Mary’s parents are still alive, are in their 80’s, and have lived in a nursing home for the past year. All of the money that they had put away is going toward their nursing home expenses. Eventually, they will have spent their entire life savings on long-term health care, and will have to fall back on Medicaid or their own children to pay these bills.
Mary sees what has happened to her parents and doesn’t want the same circumstances to affect her and John’s independence. She realizes that long-term costs for two individuals would possibly jeopardize the wealth they have accumulated, as well as their retirement goals. What options do John and Mary have?
Medicare might cover a small part of their expenses, but John and Mary would bear the responsibility for the remainder. And they might not qualify for Medicaid until they have spent down their assets to the level required by law.[3] This could leave them with little to live on if they no longer needed the special care. Plus it could reduce or eliminate any hope of helping their children.

For John and Mary, long-term care insurance could provide a suitable solution. A long-term care policy can possibly be written to address many specific medical concerns they may have, such as a family history of Alzheimer’s or other congenital diseases. Plus, they can review different plans to find a premium that would fit into their retirement budget. Long-term care insurance can be an effective means of remaining independent, preserving your wealth, and avoiding the potential need to spend down your assets under the Medicaid rules.
[1] MyMedicare.gov (2005)
[2] Long Term Care Study, Michigan State (2004)
[3] Centers for Medicare & Medicaid Services (2005)