Medicaid Rules Change to Close Loopholes for Seniors

By the time you read this, the President will have signed into law significant restrictions to the Medicaid law. This article describes the opportunity for seniors to take action and protect themselves. These restrictions are intended to stop abuse of the Medicaid system by middle income and even wealthy seniors who think of Medicaid as the last resort for senior insurance. Until now, the Medicaid law has been so liberal, anyone could qualify for Medicaid supported long-term care. For example, a home has been a non-countable asset, so one could own a $10 million home (or an apartment building in which they reside) and still qualify for Medicaid. No more such loopholes in this senior insurance program.

Anyone with more than $500,000 in home equity cannot receive long term care benefits from Medicaid. Additionally, one will be penalized if they have given any type of gift within the last five years (the look-back period was previously three years). The gifts taken into account include college tuition for grandchildren, emergency help for family, Christmas, birthday, wedding and graduation presents, charitable and church donations. In other words, Congress is attempting to insure that the only people who use Medicaid for long term care will be those that normally don't have enough money to give gifts anyway. Use caution making gifts or donations as they will penalize your ability to obtain Medicaid benefits for long term care for the next 5 years. This senior insurance program will no longer be available to many.

The new law starts the penalty period when the senior applies for Medicaid, not when the gift is given. For example, if Mrs. Jones gave a $40,000 donation four years ago (within the five year look-back period) and if Medicaid needs to pay a local long term care facility $4,000 a month, then Medicaid will not make any payments for 10 months. In other words, Medicaid penalizes assistance for the value of the gift. Even if Mrs. Jones is now broke, Medicaid will not provide support until she has been in a long term care facility for 10 months.

Also be aware that nearly every state is tightening their implementation of the general Medicaid rules. Do not automatically assume that an annuity is an exempt asset or that the residence cannot be attached for recovery. These rules are in flux and favor the state, so you must maintain contact with your state agency that administers Medicaid or an Elder Law attorney.
So what should the average senior do? Middle income and wealthy seniors no longer have a substitute for long term care insurance. They cannot rely on the government as their supplier of senior insurance. Of the three choices that have been available for dealing with long term care: a) self-insurance, b) private long term care insurance, c) position assets to collect Medicaid, the list is now down to two options: a) self-insure or b) private long term care insurance. In other words, if you've delayed buying long term care insurance thinking that you had the government as a safety net, that safety net is now gone.

Note that Medicaid was never a good option anyway. Someone with private long term care insurance that can pay ?full fare? for long term care gets a nice sunny private room with big windows. The senior on Medicaid gets shoved in an interior room with two other people, no windows. As much as this is illegal or people want to deny it happens, as stated by the National Senior Citizens Law Center: ?Many common nursing home practices are illegal. For example, although the Federal Nursing Home Reform Law requires that all residents receive high-quality care, many nursing homes provide lesser care to residents whose care is paid through Medicaid.?

Why don't seniors just get private long term care insurance? The most common reason is the expense. But it's a bad excuse because an experienced financial advisor can show you how to keep the cost down or make a one time payment rather than annual payments (using an immediate annuity or a ?combo policy,? its possible to make one single deposit and avoid annual payments). In some states, insurance companies can provide a return-of-premium option. With that option, if you never use the policy, your heirs get all of your premiums returned. But don't delay. One negative comment in your medical records can preclude you from ever getting insured so get the coverage now.

Larry Klein CPA/PFS, CFP(r), CRFA is founder of the Society of Certified Retirement Financial Advisors. To find a trained certified advisor in your area visit Retirement Planner website.