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Myths and Misconceptions of Medicaid and Long Term Care

David Cutner - November 03, 2014 10:26 AM

Medicaid is one of our country’s most important -- but most misunderstood -- health care programs.  This article will discuss several of the common misconceptions.

“Why bother?  Who knows if I’ll need care, and I’m certainly not planning on going into a nursing home.”   According to the U.S. Department of Health and Human Services, about 70% of our population over the age of 65 years will need long-term care at some point in their lifetime, and about 35% will need nursing home care.  The cost of care varies by geographic area, but it is very expensive everywhere (in part because it is ongoing, and likely to increase).  For example, in the New York City metropolitan area, home care is about $20 per hour, and nursing home care is $15,000 per month and up.

“Medicaid is only for poor people.”  Medicaid was enacted in 1965, and has evolved over the decades since then.  It is a joint program between the federal government and the states, and is designed to provide “medical assistance” – including long-term care – to those who meet its eligibility standards.  Those who are poor, or who earn a low income, are likely eligible for the program.  Those who are not poor, and who have higher incomes, may also become eligible if they inform themselves about how the Medicaid laws actually work, and if they take proper steps to comply with these laws.  As an analogy, tax deductions and tax credits are not automatic, but, if you take the trouble to organize your affairs so you can claim them, you can save a lot of money on your income taxes.

“I won’t be eligible because I have too much money and property.”  Maybe you do, right now.  But have you thought about organizing your affairs and your estate planning?   Assets held in your name can be transferred to family members or to a trust.  Depending on where you live, asset transfers may make you ineligible for Medicaid for a period of time, but sometimes eligibility can be achieved much sooner than you might believe.  In New York, for example, the infamous five year “look back” applies only to applications for Medicaid nursing home benefits, and not at all to applications for Medicaid home care or assisted living. 

“I won’t be eligible because I have too much income.”  Many people are confused about the role of income in the Medicaid process.  If you are under 65 years of age and have a low income, you may be able to qualify for Medicaid based on your Modified Adjusted Gross Income as stated on your income tax return (the “MAGI test”).  For those 65 years or older, however, eligibility is based solely on resources (assets), not income.

“I can’t afford to have Medicaid take my income, so I better not apply.”  Medicaid does have income limits, but typically it is not necessary to forfeit the amount that is over the limit.  Some states, such as New York, allow Medicaid recipients to have a Pooled Income Trust where “excess income” can be deposited and used for living expenses.  The Medicaid laws also have provisions to prevent “spousal impoverishment.”  For example, in New York, the spouse of a Medicaid recipient is currently allowed up to $2,931 per month, and is entitled to share in the Medicaid recipient’s income in order to reach this allowance.  If the spouse’s own income exceeds $2,931, then she will be required to contribute only 25% of her “excess income.”

“If I do apply, at least my home is exempt.”  Many people have heard that, when applying for Medicaid, their homes are exempt.  This statement is only partially true.  When someone is applying for home care benefits, Medicaid will not count the home equity as a resource, except to the extent that it exceeds Medicaid’s limit (in New York, it’s currently $814,000).  However, what is not commonly explained is that the home equity will be subject to a lien or recovery by Medicaid, once the home is no longer the principal residence of the Medicaid recipient, or if the home is in the Medicaid recipient’s estate. Good Medicaid planning will usually involve transferring ownership of the home to a trust, where it will protected from Medicaid and other future creditors.

David Cutner is one of the founders of Lamson & Cutner, P.C., a preeminent Elder Law firm with offices in New York City and Westchester County.  He is the author of numerous articles and special reports for seniors and their families; and is the author of the first chapter in "Elder Law Client Strategies" in New York  published by Thomson Reuters, and of a soon-to-be-published book entitled "What To Do When You’re Old and Sick and They Want to Take All Your Money:  An Elder-Law Attorney’s Practical Guide for Seniors and the Disabled". 

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Your Answers and Comments

Tomas Roberto on Nov 05, 2014 02:28 AM
There are too many misconception about medicaid and long-term care, one example is that Americans gift their assets to their children so they can qualify for medicaid, however, the program has a 5-year look back period which would subject you to a penalty disqualification if you have gifted your assets within the look back period. There are ways to protect your assets to be eligible for medicaid, but you have to seek the assistance of a lawyer so you won't be confused about revocable and irrevocable trust.  Another common misconception, people do not plan for long-term care or do not acquire long-term care insurance because they think medicaid will cover their long-term care expenses, yet they do not want to stay in a nursing home. While this is necessarily true, wikipedia stated that those who are eligible for medicare is not capable of aging in place because majority of medicaid's expenses are focused on nursing homes, in addition, completelongtermcare advised that relying on medicaid may limit which facilities you can go to

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