Many people believe that Medicare pays for the cost of long-term care. In fact, Medicare only pays for up to 20 days of nursing home care, and only then for rehabilitative purposes. After that, Medicare may cover part of the cost of up to an additional 100 days, during which the patient has to pay a $152 per day copay—hardly a bargain. A Medicare supplement policy may cover the copay, depending on the plan.
After that, there are generally two sources of payment: a long-term care (LTC) insurance policy, or your own pocket. LTC insurance is great if you actually have it, but the fact is that most don’t. According to the AARP, only about 12% of all of the LTC provided in the U.S is paid for by LTC insurance.
What happens when you run out money? You must look to Medicaid for assistance. Medicaid is designed to provide medical coverage for the very poor, that is, people who have less than $2,000 in assets, and limited monthly income. Importantly, you can’t “give away” assets in order to get below the $2,000 threshold.
A common misconception is that elderly people should transfer the house or other assets to their kids in order to “protect” it from Medicaid or the nursing home. In fact, this is rarely a good idea, and can often have the opposite result.
You see, when an individual applies for Medicaid long-term care benefits, Medicaid will review 60 months (5 years) of their financial records to determine whether the applicant has made any “uncompensated transfers,” or gifts of property. If any are discovered, then a penalty is assessed.
For example, if Mother deeded her house, worth $99,000 to her Daughter in 2012, and then required nursing home care in 2014, Medicaid would review her financial records and see the transfer. The gift of the house would result in the assessment of an 18-month penalty.
This 18-month penalty, during which Mother would not be eligible for Medicaid benefits, would only begin to run after Mother has spent virtually all of her money. The worst part? If she had done nothing at all, Mother would likely have become Medicaid eligible.
Before giving property to the kids, talk with an elder law attorney to be sure you understand the consequences. The stakes are too high not to.