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Medicaid and the middle class

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Two populations of middle-class Americans benefit from Medicaid: the elderly and children with disabilities.  Congress created Medicaid as an entitlement program in 1965 to provide low-income families and individuals with medical coverage.  If there hadn’t been any changes to the program it would still be just a program for the poor.  However, by the 1980s, Americans were living longer but with diseases that resulted in nursing home stays that bankrupted middle class families.  As a result, new laws were put into place that turned Medicaid into a program to protect middle class couples from being forced into poverty.

That’s what we have today.   Those laws made it possible for a spouse to retain assets and income to preserve some of a couple’s life savings.  Only a very small percent of the population could afford the staggering cost of a nursing home (in the Seattle-area around $90,000 per year) for the average two-to-three year nursing home stay.

In his 2012 Convention speech, Bill Clinton differentiated it from Welfare and called Medicaid, “a vital safety-net for middle-class families.” Total Medicaid spending in 2010 was a little under $400 billion but $123 billion (about one-third) paid for nursing home care.  A Kaiser Health Tracking Poll asked people how important Medicaid was for them, 61 percent said that Medicaid was important to them, and of those individuals, 49 percent said it was because either they or someone they knew depended on Medicaid to pay for long-term nursing care.

So if Medicaid is so important to middle class Americans, why do elder law attorneys provide Medicaid planning to clients?  Most states require nursing home residents to spend virtually all their money (to as little as $2,000, but more for a married couple) before they can qualify for assistance.  Because the government doesn’t want to pay for care if the individual has funds of their own to pay for it, there is a period of time in which asset transfers or gifts are looked at.  A person with moderate income who must enter a nursing home may eventually need to rely on Medicaid to pay for care.  But many states leave the well spouse with too little in protected assets to provide them with enough resources to continue to live at home and Medicaid makes no allowances to repay family members for providing care prior to nursing home care.  Medicaid planning then is about moving assets either by spending them down or by transferring them in order to qualify for Medicaid and still compensate for care or provide for the other spouse.

Many people try to gift money or property to family members in order to qualify for Medicaid.  However, done incorrectly transferred property triggers a sanction period that is not necessarily one to one.  For instance if the gift was for $10,000, Medicaid doesn’t make the person ineligible for $10,000 of nursing home care.  Instead the individual might become ineligible for two months of nursing home care based on $5,000 being the “cost” of one month in the nursing home.  But nursing home care for one month might be as high as $20,000 a month so a two month penalty could cost the family $40,000 from a $10,000 transfer.

In addition, the problem with Medicaid is that it doesn’t pay for an individual to have a quality life in the nursing home.  If assets can be protected, they can then be used to pay for things like bath aides, private rooms and other types of assistance that are considered extras. While most people put off considering the cost of long term care until it is needed, the earlier you can begin the process of protecting your assets, the more assets you can protect.

Medicaid planning is complex and making the wrong steps can cost you hundreds of thousands of dollars.  Talk with an elder law attorney about steps you can take now to protect your assets down the line.

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