As older adults begin preparing for retirement, they need to address financial support challenges. While most retired professionals may qualify for Medicare coverage, Medicare may not pay for the support needs of aging adults.
Medicare has numerous gaps and coverage that leave people responsible for their own expenses. For example, Medicare typically does not cover long-term care expenses. Someone who stays for weeks in a rehabilitation facility, requires a room in a nursing home or needs the help of skilled nursing professionals to live in their home independently may require Medicaid coverage rather than basic Medicare benefits.
There are two risks that people may need to address planning if Medicaid coverage is ever necessary to pay for their care.
The risk of a penalty
Securing Medicaid requires that an applicant meet very strict restrictions regarding their countable assets and their current income. Even those who might qualify based on their current circumstances could still be vulnerable to a penalty.
It is standard to look back at five years or 60 months of financial records before approving an application for Medicaid benefits for long-term care costs. Any sizable gifts or transfers in the five years before someone applies might lead to a penalty.
The state may require that the older adult pay for their own care for a certain number of months before they are eligible for benefits. That penalty often prevents people from getting benefits when they are at their most vulnerable, making advance planning so there are no last-minute transfers important for comfort later in life.
The risk of estate recovery efforts
The Medicaid Estate Recovery Program typically makes claims in probate court seeking reimbursement for all benefits provided. Even benefits that did not prevent someone from qualifying initially could be vulnerable to recovery efforts after they die.
The value of someone’s home equity does not count against them when they require Medicaid benefits. However, the Medicaid estate recovery program could force the sale of someone’s home or demand a significant portion of accrued home equity as a means of recovering benefits paid on behalf of that individual.
Losing that home equity to Medicaid estate recovery efforts might mean that an older adult has little to pass to their loved ones. Advance planning can allow for the protection of key resources and can make it easier for an older adult to qualify for benefits right away when they need support.
Addressing long-term care costs can be as important as establishing a will and other basic estate planning documents for the protection of a vulnerable older adult. A plan can also protect the legacy they want to leave after their death.