Medicare benefits are available to most older adults. However, they may not cover all of the needs of people in their golden years. Medicare only provides baseline coverage for routine and emergency medical support. The program does not cover long-term care expenses.
People preparing for retirement have several options available to them. They can carry long-term care insurance, which is often cost-prohibitive to acquire later in life. They can pay for long-term care expenses using their own resources. They can also apply for Medicaid.
Unlike Medicare, Medicaid can cover long-term care expenses for adults who can no longer live independently. Those who may require Medicaid if they move into a nursing home or otherwise need support in their golden years typically want to plan well in advance for their own protection and the protection of their loved ones. Why is prior planning so important for those who may require Medicaid benefits?
Applicants are subject to scrutiny
Medicaid is a needs-based program. To qualify, applicants must meet strict rules limiting their countable assets and their current income. Applicants are subject to a lengthy look-back period. Any significant gifts or transfers in the 60 months or five years leading up to the Medicaid application can lead to a penalty.
The state determines the total value of inappropriate gifts and transfers. The state then converts that figure to a set number of months during which an applicant is not eligible for Medicaid benefits. The Medicaid lookback penalty takes effect when people are likely at their most vulnerable and unable to pay for care using their own resources. Advanced planning helps ensure that people are not at risk of a penalty that could delay their access to benefits when they need long-term care.
Benefit repayment could be necessary
Federal and state rules mandate attempts to recover long-term care benefits paid by Medicaid. After Medicaid recipients die, the Medicaid estate recovery program is likely to make a claim against their estates. Without prior planning, assets intended for loved ones may end up liquidated to repay the benefits that the older adult received later in life.
People who develop robust Medicaid plans early in retirement may feel more confident about applying when they need benefits. Long-term care planning can be as important as developing a basic estate plan.