Finding A Path Through The Medicaid Thicket
The Deficit Reduction Act of 2005 was estimated by the Congressional Budget Office to reduce federal Medicaid spending by $11.5 billion in its first five years, part of that by shifting more of the cost of nursing home care on the beneficiaries. It left many people with the belief that they had to totally divest themselves of all their assets in order to qualify for Medicaid help in paying for nursing home costs.
During the last two years, states have been catching up with these DRA changes, enacting their own tweaks and twists and adding them to the regulations facing individuals who seek Medicaid help.
The result now is a body of rules and regulations called "more Byzantine than tax law" by Muskegon attorney Douglas H. McPhail — and "much more difficult, much more technical," by Grand Rapids attorney David L. Carrier.
The new federal regulations made it more difficult for ordinary folks to comply with requirements for qualifying for Medicaid help, said Carrier.
"And what happened was, a lot of attorneys who were kind of dabbling" in elder law and estate planning "got out of it," added Carrier.
Carrier is an expert on elder law and a member of the National Academy of Elder Law Attorneys. Every Sunday morning at 7 a.m. on Newsradio WOOD 1300, he hosts a live one-hour talk show in which listeners phone in questions about estates, trusts, wills, power-of-attorney and such.
McPhail, whose firm is called Medicaid Resources LLC, has practiced law for 20 years. He said he is a specialist: "I focus only on estate planning and elderly law issues."
Around seven or eight years ago, he said, he began to detect a shift in his practice: an increasing need to help people who had a spouse or parent in a nursing home.
Probably the biggest potential impact on a middle-class person's estate is paying out of pocket for living in a nursing home, which McPhail said is now estimated at an average basic cost in Michigan of $6,200 per month — and that does not include the cost of therapy/rehab or medications.
Due to the fact that people are living longer, "the probability of you ending up in a nursing home if you are over the age of 65 exceeds 60 percent," said McPhail.
"The assumption most people have is that Medicare covers the first 100 days (in a nursing home) in full, and that's not true," said McPhail. Whether or not the individual has been paying for supplemental insurance will determine how much Medicare covers in the first 100 days.
After 100 days, an individual has to pay out-of-pocket, unless he or she is destitute or has long-term care insurance.
"The first line of defense is purchasing long-term care insurance," said McPhail, who recommends a minimum coverage period of five years.
"The difficulty I encounter in my practice is that most people wait too long to plan," said McPhail. If you are already 75 or 80, it is generally too late to buy long-term care insurance, he said. Either you won't qualify or the cost will be prohibitive. People should start estate planning by the time they are 62 or 65, he said — if not earlier.
"The vast majority of people who don't know how to plan (their estate) lose their life savings" when faced with paying for a spouse's stay in a nursing home, he said.
The Deficit Reduction Act of 2005 was intended to shift more of the cost of nursing home stays on the spouse still at home — if he or she still has some savings and assets. But Carrier said the impact of the act "falls hardest on the people who don't know the rules. The impact of the DRA, and changes made by Michigan in implementing the DRA, "make it very difficult for ordinary folks to get qualified." He added there is "lots of goofy stuff in there."
For example, he said, one of the ways to legally "spend down" an estate in order to qualify for Medicaid is to buy a prepaid funeral. If that prepaid funeral costs $10,000, including a $200 charge for a catered lunch for the mourners, that lunch may not be allowed — and the entire $10,000 amount is disqualified by DRA regulations.
One of the most common mistakes people make that disqualifies them from Medicaid is giving money as birthday presents and Christmas presents, according to Carrier. Last fall, a new rule took effect: Any amount of money given as a gift creates a penalty for the individual trying to qualify for Medicaid.
But the main point Carrier and McPhail make is that despite the intent of DRA, the at-home spouse does not have to spend all of their life savings on a nursing home for the other spouse.
"If your husband or wife is in the nursing home, they should be on Medicaid today, and all this stuff about spending down (your estate) and the rest of it — you don't have to do it," said Carrier. "There's a way to preserve that (estate) for the at-home spouse, which is important to do — not so they can eat bon-bons and caviar, but because nobody helps with assisted living" expenses.
In other words, the at-home spouse may eventually need to move to an assisted living facility, and Medicaid does not cover assisted living. Carrier added that the only government program that covers assisted living costs is a Veterans Administration pension that can be worth up to $23,000 for the vet or spouse of a military vet who served during World War II, Korea or Vietnam.
"We can save everything for the at-home spouse, but people just aren't aware of it. It has to be done right," said Carrier. "There is a tremendous unmet need. We are very busy."
Both federal and state laws allow money to be put in trust for the at-home spouse and then it pays out like an IRA, with required minimum distributions, said Carrier.
Carrier stressed that "this is not a rich person's thing. If you are rich, you can pay for a nursing home" and there's still money left over for the at-home spouse.
"But if you only have $200,000 and you make a $200,000 mistake, you're screwed. And people make that kind of mistake all the time. People with $100,000 wind up paying more to the nursing home than people with a half-million dollars, because people with a half-million dollars are not afraid to go see a lawyer like me," said Carrier.
"People think it's about hiding assets. It's not. We don't hide anything. Basically, when we do an application (for Medicaid), we do a three-year audit of your finances — now it's going to five-year audits," said Carrier. "We submit bank statements — everything — when we do these trusts. There's no hiding assets. All we are doing is complying with the law," he said.
The devil is in the fine details of elder law, said McPhail. For example, he said a chief bottleneck are legal documents drawn up from "boiler plate forms" that are not specific enough "to allow us to do what the law permits." In one case he was familiar with, an individual thought he had power of attorney to dispose of an estate, but that authority only allowed giving the assets to the individual's children — and there were no children.
Medicaid law, over the last two years, has greatly added to the intricacies of planning an estate.
"For most families, there are a combination of six to eight (estate) planning techniques we can use," said McPhail.