When you plan for your retirement years, have you taken into account the possibility that you will need to pay for long-term care? If not, you should. Given the high cost of nursing home care, many seniors turn to Medicaid to help cover those expenses. Qualifying for Medicaid, however, could threaten your retirement nest egg if you failed to plan ahead. For example, if you are one of the many people who is planning for retirement by funding an Individual Retirement Account (IRA), you need to consider whether Medicaid can take the funds in your IRA and plan accordingly.
Why Is Planning for Long-Term Care Important?
When you reach retirement age, your odds of needing long-term care (LTC) will increase each year. The longer you live, the higher the odds that you will end up in a nursing home. Paying for that care could put your assets at risk given the high cost of LTC. In the State of New York, a year of LTC care cost, on average, over $145,000 per year in 2018. Like most seniors, you may rely on Medicare to cover most of your healthcare expenses once you retire; however, because Medicare excludes LTC, you won’t be able to turn to Medicare for help with your LTC bill. Unfortunately, most health insurance policies also exclude LTC expenses. Medicaid does cover LTC expenses, which is why over half of all seniors currently in an LTC facility rely on Medicaid for help paying their bill. Qualifying for Medicaid, however, can put your assets at risk because of the low income and asset thresholds imposed by the program.
Can Medicaid Take Your IRA through the Spend-Down Requirements?
To qualify for Medicaid, an applicant must meet the income and assets limits. Specifically, the value of your “countable resources” must fall below the program’s limit which is as low as $2,000 for an individual. If you have resources valued in excess of the limit when you apply, Medicaid will deny your application and expect you to “spend-down” your resources in order to qualify. Fortunately, some assets are exempt from consideration when applying for Medicaid. Medicaid will count your IRA or 401k as an available source of funds to pay for your care, unless it is in payout status. “Payout status” means that you are taking at least the required distribution out of your plan on a monthly basis. If your IRA account is in payout status, the monthly payment will be counted as income, thereby impacting the Medicaid income limits. Either way, your IRA account will be considered when applying for Medicaid.
The Medicaid Estate Recovery Program
If you do manage to get qualified for Medicaid without the loss of assets, do not make the mistake of assuming you are home free. Your initial eligibility evaluation for Medicaid is not the only time your assets could be at risk. The Medicaid Estate Recovery Program (MERP) puts your assets at risk once again after your death. The purpose of MERP is to allow the individual states to try and recover some of the funds they spend on Medicaid recipients after the recipient’s death. The MERP rules allow the state to file a claim against the recipient’s estate, for the amount spent on the recipient, during the probate of the estate. Assets included in your estate after your death are, therefore, still at risk of being lost to Medicaid. There are, however, some limits to MERP. MERP cannot go after your property if any of the following apply:
- There is a spouse who is still alive.
- There is a child under 21 years of age.
- There is a child of any age who is blind or permanently and totally disabled under Social Security requirements.
- If doing so would cause an “undue hardship”
In addition to the legal exclusions, the individual states have considerable discretion with regard to pursuing MERP claims. Some states routinely file claims against the estates of all Medicaid recipients while other states are more selective about filing claims.
Contact a Medicaid Planning Lawyer
Please feel free to download our FREE estate planning worksheet. If you have additional questions or concerns regarding Medicaid planning, contact a New York Medicaid planning lawyer at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.