Facing sky-high LTC costs, clients nurse Medicaid hopes

But misunderstandings about the national program abound; poor planning can leave retirees in a bad place

Dec 7, 2012 @ 2:54 pm

By Darla Mercado

Medicaid may look like a tempting long-term-care plan for retirees who want to pass assets on to their heirs, but that approach has its share of financial pitfalls.

Investors nearing retirement are asking more questions about Medicaid — the state and federal program that aids people who can't afford to pay their medical bills — and the role it can play in helping to cover LTC costs. Nationwide Financial Services Inc. and Harris Interactive Inc. polled 501 financial advisers and found that 42% think of Medicaid planning as a way to preserve money for their heirs.

“People are exploring extreme steps to qualify for a program that wasn't intended for them,” said John Carter, president of distribution and sales for Nationwide. “Medicaid wasn't ever intended for people who could pay for those long-term-care needs.”

Medicaid requires applicants and their spouses to meet certain income and eligibility rules to qualify for the program: For instance, monthly income cannot exceed the costs of long-term care, and applicants generally cannot hold more than $2,000 in assets.

Enter a variety of Medicaid strategies that “impoverish” the person applying for the program in a bid to get under the $2,000 limit. But Medicaid applicants face a five-year look-back provision for asset transfers.

About half of the advisers polled said that they've had clients ask them about giving all their money to their children to qualify for government assistance in paying for long-term care.

Much of that anxiety is driven by the shakeup in the LTC insurance business, as well as the fact that today's economic realities place greater emphasis on preserving wealth, noted Bernard A. Krooks, founding partner of Littman Krooks LLP and past president of the National Academy of Elder Law Attorneys.

Clients who were unable to pass the underwriting process at an LTC carrier may be interested in Medicaid planning.

“If you have a prospect with an interest in preparing for this risk, and you can't sell them the insurance, then that's a perfect candidate to refer to an elder-law attorney,” Mr. Krooks said. “You can set up a trust or a planning opportunity to help them accomplish their objectives.”

Many misconceptions come with Medicaid planning, however, which is one reason advisers might want to consider seeking outside help. “We would encourage advisers to work with elder-law attorneys,” Mr. Carter said. “There can be a lot of risk if you do it on your own.

Mr. Krooks noted that a common misconception is that if clients miss the five-year look-back, they have no way to protect assets. “That's not true,” he said, noting that the solutions are state-specific. “In all states, there are things you can do even if you waited until the last minute. It's not going to be as beneficial if you had done it earlier; you may not be able to protect as much.”

Clients are also unaware that Medicaid covers nursing home care but typically won't foot the bill for assisted living and other care options, according to Nationwide. Additionally, Medicaid patients have very little choice in where they end up residing, and they won't have access to private rooms.

Though advisers are becoming increasingly aware of the need to educate clients on covering the cost of care in retirement — 72% agree that many clients don't see how crucial it is to plan for health care costs in retirement — many advisers also come up short on other facets of planning for long-term care.

For instance, 60% of the participants said they couldn't explain to clients how the Affordable Health Care Act will affect their retirement. Only 42% were aware of filial-responsibility laws, which are state rules that establish a legal duty for children to support their impoverished parents. Nursing homes and other third parties can pursue children whose parents end up in care and are unable to pay.

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