Don’t make retirement planning decisions based on faulty assumptions about what Medicaid will pay.

3 minute read

Did you know that 7 in 10 people turning age 65 today will need some form of long-term care at some point in their lifetime? Around 48% will receive some type of paid care over their lifetime, according to the U.S. Department of Health & Human Services. Even if you saved a substantial amount for retirement, a move into a nursing home could wipe out retirement savings faster than you think.

The national annual median cost for an assisted living facility is about $51,000 a year, according to the 2020 Genworth Cost of Care Survey. According to the same survey, the national annual median cost for a private room in a nursing home is $105,000, and the median cost for home health aide services is around $55,000.

In 2021, Medicare pays for some in-home care services or skilled nursing facility expenses ordered by a doctor for the first 20 days after a hospital stay, after that period ends, you must pay $185 coinsurance per day for days 21-100 and all costs after 101 days. For many, Medicaid is the only way they can receive long-term nursing home or other long-term care.

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1. You must be destitute to receive Medicaid

In most states, someone is allowed up to $2,000 in countable assets, which are the assets whose value is counted in determining financial eligibility for Medicaid. Married couples still living in the same house are generally allowed up to $3,000 in countable assets. That amount may not sound like much, but keep in mind that not all assets are counted when determining eligibility.

Medicaid exemptions vary by state, but generally, assets counted for eligibility include bank accounts, stocks and bonds, certificates of deposit, real property other than your primary residence and additional vehicles if you own more than one, according to LongTermCare.gov. However, many assets aren’t counted towards Medicaid eligibility.

Assets usually not counted include your primary residence, personal property and household belongings, life insurance with a face value under $1,500, up to $1,500 in funds set aside for burial, certain burial arrangements and assets held in specific types of trusts.

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2. You should give money to your children so you can qualify for Medicaid

If you transfer assets to your kids within what’s known as the “look-back period,” Medicaid will impose a penalty that makes you ineligible for Medicaid benefits for a certain period of time. In 49 states, the look-back period is five years, and California’s look-back period for Medi-Cal, the state’s Medicaid program, is 30 months.

The reason for the look-back period is because Medicaid wants to make sure you didn’t give away money that could now be used to pay for nursing home or other long-term care expenses. So, when someone over age 55 applies, Medicaid reviews the person’s tax returns, deeds and account statements looking for transfers and gifts that aren’t exempt.

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3. The penalty is the same length of time as the look-back period

Many people wrongly assume that the Medicaid penalty for transferring cash or assets will be equal to your state’s look-back period. However, transferring money within the five-year look-back period doesn’t mean the person applying for Medicaid is ineligible for five years. Instead, the penalty period hinges on how much you gave away and the cost of long-term care in your state.

“The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state,” according to ElderLawAnswers, a resource for Medicaid coverage of long-term care and other legal issues affecting seniors.

Find out: 6 Ways Downsizing Can Stretch Retirement Income

4. Your estate is safe from Medicaid recovery

When Medicaid pays for nursing home expenses, in-home care, community-based services or hospital and prescription drug services for someone over the age of 55,  state Medicaid programs may recover benefits paid on behalf of the recipient through a process called “estate recovery” after the Medicaid recipient dies. Estate recovery is allowed under limited circumstances, according to ElderLawAnswers.

Under certain conditions, money remaining in a trust after a Medicaid enrollee has died may be used to reimburse Medicaid. However, states aren’t allowed to recover from the estate of a deceased Medicaid recipient who is survived by a spouse, child under age 21, or blind or disabled child of any age, according to Medicaid.

Estate recovery laws are complex and vary by state. When planning for retirement and potential long-term care needs, consult an elder law attorney or attorney who specializes in Medicaid planning to better prepare for long-term care expenses.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

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