Seven Myths about Medicaid
By Craig Riffel

Individuals over age 55 are currently the fastest growing segment of the population in the United States. According to the 2000 Census Report, individuals over age 55 comprise 20 percent of the American population. More than 33 million Americans are 65 years of age or older and considered “senior citizens.” This number is projected to double within the next 40 to 50 years. It is not surprising advanced medical technology and increased health awareness has helped to push the average life expectancy in the United States to 73.8 years for men and 79.7 years for women.

Most of the elderly and those caring for the elderly are challenged by having to face very complex, complicated problems unique to the elderly, while at the same time having to stay current in areas which are rapidly and constantly changing. They are concerned about many different issues including obtaining quality health care; acquiring medications; securing safe, comfortable housing; providing for their long-term care needs; and protecting their financial security. To address their areas of concern, the elderly and their caregivers must be able to properly evaluate medical programs, long-term care insurance, in-home health care and nursing home care. They must be able to identify legal issues facing the elderly and possible solutions to those issues.

Most individuals have paid a significant amount in FICA and self-employment taxes during their working years. These taxes were paid to the federal government and earmarked to provide benefits for the individual when he or she became elderly or disabled. These benefits include retirement income, commonly referred to as Social Security; health insurance, usually referred to as Medicare; and long-term care benefits, otherwise known as Medicaid. As a result, the elderly and their caregivers must be able to understand these programs, as well as other programs such as veterans’ benefits, etc., and how these programs interplay together. Because these programs are rapidly changing, the elderly and their caregivers are also challenged with staying current on the most recent changes to each of these programs.

One major issue facing the elderly and their caregivers involves the cost of long-term care, otherwise known as in-home health care or nursing home care. In most cases, the spouse, children or family have tried caring for the individual without significant help to the point they are physically, mentally and emotionally exhausted. When a loved one requires in-home health care or nursing home care, this often creates a significant amount of uncertainty, anxiety, concern and fear for the loved one and remaining family members, and for good reason. In many cases, thousands of dollars are spent in estate planning that will be needed to protect the family and the estate from many issues arising upon the loved one’s death. However, before those issues arise, long-term care costs pose an immediate and real threat to the loved one, the family and their estate. In the central United States, either in-home health care or nursing home care can easily cost from $40,000 to $60,000 per person, per year. In some areas of the United States, these costs can even be as high as $100,000 to $120,000 per person, per year.

The Centers for Medicare and Medicaid Services is the federal agency administering Medicare and Medicaid. According to the centers, 44.3 percent of patients without Alzheimer’s or any form of dementia-related disease are requiring long-term care, and their length of care is averaging 3.25 years. Of those patients with Alzheimer’s or some form of dementia, 52.9 percent of those patients are requiring long-term care with the length of care averaging 10.9 years.

Most people are not aware that Medicare and Medicare supplemental insurance do not pay for the cost of long-term care. Although long-term care insurance is an option, only 4.9 percent of those requiring long-term care having any type of long-term care insurance. Most people are unable to obtain long-term care insurance because it is either very expensive or they cannot medically qualify. According to a report by the U.S. House Select Committee on Aging, long-term care costs can deplete the entire life savings of the average married couple, who have worked hard all their married lives, in less than six months. In 1987, the president of the National Council on Aging stated that for an older couple of average income, a diagnosis of Alzheimer’s disease spells the impoverishment of the well spouse within four months, as the couple is forced to spend down their assets for nursing home care.

Dealing with long-term care costs (i.e. in-home health care costs, nursing home costs, etc.) and other related issues is a huge problem facing many hardworking seniors and their families. In spite of Congressional interest, committees, bills and acts, the bottom line is that seniors and their families cannot count on the federal government to solve the long-term care dilemma. Individual states are even less likely to appropriate funds for long-term care costs. Seniors and their families must recognize the magnitude of this problem. They must actively pursue addressing the problem for themselves, finding and utilizing every legal means available to protect themselves, their spouse and their families from the impoverishing costs of long-term care. Ignoring the problem and hoping it will go away will in most cases lead to devastating consequences for the senior, the senior’s spouse and the family. As stated earlier, half of all Americans will require some type of long-term care for as little as three years to as long as 11 years.

Because very few attorneys regularly practice in this area of the law, there are a lot of myths and misinformation being circulated. I hope to dispel some of the myths so readers will have the best, most reliable information available to them. The top seven most misunderstood rules of long-term care planning are:

MYTH ONE: MEDICAID PLANNING IS ILLEGAL

This is not a true statement. Congress attempted to criminalize Medicaid planning in 1996. In 1998, a U.S. District Court ruled the law to be unconstitutional and enjoined the department from enforcing the new law in the case of New York State Bar Ass’n v. Reno, 999 F. Supp. 710, 713 (N.D.N.Y. 1998). Subsequently, the Department of Justice acquiesced to the court’s decision and the law was stricken. As a result, Medicaid planning is still legal and very viable for most clients. Medicaid planning is a generally accepted practice among the caseworkers and other personnel at the Oklahoma Department of Human Services, the agency responsible for determining Medicaid eligibility.

MYTH TWO: PLANNING MUST BE DONE THREE YEARS IN ADVANCE

This statement is absolutely false. I hear this rule misquoted all of the time. Most attorneys, accountants and other advisors do not understand Medicaid’s three-year rule. They will commonly make the mistake of telling an individual that the individual must have done Medicaid planning either three years before the individual enters the nursing home or three years before filing a Medicaid application. This is not the rule and is not true. Most people have heard about the three-year lookback rule which provides that all transactions occurring three years prior to the date the Medicaid application is filed will be reviewed. This rule does not mean individuals must do their planning three years before entering the nursing home or three years before applying for Medicaid. In fact, most Medicaid planning is done when the individual is entering the nursing home within a few days or a few weeks of the planning, or already in the nursing home. It is usually done within this three-year period and very rarely depends upon assets being transferred three years prior to the individual entering the nursing home. Individuals are still eligible for benefits and generally qualify for benefits even if they:

1. Have gifted property three years before entering the nursing home or three years before applying for Medicaid;
2. Still own property and have failed to give it away three years before entering the nursing home, or three years before applying for Medicaid; or
3. Have failed to do any Medicaid planning at least three years prior to entering the nursing home, or three years prior to applying for Medicaid.

Through proper planning, individuals can protect a substantial amount of assets even on the eve of entering the nursing home or applying for benefits.

MYTH THREE: PLANNING MUST BE DONE BEFORE ENTERING A NURSING HOME

This statement is not true. Although it is best to do the planning prior to entering a nursing home or requiring in-home health care, it can still be done after entry into a nursing home or in-home health care services have commenced. It is best for an individual to do planning before entering the nursing home or commencing in-home health care because this way the individual can save the most amount of money. However, the individual can still save substantial amounts of money even if the individual has already entered the nursing home or commenced in-home health care services and currently pays for care. Planning after entry into the nursing home or commencement of in-home health care services will enable an individual to prospectively qualify for benefits upon completion of the planning. In other words, once the planning is completed, the individual will start receiving coverage even if the individual was initially self paying for care.

MYTH FOUR: INDIVIDUALS WITH TRUSTS ARE PROTECTED

This statement is also false. Many individuals mistakenly believe if they have a trust, they are qualified for coverage and protected from long-term care costs. Nothing could be further from the truth. In planning, a trust not only does not help an individual but in many cases hurts the individual in qualifying for coverage. For example, there are many exemptions which apply to protect certain assets, but do not apply if the assets are owned by a trust. Under the rules, both revocable and irrevocable trusts are considered available resources to the individual just as if the individual owned the assets themselves. As a result, the assets of the trust must be spent before the individual can become qualified for benefits. There are some trusts which are used to qualify individuals for benefits. However, they are very different from the typical revocable or irrevocable trust, are very unique, and apply only in very limited circumstances.

MYTH FIVE: EACH PERSON CAN PROTECT ASSETS BY GIVING $11,000 PER YEAR PER DONEE

This statement is not necessarily true. Each person can gift as much property as he or she wants to give. However, the $11,000 rule is a tax rule which says each person can give another person a total sum of $11,000 of property each year without any of those gifts counting as taxable gifts. To the extent the total sum of the gifts in a particular year exceeds $11,000 to a person other than a spouse, the excess amount is taxable. This rule does not having any bearing or relationship to Medicaid eligibility.

MYTH SIX: MEDICAID PLANNING ONLY BENEFITS THOSE IN NURSING HOMES

This statement is false. The Medicaid system in Oklahoma has a program known as the Advantage Waiver. This program allows clients to remain at home, receive in-home services and have their in-home services covered by Medicaid. The client must still meet the medical and financial eligibility requirements as if the person was entering the nursing home. In addition, the in-home services necessary for the client to live safely at home cannot cost any more than it would for the person to live in a nursing home.

MYTH SEVEN: INDIVIDUALS DO MEDICAID PLANNING TO PRESERVE AN INHERITANCE FOR DESCENDANTS

Although in some cases and at some times this statement is true, there are several reasons clients choose to do Medicaid planning. I continue to see a growing number of clients primarily concerned about making their assets last long enough to adequately provide for their care during their lifetime. This is a very real concern due to individuals living longer, the staggering costs of long-term care and with long-term care costs continuing to increase. The reasons for doing Medicaid planning can be organized into five groups. First, in some cases the spouse living at home is concerned about being protected from the financial hardships and insecurity created by their spouse entering the nursing home. Second, Medicaid only pays for necessities. Planning can increase the quality of life for the nursing home resident. Third, in many families the parents are in business (i.e. farming, etc.) with their children. Planning helps protect the business assets from being lost to nursing home costs, and consequently, helps protect the children involved in the business from financial hardships. Fourth, many families have worked hard, paid into the system supporting Medicaid, and at the same time have been able to save a little for their families. Planning helps these hard-working, tax-paying people pass on the fruits of their labor to their children and grandchildren. Finally, most people want to die with dignity. Having some protected finances can assist families in paying for special care for their loved ones.

About the Author

Enid attorney and CPA Craig Riffel is a member of the National Academy of Elder Law Attorneys and has taught Medicare and Medicaid to other attorneys and CPAs through seminars sponsored by the OBA, the Oklahoma Society of CPAs, and national continuing professional education companies. A significant portion of Mr. Riffel’s practice consists of Medicaid (nursing home) planning, estate planning and asset protection planning.