Saturday, August 24, 2013

The Ugly Truth about Medicaid

Do you own a home? Are you unable to pay all your future medical bills and need to go on Medicaid and have Medicaid pay them? Please do not allow the people who staff the social services agencies of your state to treat you like dirt. Medicaid is not a gift. It is a loan--if you own anything of value.

A federal law passed in 1993 requires the states to recover any money paid to people on Medicaid. This happens after they dieIf you die utterly broke and without family, no problem. But if you are a fairly typical elderly person who owns a home and then has to go into a nursing home, and then runs out of cash and has to go on Medicaid to keep paying the nursing home, the state will come after your home after you die. This could seriously affect your family's future, even forcing the sale of your home. And it should seriously alter your own view of whether to apply for Medicaid at all, or instead possibly sell your house to pay for a better level of care, or mortgage your house and stay in it with home help, or purchase long-term care insurance, or some other scenario. It should also give you more backbone when dealing with the officious and uncooperative state employees of Medicaid, who routinely lose your paperwork, treat you like a deadbeat, and worse.

Highlights of the 1993 Estate Recovery Mandate: 

States must pursue recovering costs for medical assistance consisting of:
  • Nursing home or other long-term institutional services;
  • Home- and community-based services;
  • Hospital and prescription drug services provided while the recipient was receiving nursing facility or home- and community-based services; and
  • At State option, any other items covered by the Medicaid State Plan.
At a minimum, states must recover from assets that pass through probate (which is governed by state law). At a maximum, states may recover any assets of the deceased recipient.

The key element is in the last bullet point: "any other items." This law applies to anyone 55 years of age or older, whether they needed nursing home care or not.  

Medicaid is a loan? Yes, a loan, not a gift. I was stunned to learn this. A friend told me how his state came after him once his mother died, wanting her house. He did not have to give the state the house only because he had been on the title for decades, long before her final years. But the state still did get the value of her possessions. Every chair, every table, every glass and dish and piece of junk jewelry went to the state. Not to mention any antiques or valuable possessions such as furniture, silver, china, crystal, or big-screen TVs. Losing the physical possessions of a dead relative, usually a parent, might not matter to some people, but it could be a bitter pill to others. Imagine having to barter with the state to buy back that antique table in the hall that Mom always said you could have. And you might not be able to pick and choose. You might have to pay the entire debt yourself or let the state take everything. It varies from state to state.

Avoiding the Estate Recovery law that gives Medicaid the legal right to your home is not easy, and it involves serious risk. Medicaid has stern penalties for "fraud of conveyance," that is, an attempt to claim the asset is jointly owned or owned by someone else when actually the title has been changed in anticipation of needing to access Medicaid benefits. There is a time period that the state can go back and basically negate a newly joint or transferred ownership. It used to be five years, but in some states it's now eight years. It could go even higher as people tend to live longer. It also has a specific monetary component. 

This law has teeth. If Medicaid determines that you have tried to hide or shield assets to qualify, it penalizes you. Medicaid disqualifies a person from obtaining Medicaid benefits for a penalty period that can be as much as five years. If you transferred title to a home worth $200,000 within the look-back period (five years, or whatever applies in your state), Medicaid won't pay your medical bills until you have paid that $200,000 to medical providers yourself. The penalty provision will force many families to sell the family home immediately to provide funds for care needed right now. They can't wait out the Medicaid penalty period. That's why the penalty was designed as it is.

There are exceptions, but they're very limited. The spouse of the person on Medicaid is excepted, as would be minor children, although the likelihood of a person 55 or older having minor children is not high. A disabled adult child of the person on Medicaid can be excepted. Certain siblings, based on their period of residence in the home, can be excepted. But not a nephew, niece, or grandchild. Or parent.

The current national average cost for nursing home care is $57,000 per year--and CNN claims the median is $84,000. Depending on where you live, you could be paying well over $100,000 a year for nursing home care. And then, once every dime of yours has been extracted by the nursing home, you get put on Medicaid. Your care or your loved one's care could cost much more. The average nursing home stay is 835 days, or two years and four months, or about $130,000 taking the low figure, or $192,000 taking the higher one. The median home value in the U.S. currently is between $170,000 and $270,000. The value of a home is just barely enough to cover the cost of an extended nursing home stay. Meanwhile, some people report outrageous nursing home charges of over $600,000 for less than a three-year stay. Very few people can pay this out of pocket. In some areas of the country, that would be more than the full value of a home and any estate. In others, it might be a quarter of the home's value. But what family member can come up with $130,000 in cash to repay Medicaid and keep the house? Usually, this means the house must be sold to satisfy Medicaid's claim on it.

How much is a family home worth? How much good quality home care can one of those dicey and expensive reverse mortgages give you? Is retaining the dignity of independent living worth the time of some family member having to oversee the quality of care on a near daily basis? Would selling the house and going into a fancy assisted living place be a better option? But there's no way of knowing how long you will live, is there? Or how intensive the medical care you'll need might be. Assisted living is only for people in good health. Get sick and you get bounced into a nursing home.

What can you do right now? First, have that long-postponed end-of-life talk. If it's absolutely too late to buy long-term care insurance, then at least make a plan. If your plan is to sell the big marital home with all those empty bedrooms and move into an apartment by yourself, think ahead. The plan has to assume that you will lose functionality and will need help. Are there steps? An elevator? Do you want nurses to visit you? A home health companion to take care of you? Is there a family member you might invite to be a companion, to share expenses so you can afford to pay for nursing care in your home? What about that college graduate grandchild who can't find a job?

If you're trying to figure this out for someone else, find out if your loved one is set on staying in the family home until she or he dies and then openly discuss what money there is to pay for home care. In theory there are state and county social services available, but in reality your elderly relative could be on such a list for many years and never make it to the top of the list and actually receive free care. There may be cash benefits available in your state to help people age in place, but they must be applied for, and someone has to take on that responsibility. Decide if the family wants or needs to keep the family home, and how that will be accomplished. There are trusts. There are non-arm's-length sales for $1 to relatives. It's possible to mortgage a house no matter how old you are as long as you qualify by income. Reverse mortgages can be a solution, but they cost around 20% (yes, that's correct) of the value of the home. Although there is more than one type of reverse mortgage, most people seem to get stuck with the kind that pays only a set one-time fee. This is not a great idea for today's homeowner since home values are still low after the recession, and the homeowner will not be able to get more cash out as the house inevitably grows in value. Perhaps changing the house title or transferring any assets so they can continue to benefit the family is worth the risk that someone might need Medicaid and be unable to qualify for it. Perhaps not. Assets might be very small compared to the skyrocketing cost of a nursing home. Most families do not have $130,000 and up to cover that.

And what happens if you are on Medicaid not because you are old, but because you have cancer and no health insurance, and then you don't die? Well, eventually, you will die. Maybe in five years or in thirty-five years. Medicaid is required by law to tell you it can come get your assets once you die. If you are fighting the big C, you're probably not worrying too much about what Medicaid can collect after you die. Until you recover, and realize that Medicaid has a lien on your future.

A lien on your future? What does this mean? You could be trapped in your house, unable to sell it for a profit because Medicaid will take its money first, leaving you without enough cash from the sale to establish yourself somewhere else. When you're young and healthy, not making a profit from selling your largest asset might not be important, but if you are older or your health is in doubt, it becomes a serious issue. The ACA law has allowed many more people to access Medicaid today, but as far as I have heard, Medicaid still has the mandate to reclaim any money advanced. 

The states have implemented the Estate Recovery law in a wacky, inconsistent manner. Your state might not routinely seize assets. Or it might seize a high percentage. You should find out which. This is end-of-life planning, too. Most of all, keep in mind that Medicaid is not a gift. It is a loan.

[Updated December 14, 2015.]

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