Medicaid is a combined state and federal program that provides a wide range of medical coverage and services to low income individuals. Typically, when you hear lawyers talking about Medicaid in the context of estate planning-type issues, however, we are referencing a very specific aspect of these programs: "Medicaid Long Term Care." This programs provides coverage for nursing home residents who qualify.
Nursing Home Care is Expensive
The rough average for nursing home care in Northern Virginia is approximately $10,000 per month. Additionally, all indications are that this cost is rapidly increasing.
Data based on Genworth's 2020 Cost of Care Survey (Long-Term Care Statistics [2023]: Odds of Need & Population | ConsumerAffairs)
How likely is someone to need long term care? According to some federal government estimates, a 65 year old will have nearly a 70% chance of needing some type of long-term care service or support. Estimates also reveal that while one-third of 65 year olds may never need long-term care support, 20% of those 65 and older will need long term care support for longer than 5 years.
Who Pays for Nursing Home Care?
For long-term care, there are essentially three ways to pay for the cost:
Long Term Care Insurance
Out-of-pocket
Medicaid
Medicaid is a resource based program. This means that in order to be covered by Medicaid, there are financial qualifications that must be met. The precise qualifications can be complex, with a number of rules, exceptions, etc. However the starting point for an individual, non-married individual must have $2,000 or less in total countable assets. Only then will Medicaid pick up the bill for long term nursing home care costs.
The Spend Down
So what happens to an individual who finds that they now require nursing home care, but their assets exceed this $2,000 cap? This individual must spend down his or her assets until they are below this cap. Assets are spent down by paying the monthly cost of nursing home care out-of-pocket until the total assets are under the Medicaid limit of $2,000.
Can This Be Avoided?
As with many things, advance planning can help mitigate some of the impact resulting from the spend down rules. Assets may be organized or structured in such a way as to be considered non-countable for purposes of Medicaid qualification. If this is done successfully, it is possible to avoid the need to liquidate these assets to pay for nursing home care costs.
However this type of planning can be complicated and highly technical. It is always advisable to work with an experienced attorney to ensure that this type of planning is done properly.