Personal Finance Essentials
Government and Health Insurance Won’t Save You
Long-Term Care Insurance > Government and Health Insurance Won’t Save You
Most people who haven’t thought carefully about long-term care assume that some combination of government programs and insurance they already own will cover the costs.
According to a US Bancorp Piper Jaffray study, 34% of Americans believe their health insurance will pay for long-term care expenses, 30% think Medicare will cover the costs and 14% expect Social Security to help. None of these assumptions are correct.
Health Insurance
Private health insurance does not pay for long-term care. Most long-term care is custodial in nature – assistance with daily activities like eating, dressing, bathing and toileting. It is not medical treatment. Insurance companies define this care as outside the scope of standard health coverage, and they’re right to do so under the way these policies are written.
Medicare
Medicare’s coverage of long-term care is extremely limited and comes with conditions that most people don’t realize. To qualify for any Medicare coverage of nursing home care, three things must all be true: you must have been hospitalized for at least three consecutive days in the 30 days prior to entering the nursing home, the facility must be Medicare-approved and the stay must be for a condition treated during that hospital stay.
Even if all three conditions are met, Medicare pays in full only for the first 20 days. For days 21 through 100, it requires a patient co-payment exceeding $133.50 per day. After day 100, Medicare pays nothing. And Medicare stops coverage entirely as soon as your health care provider determines your condition is chronic and unlikely to improve – even if you haven’t yet reached day 100.
Medicaid – The Last Resort
The only government program that covers long-term care in an ongoing way is Medicaid – but qualifying for it requires you to be impoverished first. Medicaid is a federal program designed for the truly poor, and becoming eligible for it means spending down nearly all of your assets.
If you do qualify, you’re also depending on a Medicaid bed being available in your community when and where you need one – which is not guaranteed. And the quality of care available through Medicaid is a serious concern. The Center for Medicaid and Medicare Services has reported that 30% of patients in Medicaid facilities are malnourished. The Commonwealth Fund found that more than half of all nursing homes do not have sufficient staff to provide quality care.
Medicaid divides your assets into three categories: non-countable assets (your primary residence if a spouse lives there, one car, jewelry, household goods and $2,000 in cash), countable assets (everything else – second homes, savings, investments, CDs, stocks, bonds, mutual funds, annuities, IRAs and retirement plans) and inaccessible assets (gifts and irrevocable trusts subject to a look-back analysis).
Medicaid’s rules penalize asset transfers made within the five years prior to filing a claim. If gifts were made during that period, benefits may be denied until you’ve paid for care out of pocket in an amount equal to the value of those gifts. The community spouse is allowed a maximum monthly income of $2,739; the institutional spouse is allowed just $40 per month. Any income above those limits – including Social Security, pensions and annuity income – goes to Medicaid.
Even your home isn’t protected forever. If no spouse lives there, Medicaid will recover the proceeds of any home sale – even if it has to wait until after your death to do so. Don’t assume you’ll leave your house to your children.
In short, Medicaid is not a plan. It’s a safety net designed for people with no other options – and relying on it means giving up virtually everything you’ve accumulated over a lifetime.