Medicare and Medicaid

Medicare and Medicaid sound alike, but the two programs should not be confused. After age sixty-five everyone automatically qualifies for Medicare. It’s a federal health insurance program. There are deductibles, and monthly premiums are deducted from social security payments. It can pay for hospitalization, doctors, prescriptions, and rehabilitation. It does not pay for long term care. Unless you can qualify for Medicaid (Title 19) you will have to pay for long term care yourself. That can quickly wipe out assets and at nursing home costs can approach $18,000 a
month. So how do you qualify for Medicaid?

Medicaid (Title 19) is a federal and state financial assistance program for people over 65 and certain people with disabilities. Rules in Connecticut have changed over time. Failure to follow the letter of the law can mean disqualification. Let’s look at a typical husband and wife situation and assume one of them needs nursing home care or long term care at home. 

A basic rule is that the family home will be excluded, and therefore protected if one spouse lives there. So will one car needed for medical transportation. Then the Department of Social Services (DSS) looks at all the other “countable” assets and lets the healthy spouse keep one half, but not more than $137,400. The sick spouse can only keep $1,600. The other one half must be “spent down.” Here is where getting sound advice matters, and not relying on a friend’s opinion about what happened to his family years ago, because the rules have changed greatly in that time, even if the situation was exactly the same.

One trap that often surprises families is that the cash value for life insurance policies with a face value over $1,500 counts toward the limit. If you don’t know about it, and DSS finds it, the cash value may put you over the limit, and you could have months of ineligibility until DSS sends you a denial. Another problem is it may take weeks to deal with the insurance company to get it cashed in or have the cash value reduced.

All qualified money of both spouses count toward the asset limit. That includes IRAs, 401ks, and 403bs. It is necessary to have the qualified money transferred to the healthy spouse and the problem with that is when it comes out of the IRA, or 401k or 403b, it will trigger an income tax on that money. There is a potential solution by going to court and getting a Qualified Domestic Relations Order, which if done will not result in the qualified money being taxed until the healthy spouse is required to take the money out. This is not as simple as it sounds, because it is necessary to go to court to get that order, and unless the sick spouse has done a power of attorney
expressly giving that power, a court may not order the transfer. Every married couple should make sure their power of attorneys include a provision that authorizes a qualified domestic relations order.

A very significant change is that in many cases the healthy spouse can take most or all of the assets that must be spent down and buy a single premium immediate annuity for himself or herself, and the money will no longer count as an asset. There are strict rules on how this must be done, but if there is no other way to protect assets for the healthy spouse, this can protect life savings. A big downside is that the State of Connecticut must be named as a beneficiary to reimburse the state for the money spent on care.

There are many other ways for a person to spend down. Paying down a mortgage, or credit card debt is one way. For someone at home, trading in that old car and buying a new one is another. Connecticut law allows the person to buy a full prepaid funeral contract, and a married couple can prepay the funerals for both. In some cases, where the applicant has a child who is disabled under the social security law, the rules allow a transfer of almost all assets to the disabled child. 

This won’t work if the disabled child would be disqualified from Medicaid, although a special needs trust could solve the problem. There is even a rule for siblings who have lived together in a home owned by both of them for at least one year. In that case, if one of them becomes sick and needs Medicaid, the house can be transferred to the healthy one and the sick one can still qualify for Medicaid.

When faced with the cost of long term care, remember that those on Medicare will only have rehabilitation paid for, and not long term care. That is where Medicaid comes to the rescue for those who can meet the eligibility rules.