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The Importance of Medicaid Planning for 2022

Fran and Jack had a plan in place for their long-anticipated retirement. They had saved their money, invested wisely, owned two homes, and looked forward to traveling the country in an RV they had just purchased. Both were teachers in southern New England and had longed for time to travel together after spending decades in the classroom. "We weren't rich by any stretch of the imagination," said Fran. "But we did a respectable job of saving and felt we were sitting pretty well when it came to retirement." It was during their second road trip; the couple was on their way to the Carolinas when Jack began to feel "not right".

"We stayed at a rest area in Virginia and before retiring for the night, we had some wine and watched the news," said Fran. "Jack was saying that he felt a little weak, but we wrote this off to the drive. During the night, he woke me up shouting that his arm was numb, and the feeling of weakness had spread to his entire body. My first thought was that he was having a heart attack, it was horrible."


The ambulance took over twenty minutes to arrive and transported Jack to the local hospital for treatment. "After a night of testing, the ER doctor came to me and told me that Jack had had a massive stroke. After weeks in the hospital, it was determined that he needed long-term care due to the damage that was done to his brain. It was devastating to hear. He was only 69 years old and everything we had planned for was never going to happen."


Sadly, things got even worse for the couple. "After I sat down with a social worker and set up interviews with nursing homes, I was shocked to see the costs of care. I was under the mistaken understanding that Medicare paid for nursing home care. I was shocked when I found out otherwise. As I said, we weren't rich, but the money we had saved to allow us to live a comfortable retirement was not even close to what the cost of long-term care would be. My concerns became two-fold, how could I afford to keep Jack in a nursing home, and what would happen once our savings were gone?"

"After I sat down with a social worker and set up interviews with nursing homes, I was shocked to see the costs of care...how could I afford to keep Jack in a nursing home and what would happen once our savings were gone?" --- Fran

Fran is not alone with her misunderstanding of the Medicare program and the costs of long-term care. Although Medicare does cover medical services in these settings, it does not pay for a stay in any long-term care setting or for the costs of help with activities of daily life such as bathing, dressing, eating, and going to the bathroom, which is called custodial care (the exception, under extremely limited circumstances, may be when individuals receive home-health services through a Medicare-approved agency). That leaves a person in need of long-term care with just four options:

  1. Private pay

  2. Long-term care insurance (expensive and capped benefits, if available).

  3. Paid Home Care

  4. Medicaid

Let's look in-depth at these choices.

Nursing home costs are astronomical

Private Pay

Private pay is not an option for most individuals and families, even those who have saved a substantial amount for retirement. In the United States in 2021, the average cost of a private room in a nursing facility is $8,365 per month, and a semi-private room costs $7,441 adding up to annual costs of $100,375 and $89,297 respectively. In southern New England, the annual average costs per state are:

  • Rhode Island semi-private $104,028 private $122,640

  • Connecticut semi-private $155, 124 private $167,904

  • Massachusetts semi-private $151,476 private $162,420

Long-term Care Insurance

The problem here is that long-term care insurance (LTC) is extremely expensive and increasingly difficult to obtain. A recent study found that less than 1 in 30 Americans have a long-term care policy and only 7% of those over the age of fifty have one. Private insurers began offering LTC insurance in the 1970s and sales reached their peak in 2002 with about 750,000 purchasing this care in a single year. However, by 2018, this number took a dive to 57,000 annually even though the percentage of aging Americans continued to rise. Because the numbers are down and the costs of these policies continue to rise to the point of unaffordability as do the costs of long-term care, many companies have stopped offering this type of insurance.

"Long-term care insurance is often prohibitively expensive, and you could end up spending more for premiums than you would for care." --- Moneygeek

According to a recent report from the website, Moneygeek, "Long-term care insurance is often prohibitively expensive, and you could end up spending more for premiums than you would for the care. In some cases, premiums have doubled as people approached retirement age, making it unaffordable even after they spent years paying into it...more than one-third of people who buy long-term insurance policies at age 65 or older lapsed their coverage before the insurance company paid out any benefits. Of people who stayed in long-term care facilities and had bought long-term care insurance, about half of them never collected any benefits."


Paid Home Care

With the current pandemic and the increase of in-home care provider businesses, paid home care is now an option for some, but it, too, is expensive and eventually, the individual may end up needing institutional long-term care anyway.

"Among adults with significant disabilities...only 57 percent could fund at least two years of moderate paid home care by liquidating all of their assets...paid home care could become less affordable if growing labor shortages raise future costs." --- Health Affairs Website

The website Health Affairs stated in a published report, "We simulated the financial burden of paid home care for a nationally representative sample of non-Medicaid community-dwelling adults ages sixty-five and older. We found that 74 percent could fund at least two years of a moderate amount of paid home care if they liquidated all of their assets, and 58 percent could fund at least two years of an extensive amount of paid home care. Among older adults with significant disabilities, however, only 57 percent could fund at least two years of moderate paid home care by liquidating all of their assets, and 40 percent could fund at least two years of extensive paid home care. Paid home care could become less affordable if growing labor shortages raise future costs."


Medicaid

Eldercare providers estimate that about fifty percent of people will need long-term care at some point in their lives and for those over sixty-five, that number rises to seventy percent. With private pay being an unrealistic option for most people and long-term care insurance being priced out of the budget for most families, that leaves just one option -- Medicaid.


Medicaid is a joint federal-state program that provides medical assistance to low-income individuals who are sixty-five or older, disabled, or blind. Medicaid is the single largest payer of nursing home bills in the United States and serves as the option of last resort for people who have no other way to finance their long-term care.

Medicaid is something you have paid for and should not feel embarrassed when using it to pay for nursing care, especially when you consider the alternative..." --- Attorney RJ Connelly III

"One of the comments we receive from many clients is their view that Medicaid is a government handout," continued Attorney Connelly. "This is absolutely not true. If a person has worked for a lifetime, they have paid taxes. Let's talk numbers. Right now, every paycheck is taxed at a rate of 1.45% for the individual, with the employer contributing another 1.45% for a total of 2.9% for the Medicare program. An additional 6.2% comes from your check for Social Security with your employer paying another 6.2% for a total of 12.4%. Then there are currently seven federal income tax brackets, with tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. Now let's add state income taxes, Rhode Island ranges from 3.75% to 5.99%, Connecticut from 3% to 6.99%, and Massachusetts, 5% across the board -- and employers also have state contributions."

Americans have paid taxes over a lifetime

"So, when you consider just what an individual pays in taxes over a working lifetime, Medicaid is something you have paid for and should not feel embarrassed about using to pay for nursing care, especially when you consider the alternative is draining your savings or having your family pay the bill, which is prohibitive in most cases," continued Attorney Connelly.


Unless you are independently wealthy, the reality is that at some point either you or a loved one will be on Medicaid. The difference is whether you end up on Medicaid after depleting all your assets paying for long-term care or you develop a plan now so when you apply for Medicaid, your assets are protected for your benefit or the benefit of a spouse or your loved ones. This is called Medicaid planning.


Medicaid Planning

"Thinking about Medicaid planning while you are young and still relatively healthy may not be a pleasant task because it forces us to confront our own mortality," said Attorney Connelly. "Unfortunately, this means many do not have a plan in place until old age or a sudden sickness occurs, and then it may be too late."


But there may also be a misunderstanding about the financial aspect of Medicaid planning according to Connelly. "Many people assume that if they begin looking at Medicaid, they need to begin selling assets, lose control over their finances, or they fear losing their home if a health issue occurs, in reality, proper planning can help an individual or couple keep what they worked to build, and that's the point of Medicaid planning."

"Many people assume that if they begin looking at Medicaid, they need to begin selling assets or they fear losing their home if a health issue occurs...proper planning can help an individual or couple keep what they worked to build..." --- Attorney RJ Connelly III