LTC and Medicaid: Why planning is more important than ever
By Dan McGrath
Jester Financial Technologies
Those who are taking the age-old advice of hiding assets along with income to qualify for Medicaid in order to receive “free long-term care” may want to sit down and read the fine print. Surprisingly, things have changed, and what you and your clients don’t know will not only hurt you, but will also hurt others — specifically, your clients' children.
According to the U.S. Department of Health and Human Services, since 1965, Medicaid has given states permission to impose liens on property in the estates of deceased Medicaid recipients in order to recover the expenses. This permission has come with the caveat that each state has the option on how they would like to recover those assets and at what time they would like to start the recovery process. However, things changed a little bit more back in 1993 with the Estate Recovery Mandate. With the creation of this mandate, each state, under rule of the Act, now has an obligation to try to recover the costs relating to any:
- Nursing care or LTC facilities
- Expenses accruing for medical services while residing in a nursing facility
- Other items that were covered by the Medicaid plan
Enter the Filial Support Laws that have been enacted by 29 states. Each state that has implemented this law now has the ability to try to recover the expenses of Medicaid from the children of the recipients of care. Think it can't happen? Think again. John Pittas of Pennsylvania was hit with a bill of more $93,000 for his mother’s Medicaid expenses, even though he also had other siblings that could help pay the debt. The reason why he was singled out? Again, the states have the options of how and when they will implement this Estate Recovery Mandate.
Clients and prospects who are thinking they can just self-fund need to think again. The loopholes are being covered, and the people who will be affected by this are your clients' children. With 76 million people heading to retirement, the burden to tend to their care will be increased to levels we as a nation have never experienced. How are we going to fund this?
Some states, those 29 with Filial Support Laws, have figured it out: They will pass the bill on to the next generation, which may just happen to be your clients' children. And for those other states who have yet to implement this law, well, the rules will probably change there, too.
The real frustration around this whole subject is not the burdensome cost, or the unhappy conversation about the subject matter, or even the lack of attention being paid to it. The real frustration for those who have studied this problem, is how simple the solution for this “crisis” really is. Planning to cover this expense along with all of the other costs associated with client health can be addressed with very little heavy lifting; in fact it has never been easier. Thanks to new financial products and investments, there are now multiple ways to solve this issue — everything from using the leverage of specific types of life insurance or certain annuities that have riders along with them, to hybrid products from firms like Lincoln Financial, One America and Pacific Life, to certain investments — though not guaranteed — which can be used to help offset this cost.
As financial professionals in this area, it's imperative to understand how all health care costs will impact a financial plan and then help the client implement the strategy. After that, this issue of LTC along with the other costs associated with your clients' health will be taken care of.
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