Like many people, you may be covered under employer-sponsored or private health insurance during your working years. Because of this, you may enter your retirement years knowing nothing about the Medicaid program. Now is the time to familiarize yourself with the Medicaid eligibility requirements because there is a good chance you will need to qualify for benefits at some point. As a Murfreesboro estate planning lawyer at Bennett | Michael | Hornsby explains, the Medicaid look-back period rule could threaten your assets if you or your spouse need long-term care down the road.
Why Might I Need to Qualify for Medicaid?
When you enter your retirement years you (and your spouse) will already stand more than a 50 percent chance of needing some type of long-term care (LTC) services before the end of your life. Moreover, those odds go up each year. If you or your spouse do need LTC, the cost of that care will not be cheap. The nationwide average for a year in LTC for 2022 was over $100,000. For that same year, Tennessee residents paid, on average, a little less than the national average at around $90,000 per year. Nevertheless, it is not hard to see how your retirement nest egg could be completely depleted if either you or your spouse need to spend years in LTC.
What makes the high cost of LTC even more of a threat to your assets is the fact that you won’t be able to count on Medicare to cover the expense. While you may rely on Medicare to pay for most of your health care expenses, Medicare will not cover LTC expenses except under very limited circumstances and even then, only for a very short period of time. If you retain private health insurance, you will likely find that your policy also excludes LTC expenses. Unless you purchased a separate long-term care insurance policy (often offered as a stand-alone policy with an additional premium when you purchase insurance), your only option may be to pay for LTC out-of-pocket using your savings. This is precisely why over half of all seniors turn to Medicaid for help when they are faced with paying for the high cost of long-term care.
How Does the Medicaid Look-Back Rule Work?
Medicaid is what is referred to as a “needs based” program, meaning that an applicant must demonstrate a “need” to be eligible for benefits. To determine if an applicant is eligible, Medicaid uses both an income and a “countable resources” limit. Although some assets, such as a primary residence and a vehicle, are exempt from consideration, the asset limit is very low ($2,000-$4,000 depending on whether both spouses are applying), making it easy to exceed the limit. Applicants who failed to consider the possibility that they would need to qualify for Medicaid suddenly find themselves over the asset limit. Unfortunately, transferring excess assets to adult children (or anyone else) is not an option because of the Medicaid look-back rule.
The look-back rule in Tennessee imposes a 60 month “look-back” period that allows Medicaid to review your finances for the 60-month period preceding your application for benefits. The purpose of the review is to look for asset transfers made for less than fair market value. If any asset transfers are uncovered, it may trigger a penalty period during which you will be responsible for covering your LTC expenses. The length of the penalty period is calculated using the value of the assets you transferred and the average monthly cost of LTC in your area.
To illustrate how the Medicaid look-back period works, imagine that you gifted non-exempt assets valued at $100,000 to an adult child during the 60-month look-back period. The length of the penalty period imposed by Medicaid is determined by dividing your excess assets by the average monthly cost of LTC. Using the average monthly cost of LTC in Tennessee for 2022 of $7,665, you would incur a penalty period of 13 months ($100,000/$7,665 = 13.05 rounded down to 13). You would be responsible for paying your LTC expenses for the duration of the waiting period, after which Medicaid would begin paying for your care.
Contact a Murfreesboro Estate Planning Lawyer
If you have additional questions or concerns about planning for the need to qualify for Medicaid, consult with an experienced Murfreesboro estate planning lawyer at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.