What happens if you outlive your assets? Does everyone qualify for Medicaid, and how does it work? The threat of long-term care expenses is a daunting proposition, and in this episode, we unload the many uncertainties about Medicaid. In this episode, Cathleen speaks to Denis Dillon, the Director of Trusts & Estates for McLean Law Firm. Dillon has helped hundreds of families navigate and plan for their future. In this episode, Dillon helps us understand how it can protect people's assets from the peril of long-term care expenses and gives directives on the Medicaid planning process.
Episode 38: Denis is a member of the Trusts & Estates Department and practices in the areas of taxation, estate planning, probate law, and elder law, including Medicaid planning. He handles all aspects of federal and state taxation including income taxation, and estate and gift taxation. He also advises clients concerning sophisticated tax, business, succession, and estate planning.
Denis received his LL.M. Taxation from Boston University School of Law (1997), J.D. from Western New England College School of Law, Cum Laude, (1992), and an M.B.A. from Nichols College (1989). He began his career as a tax attorney in 1992, and before joining McLane Middleton, he practiced law in Boston.
Links:
What's next?
Did the episode spark any questions, thoughts, or comments on Medicaid? Share them with us at info@seniorityauthority.org or find us on your favorite social media platform.
Stay Connected:
Cathleen Toomey
Subscribe to our podcast + download each episode on Stitcher, Apple Podcasts, Google Podcasts and Spotify.
Cathleen: We're all living longer than ever before, which is generally considered a good thing. But what happens if you outlive your assets? That's a scary proposition to most of us, especially considering the cost of assisted living and nursing care. Does everyone qualify for Medicaid? How does that even work Here to unravel fact from myth is our next guest, Denis Dillon, Director of Trusts and Estates from McLane Law Firm. Welcome to Seniority Authority. I'm your host, Cathleen Toomey. Welcome to Seniority Authority. I'm your host, Cathleen Toomey and I track down experts to answer your questions on aging. Let's get smarter about growing older. Thanks to our show sponsor, the Riverwoods Group, Northern New England's largest family of nonprofit retirement communities where active adults find community purpose and peace of mind visit riverwoodsgroup.org. The goal of our podcast is to answer your questions on growing older and this episode is a direct result of a question from our listener who wanted to understand Medicaid. I turned to an expert Denis Dillon who has helped hundreds of families navigate and plan for their futures. He is well versed in estate planning, Elder Law, Federal and state taxation and Medicaid planning. Denis handles clients in Massachusetts and New Hampshire. Welcome to Seniority Authority, Denis.
Denis: Thanks Cathleen. Glad to be here.
Cathleen: I am so glad to have you here because a lot of people confuse Medicare and Medicaid and as I mentioned in the promo, this question came directly from one of our listeners. Can you unpack from the very beginning, what the difference is between Medicare and Medicaid.
Denis: Yeah, the basic difference between Medicare and Medicaid is that Medicare is an entitlement program. Those of us who have paid into the Social Security/Medicare program. We're all entitled to coverage from Medicare because of, we've essentially paid for it. On the other hand, Medicaid is a welfare program that in the context we're talking about, which is long term care. It's a program that's designed to provide folks who qualify, who are financially needy with long term care benefits. So not everyone is entitled to Medicaid is a test, is a test of medical test and a financial test. The medical test deals with whether or not the applicant is unable to do two of six activities of daily living in things like getting in and out of the chair by yourself, getting in and out of a bed, being able to use the bathroom by yourself, being able to feed yourself, medicate yourself. So essentially, if the applicant is unable to do two of six, they qualify medically for Medicaid, but then they need to pass a two-part test that deals with finances. One part is an income test, and one part is an asset test. So essentially that's the difference between Medicare and Medicaid.
Cathleen: Okay, so Medicare is entitlement. So if you've paid into Social Security, you get Medicare, and Medicaid is when you run out of assets and there is a two part test with all the things we're talking about since our listeners go all over the country. These are generally national guidelines, is that correct, Denis?
Denis: That's right. The Medicaid program is funded by mainly by the federal government. So the federal government provides us with some of the basic rules and those are applied throughout the country. But there's also funding at the state level and the state also has specific provisions. So I like in it to the federal rules as being the skeleton and the state rules as being the flesh and the muscle. And the states have subtle differences from state to state. In terms of the rules regarding Medicaid. So you have to be careful, especially if you're doing some research on the internet, you have to be mindful of the fact that what's allowed in one state may not be allowed in another.
Cathleen: Okay, if you have questions about Medicaid and whether or not you qualify, how would you find out if you qualify for Medicaid?
Denis: Well, there, yeah. So, each state has usually has an entity that deals with the Medicaid rules. So here in New Hampshire, it's health and human services, I think in Massachusetts it's called CMS. But essentially, it's the same type of an arrangement. There's a state-run governing body. There are state rules. There are guidelines. There are, there's information that you can get from the various states regarding qualification here in New Hampshire, there's a great resource that the New Hampshire legal assistance division prepares on an annual basis. It's called Medicaid income and asset rules for nursing home residents a great resource for the public.
Cathleen: Great. And we'll put a link to that in our show notes. Let's step back a bit. And let's talk about Medicare since a lot of people are on Medicare. We've explained to Medicaid to a certain extent. I know that Medicare was created in 1934 when the life expectancy was 65 and it kicked in at 65. What kind of trend have you observed with your clients? Dennis, who are living longer? Are people today who are in their 80s? Are they concerned outliving their assets because they're living much longer. Is this a trend that you've seen?
Denis: I've seen some clients who have outlived their assets for sure. Because they've lived into their 90s and they plan to live into their 80s. And in terms of long-term care assistance because Medicaid is a welfare program. Many of these folks who outlive their assets would qualify for the Medicaid program.
Cathleen: We know that today things have changed dramatically for people who are getting older. We know that 70% of us over 65 are going to need some form of long-term care. Let's talk about Medicare, does Medicare pay for long term care?
Denis: No, that's a common mistake that people make. They believe that Medicare will pay for the long-term care assistance. And in fact it does not, it provides a very limited benefit for folks who might be in a nursing home to rehabilitate from a fall for instance. And Medicare will provide. I believe it's up to 100 days of care in a long term care facility like a nursing home. But the purpose of that coverage is to allow the patient to rehabilitate and get back to the level of that they were at prior to the fall or the accident.
Cathleen: So we can see how this makes sense. If Medicare was started back in 1934 when the life expectancy was 65 today, it's totally different. We have a much longer life expectancy and we are going to need more long term care. But when it was created, it was created for really more of an episodic event-based kind of experience. And you're right right now, you need a three-night qualifying stay in the hospital to get your 100 days of Medicare. And the challenge that most people are going to have as they get older is that long term care. That is more a day-to-day kind of experience that people need. What are, you and I have talked earlier that there are three ways someone can pay for long term care. What are those three ways.
Denis: So there's a private pay. So the the person in need of long term care reach into their pocket and pay for their care as they go. There's long term care insurance which can pay for long term care or it can supplement the cost of long term care and that's a private insurance that folks can get by consulting with an insurance specialist. And then finally there's Medicaid for those folks who qualify, who can pass the medical test and the two-part financial test.
Cathleen: Okay, So three ways and either pay for it out of pocket, get long term care insurance. And we have a great podcast with Pat Bennett on a long term care insurance. So if you're interested in a deeper dive, go check out that episode and then Medicaid and this is a long term care can be a long time. We don't know. Can you tell us just so our listeners have a sense, what's the difference? What are we talking about in terms of cost? What's the difference between assisted living and nursing level care? When you're talking about long term care?
Denis: Well, I can't really speak specifically to cost for assisted living. Generally speaking nursing level care in New Hampshire costs on average about $125,000 a year. I think the major difference between assisted living and skilled nursing care is that Medicaid doesn't pay for assisted living. Medicaid does pay for skilled nursing care. That's the primary difference.
Cathleen: Okay. And we also have an episode on the difference between assisted living and nursing level care with Cindy Martin. So if you're really wanting to dig into some of these topics and one and of the difference between the two, please check out that earlier episode. So nursing care is the more acute level of care where you have more access to 24 hour nursing, whereas assisted living is where you need less intervention with nursing and you would be possibly in assisted living or need assisted living for longer than you need nursing care. So I get this question all the time. I don't know if you get this question, but I get a lot of questions for people that says that asked, how much money do I need to cover my long-term care costs? So I'm going to pose that question to you, Denis.
Denis: Yes. So my specialty is the qualification for qualifying for Medicaid. I don't do financial analysis. So when we approach this, I'd like to approach it as part of the team. I want the clients’ advisors involved, including the Financial Advisor and the client should be seeking out this information from their financial advisors sooner rather than later so they can determine what they need to have in reserve to pay for an unexpected stay in a long-term care facility. So, they should be having this frank discussion with their investment advisers, their financial planners.
Cathleen: Good answer. So, if you are listening to this episode and you're wondering if you have enough money, talk to your advisor, Talk to your financial advisor. Talk about the kind of care. You envision where you envision that care and start doing some research about how care costs are across the country, Genworth publishes a study every couple of years that analyzes the assisted living and long-term care costs and we will have a link to that in our show notes. But it's a really good question. If you're wondering about it, talk to someone who can help you estimate how much that will be because it's an individual question going along the same lines barring any preexisting conditions at what age. Denis, when do you think that people should start thinking about planning for long term care?
Denis: Well, I advise clients in their forties and fifties to begin reviewing or analyzing what their needs would be for long term care and the cost of long-term care insurance is lower the younger you are, the healthier you are. So again, this would be an analysis that the financial planner that the client should be doing with their financial planner and their insurance advisor to determine, you know, do a cost benefit analysis in terms of what the costs of long-term care insurance is. And there are lots of different long term care insurance policies that are available out there. Some of them provide with a client with a life insurance product that allows them to receive if they don't use over the course of their life, the long-term care benefits, they get the cost of the premiums back or their state gets the cost of premiums back as a result of life insurance. And I'm sure that covered all this in her discussion.
Cathleen: Oh yeah, if you're interested, it is definitely worth checking out that episode with Pat Bennett because there was a tremendous tumult in the long-term care industry about 7 to 10 years ago. There were a lot of people in the long-term care industry that a lot of businesses in long term care industry that realized they had their basic algorithms were not correct. People were out living, their predicted lifespan. So, a number of companies left the space and for those that stayed there was a lot of tumbled around premium costs and I think that is pretty much settled down now and the people that are in this business are in to stay and it's a little bit more stable, It's definitely more stable. So definitely check that episode out. So we talked about the fact that Medicare covers the major nursing care. It doesn't cover assisted living and that Medicaid does pay for assisted living. But there are the tests that you mentioned earlier in the show to qualify for Medicaid. And I've heard people say, well you're going to take your house, you have no money left. Can you give us a little bit more in granular detail what you need to do to qualify for Medicaid? Do you have to give all your money away? Do you have to give your house away? Can you walk us through that in a little bit more detail
Denis: but to rewind a little bit, I just want to be very clear. Medicaid does not cover assisted living it covers long term care, skilled nursing, not assisted living.
Cathleen: Yes. And I really want to emphasize that you can go on Medicaid for skilled nursing needs not for assisted living. If you're getting smarter, help us reach more minds. Leave us a review on apple podcasts. So others know we're legit tell your friends to follow us on social or subscribe to our newsletter at seniorityauthority.org. So that's a very important piece.
Denis: So for a married couple, one of whom is applying for Medicaid assistance, the family home can be transferred to the what we would call the healthy spouse. And so long as the home has an equity value of less than $603,000, the home is protected asset not required to be spent down. The applicant for Medicaid can have no more than $2500 of countable assets and the at home spouse can keep roughly half the assets actually the greater of $26,076 of assets. For one half of the couple's assets up to a maximum of $130,380. Those numbers all change annually based on inflation. So accountable assets is really a term of art and the best way to describe what's accountable is to tell you what's non countable. And I've already mentioned the major one for a married couple. The house, if it's less than $603,000 of equity, non-countable one life insurance policy valued at no more than $1500 is non countable. A prepaid burial plans. So the couple could make arrangements at a local funeral home to pre pay their burial expense and the funeral costs. But that would be non-accountable. A vehicle owned by the healthy spouse. Non accountable. The personal property is non countable. So the contents of the house, jewelry, furniture, fixtures, clothing, that you know your stuff. If you will not accountable, but everything else is counted. So retirement plan assets. I get this question all the time. What do you mean? It's countable? Well, you're gonna have to liquidate that IRA and 401k. Pay the tax to bring the asset based down to $130 and change, the investments are accountable. Second home is accountable. Second automobile is accountable. So the non-countable assets, it's a pretty narrow concept or it's narrowly defined.
Cathleen: That's great. That's very thorough to help people to understand what level they have to be to apply for Medicaid, what do people do if they don't have enough money for to cover assisted living?
Denis: Well, if they qualify for Medicaid, they typically would go on Medicaid, but they wouldn't be able to pay for assisted living with Medicaid dollars. They would have to otherwise qualify. In other words, they have to meet the medical tests, not be able to perform two of the six activities of daily living and then spend down their assets to that appropriate level $2500. For a single person or a married couple family home less than $603,000 and the half the assets up to a maximum of $130,380 and a minimum of $26,000 change.
Cathleen: Do you work with healthy number of people that are working to apply for Medicaid? And at what point do they come to you?
Denis: Usually it's a family meeting, a meeting with a couple or a single person along with Children. And usually it's before a crisis because there are some planning techniques that you can take advantage of. You need a little bit of a runway is what's called a five year look back period. So significant planning should be done more than five years in advance of attempting to qualify for Medicaid.
Cathleen: Can you explain what you mean by a five year look back period.
Denis: Sure. When an applicant applies for Medicaid, the folks at HHS apply this financial tests, they look at the assets and they ask for and require five years of statements, Bank statements, investment statements, five years of tax returns and what they're looking for is whether or not the applicant is transferred or gifted or given away any of their assets within the five year look back period because there is a penalty that's imposed and the penalty Is imposed for any gifts that were made within the five year period beginning on the date of application and going back in time, five years. And for every roughly $10,400 of assets given away, the applicant is disqualified for one month of Medicaid coverage. So if the applicant gave away $100,000 within the last five years, they would not be eligible for Medicaid benefits for roughly 10 months, $100,000 divided by 10.
Cathleen: Got it. Okay, so you're talking about, that's very helpful. You're talking about people needing a runway and making a plan for how to qualify for Medicaid about five years before they anticipate they need it. Is there a certain dollar amount that you recommend? At what point? People should start thinking about Medicaid when they have less than $500,000 in assets? Less than $200,000? You know, everybody always likes to have a number. What's your comment on that?
Denis: You know, it's difficult to give you a number because everybody's situation, personal situation is different and every person will have a different strategy. Some folks are interested in gifting a well in advance of needing Medicaid and those folks may have assets of $1 million Hey, we want to plan for the possibility of entering a nursing home And we want to give to our Children $500,000. On the other hand, I've done plenty of plans with folks who got less than $100,000 in assets are attempting to qualify for Medicaid.
Cathleen: So again, it depends on your situation and what you're interested for. And you just touched on something that I think is worth mentioning that Medicaid covers you in a nursing home, but it does not cover you again for assisted living or care at home. So if you are considering Medicaid, that means you are going to ready to move to a nursing home that accepts Medicaid, which not all do. So that's the second part of the planning is that being able to qualify for Medicaid and to be able to get a spot in a facility that offers Medicaid is another runway or planning avenue that you need to think about.
Denis: Yeah. Typically what we suggest to clients is that they locate a nursing home or a long term care facility in advance. And initially private pay because sometimes there's a distinction between a private pay room and a Medicaid rooms. Medicaid rooms typically the client or the recipient of Medicaid is sharing. It's a shared room. Private pay rooms can be single rooms. So in many cases long term gift of facilities are filled. Their Medicaid beds are filled, but their private pay beds are not and by private paying initially the client gets access to the nursing home of their choice and then when they've spent down to the appropriate level, qualify for Medicaid. They qualify for Medicaid. In some cases they stay in that private room until the Medicaid bed becomes available at at the facility. But at least they've gotten their foot in the door as opposed to someone who waits until they qualify for Medicaid who attempts to apply and they're told there's no room in the end because all the Medicaid beds are filled. So there is a strategy around using some funds to private pay at the nursing home.
Cathleen: That makes sense that it leads me to another question. Typically, how long does it take to qualify for Medicaid from the first filling out of the forms?
Denis: It can take weeks or it can take months. During the pandemic, things have slowed down significantly. People are working from home and only going into the office on an irregular basis. So we've had delays in getting folks qualified for Medicaid because of the pandemic. And also as I mentioned, the HHS will ask for five years of statements and sometimes it's a little cumbersome to get those five years of statements pulled together. Some financial institutions require advanced notice or there might be a fee involved, sometimes not readily available. So with the mercy of the financial institutions to get the records.
Cathleen: Sure, that's not an easy task at all to get five years of files.
Denis: Right.
Cathleen: So is there any final thing I have not asked you, Denis, any advice that you would give to folks who are thinking about this. Any recommendations? You've been really, really clear and you've explained pretty much all of the processes that each person needs to do the five year look back, the difference between Medicare and Medicaid, when you should start thinking about this, any advice? Is there anything that typically comes up when you're working with clients that you wish you had the chance to tell people in advance?
Denis: I think the the advice that I give is start the planning process early and get help. This is a pretty tricky process to navigate and getting advice from someone who does elder law work as well as your investment advisor and your accountant. If you're working with an accountant would make a great deal of sense to have the team looking at your particular situation and giving a recommendation in terms of an approach.
Cathleen: So it's worth it to go to a professional to help you navigate these waters. Even if you're concerned about finances, it sounds like working with a professional can help you put a strategy together that will make it easier in the long run.
Denis: Clients want to know that they're not leaving anything on the table. And by getting good advice, you can ensure that you get qualified at the right time and you haven't overlooked opportunity.
Cathleen: Okay, that's wonderful advice. Thank you so much for explaining this process and thank you for all the help that you provide to people who are trying to navigate this process. I'm sure it is very fraught with anxiety and emotion and mixed bag of feelings because this is a hard path to navigate and I can imagine that you are a great asset to your clients. Just advise them through the process. That's our show for today. If you enjoyed it, please tell your friends about us so we can reach more minds. Give us a rating and review on Apple Podcasts and send us your questions on aging so we can answer them just like we did today with Denis. Until next time, enjoy the chance to get smarter about growing older, and that's it. Thanks to our show sponsor the Riverwoods Group, Northern New England's largest family of nonprofit retirement communities where active adults find community purpose and peace of mind visit riverwoodsgroup.org. That's our show for today. Did it spark a question? If so, send us your questions at seniorityauthority.org and we’ll track down the answer. Meanwhile, don't forget to subscribe like us on Facebook, follow us on YouTube, and rate us on your favorite podcast platform. Until next time, let’s get smarter about growing older.