You have probably heard that everything is bigger in Texas. Unfortunately, that cliche is especially true when it comes to the cost of long-term care.
Regardless of where you receive long-term care services – in the home, an assisted living facility, or a nursing home – the cost of that assistance may be beyond what you can afford on your own, especially here in Texas. In fact, the cost of helping a parent acquire and maintain long-term care could negatively affect your own retirement plans as well.
For example, if you’d like to retire at the age of 65, that goal may be derailed by a surprise medical emergency for one of your parents that significantly diminishes their ability to care for themselves. Without substantial cash reserves, your parent may turn to you to help pay for long-term care. The cost of long-term care for an aging parent could last for years, negatively affecting your ability to retire or pay for other life events, such as a child’s college tuition or a wedding.
Making matters worse, Medicare coverage for long-term care is incredibly limited, and private health insurance typically does not cover long-term care. Unless your parents have purchased long-term care insurance policies, Medicaid is likely to come into play.
While it’s possible to have Medicaid pay for the largest percentage of long-term care, federal and Texas law establish strict eligibility requirements regarding age, assets, and income. The 2020 income limit for an individual applying for Medicaid in Texas is $2,349, and the asset cap is around $2,000. There are different income caps and asset limitations for married couples who both require long term care or if only one spouse is applying for Medicaid, which falls under rules concerning “spousal impoverishment.” To make things even more complicated, there are certain exemptions around what is considered the enrollee’s assets, including some personal belongings, household furnishings, or a primary residence valued under a certain limit.
The complexities around Medicaid qualification for long term care can be mitigated by working closely with your financial advisor and an experienced Texas elder law attorney. Strategies such as a Lady Bird Trust or a Qualified Income Trust can be implemented to resolve the issue of having too much income to qualify for Medicaid but too little to pay for long term care services. Moreover, if you have assets over the Medicaid qualification limit, there are ways to strategically “spend down” the excess assets on such things as home modifications or prepaying funeral expenses.
One other consideration to keep in mind: The Medicaid Estate Recovery Program (MERP), which was enacted as part of the 1993 Omnibus Budget Reconciliation Act, establishes that states are required to “recoup funds from the estates of those who incurred long-term Medicaid costs from the age of 55 and beyond.”
Under MERP, states will try to recover Medicaid money spent on long-term care and other healthcare expenses from the enrollee’s estate after he or she dies. Following the death of the Medicaid enrollee, the state of Texas will send notice to the estate’s representative to determine whether to file a MERP claim to recover those costs. Be mindful of the five-year “look back” provision, which allows the state to review the previous 60 months in order to determine whether or not income was reduced or assets that could have been spent on long term care were gifted or transferred in order to qualify for Medicaid.
There are exceptions that prohibit the state from recovering assets while a surviving spouse is alive, but the state can attempt to recover Medicaid funds following the death of the surviving spouse. There are other exceptions prohibiting the state from recovering assets from the estate of the deceased, including if they have a living child under 21 years old or a child who is blind or disabled.
Being able to afford long term care is a challenge for anyone. Understanding how to meet income and asset requirements, exempt and non-exempt properties, and avoiding the state recovering significant assets during probate requires careful planning by experienced professionals in both finance and Elder law.
We here at Baird Retirement Management consistently advise our clients on the pros and cons of purchasing long-term care insurance to potentially avoid problems like qualifying for Medicaid. To learn more about long-term care insurance, read our two previous articles on the topic here and here.IF2020-1215