Marc Ang tackles the dangerous myths surrounding long term care that could mean a depletion of your entire life savings, highlighting the importance of long term care planning. Medicare and Medicaid/Medi-Cal are not the perfect solutions for long term care.
False sense of security. Those are the words that come into mind for me when I hear people talk about their long term care planning process, or lack thereof.
But here’s the stark reality. There is a 68% chance that a senior over 65 will become either cognitively impaired (Alzheimer’s or Dementia) or unable to complete two ADLs (activities of daily living – i.e. dressing, bathing, eating, transferring, toileting, continence) over their lifetime. Long term care or life insurance with a care rider are triggered in this scenario.
However, most people whistle past the grave and fall into one of the following buckets:
- “I don’t want to think about long term care. I will remain invincible” crowd
- Those who simply have a hazy idea about how Medicare works, and wrongly assume that will take care of them.
- Those who think Medicaid (Medi-Cal) will save them at the end of the day, without understanding the strict rules.
Let’s talk in some further detail to these three groups, debunk some myths with a little straight talk, and think about solutions for long term care.
For Those Not Even Thinking of Care Costs
No, you are not invincible. When there is almost a 7 out of 10 chance that you will need some sort of care in your lifetime, this could be a quick road to bankruptcy through a rapid depletion of your assets. I have seen way too many seniors living a normal carefree life without long term care planning. Then the health incident happens, and suddenly they have an extra $200/day ($6,000/month) bill to pay for a caregiver. This sends people to doing undesirable things, such as selling their home or entering a reverse mortgage.
For Those Who Believe Medicare Is Sufficient
Many people take a false sense of comfort that they worked all their lives, paid into Medicare and now the magical Medicare comes at age 65 and you are good to go. No long term care planning needed, no more health costs? Not really.
Medicare covers some but not all costs. There are a lot of pesky rules on what they will cover and what they won’t. For example, Medicare covers only short nursing home stays and they will do so only if you meet strict criteria. This includes rehabilitation, but only if you were treated from a hospital. Medicare will also not cover nursing stays if you were checked in for an observation. There are also lifetime limits on certain categories. Not only are there myths surrounding medicare, there are medicaid myths that you should be aware of as well.
For Those Who Believe Medi-Cal (or Medicaid) Is Sufficient
Medicaid is welfare. It is for those who have spent down everything they have and it is society’s safety net. Sounds good on the surface, but there’s some medicaid myths lingering around, so let’s dig a little deeper.
- How do I qualify for Medi-Cal/Medicaid?
- You need to have $2,000 or less in your name. However, this is undesirable if you want to leave something to the next generation and if you don’t want to end your life with nothing.
- You will be audited for the last 2.5 (in California) or 5 years (in most other states). This is called “the look back period“.
- Any gifts or transfers of assets made during this 2.5 year (30 month) or 5 year (60 month) period before the date of the application will incur penalties or trigger ineligibility.
- For every $6,840 in gifts, you will lose one month of eligibility.
- A gift of $100,000 would trigger a period of over a year (about 14 months) of ineligibility.
- What if you get an inheritance?
- Medi-Cal/Medicaid will stop until you spend down those assets to $2,000 or less.
- Careful estate planning involving a special needs trust or an irrevocable trust is important in these cases BEFORE you receive the inheritance. If done correctly, you can qualify for Medi-Cal/Medicaid and still have assets to help your family.
- There are many exempt assets, such as your primary residence, property used for a business or income producing, a motor vehicle, retirement accounts, burial plots and household items, among others. This is why careful planning is needed.
The Key Takeaway for Long Term Care Planning
There are many Medicare and Medicaid myths. Your options are limited if you don’t plan ahead of time. So start having a real discussion about the solutions for long term care and begin your long term care planning today.
Marc Ang (Mangus) is a financial planner based in Claremont, CA, focused on spreading the gospel about responsible, educated and smart financial planning.