How to Pay for a Nursing Home?

The Cost of Long-Term Care

According to a recent survey, as of July, 2022 the median cost for nursing home bed in New Hampshire is $10,950 for a semi-private room and $12,015 for a private room. These numbers are quite a bit higher than the national averages of $7,098 and $9,034.

The average length of stay in a nursing home is a little more than two years. This means that the average total cost of care is about $300,000. Of course, this can vary widely. Some residents only stay for a short time, at the very end of their life. Others, such as those suffering from dementia, may live in a nursing home for a decade more. Such a lengthy stay can exhaust a life-savings of more than a million dollars!

Medicare Does Not Cover a Nursing Home

Many seniors mistakenly believe the Medicare will pay for a nursing home if they need to go into one. After all, that seems fair right? If you worked your whole life and paid taxes for Social Security and Medicare, shouldn’t you be covered? Isn’t that what insurance is for? Unfortunately, Medicare only covers medical expenses. Long-term care is not considered a medical expense. Medicare will cover a hospitalization, or a rehabilitation stay for up to a certain number of days, but it will not cover a nursing home.

Is Long-Term Care Insurance Available?

Another possibility is private long-term care insurance, which is available for purchase.  This might be a good option to explore but there a few obstacles. One is that the premiums are high, and not affordable for many. The second related issue is that the insurance companies will not sell a policy to a person over a certain age or who does not meet certain health criteria. Or, if they do, the prices will be even more exorbitant to factor in the risk to the insurance company.

Financial advisor vary in their opinions on whether to, and if so, at what age to, purchase long-term care insurance. Popular television personality Suze Orman, for example, advises that, if you intend to buy coverage, not to wait until your health declines. Most people purchase coverage in their 50s,” she says. Many, however, don’t think about long-term care when they are relatively young and healthy.  By the time they start to think about long-term care, they may not qualify, Or, they simply can’t afford the premiums.

Caps on Long-Term Care Insurance

You should also be aware of when it comes to long-term care insurance is that the policies include caps on both the daily and lifetime payments.   A low daily cap of perhaps $100, will only cover $3,000 of care. If the nursing home fee is $10,000 that leaves the resident to pay the gap from whatever income they may have and then by drawing down on savings. On the other hand, if the cap is $300 per day, this will cover $9,000 per month. Most seniors have at least enough income from social security or another source that they can use to pay the difference, meaning they will not have to draw down on savings to pay for their care. In addition to the daily caps, long-term care policies usually have lifetime caps.

Some people may choose to “self-insure” for long-term care by taking the money that would have gone into premiums and investing it instead, with the hopes of building an account that will cover long-term care if necessary. There are many strategies and, as New Hampshire Medicaid planning lawyers, we do not intend to give specific advise about if or when to buy long-term care insurance. We simply note their availability to clients and put them in touch with qualified financial advisors when appropriate.

What About Medicaid?

Difference Between Medicare and Medicaid

The final option for most people is Medicaid. Many people are confused about the difference between Medicare and Medicaid. The key difference is that Medicare is an “entitlement” program. Medicare is health insurance available to qualified individuals regardless of their financial status. Far and away the most common group of people who are entitled Medicare are those over age the age of 65. People with disabilities who qualify for social security disability can also get Medicare after a waiting period.

Medicaid, on the other hand, are health benefits for those who are financially eligible. Medicaid is funded primarily by the federal government but run by each individual state. Because the federal government provides most of the funding, it imposes many regulations on how the states can manage the program, and who can get benefits. The key thing to know is that only people with limited assets and income can qualify for Medicaid.

Will Medicaid Pay for a Nursing Home?

The good news is that Medicaid will pay for nursing home care for those seniors who qualify. In order to qualify, a senior citizen must be medically eligible, meaning they must truly need the care. And, they must be financially eligible, meaning they have inadequate income or assets to pay.

If the resident makes some income, but not enough to pay for the full cost of the nursing home, then they must use nearly all of their income to pay for the nursing home. If otherwise eligible, Medicaid will only pay the remaining portion. The law does provide a number of exceptions that might allow the resident to use some of the income for personal needs. They may also be able to use some of it to help support a spouse. Some states require the resident, or their power of attorney, to use a special type of trust (known as a “Miller Trust”) to receive and distribute the income.  Elder Law Attorneys specialize in figuring out how to best maximize the resident’s income.

In addition to income, Medicaid also imposes a “countable asset” test. This means that if the resident owns over a certain amount of assets — including real estate, bank accounts, retirements, stocks and other investments, and so on — then they will not be eligible for Medicaid to pay for the nursing home. There are some exceptions, and a lot of complicating factors that go into what counts as a “countable asset”.

Hiring a New Hampshire Medicaid Planning Lawyer to Prepare a Medicaid Application

It is often wise to hire a high quality New Hampshire Medicaid planning lawyer to help prepare the application for Medicaid. A lawyer will know what assets must, and need not, be included. An experienced New Hampshire Medicaid planning lawyer can sometimes recommend a strategy to restructure assets prior to the application for Medicaid, that will help qualify the resident. However, the options are limited and will usually not be clients with high assets. Suffice to say, if you look at it from the government’s perspective, the entire purpose of Medicaid would be defeated if anyone could qualify regardless of how much money they have. By design Medicaid is only intended to help the needy.

Can You Gift Your Money Away?

Many families wonder if their loved one can simply gift away their assets before entering the nursing home. After all, the nursing home resident will often get the same bed whether they are privately paying or Medicaid is paying. This is especially true if they start off as “private pay” and then exhaust their assets and qualify for Medicaid. Usually the nursing home will continue to accept the Medicaid payment without trying to remove the resident.

Unfortunately, the government already thought of the use of gifts as a loophole and has put into place a rule to avoid it. New Hampshire Medicaid Planning lawyers call this “lookback period”. In New Hampshire, like every state except California, the lookback period is five years. If the Medicaid applicant has made any gifts within the lookback period, then they will be disqualified from Medicaid for a certain period of time.

The length of time that they are disqualified depends on the on the size of the gift. The calculation is complicated and is tied to the average monthly price of a nursing home bed, which is periodically updated. The general idea is that it is assumed the money that was gifted should have been used to pay for the bed and therefore the applicant will have to private pay. If the applicant made a fairly small gift, they might have to private pay for only a few months but if it was a large gift it could be years.

Medicaid Asset Protection Trust

What this means is that the best way to protect assets and still qualify for Medicaid is through a type of trust known as the “Medicaid Asset Protection Trust.” Many people believe that a typical Revocable Living Trust  will protect their assets from creditors, including a nursing home or the State. Actually this is not true. Because the person who establishes the revocable living trust has the right to change it at any time, and use the assets as they wish, the state considers it a countable asset for most purposes.

A Medicaid Asset Protection Trust, on the other hand, is different because it is an Irrevocable Trust. This means that you cannot change the trust after you set it up.  Once assets such as real estate or money is put into it, it cannot be withdrawn. Furthermore, with the Medicaid Asset Protection Trust, a New Hampshire Medicaid planning lawyer will usually recommend that someone other than the elderly person act as the trustee. For example, this may be a child or a trusted relative or friend. As long as the senior citizen who might need to go into a nursing home does not have control over the assets, they are no longer countable if they need a nursing home down the road.

With the Medicaid Asset Protection Trust, assets transferred into it still must meet the five-year lookback period. However, there are several advantages to using  a Trust rather than simply gifting the assets outright to family members. The key consideration, however, is that the Trust should be established, and the assets transferred, while the senior citizen is still healthy. Hopefully at least five years will pass before they need long-term care.

Pros and Cons to the Medicaid Asset Protection Trust

The downside to this approach is that it requires giving up control, and restricting use of assets. Some senior citizens simply prefer not to give up control during their lifetime, which is absolutey their right. Some others may not have a family members or friend that they feel comfortable acting as a trustee. Other senior citizens, however, are more than comfortable putting assets into trust. They may trust a child or other loved one to manage the trust. And, they may not need those assets to meet their living expenses during their lifetime.  A senior in that siuation may be the perfect candidate

When a New Hampshire Medicaid planning lawyer drafts a Medicaid Asset Protection Trust, they should consider numerous factors. A qualified New Hampshire Medicaid planning lawyer will review the client unique circumstances in detail, discussing their lifestyle, family, assets, income, expenses,  needs, and so forth. After gathering all of this information they will propose a customized plan that meets as many of the clients goals as possible. The lawyer drafting a Medicaid Asset Protection Trust also must take into account some complicated, and ever-changing, tax laws. Therefore, it tends to be quite a bit more expensive than a typical Will or Revocable Living Trust. However, it may very well be worth it. In the right situation a Medicaid Asset Protection Trust can help preserve a legacy that would otherwise go entirely to the State or a nursing home.

If you are currently grappling with how to afford long-term care as you or a parent ages, contact us. We offer a free initial consultation to see what type of plan might be best for your family.

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