The entitlement program comes in the form of Medicaid benefits. Medicaid pays for over 40% of the nation’s long-term care needs. About 67% of people in nursing homes depends on Medicaid. Without Medicaid, many seniors simply won’t get the care they need.
In order to qualify for Medicaid benefits, a person’s assets must not exceed about $2,000. So before you receive any help from Medicaid, you’ll need to “spend down” to impoverishment levels by paying for care yourself. And because long-term care costs are so expensive, this spend-down can deplete your assets very fast.
Essentially, you are forced into poverty before Medicaid can come in to help. It’s a harsh reality, but that’s the way the system is set up. And once you’re on Medicaid, you’ll be solely reliant on it because you will have exhausted all of your personal assets. In some extreme cases, married couples have filed for divorce in order to protect their assets while one of the spouses tries to qualify for Medicaid.
Medicaid No Longer Just a Program for the Poor
When Medicaid was first enacted in 1965 by President LBJ, it was an entitlement program intended to provide health care for low income families, regardless of age. That’s still the case today, but in terms of long-term care for seniors and retirees, it has transformed into a program for middle class and upper-middle class families. Impoverishment from forced spend-down has caused a vast majority of people who need long-term care to rely on Medicaid to pay for the costs.
But Qualifying for Entitlement Benefits Has Become More Difficult
While more and more seniors are relying on Medicaid, recent laws have made it more difficult to qualify for Medicaid benefits. The biggest of these laws is the Deficit Reduction Act of 2005, which aimed to cut spending on federal programs like Medicaid in order to reduce the federal deficit. The Act places more stringent rules on asset structures and asset transfers when applying for Medicaid.
All these laws have created a system where trying to qualify for Medicaid has become a complicated process that involves financial and legal factors – factors such as lookback periods, income gaps, home equity limits, asset transfers, living trusts, countable assets, and penalty periods.
The good news: It’s possible not only to qualify for entitlement benefits, but also to protect your assets from forced spend-down so that you avoid impoverishment. Strategically, this form of asset protection is no different than using careful tax planning to maximize income tax deductions. It’s a legally sound and proven way to protect your assets and preserve your legacy.