Middle-income people often can arrange their financial affairs so that the government picks up the tab for nursing home care.
But are such arrangements prudent planning, as some advocates claim, or an abuse of the system, as others suggest?
The only government program that pays for custodial nursing home care is Medicaid, known as Medi-Cal in California. It's a joint state-federal program designed to provide health insurance for the poor. The intent to help the needy makes Medi-Cal and Medicaid different from Medicare, the federal program that provides health insurance--but typically not long-term care costs--for virtually all U.S. citizens over 65.
Lawyers, financial planners and others who specialize in Medi-Cal planning say that middle-income people can take advantage of the program by transferring assets, making gifts and spending their cash to get below Medi-Cal limitations.
Advocates for this type of planning say it allows the elderly to preserve some of their assets to pass along to their children or to live on should they survive a long-term illness. They liken Medi-Cal planning to estate planning or tax planning as a legitimate way to hang on to a hard-won nest egg and to ensure that the elderly are not wiped out by the many expenses of long-term care that are not covered by traditional insurance.
"What is so moral about spending your life savings to enrich the nursing home industry or a insurance company?" asked Robert Rosenfeld, an estate planning attorney in Solon, Ohio. "If you wish to leave any inheritance to your descendants, avoidance of the catastrophic expense of elder care is required."
Proponents of Medi-Cal planning defend themselves by noting inconsistency in the system. For example, certain catastrophic diseases, such as cancer, are fully covered under most medical insurance, but the diseases that require custodial care, such as Alzheimer's, are not.
Detractors say that Medi-Cal planning may be legal but unfairly uses resources originally designed for the poor. Any extra money Medi-Cal spends means more has to come from other taxpayers.
"It makes me uncomfortable," said Marty Richards, a Seattle social worker and geriatric-care manager with 32 years' experience in the issues of aging. Richards worries that widespread use of Medicaid planning by middle-income people could bankrupt the system or force reductions in the level of benefits available to the needy.
Richards also questions whether the desire to leave or get an inheritance should outweigh personal responsibility for paying nursing home costs.
To qualify for Medi-Cal, applicants must meet certain financial limits, which are different for married and single people. A spouse who needs nursing home care would be eligible for Medi-Cal if the couple's assets are worth less than $84,120. A single person's assets may not exceed $2,000. The higher limit for married couples was designed to prevent one spouse from being impoverished by the other's long-term illness.
Certain assets, such as homes and retirement plans owned by the well spouse, are not counted in determining Medi-Cal eligibility.
Most other assets, including stocks, bonds, cash, savings accounts and rental property, are counted toward the Medi-Cal limit. And although homes are considered exempt assets, the state can make a claim against the house after an applicant's death--a claim that may require the house be sold to reimburse the program for benefits provided.
In an effort to prevent people from giving away assets that could be used for nursing home care, Medi-Cal examines an applicant's finances for the previous 30 months to determine if otherwise countable assets were improperly transferred to someone else. If such improper gifts are made, the applicant is made ineligible for a period of time--usually the number of months of nursing home care the asset could have purchased. For example, a $10,000 gift would be divided by $3,460--the average private-pay monthly rate for nursing home care in California--making the applicant ineligible for about three months.
Medi-Cal planners say applicants can avoid these rules by using their assets to pay off mortgages, fix up their houses, pay debts or reimburse their children for out-of-pocket expenses incurred (such as prescriptions, medical equipment or special foods), although these latter expenses could be determined by Medi-Cal to be disguised gifts if improperly documented.
Some also advise buying carefully structured, irrevocable fixed annuities that pay out income only for the buyer's life expectancy. Medi-Cal rules in these areas are complicated, and elder-law attorneys recommend getting professional help. Another resource is "The Medi-Cal Advantage: How to Save the Family Home from the Cost of Nursing Home Care" by F. Douglas Lofton and Mellanese S. Lofton (Lailabella Press, 1998).