When you pay FICA or self-employment taxes, it may seem like you are just pouring money down a black hole that will never come back around to provide any benefits for you. In fact, this is really not the case.
You earn retirement credits when you pay these taxes, and anyone that works full-time or consistently on a part-time basis will receive the maximum four credits per year. When you have at least 40 credits to your name, you will qualify for Medicare and Social Security when you are a senior citizen.
Since Medicare is a program that exists to provide health insurance for people that are 65 years of age and older (though there are some exceptions), it would be logical to assume that it would pay for nursing home care.
Whether it makes sense or not, Medicare does not cover the long-term custodial care that nursing homes provide.
If you are thinking that it is unlikely that you will ever need to reside in a nursing home, you should understand the facts. According to the United States Department of Health and Human Services, approximately 35% of senior citizens will spend time in nursing homes. The typical length of stay has grown to several years, especially for those with significant cognitive decline or dementia.
Most people cannot comfortably pay for nursing home care out of their own pockets. In Monroe County where we practice law, the average annual cost for a room in a nursing home is over $171,000. Costs are rising year-by-year, so the numbers could be much larger if you need long-term care in a couple of decades or more.
What’s the Solution?
Fortunately, there is a widely embraced solution to this problem in the form of the Medicaid program. This jointly administered federal/state government health insurance resource will pay for custodial care if you can obtain eligibility. Of course, this is easier said than done, because it is a need-based program that is intended for people with limited financial resources.
The asset limit is just $15,450, but before you turn the page and resign yourself to paying out-of-pocket if it becomes necessary, you should understand the “fine print.” If you own a home, it is not looked upon as a countable asset, but there is a $878,000 equity limit in New York during the current calendar year.
One vehicle is not counted, along with your household items and your personal effects. Heirloom jewelry, engagement rings, and wedding rings are exempt, and you can have unlimited term life insurance. A whole life insurance policy worth $1500 or less is allowed, and you can have the same amount saved for your final expenses.
In many instances, a married person will require nursing home care while his or her spouse can continue to live at home. Under these circumstances, there would be no equity limit at all, and the healthy spouse would be able to keep half of the shared countable assets up to a limit that stands at $126,420 in 2019. This is called the Community Spouse Resource Allowance. In addition to the maximum allowance, there is also a minimum of $74,820. It should be noted that these figures are updated annually to account for inflation. However, the Medicaid agency will have a “right of recovery” against the home and other assets once both spouses have died, leaving nothing to pass on to the family.
When a single individual is using Medicaid to pay for long-term care, almost all their income must be used to defray the costs. This requirement is waived when a healthy spouse is relying on the income. This is called a Medicaid Monthly Maintenance Needs Allowance. The maximum in the Empire State this year is $3160.50.
You could give gifts to your loved ones to divest yourself of countable assets with Medicaid eligibility in mind. While this is often done, it is a risky proposition, and many problems often result from this planning shortcut, including loss of assets and negative income tax consequences for the family. Moreover, but you must act in advance, because you have to complete the gift giving at least five years before you apply.
If you violate this rule, your eligibility is delayed. The duration of the penalty will depend upon the amount that you gave away. For example, if you divested yourself of a sum that would have paid for two years of nursing home care, your Medicaid eligibility would be delayed by two years.
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The good news is, these harsh results can be avoided with proper planning. We are here to help if you would like to discuss Medicaid planning with an experienced elder law attorney. You can send us a message to request a consultation appointment, and we can be reached by phone at (585) 546-1734.