While you pay taxes throughout your life, a portion of what you pay goes toward future Medicare coverage. If you have paid into the program sufficiently, you become eligible for coverage at the age of 65.
If you know you’re going to qualify for Medicare, you may be lulled into a false sense of security. It is logical to expect Medicare to pay for nursing home or assisted living community care, but in fact, Medicare does not pay for custodial care.
Medicare will pay for limited convalescent care after hospitalization for a period of up to a maximum of 100 days, but it won’t pay for help with your activities of daily living.
Long-term care is extremely expensive, and few people can pay comfortably out-of-pocket. In northern California, a lengthy stay in a nursing home can cost over $7,500 or more per month.
The Medi-Cal Program
Medicaid is a government program that is in place to provide health insurance for people with financial need. In California, the program is called Medi-Cal.
This program will pay for long-term custodial care. However, there are income and asset limits that you must stay within to qualify for coverage.
People often give away assets before they apply for Medi-Cal. You could essentially give your children their inheritances in advance. This is called a Medi-Cal spend down. The rules for such transfers are complex. Done correctly, it is a very effective planning technique. Done incorrectly and you can be disqualified from Medi-Cal benefits for many months or even years.
The Rights of Healthy Spouse
You may require long-term care while your spouse is still capable of staying at home. When this dynamic is in place, the healthy spouse is entitled to certain property rights.
When Medi-Cal is determining your eligibility for coverage, your house does not count under the current rules. However, that will change when the pending Medi-Cal rule changes become effective. Other exempt assets include one vehicle, household contents, certain burial and funeral assets and small insurance policies.
In Medi-Cal parlance, the healthy spouse is referred to as the community spouse. The healthy spouse is entitled to a Community Spouse Resource Allowance. For 2014, the Community Spouse Resource Allowance is $117,240. This is not the absolute limit as there are planning options available to increase that number under certain circumstances.
Under typical circumstances, most of the income that is drawn by the institutionalized spouse must go toward the cost of long-term care. This requirement is waived if the community spouse is relying on all or some of this income for support. There is a Monthly Maintenance Needs Allowance. In California, the maximum Monthly Maintenance Needs Allowance in 2014 is $2931. However, with carefully planning, this figure can often be exceeded.
Free Medi-Cal Planning Report
We have prepared a special report on Medi-Cal planning. To access your copy, click the Reports link on our website.