By Jason D. Nickerson
The topic for this article came through a request that focused on Medicaid. However, I decided to expand the topic to include Long Term Care Planning because this is an extremely robust topic, as you will see. The question that serves as the title of this piece illustrates how much confusion lies in this area of Wealth Management.
Let’s start with the ominous “They”. Who are “They” and why are they taking people’s homes? How does this link to me getting older and not having the ability to take care of myself? While this is a very common concern, no one is in fact going to come and take your home. This is a myth – that when you are unable to care for yourself, someone will show up, kick you out, and take ownership as payment. This does not happen.
Instead, Long-Term Care generally happens in 3 phases:
- In-Home Care: Most people prefer to stay in their own home if they can by hiring people to come in part-time and help with daily activities. There are two ways to pay for this: out of pocket or insurance.
2. Assisted Living: A location that people rent that includes some level of help with daily activities and onsite medical treatment. Again, paid for out of pocket or with insurance.
3. Nursing Home: This is the level of care needed when you cannot be alone or need help with just about any daily activities. There are three ways to pay for this: out of pocket, insurance, or Medicaid (also a form of insurance).
Medicaid pays for nursing home care when people cannot pay for it themselves or don’t have long term care insurance. As stated earlier, they do not come to take your home. Medicaid is not looking to be a real estate investor. Rather, the value of your home can be factored into the assessment of your ability to pay for your care through assets and income.
Before we go much further, this is not an article about how to make yourself look “poor” to qualify for Medicaid. There is a great debate over the ethics of these efforts and we will leave that discussion for another article.
The common questions we get asked are “What can I do to protect my house from the nursing home?” or “Do I need Long Term Care Insurance?” At John G. Ullman and Associates, we enter these conversations with clients by asking one simple question (after preparing a detailed personal net worth statement); “Do you want to protect any of your assets for your heirs?” If the answer is yes, then we need to discuss the different forms of insurance that may be available. If the answer is no, then that is usually the answer for whether insurance is needed.
We then go on to one of the great philosophical statements: In order to get something, you have to give something up. I believe the root of this should be credited to author David Levithan, different words, same meaning.
If you want to protect your assets, you can either spend money on insurance, or give it away to your heirs now (with no future benefit coming back to you). If you give it away now, it’s not yours. The protection you seek may not deliver what you would want for yourself for care going forward. If you want top-notch care, you will need to give up some level of protection of assets for heirs and use it instead to pay for insurance and/or your care.
As this topic is extremely robust, my goal was to present a mental model for approaching it with your advisor, be it financial or legal, rather than lay out specific strategies. That could take up a single volume of this publication all its own. If you do not have a professional you are working with and need to on this topic, please contact us for a non-commercial (meaning free and we won’t sell you anything) discussion and we can get you started down a good path.
So will “They” take your home? No, but you should still be preparing for future health care costs. It is not an enjoyable topic to consider or discuss, but you should not just table it for the future because the future might arrive sooner than you expect. You have options; take the time to explore them. In the end, whether you want to protect assets by using long-term care insurance or prefer to spend your own money is a choice entirely up to you.