Warning : Medicare and Medicaid are Different and the Rules that are Involved are Terrifying

I was recently speaking with a couple from Mt. Juliet, Tennessee and this husband and wife couple were very worried about future medical expenses as they got older. This couple said that their family had a history or living well into their late 90s and early 100s. In addition, they had concerns about future medical expenses. They informed me that they had heard a lot about government benefits that could be used to assist them to pay these costs and had heard about Medicare and Medicaid being used, but were very confused on how these programs could help them. 

I explained to this couple that many of our clients have questions about medical care expenses including using Medicare and Medicaid to help pay for these future expenses. In addition, I explained that it is quite common for many of our clients to be confused about these two government programs. 

First, Medicare and Medicaid are distinct and very different government programs. I explained that Medicare is a government insurance program that is used the help pay for future medical care. Medicare is different in that when you are age 65 or older, you receive Medicare. However, I explained that Medicaid is much different. Medicaid, on the other hand, is something that you have to qualify for. I explained that Medicaid is usually used, for those who qualify, to pay for nursing home expenses. However, there are a number of requirements that you must meet in order to qualify for Medicaid. 

I explained that in order to qualify for Medicaid you need to be of limited financial means. However, Medicaid allows you to own a home, a car, and a prepaid funeral regardless of value. In addition, Medicaid allows you to own no more than $2,000 of other assts. If you have more than $2,000 in other assets, you will not qualify for Medicaid and have to pay for your own nursing home expenses. I continued to discuss with this couple that the average cost of a nursing home can range from $5000 to $8000 per month, and the average stay is usually around 4 and a half years. Therefore, it is not out of the ordinary, for those that have to pay privately, that they will end up paying $60,000 to $96,000 per year and $270,000 to $432,000 by the end of the nursing home stay. 

In addition, I explained to this couple that Medicaid (or TennCare as it is called in Tennessee) has what is called estate recovery rights. I continued to explain that these estate recovery rights require the state of Tennessee to sell your home so that Medicaid can be reimbursed for all the costs that were paid out while you were in the nursing home. 

However, I discussed with this couple a possible solution to this concern of spending through a lifetime of savings during their nursing home stay. I explained that many of our clients have started setting up these special type of trusts that are commonly referred to as irrevocable Medicaid trust. I explained that the Medicaid rules allow us to set up these irrevocable trusts, which you are allowed to completely control and continue to receive all the income from, and so long as these trusts are set up and all your assets are put into the name of this trust at least five years before nursing home expenses begin, you will immediately qualify for Medicaid and will not have to spend your own assets on your nursing home expenses. 

In addition, I continued to explain that another benefit of the irrevocable Medicaid trusts are that since your home is not in your name when you die, then Medicaid is unable to exercise their estate recovery rights and are unable to force your estate to sell your home after you death. Also, and sometimes even more importantly, after you die, the court will never be involved in the settlement of your estate and all of your assets will pass to your loved ones and family members within days of your death, all without a long and drawn out probate court process.

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