February 12, 2004   Copyright © 2004, Greenwich Financial Management Inc., a registered investment advisor.  Securities offered exclusively through Purshe Kaplan Sterling Investments of Albany, NY, a NASD member firm.

 

 

Demystifying Insurance, Part 10:

Medicare, Medicaid and Long-Term Care

 

           

                        The system of government support for long-term nursing care in this country looks first to your private insurance.  The safety net providing for those who lack any private long-term care insurance, or enough of it, falls into two categories: Medicare and Medicaid. 

 

                        Medicare is funded by part of the social security tax, which is contributed by both employers and employees.  There are now over 41.7 million beneficiaries.  Enacted in 1965, Medicare is one of those pay as you go programs that has never been put on a sound actuarial footing.  You are eligible for Medicare: if you are at least 65 years of age, and you or your spouse worked for at least ten years under Medicare covered employment; if you are younger than 65, but you have received Social Security Disability benefits for at least two years; or if you have End Stage Renal Disease (a disease Congress has favored).  You may also qualify if you did not meet covered employment requirements but pay a monthly premium under Part A.  For eligibility, see www.medicare.gov.   

 

                        The Medicare Part A deductible of $876 is the beneficiary's only cost for up to sixty days of Medicare-covered inpatient hospital care. However, for extended Medicare-covered hospital stays, beneficiaries must pay an additional $219 per day for days 61 through 90 in 2004, and $438 per day for hospital stays beyond the 90th day in a benefit period.  From: www.hhs.gov.  Medicare Part B covers physicians' and surgeons' expenses, with many exclusions (such as outpatient drugs) and deductibles.  Although there is a monthly premium for Part B (which may be subsidized), it's a great deal, and there is 95% elective participation.  Medicare is preferably supplemented by private Medicare Supplemental Insurance ("Medigap"), standardized under ten programs of increasing inclusiveness called A through J.  See www.kff.org (the Kaiser Family Foundation). 

 

                        Medicare is not intended to fund long-term nursing home care.  Potential recipients must first be hospitalized for at least three days (this requirement no doubt leads to some needless hospitalizations) and then enter a Medicare approved nursing facility within thirty days.  Medicare will then pay in full for the first twenty days and will pay minus a $109.50 per day deductible for up to 80 more days.  Medicare will also pay for some home health care (including durable medical equipment), hospice care and blood.  The home benefit is unlimited in length, but must be approved by a physician, subject to oversight and renewal every sixty days.  Patients under home care typically may be able to receive a total of four to ten hours a week total of subsidized professional care, although the nominal maximum is 35 hours.

 

                        Medicaid is a program funded by the federal government together with the states to meet the health needs of indigents.  It will only pay nursing home costs if the resident has almost no assets or income.  Moreover, assets and income of married couples must be declared jointly.  The cost of nursing care will deplete most estates quickly.  Until you have spent down virtually to nothing, Medicaid will not pay.  Moreover, even though a recipient or recipient couple may be allowed to keep a house and one car, Medicaid will have a first claim against the estate of the recipient or of the surviving spouse for Medicaid expenses.  On the other hand, Medicaid pays all costs of residence in eligible facilities, and it also pays all chargeable medical costs from approved providers. 

 

            The Kennedy-Katzenbaum Act (1966) made it a crime to transfer assets with the intention of defrauding Medicaid.  However, if carried out in a proper and timely fashion, there are legally sound ways to transfer assets into trust to meet future needs of recipients.  These include Medicaid Qualifying Trusts.  There are also Special Needs Trusts, worth thinking about if you are not extremely wealthy and you have a child with special health care or custodial needs.  For wealthier families, different kinds of trust structures make sense to lessen or eliminate the bite of estate taxes, to bypass probate, and to lessen the risk that litigious plaintiffs may attach assets.  I would be glad to refer readers to trusts and estates attorneys who specialize in this kind of structuring, and I would also welcome input from practitioners.

 

            Given the limitations of Medicare and Medicaid, many families have a compelling need for private long-term care insurance, to be discussed next week.

 

                       

Andy Szabo, CFA, is Managing Director of Greenwich Financial Management Inc., a Registered Investment Advisor, which advises individuals and companies on investments, insurance and employee benefits.  Questions or comments welcome by phone (203-531-2877) or e-mail: Szabo@GreenwichFinancial.com.