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Planning for long-term care in Indiana:
Medicare and Medicaid
March 2002
Introduction
One of the most difficult issues facing people today is how to
provide long-term care for their loved ones or for themselves.
These decisions are not easy decisions to make because they affect
the most personal aspects of our lives. It may mean leaving the
house where the children were raised, relocating to a new community,
and most worrisome of all, it may be extremely costly. Long-term
care is an essential component of an individual's general estate
plan and retirement strategy and the planning process should begin
years before the individual will have to face this situation.
In devising this plan, a good place to start is to understand
what Medicare and/or Medicaid does and does not provide. Without
fundamental changes to the Medicare program, which many American's
rely on as their primary source of health care/long-term care
coverage, Medicare will go bankrupt in the year 2015. Furthermore,
even with the existence of Medicare, beneficiaries pay nearly
30 percent of their health care costs out of their own pockets.
Experts predict that this figure will continue to rise. Although
concerning, these statistics relay the importance of understanding
the system and planning accordingly.
Medicare
Medicare is the nation's largest health insurance program, covering
37 million Americans. Medicare provides insurance to people who
are over 65 years old, people who are disabled, and people with
permanent kidney failure. Medicare has two parts: Hospital Insurance
(Part A) and Medical Insurance (Part B).
Medicare Part A provides coverage for inpatient hospital services,
skilled nursing facilities, home health services and hospice care.
This insurance helps pay for medical care and services provided
by Medicare-certified hospitals, skilled nursing facilities, home
healthcare agencies, and hospices. Coverage for care in hospitals
is measured in benefit periods and there is no limit to the number
of benefit periods an individual is entitled to under the program.
Medicare will help pay for 90 days of inpatient hospital care
in each benefit period. Medicare will also contribute to care
in a skilled nursing facility and home health care, provided the
individual meets certain requirements. The only type of nursing
home care Medicare pays for is skilled nursing facility for rehabilitation,
after a hospital stay, for example. Medicare does not pay for
assistance with daily living activities. In both cases, the patient
may end up sharing the cost of the care if the care exceeds the
maximum number of days provided for under the policy.
Medicare Part B helps pay for the cost of physician services,
outpatient hospital services (including emergency room visits),
ambulance transportation, diagnostic tests, laboratory services,
some preventative care, outpatient therapy services, some medical
equipment and supplies and other health services and supplies.
Medicare Part B pays 80 percent of approved charges for most covered
services. Medicare does not pay for most prescription drugs, routine
physical examinations, dental care, cosmetic surgery, hearing
aids, eye examinations, or eyeglasses. There is a current push
in Congress, however, to implement a prescription drug benefit
plan as a part of Medicare Part coverage.
In addition, supplemental insurance, Medigap, is available to
help to pay out of pocket expenses not covered under Part A and
B. There are 10 standard Medigap policies, and each offers a different
combination of benefits tailored to meet the individual's needs.
If your healthcare needs require additional coverage, you may
want to consider a Medigap policy, which is private insurance.
It is important to note that the best time to purchase a policy
is during the 6-month period after the date you are first enrolled
in Medicare Part B and are age 65 or older. This is the open enrollment
period, in which time you cannot be turned down or charged higher
premiums because of poor health. If you decide to add a Medigap
policy after the open enrollment period, you may be forced to
accept whatever policy and price that an insurance company is
willing to give you.
Planning Considerations
There are six primary Medicare options; however, the availability
of these plans depends on where you live. Only Original Medicare
is available nationwide.
You can choose any Medicare option that is available in Indiana
until 2002. After 2002, you will be allowed to choose once per
year. There are several questions you may want to ask yourself
when choosing a plan. Do you need to see specialists on a regular
basis? Do you travel and need healthcare away from home? Is your
budget limited? Do you need prescription drug coverage? Are you
eligible for Medicaid? Do you have healthcare coverage from a
former employer? The answers to these questions should direct
you to the plan that will best suit your healthcare needs.
Medicaid
Medicaid is a broad, need based, medical assistance program, serving
those individuals who are unable to pay for necessary healthcare.
Medicaid is provided to two primary groups: community Medicaid
and long-term care. Community benefits are provided for younger,
disabled persons and families receiving public assistance. Medicaid
for persons in nursing homes is called long-term care Medicaid.
The distinction is important because the regulation for each program
is very different. The primary distinction is that the Medicaid
program must try to recover what it spends on long-term care benefits
from the estate of a recipient after he or she dies.
Eligibility is based on financial need, which can be proven by
several methods. If an individual already receives Supplemental
Security Income, they will automatically be eligible for Medicaid,
given the fact they have already proven their eligibility under
this program. Medicaid also has its own eligibility criteria,
which is based on income and assets. The income standard is based
on the Federal Poverty Level; however, it is possible for an individual
whose income exceeds this level to qualify for Medicaid. In certain
areas where medical care is particularly expensive, a person may
be deemed "medically needy," due to the fact that their
income is insufficient to meet healthcare costs. A "medically
needy" recipient will be required to pay a certain amount
of their income towards healthcare costs before Medicaid benefits
are available. The amount that an individual is required to pay
out of their monthly income is determined differently for long-term
care benefits. Each state sets a standard called a "personal
needs allowance" which ranges from $30 to $90, depending
on where you live.
The patient is required to contribute their entire monthly income,
with the exception of their personal needs allowance, towards
his or her care. Medicaid will then be responsible for the difference
between the monthly healthcare cost and the patient's contribution.
In addition to income requirements, Medicaid bases eligibility
on the value of the individual's assets.
Planning Considerations
In an effort to preclude individuals from giving away their wealth
in order to qualify for Medicaid assistance, Medicaid imposes
a strict "transfer penalty" upon those who gave away
property within a certain period of time prior to applying for
benefits. The penalty is proportional to the amount of property
that was transferred. The person who transferred property will
not be entitled to benefits equal to the value of the wealth they
gave away.
An individual contemplating giving away significant amounts of
property must be aware of the penalty if they foresee the possibility
of requiring Medicaid at some point. While it is possible to give
away property, the individual must be aware of the state's look
back period. A "look back period" is the time period
after which the program no longer asks whether the individual
gave away property or how much property was given away. It is
essential that an individual is aware of the exact day of the
transfer when applying for Medicaid benefits. If an individual
transfers property and files too soon, they will be subject to
the transfer penalty, even if the application was submitted one
day too soon.
Medicaid is also entitled to recover the value of the benefits
received during an individual's lifetime from their estate after
they die. The estate recovery process is the process whereby the
state files a claim against any significant asset that a person
owns at the time of their death. Typically, the personal residence
is the only significant asset. Certain states allow a lien to
be placed on the personal residence while the recipient is alive.
Conclusion
Planning for long-term care requires a thorough understanding
of all the options available to an individual. An attorney who
understands these options may be able to help you assess your
needs and assist you in devising a plan to meet these needs.
© West Group. All rights reserved.
Donald W. Wruck, III is an attorney with a general practice located
in Dyer, Indiana. He is also an adjunct professor, at Valparaiso
University. He teaches Media Law, Internet Law, and Defamation
Law and is co-author of Communication Law and the Internet.
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