Long-Term Care Insurance and Medicaid Planning

Long-Term Care Insurance and Medicaid PlanningWhile in large part people who purchase long-term care insurance and those who plan to qualify for Medicaid coverage of long-term care costs fall into separate groups, there are at least two situations where they overlap.

The first group is seniors who cannot afford to purchase lifetime long-term care insurance coverage. These individuals may want to purchase long-term care insurance coverage for five years. They may then transfer assets to family members or to a trust, keeping enough funds so that with the long-term care insurance benefit they can pay for their care for the subsequent five years. After five years have passed, the Medicaid look-back period for asset transfers will have passed, permitting them to be eligible for Medicaid coverage if their other assets have been spent down to the appropriate limit.

The second group is seniors who are healthy and wish to transfer assets now, but who don't have enough funds to cover five years of care if they had a stroke or other adverse medical event soon after the transfer. These seniors could purchase long-term care insurance to cover the five-year period after the transfer. They may not have enough funds or income to pay the premiums indefinitely, but are able to do so for five years, at the end of which they can decide whether to continue the policy, perhaps with the assistance of children.

For example, suppose a senior owns a home that she wants to protect, but little else. She could protect the home by transferring it into an irrevocable trust. She would then purchase long-term care insurance and hold the policy for five years as she waits out Medicaid’s look-back period. If, for instance, the premiums on the policy are $5,000 a year and the house is worth $500,000, $25,000 is a very reasonable price to pay to protect $500,000.

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