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A Startling $100,000 Detail

Mary hadn’t slept well in days. Her husband, James, was in the hospital, and the doctors recently told Mary that he would need the 24 hour care of a nursing home after discharge. Mary’s primary concern was obviously for James’ health, but financial concerns also weighed heavily on her mind. Mary heard all the rumors about how “the state” or “the nursing home” takes everything you have when you need nursing home care, and she had no idea how she could afford the care her husband needed and still meet her own expenses.

Each month, James brought in just under $2,200 between his social security and pension, and Mary received around $1,800 each month herself. They lived comfortably on their combined $4,000 per month income in the past, but the nursing home would cost them $5,000 a month, leaving James $1,000 short in paying his nursing home expense and not leaving Mary a penny to live on. Mary didn’t know what she was going to do.

Mary was an avid reader of Saline County Lifestyles, and the day before her husband was to be discharged to the nursing home, she saw an interesting article in the most recent edition while visiting her husband at the hospital. The article explained that Medicaid is one of the few benefits that can help pay for nursing home care, and she was surprised to learn that even people with some money in the bank can qualify for coverage. She and her husband owned their home and a couple of vehicles, and they had around $200,000 in the bank. Before stumbling onto this article, she wasn’t real sure what Medicaid covered, but she was positive she and her husband would not qualify.

Mary quickly scheduled a meeting with the Elder Law attorney who wrote the article, and the consultation was truly eye opening. Mary learned that neither the state nor the nursing home would take her assets as she had feared; however, if James didn’t qualify for Medicaid coverage, she would be forced to liquidate significant assets a month at a time to meet expenses. Mary learned that if James could qualify for Medicaid coverage, he would be required to pay the nursing home an amount close to his monthly income each month, but Medicaid would cover the rest of the nursing home cost. In other words, James would only owe the nursing home around $2,000 each month instead of the $5,000 Mary had anticipated.

This was interesting information, but she still didn’t think it applied to her, especially since they owned their home and had $200,000 in the bank. But the attorney explained that her home could be protected under current Medicaid rules. To Mary’s surprise, Medicaid rules also protect half of the money she and James had in the bank for Mary’s future needs. Things were sounding a little better, but Mary still wondered what she was supposed to do with the other $100,000 they had in the bank.

Mary learned that she and James would have to “spend down” half of their assets before James would qualify for Medicaid coverage, but that did not mean that she literally had to “spend” $100,000 on nursing home care or other expenses before James could get some financial help from Medicaid. The attorney said some people simply try to transfer the extra money to a family member. While this is not illegal, and in some cases might actually be advisable, it cannot be accomplished without some cost. Medicaid penalizes applicants who transfer assets out of their names by making them wait a predetermined number of months for coverage. Every $5,000 transferred results in a one month Medicaid waiting period, so transferring $100,000 would result in a 20 month waiting period.

In this case, the attorney advised Mary to purchase a Medicaid Qualified Annuity with the $100,000 she needed to spend down. The annuity purchase would “cost” her $100,000, meaning the bank account balance would be reduced by half, in compliance with Medicaid rules. But instead of spending this money on nursing home costs or other expenses or giving it away, the money would be converted to an annuity income stream. In Mary’s case, the annuity would pay her about $1,700 per month for five years. The income stream from this Medicaid Qualified Annuity would pay directly to Mary and would not go to the nursing home. She could use her regular income plus this annuity income to meet her living expenses, or she could save it and rebuild her accounts. These annuities are safe in that they are not tied to the market but pay a preset interest rate. The rate is not high, since it is guaranteed, but it is not subject to market risks.

The attorney clarified that not all annuities are good for seniors, and not all annuities qualify as Medicaid Qualified Annuities. But knowing the secret about using the right type of annuity at the right time helped James qualify for Medicaid coverage and saved Mary $100,000, half of their life savings.

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