Who Pays for Long-Term Care?

Unfortunately, private health insurance, Medicare, and Medicaid (Tenn Care in Tennessee) are not realistic options to rely on to pay for your long-term care. This section addresses who pays for long-term care and what the limitations and disadvantages are in relying on those programs.

It is very important that you are aware of Medicare’s limits. Medicare is one of the most misunderstood government programs in defining what is actually covered for long-term care services. Medicare is a federal program administered by the Center for Medicare and Medicaid. It is available to most people at age 65 or those with end stage renal disease.

According to the pie chart Medicare paid only 13.7% of the nation's long-term care bill. The reason that Medicare doesn’t pay for more long-term care is that most long-term care is not skilled care and that is what Medicare primarily pays for. There are two parts to Medicare, Part A and Part B. As it relates to long-term care, Medicare Part A will pay for skilled nursing care, home health care (very limited), and hospice.

Medicare Skilled Nursing Facilities
Relying on Medicare to pay for your long-term care is not a solution because it only has the potential to pay for up to 100 days in a skilled nursing facility. The catch is that you have to be receiving skilled care on a daily basis at least five days a week and you have to have had a three-day hospital stay prior to entering the nursing home*. Most people do not qualify for the entire 100 days because they don’t meet Medicare’s criteria. *There are additional criteria as well.

Medicare will pay for the first 20 days in full, and will pay for all costs except a co-pay in 2004 of $109.50 for the next 80 days. However, the average number of days paid by Medicare is only 23 days according to the Health Care Financing Administration, 1998.

It is important to point out that if you only needed custodial care you would not receive any Medicare benefits.  And remember, most long term care is custodial or non-skilled care.

If you do not qualify for Medicare or Medicaid to pay for your long-term care, then you have to pay out of your own pocket. This may mean depleting your savings, cashing in your CDs, selling stocks and bonds, or even using cash value in a life insurance policy you may have. Unfortunately, for many people it does not take long before they deplete their life savings and end up qualifying for Medicaid (Medi-Cal in California).

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Medicaid is a joint federal and state program that pays for medical care for individuals who cannot pay their own medical bills. (In California this program is known as Medi-Cal). To qualify for Medicaid, an individual must have limited income and few assets. Medicaid eligibility rules are complicated, and different states apply different rules. Each state operates its own Medicaid program, consistent with federal law.

Medicaid pays for a majority of our nation's nursing home care costs. Unlike Medicare, Medicaid will pay for both skilled and custodial care, but in most cases is limited to nursing facility care. Medicaid pays for physician-approved hospital stays, medical care, prescription drugs, and skilled nursing home care. (There are exceptions in certain states)

The disadvantage to relying on Medicaid is that you will be very limited in your choices of nursing homes, or may be forced to go to a nursing home, since Medicaid usually does NOT pay for home care.

Income Limits
The income of a Medicaid nursing-home patient--usually Social Security and pension income--must generally be used to pay the costs of long-term care. The patient may keep a "personal-needs allowance" which averages $30 per month. (This varies by state.)

However, if the Medicaid nursing-home patient is married, the at-home spouse has the right to keep a certain amount of income, which can vary between $1,515.50 and $2,319. (This varies by state.) If the at-home spouse has income that is coming in their name alone, they are allowed to keep that income as well and it does not have to go toward their spouse's long-term care costs.

Generally speaking, if the individual has enough income to pay for their own care they will not qualify for Medicaid even if they meet the asset requirements below. If a couple has enough income to provide the at-home spouse with the minimum income requirements and pay for the nursing home spouse's long-term care, they will not qualify for Medicaid even if they meet the asset requirements.

Asset Limits
Before a Medicaid applicant can qualify for Medicaid they must "spend down" their assets, such as cash, stocks, and most other items with cash value, until around $2,000 remains. (This varies by state.)

If there is an at-home spouse, they may keep assets ranging between $18,552 and $92,760 depending on which state you live in. Any assets above that have to be "spent down". This does not include the house and car and a few other assets. In determining Medicaid eligibility, the couple's assets are evenly divided. The nursing home patient spends his/her half down to the state's criteria, which averages around $2,000. (This varies by state.) The only way the at-home spouse can keep the maximum of $92,760 is if half of their assets are equal to or exceed the maximum of $92,760. If this is not the case, the at-home spouse will get to keep 50% of their assets. They are allowed to keep at least the minimum asset allowance in their state. There are a few states that automatically allow the at-home spouse to keep the maximum of $92,760 if the couple has that much in assets.

Transferring Your Assets to Qualify for Medicaid
Many people think a solution to qualify for Medicaid is to falsely impoverish themselves by giving their assets away. The 1993 budget bill (OBRA '93) changed the transfer of asset guidelines to qualify for Medicaid's nursing home benefit dramatically. This legislation requires the Medicaid program to "look back" 36 months (30 months for CA) prior to the application for Medicaid's nursing home benefit to see if assets have been transferred for less than fair market value (i.e. to children or others). The look-back period is 60 months if assets were transferred to an irrevocable trust. The applicant is ineligible for the number of months equal to the amount of the transfer, divided by the state's average cost of nursing home care.

Estate Recovery for Medicaid Benefits
Federal Law requires every state to recover what it spent for the care at the death of the second spouse. State rules and practices for estate recovery vary significantly. Some states are stricter than others. In some states, placing a lien on your home is part of the estate recovery act.  This act has effectively made Medicaid benefits a loan, not an entitlement for the needy.

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The percentage of long-term care paid for by private insurance includes both care paid for by individual and group long-term care insurance. It also includes care paid for by health insurance. For example, short-term rehabilitation after a car accident.

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Veteran’s health care benefits include medically necessary hospital and nursing home care and some outpatient care. The VA prioritizes veterans that qualify for care according to several categories. The first priority of veterans for receiving care are those veterans that have a service-connected disability. If you do not have a service-connected disability you are at the bottom of the priority list. There are income and asset requirements as well that must be met.