As the cost of long-term medical care has dramatically increased over the years, it has left many concerned about how to pay for it. One option that has grown in popularity is to purposefully impoverish yourself by transferring assets to qualify for Medicaid. This has resulted in a cottage industry of attorneys, financial planners etc helping people qualify.
There are times when pursuing this strategy may be necessary. However, in my experience the discussion surrounding this strategy tends to only discuss the positive points. The focus of this post is to discuss some of the other points to provide more balance as you consider this issue. If you are thinking of pursuing this strategy, I would strongly encourage you to speak with a qualified attorney, as this is a very complex topic.
Brief Explanation of Medicaid
Both Medicare and Medicaid were created in 1965 via Title XIX of the Social Security Act. Medicaid was originally established to provide medical care for poor Americans, but its focus and benefits have been expanded over the years. Unlike Medicare, if you receive Medicaid, you do not pay a monthly premium.
Medicaid is a partnership between the Federal government and each of the 50 states. Each state provides their own plan and partially funds it, with the Federal government funding the rest. The plan details vary by state, but have a similar core focus.
To qualify for Medicaid there is an asset test and an income test. In general, Pennsylvania allows an individual to own their home, car and have about $2,000 in cash to qualify for Medicaid. Covering this information is beyond the scope of this post, but you can learn more about the details here.
If you have too much in assets to qualify for Medicaid, the government expects you to spend down your assets to the threshold before they will consider your application. As people live longer, even those who have been good savers over the years may still run out funds. This is one of the reasons why Medicaid was created.
Why Do People Transfer Assets To Qualify For Medicaid?
Various studies have estimated that approximately 70% of people who reach age 65 will need some form of long-term medical care during their lives. On average, they will need 3 years of care.
The cost of this care has been escalating at a high rate for decades. In Pennsylvania, it can easily cost upwards of $100,000 a year for skilled nursing care. When people reach this point, they are surprised at how quickly their life savings can be depleted.
To cover this expense, some have turned to Medicaid. However, many people find that they have too much in assets to qualify for Medicaid. For those who are above the threshold, planning professionals may encourage people to consider gifting/selling assets below fair market value etc to family members or friends, establish specialized trusts or buy specific long-term care policies so their hard-earned money could go to whom they want, rather than for long-term care expenses.
In response to the increased use of this strategy, Medicaid reviews all asset transfers within 5 years of your application. If they find suspect ones, you will be ineligible for Medicaid benefits until 5 years after the transaction(s) in question.
Sounds Great, What’s The Problem?
On its surface, it sounds like a good idea to have the government pay for your care, but is it really?
1. Is It Ethical?
Medicaid was established as a social safety net to help the poor receive adequate medical care. If you aren’t poor (or meet the other qualifying terms of Medicaid), should you be receiving benefits that could otherwise be going to poor people who need the care?
Living in the US, we are privileged to have a stable society that provides us with the opportunity to succeed financially. This is one of the blessings of living here, that does not exist in most other countries. The government makes the rules that govern our economy. If you have benefitted from those rules and have accumulated assets, you should pay for your own expenses.
As a taxpayer, it is concerning that people position themselves to receive benefits from the government that they shouldn’t qualify for. If everyone who had financial resources were to do this, Medicaid would collapse. Is it fair to those who are in legitimate need to take their place? This becomes an added cost the rest of us have to pay for.
2. Provider Choice & Quality of Care
If you qualify for Medicaid, you may no longer be able to use your doctor, as they may not accept Medicaid. If you need institutional care (skilled nursing etc), you will be limited to the facilities that are run by Medicaid.
There are private retirement communities that have Medicaid beds, but normally they are used to support residents who have run out of money. You can read more about how your retirement living options can impact your long-term care here.
If you are limited to Medicaid run facilities, in general, they are not as desirable as a private facility. Though you will pay more to be cared for in a private setting, you get what you pay for. When you are at one of the most vulnerable times in your life, do you want the government taking care of you?
But Having The Government Pay Is Better
There are a few arguments I have often heard in support of transferring assets to qualify for Medicaid.
A. The Government Approves
Since the government allows you to reduce your assets (as long as it is 5+ years before you apply for Medicaid), it must be ok, right?
There are two problems with this argument. First, the government has repeatedly worked to tighten the eligibility requirements for Medicaid. If they approved of this, why would they change the rules to make it harder to qualify?
Second, you are allowing the government to define what is ethical in your life, which is dangerous. Using that same logic, you could open an abortion clinic, strip club, pornography studio etc because the government allows citizens to do all those things.
As Christians we are to look to the Lord for ethical and moral justification in our decisions, not the government. 2 Corinthians 8:21 says “for we aim at what is honorable not only in the Lord’s sight but also in the sight of man.” What we do can’t just look right, it has to be right. When God has provided the money for our needs, does making ourselves look poor on paper in order to have the government pay our bills look right?
B. Family vs Facility
Most people would rather their money go to their family than a long-term care facility. I definitely agree that this is preferable, but ultimately, if God has provided the money for your needs, it seems appropriate to use it for your needs.
Do your children really need the money? Is it better for your children to rely on the Lord to meet their needs, rather than you providing for them? You can read more about concerns surrounding leaving everything to your children here.
C. Responsible
People periodically point to the poor decisions of others to justify this strategy. For example, if I was a saver and worked diligently to prepare for this eventual need, but my friend took multiple vacations a year and lived paycheck to paycheck, why should their irresponsibility be rewarded?
As we live in a fallen world, we all make decisions that have consequences. Someday we will face the Lord and give an account for what we have done (and not done). They will need to answer for their decisions and I will need to answer for mine. We should not compare ourselves to the standards of other men, but to the Lord’s.
Final Thought
Having the government pay for your long-term care can be appealing, but comes with significant drawbacks. There are instances where this strategy is a necessary step to take, but it should be undertaken after consulting wise counsel, spending time in prayer and thinking it through.
Points To Consider
- Are you taking care away from others who have a more legitimate need by qualifying for Medicaid?
- Do you really want to be taken care of by the government?
- Christians are already viewed as being cheap by many in society. How does this strategy affect this perception?
