An In-depth Look at the Two Government Health Insurance Programs called Medicare and Medicaid – How They are Run, the Benefits they Offer, and their Eligibility Requirements
DRAWING DISTINCTIONSBETWEEN
MEDICARE and MEDICAID
PAUL A. KRAFT Indiana Estate Planning Attorney Drawing Distinctions Between Medicare and Medicaid
www.FrankKraft.com
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Those who are planning ahead for their senior years have many things to think about. You have to be able to finance your active retirement years, and this may be the first thing that comes to mind. However, you don't want to overlook the twilight years that follow the golden years of retirement. With this in mind, let's take an in-depth look at Medicare and Medicaid. Let's look at some of the components of the typical estate plan.
MEDICARE Medicare is a government health insurance program that you pay into while you are working. While you are paying taxes on your earnings or self-employment income, you are accruing retirement credits. To qualify for Medicare you must accumulate at least 40 credits during your working years. In 2013, you get one credit for every $1160 that you earn up to a maximum of four credits. If you paid into the program sufficiently you become eligible to receive Medicare coverage at the age of 65. This is the current age of eligibility. However, legislators are engaged in ongoing budgetary negotiations. Raising the age of Medicare eligibility would save money. Therefore, you should pay attention to these ongoing talks if you are planning ahead for your retirement years. You want to be aware of any changes that may be implemented along the way. Medicare has four different parts. There are out-of-pocket expenses that go along with coverage. There is a deductible for Medicare Part A, which is the
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portion of the program that covers hospital stays. Extended stays can involve significant co-payments. Medicare Part B covers visits to your doctors and outpatient treatments. You have to pay a monthly premium for Part B coverage. The exact amount of the premium varies depending on your income. In 2013 most people have been paying $104.90 per month. Medicare Part C enables you to use your Medicare benefits to obtain private coverage that may be more streamlined and efficient. This is optional. Medicare Part D is the prescription drug portion of the program, and it is optional as well. One very important thing to know about Medicare is the fact that it does not pay for an extended stay in a nursing home or an assisted living community. It will pay for up to 100 days of convalescent care after surgery, but it will not pay for custodial care at all.
MEDICAID Unlike Medicare, Medicaid is available to people of all ages, and it is a needbased program. Many people are confused when they hear about Medicaid being mentioned as something that senior citizens need to know about, because Medicaid is for people who don't have any financial resources. Medicaid is relevant because Medicare will not pay for long-term care, and most senior citizens will eventually need it. Medicaid will assist with these costs if you can qualify.
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To put it bluntly, if you need to enter a long-term care facility and you initially pay out-of-pocket, you may well go broke while you're still receiving the care. At that point you would qualify for Medicaid. It may be surprising to hear that Medicaid actually pays for most of the longterm care expenses that are incurred in the United States. This is because nursing homes and assisted-living facilities are extremely expensive. If you compare the cost of the average length of stay to the average retirement nest egg, the numbers simply don't add up.
MEDICAID PLANNING Because of the realities that many seniors are faced with, intelligent and informed Medicaid planning becomes necessary. It is possible to take steps well in advance with Medicaid eligibility in mind. There is an upper asset limit of $1,500 in Indiana that you must stay within to qualify for Medicaid. However, it is possible to divest yourself of assets in advance of applying. This takes some measured planning, because there is a five year look-back period. You are penalized if you give away assets within five years of submitting your application. It should be noted that you can keep your home up to a certain amount of equity ($536,000 at minimum in 2013) because home value does not count when the program is evaluating your resources. However, Medicaid recovery can be an issue. If you plan ahead effectively you
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can protect your home from future recovery so that your loved ones can inherit the property.
CONCLUSION Medicare is a program that you pay into when you are working. You don't have to demonstrate financial need to qualify. Medicare does not pay for long-term care. Medicaid is a need-based program. If your assets don't exceed the upper resource limits, you can qualify for coverage. Medicaid will pay for long-term care. If you are concerned about future assisted-living costs, you may want to discuss Medicaid planning with a licensed elder law attorney.
REFERENCES Social Security Administration http://www.ssa.gov/retire2/credits1.htm Medicaid http://www.medicaid.gov/
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About the Author Paul A. Kraft Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning. Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work. In addition to his practice, Mr. Kraft has lectured extensively in the areas of living trust planning, Medicaid planning, and presenting public and private seminars on the importance of proper estate planning. He has also authored various articles on estate planning and is a contributing author of LEGACY: Plan, Protect, and Preserve Your Estate–Practical Answers from America’s Foremost Estate Planning Attorneys. Mr. Kraft is a co-founder of the Indiana Network of Estate Planning Professionals, a charter member of the AmericanAcademy of Estate Planning Attorneys and a founding member of the National Network of Estate Planning Attorneys. He is also a member of the Indianapolis Bar Association, including the Taxation, Business Law and Estate Planning sections; the Indiana State Bar Association, including the section on Taxation Law; the Indiana CPA Society; and the Estate Planning Council of Indianapolis. Mr. Kraft is admitted to practice law before the Supreme Court of Indiana, U.S. District Courts, and U.S. Tax Court.
Frank & Kraft A Professional Corporation Attorneys at Law www.FrankKraft.com 135 N. Pennsylvania Street Suite 1100 Indianapolis, IN46204-2485 Phone: (317) 684-1100 Fax: (317) 684-6111
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