I Want To Qualify for Medicare

I’m an elder care attorney, so many people come to see me about a family member’s long-term care needs. Many of them will say to me, “We want to qualify our mother for Medicare.”  To which, invariably, I will say, “You mean Medicaid.”

Those who confuse Medicare and Medicaid typically are the children of the person who requires long-term care, and typically, the children are not old enough to be enrolled in Medicare themselves. Given this fact, there confusion is somewhat natural.

Even those who are old enough to be enrolled in Medicare wonder if their potential receipt of Medicaid benefits will disqualify them from their Medicare benefits. In other words, they wonder if they will be disenrolled from Medicare benefits if they qualify for Medicaid benefits.

But what is the difference between Medicare and Medicaid?  And does qualification for Medicaid affect a person’s Medicare benefits?  If so, how does it affect those benefits?

Medicare is a government health insurance program.  Taxpaying workers in the United States pay into the Medicare program through deductions from their pay during their working years.  A person must work a certain number of quarters (three-month periods) in order to qualify for Medicare, typically, forty quarters or ten years.

Once a worker satisfies the forty quarters of work, he must either be aged, which is defined as aged sixty-five, or disabled in order to qualify for Medicare benefits.  Most people qualify based upon age, not disability, though there are a lot of people who qualify based upon disability.  Beneficiaries who qualify based upon age begin receiving benefits immediately.  People who qualify based upon disability must (in most cases) wait twenty-four months before they begin receiving Medicare benefits.

Like most policies of insurance, Medicare has deductibles and co-payments.  To cover these gaps in the insurance, there are private policies of insurance called Medigap policies (shore for Medicare gap policies).  There are ten different, standard Medigap policies with different levels of coverage.  The better the policy the more of the deductibles and co-payments that the Medigap policy will cover.  Of course, the more the policy covers the more the premiums will be for the policy.

Medicare does not cover long-term care services.  Medicare will cover some rehabilitative services, and for this reason, Medicare is often confused with insurance that covers long-term care costs.  For instance, if Mr. Smith falls and breaks his hip, he will go to the hospital first, then he will go to a rehabilitation facility.  The rehabilitation facility is, in most instances, a nursing home.  Medicare will help pay for Mr. Smith’s care in the hospital and it will pay for up to 100 days of rehabilitative services in the nursing home.  I think, for this reason, many people believe that Medicare pays for long-term care services, but it doesn’t.  It only pays for rehabilitative services.

A person who worked the requisite quarters will qualify for Medicare benefits even if the worker is rich.  Bill Gates, for instance, will qualify for Medicare benefits when he attains the age of sixty-five.

Unlike Medicare, Medicaid is means-tested.  That means that in order to qualify for Medicaid, a person must have a limited amount of assets (typically less than $2,000), and he must have insufficient income to pay for his care.  Medicaid is a health payment plan, not health insurance.  Medicaid will pay for certain services if a person qualifies.

Medicare and Medicare are mutually exclusive.  A person can qualify for both Medicare and Medicaid.  Qualification for one program does not disqualify a person from eligibility for the other program.  Also, unlike Medicare, Medicaid will pay for long-term care services.

The State of New Jersey Death Taxes

For many years, New Jersey was one of the most expensive states to die in.  Most states have no “death taxes,” which could include an estate tax or an inheritance tax.  New Jersey, on the other hand, had both.  Starting this year, New Jersey no longer has an estate tax, but we still impose an inheritance tax.  So, what’s the difference and does the inheritance tax affect you?

An estate tax is a tax imposed upon the gross value of the estate.  Around 2001, the federal government began increasing the credit equivalent against the federal estate tax quite dramatically.  A credit equivalent in the amount you can pass to your heirs without paying an estate tax.  In 2001, the credit equivalent was $675,000, so if you died with an estate worth $675,000 or less, then your heirs would pay no estate tax.

Soon after 2001, the credit equivalent began to rise.  Currently, you have to die with more than $11,000,000 to pay federal estate tax.  A married couple would have to die with more than $22,000,000 to pay federal estate tax.

When the federal government began increasing the credit equivalent dramatically, the state of New Jersey froze its credit equivalent at $675,000, and for years, that’s where our credit equivalent remained.  Estates worth more than $675,000 were potentially subject to the New Jersey estate tax.

In 2017, we increased the credit equivalent to $2,000,000, and in 2018, we completely eliminated the New Jersey estate tax.  The upshot of all of this is, if you live in New Jersey and have an estate worth less than $11,000,000, you aren’t paying any estate tax—federal or state.

Some estates in New Jersey, though, could be subject to New Jersey inheritance tax, and I have recently met with several people who are interested in protecting their estate from the inheritance tax.  New Jersey has long had an inheritance tax.  In the past, the inheritance tax received less attention because the estate tax affected more estates.  Now, with the elimination of the estate tax, the inheritance tax is the only thing to focus on.

The inheritance tax, like the estate tax, is imposed based upon the value of the inheritance an individual receives, but unlike the estate tax, the primary focus of the inheritance tax is the relationship that the decedent bore to the heir.  In other words, was the person who died a parent? A child?   A spouse?  Or an Uncle?  That relationship determines whether or not the estate will be subject to inheritance tax.  The value of the inheritance could change the rate of tax that the estate pays.

With inheritance tax, a parent, spouse, child, grandchild, or other lineal descendants pay no tax.  Stepchildren are also part of this non-tax paying group, but step-grandchildren are not part of the group.  More distant relatives—brothers, sisters, cousins, nephews, etc.—are subject to the inheritance tax; however, the rate of tax and any exemptions against the tax vary somewhat.  Individuals who are more closely related pay less tax and have a higher exemption.

Non-relatives, such as friends, are also subject to the tax. Charities are exempt from the tax.

So, how do you avoid or plan against the inheritance tax? The answer is, there really is no easy answer.  Move to another state is probably the first response a lawyer would give you.  Most states do not impose an inheritance tax, so if you lived in another state, your estate would not pay New Jersey inheritance tax.

The only other way to avoid the tax is to give the property to your heirs before you die as a gift, but you must give the assets away three years before you die because gifts made less than three years before your death are brought back into your estate and taxed.