AND THE SURVEY SAYS … RICH PEOPLE DON’T PLAN FOR MEDICAID
Critics of Medicaid planning claim that lawyers are making rich people eligible for a welfare program. We lawyers, so the argument goes, are ripping off the American taxpayer, placing our wealthy clients on the public dole.
Medicaid, as you may know, is a federal and state health insurance program for indigent individuals. Medicaid will pay for most of the costs associated with long-term care, including home health aides, assisted living residences, and nursing homes. Since the cost of long-term care can be exorbitant – ranging from $2,500 to $9,000 a month – interest in qualifying for Medicaid can run very high when a family member requires long-term care.
In a previous column, I wrote that in my experience, wealthy individuals do not attempt to plan for Medicaid eligibility. Of the hundreds of clients who I have represented in the context of Medicaid planning, only one of those clients had more than $800,000 in assets. The vast majority of my Medicaid planning clients have less than $200,000 in assets other than the house.
The typical person that I see for Medicaid planning is a person who has worked for most of her life. She grew up during the Great Depression and saved most every cent that she could. She put her children through school, and she never thought she would need to qualify for a welfare program. She also never thought that she would have monthly expenses of $8,000.
Now, the National Academy of Elder Law Attorneys – an organization to which I belong – has conducted a survey of 110 elder law attorneys, with offices throughout the country. Through that survey, the Academy has confirmed the fact that elder law attorneys are not qualifying wealthy individuals for the Medicaid program.
According to the survey, 28% of clients who were planning for Medicaid eligibility had estates worth between $100,000 and $200,000; 37% of the cases involved estates worth less than $100,000.
These results are in conformity with my own experience. And, what these results prove is that people who are planning for Medicaid aren’t rich individuals who are trying to preserve their vast estates at the expense of the American taxpayer. Instead, they’re ordinary, hard-working people who have spent their long lives contributing to this nation.
To illustrate why wealthy individuals don’t plan for Medicaid, I’ll use an example that I often use in the seminars that I present. Let’s assume an individual worth $10,000,000 wants to plan to qualify for Medicaid. In order to qualify, he would have to have less than $2,000 in assets.
His only planning option would be gift all of his money to his family and wait-out the lookback period, or three years. When he gifts $9,998,000, he will pay gift tax on $8,998,000, since individuals receive a $1,000,000 lifetime credit against gift tax. He’ll pay about $4,000,000 in tax on his $8,998,000 gift.
Now, he’ll have to wait three years to even qualify for Medicaid, then he’ll have to live about another 200 years to derive a greater benefit from Medicaid than the gift tax he paid for making his $8,998,000 gift.
Do you think Medicaid planning was worth his time or money? That’s why rich people don’t plan for Medicaid; it simply doesn’t pay.
For instance, my hypothetical man probably earns about $500,000 a year in investment income on his $10,000,000 in assets. If a nursing home costs $90,000 a year, is that really a hardship for a person who has $500,000 in investment income? So, aside from the gift tax issue, there’s the fact that long-term care costs really aren’t a burden for the rich.
Claiming that Medicaid planning makes rich people eligible for a welfare program at the expense of the hardworking American taxpayer is pure propaganda used by individuals who for one reason or another don’t care for the Medicaid program. Most of these individuals have some form of vested interest in businesses that profit when people don’t qualify for or don’t believe they’ll qualify for the Medicaid program.
Like most things in life, money gives this issue life.