How a Declining Stock Market Can Cause a Long Term Care Nightmare

As the current economic crisis deepens, it is becoming increasingly clear that we are heading into uncharted waters, in so many respects.  Specifically, however, I am talking about the long term care arena, and a recent phone call I received highlights this so clearly.

 John called concerning his father.  Dad owns a home in which he lives.  Home health aides come into the home to assist Dad but as his health deteriorates and he needs increased care John believes that Dad will very soon need to move to a nursing facility.  Now, here is where it gets interesting.

 Dad took a reverse mortgage for $300,000 and he took it in a lump sum.  Johnâs plan was to invest the money in the market, get a decent rate of return that would help meet Dadâs expenses.  Well, we know what has happened in the past year.  The stock market has headed south.  Dadâs investment headed south too.  He lost roughly half of his investment.  Thatâs bad enough.  But here is the problem.  John transferred the money to an account in his name.  Not because he intended to keep it, but because it was just easier to manage the funds that way.

 When he did that, however, he caused a Medicaid transfer penalty.  In New Jersey that penalty is approximately 3 and  years.  So what happens when Dad sells his home and uses the sale proceeds (less the amount he pays back to the bank) for his nursing home care?  He will be ineligible for Medicaid unless John transfers back the money.  Except that he doesnât have all of it.

 I know.  Youâre thinking, âWill Medicaid really deny Dadâs application if John can show that the loss in value occurred in the market, and that he didnât take the money?â  I donât know.  Maybe, maybe not.  You see, we are living in unusual times.  Many states are struggling with budget deficits.  Medicaid is one of the biggest, if not the biggest, program for most states.  If they donât have the money to fund these programs I can certainly see them applying the Medicaid rules as written and impose a penalty.  If Dad is ineligible for 3 and  years he may never live to receive Medicaid, something the government no doubt may consider when trying to balance its budget.

 And just another reason why you canât afford to be unprepared when it comes to long term care.