Medicaid planning for most people means planning to protect personal assets prior to applying for very expensive medical care such as in a nursing home or assisted living facility. Medicaid applications don't consider certain assets and a certain amount of income. Elder law attorneys use the rules to their best advantage in Medicaid planning to reposition the elder's estate into these uncountable assets or to give the assets away completely so that they can't be considered available to pay for nursing home costs.

What Is Medicaid?

Medicaid provides medical coverage for poor people. Many people become poor while paying for help with long-term chronic illnesses such as those associated with old age — needing help with necessary daily living activities such as dressing, eating, and personal care. This level of care is usually delivered in a nursing home or assisted living facility, so many people think of Medicaid coverage as an inevitable part of living there.

Medicaid and Medicare are often confused. Keep them straight in your mind by thinking of Medicare as the retiree health insurance policy. Medicare pays when you need care that will help you get better, but it doesn't pay for everything. There are copays and limits on spending for specific procedures — especially the procedures or care that will improve your daily lifestyle but not necessarily make you better again. For example, Medicare may pay for an operation to repair a broken leg and a certain amount of restorative physical therapy, but no more; Medicaid would pay if you had no money left to have an aide help you get dressed.

When Medicaid Planning Is Needed

Medicaid planning is hugely controversial. Many people claim that individuals should pay for their nursing home care the same as they paid for medical care when they were younger. They maintain that individuals should not seek to appear poor in order to receive government benefits.

Other people want to transfer an inheritance to their kids or have a partner or spouse that they want to protect who is still living in the community, meaning that presenting a low-asset appearance for the sake of Medicaid is important to them. In either case, it's important to talk about Medicaid with your elder law attorney if you're concerned about nursing home or other high medical costs.

Who Can Help?

Some insurance agents advertise that they can help you with Medicaid planning, and they may be experienced enough to help you work out potential strategies and to understand some concepts. But in the end, you should rely on an elder law attorney for the most reliable legal advice.

Pitfalls to Guard Against

Don't be frightened into moving assets or buying financial products or annuities because you're told “the nursing home will take everything.” This is a common high-pressure sales pitch that has led to many poor financial decisions. Make sure that the person giving you advice has no financial stake in the transaction, such as a commission on the financial product or strategy they're recommending. Make sure you understand the strategy that is recommended and that you're comfortable implementing it and sticking with it. Attorneys will sometimes suggest a transfer of assets into trusts or other transfer strategies that require that a certain time elapse between the transfer and the Medicaid application.

What the Future Might Hold for Medicaid

Medicaid's future is high on the priority lists of politicians and policymakers as baby boomers age toward retirement and as health care costs continue to rise. Look for restrictions on government benefits such as Medicaid to tighten and for waiting periods for benefits and “look backs” — the time between asset transfer and Medicaid application — to increase.