Saturday, October 29, 2011

Artificial Impoverishment and Medicaid

When Momma is ready for the rest home, who will pay for it?

Getting old sucks, and the fear we all have is getting really old and being broke and destitute and not in control of our lives anymore.  Being ambulatory - enjoy it while you can.

You can try to avoid this scenario by purchasing disability insurance and long-term care insurance, but the cost of these policies can be staggering - thousands of dollars a year.

Medicaid will kick in, once you are over  65, but only if you are fairly broke.  And again this raises the issue as to whether you are insuring against disability with these policies, or merely insuring your assets.

In his book Die Broke, author Stephen Pollan tells his readers to stop worrying about getting old - and to put off retirement and enjoy living.  He says to stop worrying about leaving an inheritance to your kids - and not to expect one from your parents.  Which is sound advice.  But at the same time, he advocates buying disability insurance and using schemes to reallocate assets in Trusts so that medicaid will kick in - without using up the assets of the elderly person.

I am beginning to suspect that Mr. Pollan is bi-polar.  On the one hand, he says to spend it all, work until you are dead, don't worry about transferring wealth or getting an inheritance.  At the same time, he says, be sure to talk to Mom and Dad about that medicaid trust, so they don't rip through your inheritance on the way to the rest home!

Which is it?  I guess it depends on what he had for breakfast that day, or whether he is Dr. Jekyll or Mr. Hyde.

Sure, it is a swell and fine idea to defraud medicaid by hiding assets of your parents in a trust.   No, wait a minute, that is not a good idea, is it?  At least not for our country!  This sort of thinking is what is getting our country into trouble - middle class and well-off people asking for government assistance, when in fact they are quite well off.

And it illustrates the schizophrenia of his advice.  If you truly want to "die broke" then, well, die broke.  Use your assets to pay for your personal care, and when you run out of assets, then have medicare pay.

And if you don't spend all your disposable income on disability and long-term care policies, perhaps you'll be able to afford to pay for your care.

I am disappointed in Mr. Pollan, to some extent.   His message of removing fear from your life is a sound one.  Our ancestors never worried much about running out of money or outliving their 401(k) or maintaining their current lifestyle into retirement.  His message of live your live and enjoy it, rather than feel you are obligated to accumulate and pass on a mountain of wealth, makes sense to me.

But then he goes buzz-kill with this talk of disability and long-term care insurance - policies that do not protect YOU, but rather your mountain of money.  I find it very odd.

Myself, I am not going to worry about it.  Fear is not a useful emotion.  Buying expensive insurance is not the answer.  Saving money, living well, but on less, is.  And if I'm 85 and need to go into a retirement home because I can't walk, care for myself, or do much of anything, what in the world use will I have for money?

Mr. Pollan was right - Die Broke - and don't stress about it.   I just wish he was consistent with that message.  But alas, few gurus are.