Thursday, February 16, 2012

Eldercare Scenarios

Getting Old Sucks.  Paying for it, even worse.

In an earlier posting, I was looking into how some folks try to shield assets from Medicaid, so that the government will pay for long-term care in a nursing home.  It is an interesting conundrum, as it places people in the position of making themselves artificially poor in order to qualify for assistance.

If they do not do this, they have to spend their own money, and once that is depleted, the government steps in.  So the person who squanders all their money on high living actually comes out ahead, and the person who scrimps and saves ends up getting screwed.

The first guy has a grand time - tooling around in his jet boat and driving a Cadillac.  Then he goes to the rest home, and Medicaid pays for it all.  The second guy saves his money, lives modestly, and when he has his stroke, the have to clean out his bank account before Medicaid will pay a penny.  The reward for sound financial behavior is punishment.  It makes no sense.

So in order to protect themselves, average citizens have to look for ways to transfer funds to their kids, to make themselves look poor for Medicaid.  If not, well, they subsidize the long-term care of others (through their taxes) and end up paying for their own.

It is a classic "Race to the Bottom" and illustrates how these government give-aways can backfire in a big way.   If you tell someone they will get money if they look poor, people will find ways to look poor - working under the table, or whatever.  All forms of welfare are prone to this problem - and everyone has an incentive to work the system, otherwise they are screwing themselves.

Of course, what is the alternative?   Put seniors out on ice floes, the way the Eskimos do?

The problem is, of course, that more and more people are living longer and will need long-term care, and as a result, our Medicaid budget is increasing rapidly, and, well, we are facing a budget disaster in a few short years.

If you do decide to attempt to transfer assets or shield them from Medicaid, you need to talk to a specialist in this area.  There are State law considerations to take into account, and moreover, there are some severe pitfalls you can run into, if you don't do this sort of thing just right.  Seek out an elderlaw professional in your area.  And beware of people trying to SELL you an annuity or other plan - they may run down alternatives, as they want to sell you their product.

But all that aside, how did we get into this mess?

In the old days, when we were an Agrarian society and most people lived on farms, elder care meant having your parents live with you.  Think of The Waltons, where three generations of family members occupied the same farmhouse.  Grandma and Grandpa Walton were cared for by their children, and in turn provided help around the farm and with raising the kids.

It was an interesting living arrangement, because it requires, at some time, for Grandpa Walton to hand over the reins of the family farm and business to his son  - rather than try to lord over everyone until the bitter end.  And today, I am not sure such a scenario would work.  Seniors today are convinced their kids are idiots.  Or worse, they nurture them to be dependents well into their 40's and 50's, by doling out token amounts of money.  They would not hand over the family business to their "idiot son" and be content to stand in the background.

A lot of people in my generation build "In-Law Apartments" into their homes, only to have the in-laws refuse to move in.  "I'm not living with my kids!" they shout, as if it were a sign of failure or failing.  The time-honored tradition of "Honor thy Mother and Father" really meant taking care of them in their later years, not obeying them like Nazi subordinates.  But today, many parents feel the opposite - that kids should dance to their tune, as the parents have money and are still in control of their faculties (they think).

So, we can't go back to Walton Mountain and live in harmony.  The parents are living in a retirement community in Florida and doling out money to the needy kids as they see fit.  And when they become infirm, they have no desire to move in with their kids.

Oh, sure, it is still done - some folks have no other choice.  But for the middle-class?  We can afford other options, particularly when Medicaid will pick up the tab.  And that is interesting, as it is another example of where welfare divides families instead of uniting them.

For example, for many poor families - from the depression onward - the best thing a Father can do is abandon his family.  That way they qualify for government assistance.  Government handouts - whether they are welfare, food stamps, Medicaid, or whatever, have unintended consequences in the marketplace.  Medicaid makes it possible for Seniors to live in a retirement home, rather than living with their children.  So, not surprisingly, many people choose this option.

In the past, there were also other options.  In the 1960's and 1970's, one could move to a retirement community and purchase a Life Care Contract.  Betty did this in 1979, and bought such a contract at Retirement Village.  She sold her house to her son-in-law for enough to pay for the life care contract.  She had a small apartment in Retirement Village and a place to park her car.  She lead an active life and visited with her family often.

But as she aged, she was in a better place - one with a hospital and caregivers.  Within a decade, she moved into a hotel-room like accommodation there, with a nurse available around the clock.   After a few years of that, she was moved to "The Pavilion" - a nursing care facility more like a hospital, also on the grounds of Retirement Village.

She was well cared-for until the end of her life, and her kids didn't have to worry about her.  It was not a bad arrangement.

Today, such "Life Care" contracts are rare, as people are living longer and longer, and costs are escalating.  Seniors often have to pay a la carte for long-term care, or switch over to a facility that accepts Medicaid payments, as they get older.

Long-term care insurance is one option, and one thing my insurance agent tried to sell me.  But it is staggeringly expensive ($600 a month, increasing as you age).  And far from insuring you for long-term care, it really is just insuring your assets.  If you are indigent, you can qualify for Medicaid and they pay for your nursing home care.  But that means burning through your remaining savings, first, or transferring them to you kids or otherwise shielding them.  Long-term care insurance protects your assets, not you.

So, I refused that coverage.  The point was moot - I cannot afford to pay $600 a month (and up) for the remainder of my life.  I would be better off just putting that money in the bank.

So what does that leave?  For most Americans, Medicaid, unless they are as lucky as my neighbor, who just fell asleep on the couch one day and never work up again.  That's the way to go, if you are lucky.

And Medicaid doesn't kick in, until you are broke - either through spending it all, giving it to your kids, or protecting it through some legal means.  Of course, as I noted in an earlier posting, your house may be safe, until you die, at which point Medicaid may come after your estate.  But as more and more people use mechanisms to shield their houses from Medicaid reimbursement, the burden of Medicaid will increase exponentially, as our seniors live longer and are kept alive longer, and form a larger and larger part of our population.

Now you know why I advocate not only repealing these stupid anti-Immigration laws, but actually encouraging more immigration to the U.S.  We desperately need more taxpayers at the bottom of the pyramid to pay for the old people who now crowd the top!

I wish I knew what the answer was, here.  It is shameful that we have set up a system where people feel they have to play games to shield assets from the government, in order to receive long-term care.  There has to be a better way of doing this!