The most commonly utilized and misunderstood aspects of the U.S. Medicaid program are its long-term care (LTC) benefits. Medicaid is not synonymous with long-term care insurance, but many who plan to rely on it are unaware of this. As a result, they find themselves without the care they really need or desire. Before you "plan" to have Medicaid cover your LTC needs, it is important to understand its coverage and how it differs from LTC insurance. (One program is for the poor; the other is for the elderly. Learn which is which in What's The Difference Between Medicare And Medicaid?)

Medicaid is a multi-part program designed to provide a wide variety of medical and custodial services to those who cannot afford it. It evolved during the so-called war on poverty in the 1960s as a program for the truly poor - the indigent population who were surviving on less than about 125% of the official poverty level. (For more on poverty guidelines, see the website of the U.S. Department of Health and Human Services.)

Medicaid LTC is a great benefit for those people who didn't necessarily have the chance to accumulate much, and now need LTC services beyond what their families can (or will) provide. (See Taking the Surprise Out of Long-Term Care.)

Some individuals, however, deliberately decide not to buy long-term care insurance, "planning" to use Medicaid instead. There is an entire legal specialty that focuses on helping older Americans bankrupt themselves in order to qualify for Medicaid benefits. Unfortunately, many of these people find out too late that Medicaid does not offer what they desire - the same choice, benefits or coverage options provided by LTC insurance.

Unlike Medicare, which is largely a federal program, Medicaid is primarily state-run, resulting in varying degrees and types of LTC coverage.

Medicaid LTC Benefits and Requirements
Generally speaking, for qualifying people, Medicaid covers custodial care in a nursing home in all states. Custodial care is for when you can't perform some or all of the activities of daily living (ADL) without assistance:

  • Dressing
  • Bathing
  • Transferring
  • Walking
  • Feeding
  • Toileting/continence

Medicaid generally requires you to be unable to perform at least two of these six ADLs independently - much like LTC insurance policies. (See Long-Term Care Insurance: Who Needs It?) If you qualify for Medicaid by meeting the ADL requirement and your state's income and asset requirements, you can probably use Medicaid to pay the entire cost of care in a nursing home.

Comparing Insurance and Medicaid

Aside from imposing no income and asset limits (because you purchase it), LTC insurance offers options and flexibility not found in Medicaid benefits. But Medicaid does have a few benefits not offered by most LTC insurance plans. The following chart summarizes the key general differences between these two ways of funding LTC needs. (Keep in mind that all Medicaid programs and LTC insurance policies are different.)

Coverage/Benefit Medicaid LTC Insurance
Nursing-home stays Usually Usually
Coverage from the first day in a nursing home Usually Rarely: too expensive and not tax-qualified.
Coverage for as long as needed in a nursing home Usually Rarely: too expensive
Coverage in any nursing home Rarely: many places do not accept Medicaid Usually
Coverage in a home-care situation Not in most states Available option
Coverage for adult day care Rarely Available option
Coverage for assisted-living facilities Not in most states Available option
Coverage for Respite Care Rarely Available option
Access to all services at a nursing home Rarely: often no access to private or spousal rooms, shopping trips and personal-care items (family must pay for these things) Usually - to private or spousal rooms available, trips, personal care and whatever else the policy benefit covers
Ability to stay in one place No guarantees: you can be moved if a facility stops accepting Medicaid patients, or becomes too full Yes, as long as the facility is open. Plus, you can change facilities at will

Nursing-Home Stays

Both LTC insurance and Medicaid provide nursing-home coverage. Some LTC policies cover other types of care in addition to, or in lieu of, nursing-home care.

In many states, nursing-home stays (for non-skilled custodial care) are all that Medicaid covers. This means, if you are covered by Medicaid, staying at your own home is not always an option - even though care given at home is less expensive and often what you really need and want. Compared to this inflexibility of Medicaid, LTC insurance can be a great advantage. (Learn what you can do now to keep your options open in the future, in Long-Term Care: More Than Just a Nursing Home.)

Not all nursing homes accept Medicaid patients. If the facility doesn't take certain types of state or federal funding, it might not have to take Medicaid patients either. So your facility of choice may not be available to you.

Medicaid doesn't cover the fun things in life: trips to museums, shopping centers or other non-medical forms of care. It may not cover a private room, or allow you to have your spouse as a roommate. There may even be a special "Medicaid wing" or floor in the facility.

Medicaid does pay for your stay in a facility for as long as you need the care. LTC insurance, on the other hand, does so only if you elect the lifetime option and chose a benefit level high enough to cover a lifetime of costs. Medicaid also covers your costs from day one, while LTC insurance does so only at a very high cost, imposing an elimination period (explained in Taking the Surprise Out of Long-Term Care). Also, LTC plans are not tax-qualified, so your benefits are likely to be taxable.

In-Home Care
Aside from nursing-home care, in-home care is one of the two preferred ways to receive LTC. (The other is an assisted-living or continuing-care facility.) Much of the care people need is custodial in nature and can be given in a home setting.

If you and your spouse, like most others, prefer to stay in your home as long as possible, then LTC insurance is the way to go as it allows you to choose this type of care.

Also, if you own a home, think twice before using Medicaid for receiving any form of LTC. If you receive care and your spouse remains in your home, some states may force your heirs to reimburse the costs of your care from the sale of your home when the community spouse - the one who stayed in the home - dies. This has come as a rude shock to many heirs!

Assisted-Living and Continuing-Care Facilities

Sometimes, before you quite need nursing-home care, you need more assistance than you can get at home, or maybe you just want to live in a retirement-oriented facility. Assisted-living centers provide you with an apartment and offers as much assistance as you need (for a price, of course). You can get housekeeping help, meal preparation and much more.

Continuing care takes assisted living a step farther by having an on-site nursing home, so the transition is an easy one.

Again, if assisted-living or continuing-care facilities appeal to you, LTC insurance is what you'll need. (Your illnesses should not infect your savings. Read more in Failing Health Could Drain Your Retirement Savings.)

Adult Day Care

Often, an elderly person's family, instead of sending that person to a nursing home, chooses to provide much of the needed LTC but cannot be at home in the daytime due to work obligations and the elderly individual cannot stay home alone because of dementia or an inability to complete ADLs. Adult day care can solve this problem. This community-based care is often provided by churches and community centers. The premise is simple: drop the person off in the morning and pick him or her up in the late afternoon or early evening.

LTC policies offer the option to cover this care, while Medicaid does not pay in most states.

Becoming a Medicaid User

The process of deliberately adjusting your financial situation to get Medicaid appears simple: gift your assets or put them into certain trusts and poof! now you're poor, so Medicaid will have to pay for your needs.

If you go this route, make sure you know what you are forgoing. Here are the things to keep in mind:

  • Not all facilities accept Medicaid patients.
  • You may not be able to get care at home.
  • If you come out of the nursing home your assets are probably not available to you.
  • Do you want a roommate (not your spouse)?
  • Is getting out into the community important to you?
  • Do you really want to give all your assets to a trust or your heirs while you're still living?

Think long and hard before counting on Medicaid for LTC. Both have their benefits (and drawbacks), so ensure that all of your needs are covered before jumping in. As always, hasty decisions - especially when they relate to something as important as your health - can come back to bite you. You just might not get what you had expected.

Related Articles
  1. Retirement

    Yes, You Can Manage Your Own Retirement!

    Discover how to get started planning for and managing your retirement by making simple, deliberate steps towards financial health.
  2. Term

    How Traditional IRAs Work

    A traditional IRA is a tax-advantaged retirement account that includes stocks, bonds, mutual funds and other investments.
  3. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s the most recent update on what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
  4. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  5. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
  6. Retirement

    Retiring in Thailand: The Pros & Cons

    It's a lovely land, but before relocating, get the skinny on this Southeast Asian kingdom.
  7. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  8. Retirement

    Is Retiring in France Safe Today?

    After a series of deadly terrorist incidents, some may be asking themselves this question.
  9. Investing News

    Zika: Study Says This Device Could Protect You

    New research just uncovered an inexpensive, commercially available device that might help fight off the mosquito that carries the dreaded Zika virus.
  10. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  3. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  4. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  5. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  6. Does dental insurance cover implants?

    Dental implants have become a widely used procedure in dentistry. Despite their popularity, however, they tend to not be ... Read Full Answer >>
Trading Center