When you pay income taxes, you earn retirement credits that lead to future Medicare and Social Security eligibility. You can get as many as four credits each year, and in 2021, one credit is awarded for every $1470 that you earn.
This figure is adjusted to account for inflation, but it has always been very modest, so the vast majority of workers get the four credits on an annual basis. After you have 40 credits, you will qualify for these programs when you cross the eligibility threshold.
At the present time, the age of eligibility is 65 for Medicare, and there have been proposals to reduce the eligibility age. You can start to collect a reduced Social Security benefit when you are 62 years of age, but the eligibility age for a full benefit is between 66 and 67.
The exact age at which you will become eligible depends on your birth year. You can check out the Retirement Benefits brochure on the Social Security Administration website to get all the details.
Out of Pocket Costs and Nursing Home Care
If you qualify for Medicare, you still have to pay some expenses out of your own pocket. There is no monthly premium for the hospitalization coverage, which is Part A, but there is a $1484 deductible per benefit period.
This will cover the first 60 days, and there is a $371 a day coinsurance for days 61 through 90. The coinsurance goes up to $742 for hospital stays that exceed 90 days in duration.
Part B covers treatments and services that are provided by doctors and other health care providers, but it only pays 80 percent of the covered costs. The monthly premium for this coverage is $148.50 a month for most people this year.
There can potentially be premiums, deductibles, and copayments for the prescription drug portion, and the exact arrangement will depend on the plan that you select.
In addition to the costs that you incur for services that are covered, there is the matter of long-term care costs. Medicare does not pay for custodial care, which is the type of care you would receive in a nursing home, and home health aides also deliver custodial care.
Nursing Home Costs
You can expect to pay somewhere in the vicinity of $120,000 at minimum for a year in a nursing home in the Burlington, Vermont area. For a home health aide, the median charge was $68,640 in 2020 according to Genworth Financial.
The United States Department of Health and Human Services has determined that about 35 percent of the elder population will require nursing home care at some point in time.
Medicaid is an alternative health insurance program that will cover the custodial care that nursing homes provide, and the Medicaid waiver will pay for in-home care. Since it is only available to people with a significant level of financial need, there is a $2000 limit on assets.
Some forms of property do not count, including your home with a $603,000 equity limit this year. However, Medicaid can put a lien on the home after your death if it is in your direct personal possession at the time of your passing.
You can transfer assets out of your name with future Medicaid eligibility in mind if you work with an attorney from our firm to establish an irrevocable trust. Since you would surrender ownership of the principal, it would not count if you apply for Medicaid.
While you are living independently, you could receive distributions of the trust’s earnings, and this can give you the financial ability to fund the trust before you actually require long-term care.
The advance planning is important, because there is a five-year look back period. If you are going to divest yourself of assets, you have to complete the divestitures at least 60 months before you submit your application.
We Are Here to Help!
If you take the right steps in advance, you can live comfortably during your retirement years and go forward with the knowledge that your legacy will be protected. We can gain an understanding of your position and help you develop a plan that ideally suits your needs.
You can send us a message to set up an appointment at our Essex Junction, VT estate planning office, and we can be reached by phone at 802-879-7133.