One of the biggest myths about Medicaid is that it is "free" medical care for low asset/low-income individuals. Medicaid is not free; rather, it is a cost-delayed program. Any benefits paid on a person's behalf may be recouped by Medicaid after his or her death from his or her estate. This is the infamous "Medicaid lien." By state statute, the Medicaid lien must be paid off before other creditors and before your loved ones inherit. The State of Nevada must pursue this lien or it risks losing federal funding of its Medicaid program.
There is an exception to the Medicaid lien: Medicaid will not enforce its lien during the lifetime of the surviving spouse. Therefore, even if Medicaid records the lien against the applicant's home, Medicaid cannot force the surviving spouse out of the home. Indeed, the Nevada Supreme Court has ruled that Medicaid must release the lien and allow the spouse to sell the house if he or she wishes to move.
Because of this, most Medicaid liens have not been paid and may never be paid. So, how does our government afford to pay for medical care and skilled nursing care under this program? Taxation is the primary way of paying for this program. In addition to existing taxes, effective Jan. 1, 2013, a 3.8 percent new surcharge tax will be applied to certain income in order to pay for the expansion of Medicaid as a result of Obama Care.
Under this new surcharge, unmarried individuals earning over $200,000 per year from nonwage sources (i.e. investment dividends), and married individuals earning over $125,000 per year from nonwage sources, will be taxed an additional 3.8 percent to pay for Medicaid. These same earners will have to pay an additional 0.9 percent towards Medicare. Furthermore, all income tax brackets are scheduled to increase next year - with an average jump of 5 percent in standard income taxes.
Assuming that Congress makes changes before January, this could mean an effective increase in income taxes of 5 to 10 percent for everyone. This is an especially heavy burden for our retired population who does not earn wages, but instead earns their income from wisely saving and investing their retirements. I personally feel like this shift in taxes targets that part of our population that worked hard to earn and save, and is now relying on that savings to pay for their retirement.
Our national tax structure is scheduled to undergo several changes at the beginning of next year. Could the existing tax structure be extended again, as it has been in the past? Of course, but no one has a crystal ball. I do not know what is going to happen. That means that this is the perfect time to get together with your financial advisor and to make appropriate adjustments to your investments. Managing your retirement, investments, and income is the primary way to live abundantly and afford long-term care. The sooner you plan, the better; and, in light of the upcoming tax changes, you should definitely plan before Dec. 31. Schedule a meeting with your financial advisor today.
Cassandra Jones is an elder law and family law attorney in Gardnerville. She can be reached at 782-0040.