Long-Term Care Planning: Overcoming The “I’ll Go On Medicaid” Objection
The classic objection prospects raise when a producer broaches the subject of long term care insurance is, “I’ll go on Medicaid.” Just as classic is how producers are taught to overcome it: disparage Medicaid by suggesting it’s welfare and that any nursing home that accepts it is inferior.
This response, unfortunately, is as ineffective as it is common. It rarely changes the prospect’s opinion or plans. A better response is to avoid condemning the program and do the opposite: help the individual get on Medicaid by explaining exactly what’s necessary to qualify. The more that’s explained, the less attractive the Medicaid option becomes to prospects with financial resources.
Qualifying For Medicaid
Medicaid is a federal and state program that pays for medical care, and in the case of nursing homes, custodial care. It is a needs-based program, which means an applicant’s resources must be limited. Generally speaking, an individual must have less than $2,000 in countable assets and the spouse at home can keep no more than approximately $123,000. All of the applicant’s income must go towards paying for the cost of care in a skilled nursing facility.
To qualify for this entitlement program, prospects with financial resources have to use Medicaid planning to rid themselves of assets. This can be done in one of three ways: outright gifting of assets to, say, children; placing assets in trusts; or purchasing certain types of annuities. While any one of the three tactics will work, they all present a serious issue: taxes.
For the most part, what’s being transferred is pre-tax savings in qualified plans, such as 401(k), 403(b) and IRA accounts. Transferring these funds -- whether outright or into a trust or annuity -- creates an immediate and punishing taxable event.
The first step in the transfer is liquidating the qualified accounts to cash. The total amount is then subject to immediate taxation as ordinary income. In contrast, if the funds aren’t liquidated and remain in the prospect’s estate at death, they receive a free roll-over to the decedent’s heir(s). When the transfer involves non-qualified assets, such as stocks or bonds, liquidating them creates an unnecessary capital gains tax.
Alternatively, if the investments are in the applicant’s name at death they receive a free “step-up” on the cost basis. This means the heirs would pay no capital gains tax if they were to sell the investments at the same value they inherited it.
Also pertinent is the subject of marketing timing. No one can predict the market conditions that will prevail when a prospect goes on Medicaid. Liquidation may occur during a down or bear market, where paper losses must be actualized.
The Conversation On Medicaid
So the next time someone raises the objection, counter with this:
“Medicaid will pay for a good nursing home, but here are a few thoughts: first, the goal is to keep you out of a nursing home and Medicaid pays little or nothing towards home care given your assets and income."
"Second you can get assets out of your name, but doing so can cause serious tax consequences. Also, once on Medicaid, your income goes to the facility to help offset what Medicaid is paying.”
With this response, you pivot to a subject that lets you overcome the objection. It allows the conversation to move forward while reinforcing your image as a knowledgeable professional, instead of product pusher.
Understand Your Prospects. Overcome Objections.
Create Referrals From Centers Of Influence.
