Tuesday, November 6, 2012

Medicaid Divorce and Your Eligibility for Health Care

Note: I know that the idea of a Medicaid divorce has little to do with collection agencies. I am posting this here because, not only is it financial in nature, people struggling with collection agencies are often facing other financial issues – especially if those collection agency debts are medical in nature. 

The concept of a Medicaid divorce first popped up on my radar when a friend with a chronically-ill wife brought it up. Even with insurance, they could no longer afford the cost of her care and she would continue to need regular care for the rest of her life. My first reaction was: "Careful there dude, that reeks of fraud."

Divorce could help you qualify for Medicaid
It still reeks of fraud, but that doesn't mean it is. Not that I would point any fingers anyway. I'll tell you right now if your motivation to commit fraud is the health and well-being of your loved ones, I will be the first person to look the other way. I've said it before and I'll say it again, you do what you have to do to get by. My friend asked if I would quietly look into this issue and the potential complications. I agreed.

Lo and behold, it appears I was wrong (It does happen sometimes. Cecil Adams, I am not). Technically, divorcing to become eligible for Medicaid doesn't appear to be fraudulent. Let me tell you why:

Consumer medicaid fraud occurs when you falsify information to qualify for Medicaid. The divorce is real. Your reasons for it, well, those are your business. I was surprised to discover that "Medicaid divorce," as its now called, seems to be a relatively common retirement planning tool.

Imagine that.

How a Medicaid Divorce Works

Need a doctor? It'll cost you.
First of all, we aren't talking about protecting assets. That's a whole 'nother ballgame. We are simply talking about dissolving a marriage in order to qualify for government health care services. I will try to restrain myself from ranting about lack of cost control in the health care industry and the highway robbery that a single doctor's visit has become (grumble).

In a Medicaid divorce, both spouses file for an uncontested divorce granting the majority of property to the healthy spouse. They fill out the paperwork and  file the divorce themselves to save money. Filing fees for an uncontested divorce can range from less than $100 to over $300 depending on your state. Now that I've started looking around, I even see attorneys publicly recommending this option for cash-strapped consumers who can't afford to seek the medical care they or their children so desperately need.

Is Divorcing for Medicaid Really Necessary?

For the average couple dealing with everyday preventative health care, divorcing just to qualify for Medicaid or other government programs doesn't make much sense. The majority of people who go this route do so because they are aging and their health is deteriorating. The costs of health care go up while their incomes generally go down. For many, a Medicaid divorce is just yet another retirement-planning tool.

The elderly aren't the only ones who'd benefit, however. Individuals with major or chronic health issues may find that, even with both spouses working, their incomes are not enough to keep up with health care costs and also meet their familiy's basic needs. Thus, Medicaid divorce becomes an option.

What to Watch Out For When Seeking Health Care Through Medicaid

Sure, marriage is just a piece of paper, but that piece of paper brings with it a feeling of security. When that piece of paper is gone, the emotional and financial consequences can be dire. Here are just a few pitfalls to watch out for when contemplating ending your marriage for financial reasons:

  • Trust your spouse. Remember, in many cases you're willingly handing over more than half of your shared assets. Unless you live in a community property state (which requires an even split), turning over assets to someone you're no longer married to is a big risk. Theoretically, your newly single spouse could opt to skip town with the new windfall and there would be little you could do about it. 
  • Consider living arrangements. Although Medicaid is a federal service, the states have differing rules regarding its implementation. Some take the income of every individual living in your household into consideration when evaluating your eligibility. Find out exactly what your state's Medicaid eligibility requirements are beforehand. The last thing you want is to discover that you still don't qualify, divorced or not, or that your spouse must move out for you to qualify.  
  •  Consider your earnings. If the person who needs to qualify for Medicaid has a full-time job that pays more than a pittance, divorcing doesn't guarantee that Medicaid will be an option. It's very possible for the ill person's income to exceed Medicaid's limits. If you have children living in the home, this helps. The more minor children you have, the more money the government will allow you to make while maintaining your Medicaid eligibility. 

While you can file for divorce without the aid of an attorney, an attorney can be extremely beneficial in helping you navigate your state's specific Medicaid eligibility requirements and determining whether a divorce would help you meet those requirements.

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