Medicaid and the Prepaid Funeral Plan

According to an April 4, 2014 article by Daniel Chang in the Miami Herald, Medicaid enrollment is on the rise in both Florida and the nation.  With these increasing numbers of new enrollees come additional questions by many about Medicare, Medicaid and Social Security and what each agency will pay towards a funeral or cremation.

Currently, the only one of the three agencies that will pay any amount towards the funeral is Social Security.  The Social Security Survivor’s Benefit program has a one-time lump sum death benefit available to those who qualify in the amount of $255.  This “Death Benefit” is designed to help pay for funeral and cremation costs for anyone who had qualified for social security benefits.

Generally, the lump-sum is paid to the surviving spouse provided he or she was living in the same household with the worker when he or she died. If they were living apart, the surviving spouse can still receive the lump-sum if, during the month the worker died, he or she was already receiving benefits on the worker’s record; or became eligible for benefits upon the worker’s death.

If there’s no eligible surviving spouse, the lump-sum can be paid to the worker’s child (or children) if, during the month the worker died, the child was already receiving benefits on the worker’s record; or became eligible for benefits upon the worker’s death.  In other words, the child has to be considered a dependent child by Social Security to receive the benefits.

Survivors must apply for this payment within two years of the date of death.  Anderson-McQueen Funeral Homes will automatically notify Social Security of the death and begin the process for you as one of our many complimentary services.  However, we highly recommend that the family follow up with the Social Security Administration either in person or over the telephone.  You may call Social Security toll free at 1-800-772-1213 (TTY 1-800-325-0778).

With respect to Medicare and Medicaid, neither agency has a direct benefit that will be paid to assist with funeral and cremation costs.  However, as part of the qualification process for Medicaid, applicants can prepay their funeral or cremation costs to assist them in the pre-qualification process.  Medicaid does have rules that allow you to “set aside” money for your own funeral, burial or cremation without having that money considered as part of your assets when Medicaid determines your eligibility.  Since Medicaid coverage is only available to people with little money and few assets Medicaid does not count the value of a burial plot you own, or funds set aside to pay for your funeral, burial or cremation.  Medicaid allows you to “set aside” such funds in a separate account, or you may have a prepaid funeral plan without the value of the plan being counted regarding Medicaid eligibility.  In fact, Medicaid will typically ask applicants if they have a prepaid funeral plan and if they do not, Medicaid will recommend that the applicant prepay said expenses prior to enrolling.

Currently, Medicaid will allow the enrollee to set up a separate bank account with funds designated for burial and cremation expenses.  However, this is not the ideal way of ensuring that you receive the type of funeral, burial or cremation you may desire.  Because Medicaid only allows you to “set aside” up to $1,500 for such expenses, this is not the recommended solution.  As Fox Business reported in April 2013, the average cost of a traditional funeral in North America, according to the Nation Funeral Directors Association, was approximately $6,600 and this does not include cemetery expenses, which could easily total $3,000 or more.

With the average cost of a traditional funeral and burial reaching the $10,000 range, it is easy to see why the cost of a burial is helping to fuel the increase in cremations.  Of course, the average cost of a cremation in 2013 was $3,200 – less than half the cost of burial, according to Barbara Kemmis, executive director of the Cremation Association of North America (“CANA”).

It’s easy to see why setting aside $1,500 in a bank account and ear-marking it for your burial or cremation may not be the wisest thing to do.  With the cost of a funeral, cremation or burial doubling approximately every 7 – 10 years, it is necessary to consider a more viable solution that will not only allow you to have the type of service you and your family desire but also aid you in qualifying for Medicaid.

Therefore, the most common vehicle used to achieve success when applying for Medicaid is to prepay your funeral, cremation or burial expenses with a licensed funeral establishment.  Most states, including Florida, require that all funds prepaid for a burial or cremation be held by a third party company (not the funeral home’s bank account) for your protection.  In Florida, the two most common funding vehicles are either a funeral trust account or a prepaid funeral insurance policy.  Both of these vehicles have several advantages and a few disadvantages.  We’ll review both in a future article on funeral preplanning.

With respect to Medicaid, the biggest advantage of executing a prepaid contract with a reputable funeral establishment is that Medicaid does not place a cap on the amount you can prepay.  We handle numerous Medicaid prepayments on a monthly basis that range from a couple thousand dollars to fifteen or twenty thousand dollars.  The range in price is based solely on your personal desires or the desires of your family.  The only stipulation that Medicaid requires with regards to a prepaid funeral plan is that the plan must be made Irrevocable.

Why must the plan be made Irrevocable and what does that mean?

Since Medicaid will be paying the living expenses, as well as medical expenses, of a new enrollee, they want to ensure that you don’t “hide” funds in a prepaid plan only to cancel it at a later date.  By making the plan irrevocable, neither you nor your family will be able to cancel the prepaid funeral plan.  Should you relocate to another area, most irrevocable plans can be transferred to a new provider in that area.  This also does not prevent your family from making adjustments to the plan upon your death.  Be aware though, you family can make adjustments after your death, but that does not mean they will necessarily receive a refund.  Typically the funds can be used for other types of arrangements, merchandise, services and cash advance items (i.e. newspaper notices, flowers, death certificates, honoraria for clergy and music, etc).  But, if the changes result in an overpayment, the funeral home has to receive permission from Medicaid before making any refunds available to your family.

If you are considering enrolling in or attempting to qualify for Medicaid, we strongly recommend you discuss your specific circumstances with a qualified Elder Law attorney.  Below is a list of several elder law attorneys with whom we deal on a frequent basis.  This list does not constitute an endorsement of any particular attorney or law firm over another, nor is it intended to be an all-encompassing list, but is simply provided as a quick reference guide.  It is important that you discuss legal representation directly with an attorney and to select an attorney you feel will best meet your needs.

Names are listed alphabetically:

Terry J. Deeb                 Deeb Elder Law               www.deebelderlaw.com              Phone (727) 381-9800

D. “Rep” DeLoach, III  DeLoach & Hofstra         www.deloachandhofstra.com    Phone (888) 397-5571

April D. Hill                    Hill Law Group               www.hilllawgroup.com               Phone (866) 265-8100

William B. McQueen    McQueen & Siddall        www.mcqsidlaw.com                   Phone (727) 471-5868

Sean W. Scott                Sean W. Scott, Esq.        www.virtuallawoffice.com           Phone (727) 539-0181

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