Medical bills were the biggest cause of U.S. bankruptcies—outpacing bankruptcies due to credit-card bills or unpaid mortgages—according to a survey by NerdWallet Health, which estimated 2 million people were adversely affected by skyrocketing medical costs in 2018. The study went on to say that having health insurance doesn't buffer consumers against financial hardship.

Ohio and approximately 13 other states consider IRAs, 401ks, SEPs and other private sector retirement plans as resources that must be spent down if either a husband or wife requires nursing home care. Ohio's Medicaid agency and legislators carefully drafted a regulation in the late 90s, which protected public employees’ retirement accounts, yet specifically targeted the retirement accounts of those in the private sector.

Congress attempted to remedy this inequity in 2006, allowing retirement accounts to be annuitized, so long as the state can make a claim against the fund after both spouses have died. Ohio refused to honor this legislation until forced to do so by the federal courts.

For married seniors, this is particularly important. Without proper planning, a couple can spend years of their life saving for retirement, only to have their savings spent on medical care. Even though there are provisions to help with healthcare costs, any retirement savings must first be spent. As medical costs continue to rise, even careful savers can lose their retirement, leaving the surviving spouse destitute.

As an example: Mrs. Hughes goes into a nursing home while her husband continues living in their condo. Her Social Security income is spent on nursing home care while Mr. Hughes has $1,800 per month in Social Security, a small pension and $175,000 in his IRA. After paying the difference in nursing home care costs for several months, he annuitizes his IRA, creating additional income of $1,700 per month. He will now have a total fixed income of $3,500 per month for the rest of his life, roughly equal to the average retirement income of a state employee under the Ohio Public Retirement System. The couple applies for Medicaid, so that Medicaid will pay the balance of Mrs. Hughes’ monthly nursing home costs. 

This type of planning is vital to avoiding impoverishment for the well spouse but is not intended to benefit the couple’s children.  Laws have been enacted to ensure that the healthcare costs of one spouse does no leave the surviving spouse destitute for their remaining years. Couples should therefore take care to consult with an attorney and financial advisor to ensure their retirement planning has provisions for long-term illnesses and elder care.

William J. “Bill” Browning is a partner at Isaac Wiles in Columbus where his practice focuses in the areas of elder law and special needs planning, both in the state of Ohio and nationally. Browning is a certified elder law attorney with extensive experience advising families facing a health care crisis, guiding them through complexities to obtain the proper health care required. He may be reached at (614) 471-0085 or by email at wbrowning@isaacwiles.com.