It’s a particularly unpleasant aspect
of aging. We are likely to need long-term care services before we die.
By “long- term care” I
mean the type of care you need if you have a prolonged physical illness,
disability or severe cognitive impairment (such as Alzheimer’s disease) that
keeps you from living independently. As a result, you need assistance carrying out
basic self-care tasks.
Nearly 70 percent of
seniors will receive such help sometime during their old age—usually at home,
but often in a nursing home. It will last for an average of three years. One in
five of us will need long term care assistance for five years or more.
The costs are crushing;
the burdens on our loved ones enormous.
An elder law attorney
can help ease those costs and burdens. This article will discuss three
techniques that elder law attorneys use to help families protect themselves
against the financial cost of long term care once the need for that care has
arisen. These strategies are just part of the planning arsenal that is
available. They can be used in a crisis. But, of course, it is best to plan early,
rather than wait for a crisis to happen.
This planning ideas discussed
below focus on utilizing the Government Medicaid program to help protect the
financial security of an individual who is married to a nursing home resident.
But these techniques can be adapted for unmarried individuals and for those persons,
married and unmarried, who are receiving care at home.
WHO PAYS FOR LONG TERM
CARE
The average cost of
nursing home care in Pennsylvania is now around $100,000 a year. Not many
Pennsylvania couples can afford to pay that kind of cost for long. To protect
the financial security of the “community spouse” (i.e. the non-institutionalized
spouse) at least some of that cost must be shifted onto a third party as soon
as possible. Potential third-party payers
include Medicare, private insurance, and Medicaid.
Most seniors have
Medicare financed coverage as their primary payer of health care costs. But Medicare
does not pay for long term stays in a nursing facility. For an explanation of
the rules governing Medicare’s limited payment for nursing home costs see my
article Getting
Medicare to Pay for more of your Nursing Home Stay.
Another possible
payment source is insurance. While standard health insurance doesn’t cover nursing
home costs, healthy individuals can buy special long-term care insurance that does. But few
seniors have this kind of coverage. It’s expensive and underwriting standards
can be difficult to meet. And premiums have been increasing a lot in recent
years. As a result, few
seniors are covered by long term care insurance.
That leaves the Medicaid
program, America’s health care safety net, as the most significant potential
alternative source of long-term care financial assistance for most people. But Medicaid has complicated financial
qualification rules that can prevent a long-term care recipient from qualifying
for the program. An experienced elder law attorney will be able to help families find their
way through the qualification maze and qualify for Medicaid sooner rather than
later.
1. USING ASSETS TO PAY OFF DEBTS AND EXPENSES
By using at risk assets to pay bills prior to applying for
Medicaid assistance (but after the institutionalization “snapshot date”) the
community spouse can reduce demands on the assets he or she is allowed to keep
under Medicaid spousal impoverishment rules. For example, a couple may elect to
pay off existing debts; to prepay real estate taxes, insurance, or other large
bills; or to prepay funeral expenses.
Example: John and Marian Jones have a home and $50,000 of
savings when John enters a nursing home for a long term stay. Under Medicaid
spousal impoverishment rules, Marian is allowed to keep $25,000 as her
protected allowance and John is permitted to retain $2,000. They have $23,000
in excess resources that prevent John from being eligible for Medicaid.
After John’s admission to the nursing home, Marian spends
the $23,000 excess by paying off the mortgage on the couple’s home, some credit
card debt, and by making an advance payment of real estate taxes. Because
Marian now has only $25,000 and John has only $2,000 left, John is eligible for
Medicaid.
2. BUYING ASSETS THAT ARE NOT COUNTED BY MEDICAID
Medicaid eligibility rules do not count certain assets such
as a home, a car, and personal effects. Therefore, in appropriate cases a community
spouse might take money from countable savings to buy a more expensive home;
repair or improve an existing home; or buy a new car, new household
furnishings, or personal effects. Medicaid rules do not restrict spending countable
assets on non-countable ones of equivalent value. Money spent on non-countable assets needed for the community spouse’s use can accelerate Medicaid qualification.
Example: In the John and Marian example above, after John’s
admission to the nursing home, Marian could spend the $23,000 excess on a new
furnace for their home and a new car. Because
of this allowable spending John is now financially eligible for Medicaid.
3. CONVERTING COUNTABLE ASSETS TO INCOME
Some strategies are designed to convert excess assets into
income for use by the community spouse. In order to avoid a Medicaid penalty the
community spouse must receive something of equal value in exchange for the
converted assets.
A conversion strategy that is frequently used by the
attorneys at my firm Marshall, Parker and Weber
involves annuities. Annuities are contractual arrangements in which an
individual pays a lump sum to receive a future stream of income in return. They
are offered in a bewildering variety of forms by commercial financial entities,
and can involve poorly understood consequences and costs to the
consumer.
Most annuities are inappropriate vehicles for Medicaid
planning. But there are annuities that conform to the specific requirements of
Medicaid law that can be used to protect all of a couple’s excess resources for
the community spouse. Although savings are immediately and substantially
reduced, the community spouse’s income is increased by a more modest but
recurring amount. The at-home spouse can either spend that income or reinvest
it, effectively recouping all of the assets used to purchase the annuity.
In the typical scenario, after the institutionalized spouse
enters the facility, the community spouse, acting under the guidance of an
elder law attorney, liquidates the couple's excess resources and uses the funds
to purchase a non-assignable, non-transferable annuity that meets all of the
requirements of the Deficit Reduction Act of 2005. If done correctly, there is
no transfer penalty and, since the check is payable to the community spouse,
the payments received are income to the community spouse and do not impact the Medicaid
eligibility determination.
In August 2005 Robert James was admitted to Summit Health
Care Facility in Wilkes-Barre, Pennsylvania. He and his wife Josephine filed a
resource assessment with the PA Department of Public Welfare (DPW) that showed
that the couple had total available resources of $381,443. After allowing for the community spouse and
institutional spouse allowances, the couple had excess resources of $278,343. This
meant that Robert was ineligible for Medicaid payments.
In order to reduce their assets to the level that would
qualify Robert for Medicaid benefits, on September 12, 2005, Josephine purchased
for $250,000 a single premium immediate irrevocable annuity. The annuity was
payable to Josephine over an eight year period in monthly amounts of $2,937.71,
beginning October 1, 2005, and ending September 1, 2013. It included other
provisions that are required by Medicaid law.
On September 15, 2005, Mrs. James also purchased a new
automobile for $28,550. The purchase of the annuity, combined with the purchase
of an automobile, reduced the couples' resources to within Medicaid resource
eligibility limits.
On September 20th Mr. James applied for Medicaid
benefits. Those benefits were eventually awarded by DPW after two successful court
decisions were obtained by attorney Parker. Mr. James received his Medicaid benefits
and the couple saved over $6,000 each month that Mr. James resided in the
nursing home. By the time Mr. James passed away, the couple had saved in excess
of $100,000.
IMPORTANT NOTES
Don’t try the annuity conversion strategy without expert help from
an elder law attorney who knows the rules in the Medicaid applicant's state of residence inside and out. It’s
easy to make a catastrophic mistake by buying the wrong annuity or an annuity
that does not contain required special Medicaid provisions or which was
purchased at the wrong time.
Medicaid qualification rules vary from state to state and
change over time. This article is based on Medicaid rules in effect in Pennsylvania as of
July 2013. Be sure to consult with a Medicaid experienced lawyer in the state where the Medicaid applicant resides to
find out about the rules in that state and to help you get the planning assistance you need.
This article lists just
a few of the planning strategies available to you under the Medicaid statute and
regulations. Each family situation is different and the best solutions for you
will depend on your unique circumstances. Don’t be “penny wise and dollar
foolish.” Consult with an elder law attorney who is experienced in Medicaid issues.
Further
Reading:
James v. Richman,
United States Court of Appeals for the Third Circuit (November 12, 2008)