During an Estate Planning Workshop James Skeeles and James K. Leonard addressed Medicaid Planning or the Nursing Home Dilemma. Following is a summary of our comments.
First, the State of Ohio pays about half of the annual nursing home bills, after one has spent down their assets and doesn’t have enough income to cover the nursing home bill. There are two schools of thought when considering the possibility of a long term nursing home stay later in life: 1) it is appropriate for my assets to be used for my care if necessary or 2) I wish to “protect” my assets from that possible liability.
For those wishing to protect their assets, it has become increasingly difficult, as the State of Ohio increasingly requires pay back from the Medicaid recipient’s estate, possibly the entire value of the lifetime benefits received. However, if there is a surviving spouse, then recovery is not pursued until the spouse passes away.
Again, for those wishing to do “Medicaid planning” to protect assets, the rules can be confusing, creative ideas may or may not pan out, court decisions can change the rules and there are 88 counties’ interpretations from many different caseworkers. Therefore Medicaid planning advice should be obtained from a reputable professional and is seldom something one should do on one’s own.
Two schools of thought were mentioned above, which can be categorized into four planning strategies: 1) No planning – pay your own way, 2) Spend and with careful timing give to your family to become eligible for Medicaid, 3) Buy long-term care insurance and 4) Other special techniques for which professional advice must be utilized.
Medicaid has two tests for eligibility, income and assets. Considering assets, some assets are exempt from being tallied into the allowed $1,500 for a single person or $21,912 minimum for a married couple (up to half of nonexempt assets up to $109,560). A home residence is exempt as long as occupied by spouse or a dependent and for 13 months after it is determined it will not be possible for one to return to the home. However, after this time frame there can be a forced sale of the home and/or estate recovery can file against the estate. Other exempt assets include one car valued at $4,500 or less if single or cars for a couple, pre-paid funeral expenses and household items such as furniture, jewelry, etc.
Giving to become eligible for Medicaid eligibility became more difficult as of the Deficit Reduction Act of Feb. 8, 2006. There is now a five year “lookback” from the date the Medicaid application is filed. That is, the Medicaid applicant is deemed to still own all of the assets given away during the previous five years before application.
Medicaid imposes a penalty period of ineligibility that is calculated as follows for the number of months the applicant must be in the nursing home and otherwise qualify for Medicaid by asset and income standards: Months = Total value of gifts in the last five years/$6,023.
Even when one becomes eligible for Medicaid and Medicaid begins making nursing home payments, payments will stop upon receipt of assets, such as an inheritance or the required sale of the home. When in nursing home all income except $40 personal allowance goes to the nursing home and Medicaid pays the balance of the nursing home bill.
Let’s assume one wishes to pursue strategy two above, where one plans to give assets away and become eligible for Medicaid. First, this strategy is faulted for those with significant pension or other income, as Medicaid only pays the extra your income won’t cover. Second, heirs cannot be legally bound to support the older generation in any way. If that were the case, the assets were not really given away. Finally, a non-revocable income-only trust can hold the “protected” assets, but the income is not protected and there can be no strings attached that allow the giver to get the assets back.
One special use of an annuity can make those assets in the annuity not subject to counting or estate recovery by Medicaid. However, professional guidance in this case is necessary since this will raise red flags by the ODJFS (Ohio Department of Jobs and Family Services) and be reviewed carefully. If an annuity is purchased for pay out during the remaining life of a surviving heir there is no period certain and this is not counted as a gift subject to penalty period calculation and not subject to recoupage. However, keep current as the regulations on this too may change.
The third strategy mentioned above is to purchase long term care insurance to protect assets and possibly income. However, keep in mind insurance companies do make money, so insurance should be purchased to protect only losses you and your heirs can’t bear. Also, remember that the assets you are protecting are those going to the heirs. If your heirs don’t want long term care insurance, likely you shouldn’t buy it, unless you don’t want your heirs taking care of you! Also, if you don’t have heirs, long term care insurance is not a good idea.
A general convention is that if you can’t afford long term care insurance you shouldn’t buy it. However, in some situations, where spending down assets for long term care insurance will give you more peace of mind or where that is what heirs want, then funding out of assets may be appropriate. Remember, passing on that last dollar is not worth peace of mind.
Another reason not to buy long term care insurance without adequate income is that this insurance is term insurance. That means if you can’t pay the premium any more, the coverage will stop and all your payments are for naught, without ever being able to cash in. Yes, long term care insurance is less expensive when younger, but the insurance company is betting on more payments and a significant number of policies lapsing before the policy holder entering a nursing home.
However, you can’t wait until you are on the door step of the nursing home before purchasing long term care insurance. Insurance companies only accept 6 out of 10 of the people who apply for long term care insurance. Applicants must complete a suitability test including a questionnaire for Alzheimer’s and a doctor visit history. There are also financial requirements where one has to be able to pay the premium and has to have to have enough assets to protect.
But what increases your chances of being in a nursing home? Being female is likely the most important factor of being in a nursing home, even though insurance companies don’t charge higher premiums for females. Longevity in family is also a factor. The longer one lives the more likely one is to be in facility. A Family history of long stays in facilities is also an indicator, as if a family has a culture of care giving in family, they are more likely to care for the aged at home.
Of course, disabling diseases in family also increase changes of being in a long term care facility for a long time. Disabling diseases such as Alzheimer’s or senility, stroke, diabetes and emphysema increase one’s chances of long term stays in the nursing home. Those with a family history of these diseases should purchase nursing home insurance before family history of onset of the disease.
What reduces your chances? Being male, especially with a living wife who chances are will take care of you, no family history of long term disability, culture, willingness and ability of family to provide care, desire to live one’s life at home. Home care insurance is less expensive insurance as are the benefits the insurance company will pay out. Therefore, fewer assets are protected by home care insurance, especially if it turns out that the family just can’t provide extended care in later years.
Medicaid has partnered with the insurance industry to provide the partnership program. This program protects, dollar for dollar your assets from Medicaid equal to benefits paid by insurance before application for Medicaid. Keep in mind these benefits have to have been paid prior to application for Medicaid. If that occurs, one can qualify for Medicaid and keep allowed assets ($1,500 single) plus “uncounted” assets – car, income ($40 if in facility) plus assets equal to care benefits already paid by insurance.
So how much money are we really talking about for long term care and long term care insurance? According to Ohio Job & Family Services, the average stay in a long term care facility is 2.5 years. The average length of time for assistance and progressively increased care at home is 4.3 years.
Also according to Ohio Job & Family Services, following are the average rates per year:
- Private Room – Facility – $67,000
- Semiprivate Room – $60,000
- Assisted Living, private, one bedroom – $30,000
- Certified Home Health Aide, 50 hours per week – $51,000
- Homemaker Services, 50 hours per week – $44,000
But who pays for this? According to the Congressional Budget Office in 2004 and U.S. Bureau of Economic Analysis, National Income and Product Accounts, the following is the break out of payments:
- 47% Medicaid
- 28% Out of Pocket
- 13% Medicare
- 12% Private Health Insurance
So what is the cost of private health insurance? Assuming:
- Not married or widow or widower
- 15% discount if spouse living
- 35% discount if spouse living and buys also
- Max. daily benefit = $200
- 3 year possible benefit period
- 30 day elimination period
- Maximum Benefit – $219,000
- Insurance with Banker’s Insurance
The cost for insurance would be as follows:
||Cost / Month
- This article will be concluded by paraphrasing Ohio Jobs and Family Services. One should purchase long term care insurance only if all of the following are true:
- Assets should total over $75,000, not including the home or car.
- If single, income should be over $25,000.
- For a couple, income should be over $35,000.
- The person or couple should be able to pay premiums.
- The person or couple should have heirs to which an inheritance will be left.
- The person or couple should have already decided on the type of health care they want in future when they can’t care for themselves.