Long Term Care: Planning Considerations
The costs of long-term care, as you no doubt know, continue to soar. These costs can range from $25,000 to $75,000 annually depending upon the state in which you live and the type of care provided. Whether it is administered in your home, an assisted living facility, or in a nursing home, long-term care can indeed become very expensive.
Unfortunately, long-term care is not covered by health insurance, disability income insurance, or Medicare. Health insurance plans cover nursing home expenses only for a short period of time while you are recovering from an illness or injury. Disability income insurance will replace part of your income if you are not able to work after a specified time, but it does not pay for long-term care. Medicare, which covers most people over the age of 65, provides only limited coverage for skilled care up to 100 days immediately following hospitalization.
So who will endure the cost if you or a loved one needs long-term care? There are basically three sources: 1) Your (or your family’s) assets, 2) Medicaid or 3) Long-term care insurance. For the majority the first option is not viable and, in order to facilitate these costs, they are forced to either become eligible for Medicaid (if they are not already eligible), or purchase long-term care insurance.
Medicaid is a joint federal-state program that serves lowincome children, seniors and people with disabilities by providing health insurance and nursing home care to qualifying individuals. Most elderly people today are interested in taking advantage of all the government benefits for which they can legitimately qualify, and, as a result, Medicaid has become the default nursing home insurance of the elderly middle class. They are terrified, however, of the specter of an enforced “Medicaid spend down” that could leave them or their surviving spouse with assets below the federal poverty level.
In order to be eligible for Medicaid benefits, a nursing home resident generally may have no more than $2,000 in “countable” assets which excludes only a few “non-countable” assets such as a house (with furnishings), an automobile, clothing, jewelry, a prepaid funeral plan and a small amount of life insurance. Some people will be forced to transfer or “spend down” their assets in order to meet the necessary poverty levels to qualify for eligibility. Moreover, they must do so under an ever-changing, strict set of guidelines most recently modified and set forth by The Deficit Reduction Act of 2005(DRA).
Simply put, the rules are changing, the law is changing, the enforcement of the law is changing, and interpretation of the law and related rules by the courts in the various states is not only changing, but it is inconsistent from state to state. In every state the one thing that is consistent is that it is becoming more and more difficult to finesse Medicaid and its “spend down” requirements. The rules for transferring assets are getting tougher, the loopholes are closing, and the trend toward toughening up these laws is accelerating.
As you can well imagine, the “spend down” rules can potentially devastate a family’s finances. The best way for you to plan against an enforced “Medicaid spend down” is to buy long-term care insurance while you are still healthy. For many people longterm care insurance is widely considered to be the best option, especially if you have assets and income you want to protect and you want to have some choice in the care you receive.
If you have not purchased long-term care insurance or you are not eligible for it or cannot afford it, other asset protection strategies may be available, depending on the state in which you live. For example, will-centered estate planners claim that under current Medicaid rules an Irrevocable Testamentary Trust or Supplemental Needs Trust created in a will by one spouse for the benefit of the surviving spouse is a way the surviving spouse can be assured they will retain assets, avoid “Medicaid spend down”, and not be disqualified from receiving Medicaid assistance. Other ways to plan against an enforced “spend down” may include setting up an irrevocable trust for yourself or gifting everything to your children and have the children set up an irrevocable trust for you.
In all events, besides recommending long-term care insurance, there is no guarantee that the strategy you or your financial advisor have devised will avoid a “Medicaid spend down”. After all, the law could change again or the strategy may be ruled a nullity, illegal, or both.
When planning for long-term care, the experience of a qualified professional can be most helpful. If you are considering trying to qualify for Medicaid, make sure you talk with your financial advisor or an expert in Elder Law before you do anything. An innocent mistake could disqualify you from receiving benefits, possibly for a very long time.
