THE NEED IS GROWING
Baby Boomers are aging. The sooner we accept this reality, and plan for our future needs, the more options one will have. Cultural dynamics are changing. Families are spread across the country, making it difficult to care for aging loved ones. Plus, people are living longer, requiring more intensive care, and many don’t want their children caring for them with their personal needs.
While asking for help is challenging, it isn’t one of our greatest fears. One of the greatest of all Americans is that they may end up in a nursing home. This not only means a great loss of personal autonomy, but it also comes at a tremendous financial cost. Depending on location and level of care, the price range for living in a nursing home is now between $50,000 and $180,000 a year.
Most people end up paying for nursing home care out of their savings until they run out. Then they try to qualify for Medicaid to pick up the rest of the cost. Some advantages of paying privately this way are that you are more likely to gain entrance to a better quality facility and doing so eliminates or postpones dealing too much with our state's Medicaid offices, an often demeaning and time-consuming process. The disadvantage of this “spend down” process is that it's expensive to depletes your finances, leaving nothing left is something falls through, being able to sustain the same level of care for the rest of your life.
Careful planning, whether in advance or in response to an unanticipated need for care, can not only ensure that adequate and consistent care can be provided, but also protect your estate. This can be done for another spouse, children or grandchildren, by purchasing specifically qualified annuities to pay for long term care and/or through a division of assets between spouses. If done properly, these methods make sure you receive the benefits to which you are permitted under Medicare and Medicaid programs. Veterans may also seek benefits from the Veterans Administration through a program called Aid and Attendance. A mix of these strategies can be used depending on the individual and their specific circumstances.
Those who are not in immediate need of long-term care may have the luxury of distributing or protecting their assets in advance. This way, when they do need long-term care, they will quickly qualify for Medicaid benefits. But this may also delay being approved, because of the states 5-year look-back period. Providing general rules for so-called "Medicaid planning" is difficult because every client's case is different. Some have more savings or income than others. Some are married, others are single. Some have family support, others do not. Some own their own homes and some rent. Therefore, any number of basic strategies and tools are typically used in Medicaid planning and should be applied only after thorough consultations and conversations between a client and their attorney.
THE COSTS ARE RISING
The average cost of a skilled-nursing facility in the Kansas City area is $7,000 per month. The greatest threat to the financial security of aging Americans today is the cost of long-term care! Your odds of needing such care in an assisted-living or skilled-nursing facility are greater than 50 percent and rising. The cost of long-term care depletes most people’s assets in just a few months. Your options are: pay for it yourself, use long-term care insurance, or qualify for a government program such as VA Aid & Attendance or Medicaid.
Over half of residents in skilled-nursing facilities receive Medicaid benefits. Medicare pays for
short-term health-care expenses, but not for chronic conditions such as Alzheimer’s, stroke, Parkinson’s, diabetes, or other conditions that require long-term care. Even people with long-term care insurance are susceptible to large premium increases. I recently met with an 80-year-old couple who had paid on their long-term care policy for 25 years. This year, their premium increased 33 percent, to $1,200 per month. They eventually dropped their insurance and we made another plan for their long-term care. If you are a 60-year-old couple, a typical long-term care policy will cost more than $1,000 per month. If you can qualify, that is. Medical issues such as high blood pressure, depression or a history of cancer may make you uninsurable and long-term plans are getting harder and harder to acquire.
Individuals who don’t have long term insurance or the money to pay out of pocket for nursing home costs, spend down their life savings to qualify for Medicaid to pay for care. This usually doesn’t take very long and leaves the recipients financially poor. without resources to pay for small extra items like clothing, entertainment or any activity outside the nursing home. Health and Human Services has reported that almost 75% of singles and 50% of couples lose all their savings within one year of living in a nursing home. Fortunately, most singles and couples can qualify for Medicaid before spending down all their resources, by using other methods. This planning can be carried out through many different vehicles specific to an individual or couple’s situation.
PLANNING FOR MEDICAID
Planning 5-years ahead for Medicaid is not something many individuals do. Accepting the facts that you may need nursing home care ahead of time would require this. This is something many cannot accept and don’t until they are in immediate need for help. If you do have the foresight to do this, there are three options. The first is purchasing long-term care insurance for five years, making a large gift to a beneficiary you trust and waiting out the 5-year look-back period, or putting together an irrevocable trust and also waiting 5-years.
Because, many of us do not expect to need the services of nursing homes, crisis planning is often what people are left with. This often arises after a hospital stay and you’re told you can’t return home, or you enter a nursing home for a short stay, only to discover the services are needed for the foreseeable future.
VA AID AND ATTENDENCE (is not Medicaid)
Veteran’s Aid & Attendance benefits are for veterans and their surviving spouses, who have limited assets and income. An asset protection trust can be used to manage assets transferred from veterans to qualify for this benefit. Unlike Medicaid, there is no application “look-back” period for Aid and Assistance. This VA benefit is limited to $2,127 per month for married veterans, $1,794 for single and $1,153 for a surviving spouse. This is helpful for assisted living, but not enough to cover the whole bill and if skilled nursing care is needed later, it falls even shorter. Planning done by aggressive financial advisers, to assist in the qualification for VA benefits, can be short-sighted. This planning often disqualifies the veteran for Medicaid for up to five years.
The VA benefit is not enough to pay for the $7,000 per month average cost of a skilled-nursing facility. While not ideal, Medicaid is an excellent program for many middle and upper middle-class families faced with the cost of long-term care in a skilled-nursing facility, covering the shortfall. Government inspections ensure that the quality of care in facilities that accept Medicaid is equivalent to that provided in expensive private-pay facilities.
DIVISION OF ASSETS
The Medicaid Division of Assets and Division of Income programs are a great solution for married couples to pay for this care when one spouse requires nursing-home care and the other (community or at-home spouse) does not. In most cases, half of the assets of both spouses can be used for the benefit of the community spouse, protecting them from most or all long-term expenses. These assets can then be used for expenses not covered by Medicaid, or to benefit other family members.
When dividing asserts under Medicaid rules, there are nonexempt and exempt. Exempt assets are not counted in Medicaid determinations, making them free from the division of assets. These resources are allocated for the at-home spouse including:
· Your home and its contents
· One car per family
· Burial plot and casket per individual
· Funeral plan of $7,000 in Kansas or between $10,000-15,000 (depending on services/goods provided) in Missouri
· Life Insurance
· Income producing property
Dividing up nonexempt assets between an at home spouse and nursing home spouse has its limitations, but can preserve much needed resources for families. The maximum resource allowance in Kansas and Missouri is $120,900 (or $241,800 between both spouses). This means the at home spouse can keep up to $120,900 of a couple’s assets and the nursing home spouse must spend down their half to $2,000 in Kansas and $999.99 in Missouri. Income of the individual receiving Medicaid must be below the private pay rate of the nursing home, as this shortfall is exactly what Medicaid is trying to fill. Any income (SS, pension, etc.) of the at-home spouse is theirs to keep.
Couples that have resources above the $241,800 should consider other options to preserve their current level of assets. Options including:
· Paying of any outstanding bills
· Paying off an existing mortgage
· Making improvements to the home
· Purchasing a new vehicle
· Purchasing home goods and contents
· Purchasing a prepaid funeral plan
· Purchasing a Medicaid compliant annuity (MCA)
MEDICAID COMPLIANT ANNUITIES (MCA)
If assets cannot be divided and spent down fast enough it may be appropriate to consider purchasing a MCA. This type of annuity makes sense for individuals and couples with excess resources. Resources that may take too long to spend down can be converted into a MCA, turning them into an income source and helping individuals become immediately eligible for Medicaid.
Many of the same rules apply to MCA’s as to a division of assets. These Include being a US citizen or qualified alien, age 65+ or disabled, living in a nursing home, and individual income must be below the cost of the nursing home.
Medicaid Case study
Meet Bill and Mary. He is 70 years old and she is 69. Mary has developed advanced dementia, but is otherwise physically healthy. Bill has a social security income of $2,000 per month, a pension of $500 and an IRA of $300,000.
Mary has a social security income of $1,000 per month. They have a house valued at $200,000. Mary’s nursing home bill is $7,000 per month.
Bill keeps the house, his $300,000 IRA, and ½ of the $200,000 savings and investments. He also keeps his entire $2,500 per month income. Mary’s ½ of the $200,000 can be used for an annuity to increase Bill’s income to $3,500/mo. Mary immediately qualifies for a $6,000/mo. Medicaid benefit to pay her entire nursing home bill.
Have questions or want advice? Contact us, and our team will be happy to provide trusted counsel and proactive solutions!