Nobody wants to consider the impact of long-term care on the financial resources they have spent a lifetime building. Nursing home care is very expensive, ranging from $5,000 to $7,000 per month or more.
Most Americans believe that the government will cover these expenses of long-term care. This is not accurate. Medicare may pay up to the first 100 days of nursing care. After that, an individual must first reduce his or her personal resources to $2,000 before Medicaid begins paying for the cost of nursing home care. This means that most personal assets must be used to fund long-term care expenses before an individual can qualify for Medicaid. Once this financial spend-down is completed, the individual may apply for Medicaid.
The Trouble with Assets
The process of applying for Medicaid benefits in order to cover nursing home costs can be a daunting task. Since most families facing this dilemma are unfamiliar with Medicaid rules and regulations, they are confused by the process and overwhelmed by the paperwork. This process can be particularly emotional since it is usually the result of an illness or trauma to a loved one.
Medicaid is a combined federal and state program. The federal government sets basic Medicaid guidelines, and each state is required to enact the rules and regulations in compliance with the federal guidelines. It is important to note that the Medicaid rules and regulations often vary from state to state; therefore, it is the state in which the applicant resides that determines the standards for benefits qualification. The Long-term Care Unit of the Division of Medical Assistance is the agency that determines Medicaid eligibility in the Commonwealth of Massa-chusetts.
In determining Medicaid eligibility, basically all assets are counted, except those that are exempted by law or are inaccessible to the individual. Addition-ally, with respect to married couples, the ‘pooling of resources’ is applied.
For a married couple with one spouse in a nursing home and the other spouse at home, all countable assets are deemed joint for purposes of determining the institutionalized spouse’s eligibility. This applies regardless of the source of the asset or whether the assets are owned by both spouses jointly or separately.
All of these countable assets must be contributed toward the expense of long-term care until the assets are spent down to $2,000 in order to qualify for Medicaid benefits. Exempted resources include the couple’s primary residence (this is for a married couple only), household goods, an automobile up to $4,500 in value, prepaid funerals, burial accounts for each spouse up to $1,500 each, and a nominal amount of life insurance. All remaining assets are counted to determine the amount of assets that must be contributed toward long-term care before the individual qualifies for Medicaid.
The spend-down of assets devastates personal finances and is frustrating for an individual who is left to prepare and file the Medicaid application. In most cases, the community (at-home) spouse is left with significantly fewer assets and less income.
In 1988, Congress enacted provisions to prevent such spousal impoverishment. Although designed to maintain living standards for the community spouse, these provisions leave only a maximum of $89,280 (amount determined for 2002) of assets for that community spouse, which is sometimes insufficient to carry him or her through the remainder of life. In addition, the community spouse may keep his or her income while the institutionalized spouse’s income must be paid to the nursing home except for $60 per month.
It is extremely important to plan for long-term care before the need occurs. One option for avoiding financial devastation is long-term care insurance. Personal circumstances will dictate whether or not this option is appropriate, as it is not appropriate for everyone due to cost and health issues.
Another popular option is to reduce assets through transfers to family members. An important consideration is the timing of the transfer of assets. Any transfer of assets for less than fair market value will trigger a disqualifying period. Therefore, if assets are transferred, it is important to review the penalty period before a Medicaid application is filed, as there is currently a 36-month look-back period. This means that the Division of Medical Assistance can look back into an applicant’s financial history for three years from the date of the application.
Many older people choose to transfer their home to trusted family members and reserve a life estate. This results in making the home a non-probate matter for estate purposes upon the death of the life tenant. A life estate also allows the original owner/life tenant to live in, occupy, and have the benefit of the home throughout his or her lifetime.
This option is effective for asset preservation, as a life estate does not count for Medicaid purposes when calculating the value of countable assets. As long as the home is not sold during the lifetime of the life tenant, the home will be protected against nursing home costs, including Medicaid liens for estate recovery.
Another option is for older people to keep their assets in status quo and then convert anything in excess of the community spouse’s $89,280 cap into an annuity. This annuity may provide a stream of income for the spouse while he or she remains at home. If excess assets are placed into an annuity, the institutionalized spouse will qualify for Medicaid benefits immediately. A designated beneficiary would receive any remaining funds in the event that the community spouse does not survive the lifetime of the annuity.
This appears on the surface to be a no-brainer option, but there are hidden pitfalls. In the event that both spouses are institutionalized, all funds will automatically go toward their long-term care facility expenses.
Currently, annuity contracts must use standardized life expectancy tables to determine an annuity’s maximum payout value. If the community spouse outlives the standardized life expectancy, he or she will run out of income when the annuity expires.
However, this option is preferred over simply paying out funds for nursing home costs until the couple reaches the maximum asset limit for Medicaid.
It is never too late to plan for long-term care. There is always something that can be done if assets remain. Transfers and gifts are available even when a person has entered the nursing home and is privately paying for his or her own care.
Long-term care planning is a complex and confusing issue. Families are usually confronted with the issue of how to pay for long-term care when they are emotionally fragile, due to the illness or trauma to a loved one. The paperwork is confusing, the Medicaid qualification conditions are complex, and the apparent imminence of financial devastation is overwhelming.
The best course of action is to consult a legal professional who specializes in Medicaid/elder care law as early as possible to discuss available options to preserve assets. Everyone’s circumstances are different, so there is no cookie-cutter solution. Guidance is necessary to ensure that the best choices are made in each individual case.
Cheryl J. Dunn, Esq. is a member of the Estate Planning/Elder Law Department at Bacon & Wilson, P.C. in Springfield, concentrating her practice in sophisticated estate, Medicare, and Medicaid planning. She may be reached at (413) 781-0560 or firstname.lastname@example.org.