Paying for long term care

As of January 1st 2024,  ALTCS updated the Medicaid Divestment Penalty Divisor.

The Current Penalty Divisor for 2024 is 7,867.16.

At the same time, the Feds announced that the Consumer Price Index was 3.2%.

This means the average long-term care, stay went up almost 3% more than the Consumer Price Index.

What is the ALTCS Penalty Divisor, and how does it work?

The ALTCS Penalty Divisor is based on Arizona’s average Private Pay Rate for skilled nursing in Maricopa, Pima, and Pinal Counties. There is a separate rate for all other counties, went to $7,867.16.  ($7,281.17 for other counties) for 2024.

The Penalty Divisor, or the Private Pay Rate, determines the period of ineligibility.

When an uncompensated transfer of an asset or property is made within five years prior to the application date, the transfer is divided by the Penalty Divisor. This determines the penalty period or the period of ineligibility.

How is the “Penalty Divisor” used to determine the period of ineligibility?

Here’s an example of how the ALTCS Penalty Divisor is used to determine ineligibility.   

Your father handled all the financial affairs for both your mother and him.

Your father, who is 87, has Dementia, and your mother’s cognitive ability has also declined in the past several years.

When the ALTCS Financial caseworker reviewed the application, with the help of the Asset Verification System or AVS, he found several large transactions totaling over $50,000.

“ALTCS uses the AVS or Asset Verification System to track banking activity over the past five years. The problem with the AVS it is flawed because it is not 100% accurate, yet ALTCS accepts the information as accurate, leaving it up to the ALTCS customer or Applicant to provide proof the financial information that the caseworker received from the AVS system is incorrect.” 

Due to your father’s advanced stage of Dementia, he’s unable to shed any light on the purpose of the transactions or even if they are accurate.

Since your mother was not in control of the finances, she could not provide any help explaining the transactions.  

So since the family is unable to provide information on the $50,000 that was moved from the bank accounts, the caseworker at ALTCS uses the Divestment Penalty Divisor or Private Pay Rate to determine the period of ineligibility.

Here’s how, the caseworker takes the uncompensated transfer or gift and divides it by the Penalty Divisor. As mentioned in Maricopa, Pima or Pinal counties, the divisor amount is $7,867.16

Therefore the $50,000 is divided by $7,867.16, which equals 6.36 months. Meaning that the application, once approved, will not provide any long-term care benefits for 6.36 months from the application date.

So let’s say that your ALTCS application was opened or started on October 1st,  2024. The ALTCS long-term care coverage would not start till April 14th, 2025.

Therefore,  your father will be required to privately pay for his long-term care until April 14th, 2025.

Noteworthy, the person applying is eligible for the medical insurance coverage or AHCCCS benefits, starting from the date of application, even though they are not eligible for the long-term care benefits until the end of the period of ineligibility.

Penalty Divisor or Hidden Blessing Divisor?

I like to think of the Penalty Divisor as a Hidden Blessing Divisor for three reasons.

Hidden Blessing Number One:  You are ALTCS approved.

You know the exact date the ALTCS Long-Term Care benefits will start. This can be a real Divisor Hidden Blessing for many by removing the stress and worry if you will be approved for ALTCS benefits.

You can now plan accordingly. This planning might include the liquidation of assets like a car or other personal items.

Maybe the spouse in the home can take out a Reverse Mortgage line of credit and use those funds to pay for care during the period of ineligibility.

Or maybe you keep your loved one in the home and care for them there until the ineligibility period runs out.

Also, they can apply for Veterans Pension if they are a veteran of active duty service with wartime service.

If not a wartime veteran, they may still qualify for the “Veterans Directive Care Program.

Hidden Blessing Number Two: You’re approved for AHCCCS benefits.

You get medical coverage during the period of ineligibility. This could save you thousands of dollars in out-of-pocket medical expenses.

Hidden Blessing Number Three: The Biggest Divisor Hidden Blessing.

The ALTCS application process can take 45 to 60 to be approved. (That’s not the Divisor Hidden Blessing!)

Here is the Divisor Hidden Blessing. For each $7,867.16 that is gifted or transferred, you have 30 days of ineligibility. The ineligibility period begins on the date of the ALTCS application or the date that the application was opened or registered with ALTCS.

So a gift of $7,867 to $15,734 would have little to no effect on the eligibility.

So always take advantage of this and make a gift of up to $15,734. This will preserve most of this money, and you will have money to pay through the private pay period.

Case Study Number One: Single Individual Spend-Down Plan

  • Countable Assets: = $170,000 *See Countable Assets Below
  • Income (Social Security and Penson) = $3,200 per month
  • Does not own a home
  • Assisted Living Cost = $6,500 per month

The Spend Down Plan:

  1. Pre-pay Final Expenses – Purchase a Funeral Trust up to $15,000. (May require a goods and services agreement)

We will assume a $5,000 Funeral Trust

  1. Buy a new car – the car is exempt and can be used by a loved one to pick you up and take you places in your car. (No limit on value of car)

We will assume $36,000 Car

  1. Buy needed personal items – (clothing, furniture for the assisted living)

We will assume $1000 total spent on goods

  1. Buy a Medicaid Compliant Annuity – MCA – The MCA will turn a countable asset into income to pay for care, thus allowing you to qualify for ALTCS benefits.
  2. Make a gift of $89,000. This will cause approximately a 10-month period of ineligibility.
  3. Buy a $30,000 Medicaid Compliant Annuity. The MCA Fee is $3000.

Total Spend Down for all is $170,000. 

Funeral Trust $5000
Car $36,000
Personal Items $3000
Gift to loved one or Trust: $89,000
Medicaid Compliant Annuity – MCA: $30,000 **
                 ( MCA Creates approximately  $3000 per month for ten months )
**Does not include fees and expenses

Plan outcome of the $170,000, a $140,000 has been preserved for future care or a loved one.

Married Couple Case Study:

Married Applicant with $400,000 with Total Countable Assets:

Here I will explain a basic ALTCS planning technique. Please note that the timing and implementation are essential; if done wrong, they can result in a denial of the claim.

Consult a Certified Medicaid Planner™ before you proceed.

The Plan and Rules that make it Possible

The Three Most Important Medicaid Rules:

First Medicaid Rule: “All assets are jointly owned by a married couple and all income is separate.”

Second Medicaid Rule: “The non-ALTCS applicant spouse can have unlimited income.”

Call us for Free ALTCS Consultation!

Call us : 480-967-8477

The Case Study: This plan uses as the primary strategy “The Medicaid Compliant Annuity.”

A married couple with $400,000 in total assets are over-resourced by $260,600.

The income is split this way:

The spouse not applying for ALTCS income is $3000 per month, and the spouse who is applying for ALTCS income is only $1,200 per month.

The cost of assisted living is $6,200. This is $2,000 more than the couple’s monthly income.

So the couple decides to apply for ALTCS in Arizona, but they are denied because they are over-resourced by $260,600.

Third Medicaid Rule:

“The Name on The Check Rule.”

Whichever spouse’s name is on the check is who the income belongs.

This is how the over-resourced amount is calculated.

Step One: Divide the Total assets by 2 ($400,000 ÷ 2= 200,000)

Step Two: Subtract the Minimum Spousal Resources Deduction of $154,140  from fifty percent of the assets or $200,000  ($200,000 – $154,140 = $62,600) the $62,600 is the amount that the non-institutional spouse is over resourced.

Now Subtract the Individual Resource Allowance of $2,000 from the other fifty percent of assets or $200,000 ($200,000 – $2,000 = $198,000 ) the $198,000 is the amount that the person applying for ALTCS is over resourced.

So the $62,600 plus the $198,000 equals $260,600 that the married couple is over-resourced.

So the $260,600 will require a Medicaid Spend Down plan.

Step 4: The Spend Down Plan

There are several things that can be done, and you can use a combination of conversion strategies.  

Yes,  I wrote CONVERSION Strategies, not Spend Down Strategies.

A Certified Medicaid Planner™ can develop a plan that can include gifting, paying off debt, buying a new car to buying a Medicaid Compliant Annuity.

Here we will use only the “Medicaid Compliant Annuity Arizona – MCA.”

We will take the $260,600 and buy an MCA. The MCA will produce $10,858 per month for 24 months.

This $10,858 per month will be paid to the non-ALTCS Applicant.

Since the income that is paid to the non-ALTCS Applicant is exempt, the person applying will be approved. (regardless of how much it is)

Once approved the person on ALTCS cost of care will go from $6,200 to $1,073.90.

The assets preserved are approximately $ 380,000.

There are many pitfalls in this plan if not implemented correctly; consult a Certified Medicaid Planner™ before you use this strategy.

Year-End IRA Conversion Strategies for 2024 ALTCS Planning

On September 2nd,  1974, Congress passed the Employee Retirement Income Security Act of 1974, and with less than thirty days as President, President Gerald Ford signed the act into law.

Today,  it is estimated that there is around $11 trillion dollars in these accounts.

This would explain why I often have people that are want to qualify for ALTCS have an IRA.

A few states that do not count the assets in an IRA for Medicaid purposes are California, Florida, Georgia, and New York.

If you live in any other state, including Arizona, the assets in an IRA are countable assets.

As you know, every dollar that is taken from an IRA is ordinary income.

In the Married Case Study above, the couple had  $400,000 in countable assets; let’s say that all of the $400,000 is in an IRA account.

In the plan, the  $260,600 is used to purchase a Medicaid Compliant Annuity.

But instead of buying the annuity in October,  November or December, withdraw a third of the IRA of $80,000 in the current year, this will make the money taxable this year.

Then in, on January 1st of the following year, use the remaining IRA funds of $160,000 and buy a  Medicaid Compliant Annuity and a separate Medicaid Compliant Annuity with the $80,000.

This will create two payments, apart from the $80,000 and part from the IRA funds, for a total of the $260,000

Now you have spread the taxation in the IRA over a three-year period. This year and the following 24 months, the balance is taxed over the next two years.

This is a smart move to make at the end of the year.

Keep in mind that the cost of care and the size of the IRA must be taken into account if in the first three quarters of the year. It may not be worth waiting till the end of the year, particularly if you have a high negative income because of the cost of care.

There the taxation will be less than the cost of care, so best just to make the conversion as soon as possible.

Some will read this and say that it is too complicated; this is why you will want to hire a Certified Medicaid Planner, so you will have peace of mind that the proper timing and steps are used.

*Arizona Medicaid Countable Assets Include:

  • Cash
  • Stocks
  • Bonds
  • Investments
  • Bank Savings and Checking
  • Credit Union Accounts
  • Certificate of Deposits
  • IRA and 401K Funds
  • Real Estate ( Your Personal Residence is Exempt, the home you live in or plan to return to )
  • Life Insurance Cash Value of $1,500
  • Vehicles ( One vehicle is exempt )
  • Investment Collectables and Fine Art ( Usually not pursued by ALTCS ) 

Call us for Free ALTCS Consultation!

Call us : 480-967-8477