The Long-Term Care Crisis in America
Long-Term Care is a real and present problem that retired and soon to retire individuals, and their families face today.
The need for long-term care robs you and your family of your assets, leaving you penniless and your heirs with nothing more than a final bill from the assisted living or nursing facility.
Long-term care takes away your dignity, independence, and pride in your retirement years. The need for Long Term Care will cause your spouses to be left with little money to continue a comfortable lifestyle and will take your children's inheritance from them too. This is a needless family tragedy, one that can be avoided!
What is successful ALTCS - Medicaid Planning? There are two types of planning done; these are Pre-planning and Crisis Planning.
Pre-planning is done several years in advance of needing long-term care, whereas crisis planning is done when some suddenly find themselves in need of long-term care.
Who should consider pre-planning for long-term care? I suppose I could say, everyone. Yet, what surprises me the most is this in 2020, only 7 percent of the US population owned long-term care insurance. Down from 12% in 2015, either way, a meager percentage.
As I work with a family member in a crisis with a loved one, I often would say, "Once we get your mom or dad settled and approved for either ALTCS benefits or Veterans Pension or Both, I would like to talk to you about your long-term care."
I provide them with a long-term care insurance quote and some alternative long-term care insurance products information, like annuities that take advantage of the Pension Protection Act and life insurance policies that have long-term care insurance as part of the benefits,
Later, I would contact them about these plans; with rare exceptions, they don't no return calls, complete silence. Being busy helping others, I move on, leaving them for the same fate as their family member with a Long Term care Crisis in the future.
See Planning Strategies and ways to avoid a long-term care crisis here.
What is Crisis Planning?
ALTCS / Medicaid Crisis planning definition. ALTCS / Medicaid Crisis planning uses legal strategies under Title XIX and state-specific ALTCS - Medicaid rules to convert countable assets into non-countable assets to qualify for ALTCS / Medicaid Long-Term Care benefits.
The key to successful ALTCS (pronounced All-Tex) / Medicaid crisis planning is to begin as soon as the need for Care or potential need for care becomes apparent. The sooner planning begins, the more opportunities exist to obtain maximum asset preservation.
Keep in mind that the rules regarding ALTCS / Medicaid eligibility are complex and ever-changing; timing is crucial in the planning process. ALTCS / Medicaid caseworkers are specifically instructed not to provide assistance beyond completion of the ALTCS / Medicaid application. This is why it's essential to only work with a Certified Medicaid Planner, CMP. A CMP understands the rules and can ensure a successful outcome of a plan.
Getting Professional Help
A Certified Medicaid Planner™ or CMP™ will help you provide for the right venue (home, independent living, assisted living, or nursing facility) thoroughly analyze your financial circumstances, refer you to other experienced professionals where required, complete the application approval process, and assist you with your annual review.
For most families, the primary goal of ALTCS / Medicaid planning is to provide the best and most comfortable level of care for their loved one. The primary dilemma is that such care is expensive and family resources are exhaustible.
How will the spouse at home remain financially secure? Where will the money come from for additional expenses once Medicaid approval is received? What will happen when the Medicaid recipient passes away? What if the well spouse predeceases? How will assets be inherited by other family members? All of these questions will be addressed by a well thought out plan.
Essentially, since ALTCS / Medicaid establishes explicit guidelines as to income and assets, ALTCS / Medicaid planning strategies principally revolve around minimizing the income and assets of the applicant and preserving or increasing the income and assets available to the community spouse and/or other family members.
This is first accomplished by making sure that all available asset/income exemptions have been utilized and non-countable asset categories have been funded. Secondly, most strategies look to convert countable assets into non-countable income streams.
The biggest mistake a family can make, particularly after implementation of DRA '06 (the most recent Federal legislation pertaining to ALTCS / Medicaid eligibility), is to begin giving anything away without seeking counsel first!
A family might begin crisis planning by pre-paying upcoming bills such as insurance premiums or condo fees. Home repairs or pre-payments to a mortgage can be made. A pre-paid burial plan and/or an irrevocable funeral trust can be funded. Car repairs can be made or a new car purchased. Clothes and personal items can be purchased.
Converting an asset like an IRA or bank account to a Medicaid Compliant Annuity can be a solution to being over resourced to qualify financially. This is particularly true for a married couple where only one spouse qualifies medically for ALTCS / Medicaid and the other doesn't. Or possibly one of the spouses is a wartime veteran who needs a lower level of care. We call this the "VA Medicaid Marital Split Strategy™".
To meet the income test the applicant's gross income must be below the 2018 Income Cap of $2,250. If the applicant's income exceeds this amount, they may still be possible to qualify if a), the asset test and b), excess income is deposited to an Irrevocable Qualified Income Only Trust (QIT) or often called a "Miller Trust".
Income deposited in a QIT will be after the $112.25 monthly personal allowance and after diversion to the Community Spouse's monthly needs allowance. It will then flow through the trust and be paid to the facility as part of patient responsibility or Co-Pay.
Protecting the Spouse: Income
A key element of successful planning is maximizing the opportunities to preserve income and assets for spouses remaining in the community and this is always a primary concern for us as your planner. Spouses are granted specific rights when it comes to how marital income and assets will be treated when one spouse is receiving institutional care benefits.
The Spouse at home may retain a minimum of $2,030 and a maximum of $3,090 in joint marital income. In other words, if the community spouse's income is less than $3,090 per month she is entitled to her husband's income up to an amount that will make up the shortfall. This can be confusing because the spouse at home or well spouse can have unlimited income. See for details:
Example: Shirley has Social Security income of $966 per month. Her husband, who is applying for Medicaid, has Social Security income of $1,234. All of her husband's income is required to go to his cost of care, his "patient responsibility", but because Shirley's income is below the 2018, $2,030 threshold she is permitted to receive $1,064 per month of her husband's Social Security to make up the difference.
If she can demonstrate that her expenses are higher, she can apply to Medicaid to receive up to $3,090 per month in income total.
Meeting the asset test poses the greatest challenge for most families. The transferring/gifting of assets that used to be permissible has been severely curtailed by recent legislative changes.
Gifting and Medicaid Penalties
The most important thing to know about asset strategies is that, with the exception of transfers between spouses, any gift made without fair market compensation to the applicant may result in a denial of benefits and the imposition of a penalty period during which time the applicant will continue to be ineligible for benefits.
What this means, very simply, is that the applicant cannot give anything away during the five year period prior to applying for Medicaid benefits.
If the applicant does so, the ALTCS has the authority to sum up the value of those gifts and impose a penalty based on that value beginning from the date of application...not the date of the gift!
Many confuse Medicaid's strict asset gifting policies with Federal Gift and Estate Tax rules which permit the annually gifting of small amounts without the requirement to file a gift tax return or for the amount to be countable as to lifetime gift and estate tax exemption amounts. One has nothing to do with the other and, in fact, gifts given under this notion are counted as potentially penalizing gifts with respect to Medicaid eligibility.
What is income?
For eligibility purposes Income is defined as gross income not net. For example, most have Medicare Part B premiums subtracted from their Social Security benefit. This must be added back when determining gross income. Similarly, many have health insurance premiums, other benefit premiums, or taxes deducted from their pension income. This, too, must be added back to in calculating gross income.
What is considered income? Virtually every source of income is considered countable. Social Security, pensions, disability benefits, VA benefits, interest income, non-taxable income, dividends, IRA or other qualified plan distributions, income from annuities, income from ongoing business concerns or income producing property, and anything else the applicant may be receiving is considered income with rare exceptions.
Once the Income test is met, the applicant must pass the Asset test.
THE ASSET TEST
All assets of the applicant and, if married, the spouse, whether held jointly or not, are considered for Medicaid eligibility purposes. A discussion of asset types follows the requirements below:
Asset requirements for the single applicant: Cannot own countable assets in excess of $2,000.00 in addition to certain exempt and non-countable assets.
Asset requirements for the well spouse (known as the Community Spouse): May retain up to $123,600 in individual/joint assets in addition to non-countable assets (exempt, non-available, and certain income producing assets). Note Arizona is a 50% state.
Definition of Assets
In general, an applicant's assets are divided into two types: Countable towards Medicaid eligibility limits and Non-Countabletowards Medicaid limits. Assets may also be deemed "exempt" or "unavailable". The type of asset involved, how it is titled, and in some cases the ownership history of an asset, will determine its category.
Below is a list of assets that most applying for Medicaid must contend with when considering the asset test. It is by no means complete and every individual’s circumstances must be evaluated to be sure no “surprises” occur during the application process.
The Home – If the spouse of the applicant or certain dependent relatives continue to reside in the home, the home is not counted as an asset. If single, the home is excluded if the applicant “intends to and can be reasonably expected to return to the home”. Once the applicant is deceased, however, the home may be subject to Medicaid Estate Recovery. Proper planning may avoid this outcome.
Vehicles – One vehicle of any age, and a second vehicle if over 7 years old (unless it is a luxury, antique, or custom vehicle) is/are not countable.
Personal/Household Goods – Personal items in the home such as furnishings are not countable. Other items such jewelry or art may be considered countable if deemed collectible
Retirement Accounts – In Arizona IRA’s, 401-k’s, 403-b’s, are counted even if they are properly structured and the owner (applicant or spouse) is taking regular and periodic income distributions from the account (IMPORTANT: the minimum distribution requirements for Medicaid are different than those for the IRS!). Unless! See exception
Burial Funds and Prepaid Funeral Contracts – If irrevocable, the full value of a burial contract is not counted regardless of the amount or value, max $8,000 without a goods and services agreement (G&S) and upt to $15,000 with a G&S. If the plan or funds are revocable, ALTCS allows up to $1,500 to not be counted.
Ongoing Business Concerns – Whereas they generate income for the applicant who ultimately contributes to the cost of care in the form of Patient Responsibility, such concerns are generally not countable. Likewise, the value of other real property that is rented or listed for sale can also be excluded as countable. The gross proceeds from any rental income is counted towards gross monthly income when applying the Income Test. Deductions are provided for allowable rental expenses.
Life Insurance – All term life insurance policies are excluded since they have no cash value. Whole Life or other forms of cash value life insurance polices with a current cash value may be counted as assets. If the total face value (in other words death benefit) of all policies owned is less than or equal to $1,500 then the cash value of the total of all policies is excluded. If the total death benefit of all policies exceeds $1,500 then the cash value of all policies is included in determining the asset test.
Unless in a Funeral Trust.
Annuities – The cash surrender value of single or flexible premium deferred annuities are fully countable (unless contained in a retirement plan, see Retirement Plans above).
Properly Structured Immediate Annuities – Assets placed into a properly structured immediate annuity may not be countable provided the contract meets strict Medicaid guidelines.
It is easy to see that for many the Asset Test is the test that will present the most confusion and the largest stumbling block for ALTCS / Medicaid eligibility.
Interestingly, however, it is because the rules are so complex and the types of assets an applicant may own may be so varied, that we find it is in this area that the greatest opportunity exists for eligibility planning.