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Planning For The Cost Of Nursing Home Care
Prepared By Keith P. Huffman
Disclaimer
Problem
Solutions
Medicaid
Income Rules
Transfer Penalties
ANNUITIES
Documents
Age 70 - A Legal Tune Up
Valueable Resources
Closing
Many elderly citizens live in fear that all of their hard earned resources will have to be used for nursing home care, impoverishing their spouse, and denying them the opportunity to leave something to their children. The purpose of this brochure is to eliminate this fear by informing you of the many planning opportunities which are available.
Disclaimer
The information presented in this brochure is of a general nature. Each family has a unique situation that should be carefully reviewed by a lawyer specializing in elder law issues.
The laws discussed in this brochure change frequently. The information presented is current as of January 1, 2008. The laws that govern this area may be totally different a year from now. You should consult an elder law attorney for specific legal advice.
Problem
The cost of nursing home care has increased dramatically over the last ten (10) years. The average cost of nursing home care in Indiana is $4,249 per month. When medication bills are added to the cost of supplies, many individuals are paying $5,000 per month, or $60,000 per year to stay in the nursing home.
Solutions
Nursing Home Insurance
To Buy Or Not To Buy
The fear that nursing home costs will financially ruin their retirement has led many people to consider the purchase of nursing home insurance. We encourage people to purchase nursing home insurance. You should consider the following information in making your decision.
The younger you are when you purchase nursing home insurance, the smaller the premium. Generally, you should consider purchasing nursing home insurance when you are 59 years old. The premium should not exceed 10% of your income (as you are trying to protect--not spend--your retirement savings).
The average age for nursing home admission is 81 for men and 84 for women. If you are in good health and do not have a family history of illnesses resulting in nursing home care, you will want to consider how long you are likely to pay premiums.
Generally, people with assets of more than $150,000 and less than $800,000, excluding their home, are candidates for the purchase of long-term care insurance.
Married people should carefully consider their options under existing laws designed to permit one spouse to be institutionalized without impoverishing the spouse that stays at home. Generally, the spouse at home can keep their home, car, and one-half of their non-exempt assets up to a maximum of $104,400 without the need for long-term care insurance. Prior to committing to spend thousands of dollars in insurance premiums over a long period, they should spend $100-$200 and have a professional advisor explain these laws to them.
What are the chances that the insurance policy will make any payment to a nursing home? The average 65-year-old male has a 20% chance of spending a year in a nursing home and a 10% chance of spending five or more years in a nursing home. This means there is an 80% chance that you will need care for less than one year. When you compare this to the risk of filing a major claim against your homeowner’s insurance company, which is one in eleven hundred, nursing home insurance may be a good investment for your family.
If you are considering purchasing a long-term care policy, you should compare policies and premiums from at least two companies. In purchasing a policy, you should consider:
· Home Care. Many policies now provide for limited health and housekeeping care in your home to avoid a spouse having to enter a nursing home.
· Benefit Period. You can purchase a long-term care policy for the rest of your life, but generally coverage for four or five years is sufficient. This is particularly true in Indiana if the nursing home policy is approved by the State of Indiana as a qualified policy under the Indiana Long Term Care Program. This program allows you to qualify for Medicaid and for every dollar the insurance policy pays for nursing home care, the amount you can keep and qualify for Medicaid increases by a dollar. This program features a second policy that allows you to keep all of your assets. This second policy currently requires a qualified policy to pay the nursing home $228,045. This amount is adjusted each January 1st for policies purchased after that date.
· Elimination Period. By paying for the first 30 or 90 days of nursing home care, you can save a great deal on premiums.
· Inflation Protection. You generally should have a policy that increases your benefits by 5% each year, especially if you are under age 65 when you purchase the policy.
The purchase of a nursing home insurance policy is a major financial decision. You should carefully review and compare actual policies and rates before you buy.
The State Of Indiana Department Of Insurance Senior Health Insurance Information Program has additional information and counselors available to discuss these issues in more detail. Please use their hotline at 1-800-452-4800 to request information. Fred Taube serves as the local representative of this program. Fred can be reached at (260) 373-7952.
Medicaid
Most citizens in nursing homes run out of money in the first year and have their care paid for by Medicaid. It is unfortunate that Medicaid and Medicare sound so much alike. This creates a great amount of confusion about which program pays for what services. This brochure will focus on the Medicaid program only--as it pays for long-term costs of custodial nursing home stays for most elderly citizens. Medicaid is a federal program administered differently by each state. The following statements are based upon Indiana law.
Eligibility. In order to be eligible for Medicaid you must have less than $1,500 in countable assets for a single individual or $2,250 in countable assets for a married couple (or be within the spousal impoverishment guidelines) and be (a) over age 65, (b) be totally disabled, or (c) be blind. This brochure will focus on Medicaid eligibility for citizens over age 65.
Coverage. Once eligible, Medicaid will pay for almost all medical services and long-term custodial nursing home care.
Married Couples. When a married person first enters a nursing home or hospital (or combination thereof) for more than 30 consecutive days after September 30, 1989, a snapshot is taken of their assets (the “snapshot date”).
Example One: Mary, age 66, breaks her hip on October 10, 1992, enters a hospital, and is then transferred to a nursing home. She leaves the nursing home on November 13, 1992, and returns to live with her husband, Tom. On January 1, 2008, Mary again enters the nursing home. In order to determine Medicaid eligibility for Mary, they will have to document the assets they owned as of October 10, 1992, and compare these assets to their current assets.
Once the snapshot assessment is completed, the Community Spouse (the spouse at home) gets to keep one-half of their countable resources with a minimum of $20,880 and a maximum of $104,400 (these figures are adjusted for inflation each January 1st). There are many techniques a Community Spouse can use to change how assets are held so that certain assets will not be countable.
Medicaid does not count the following assets:
(A) A home of any value if used as a personal residence;
(B) Income producing property so long as fair market value rent is paid;
(C) One vehicle of any value if used for transportation for health care or employment;
(D) Proper irrevocable prepaid funeral arrangements; and
(E) Household goods and furnishings.
Example: Mary and Tom own the following assets:
| |
October 10, 1992
|
January 1, 2008 |
| Home |
$60,000
|
$60,000 |
Car
|
10,000 |
20,000 |
| Prepaid Funeral |
0 |
10,000 |
| Bank Accounts |
35,000 |
15,000 |
| |
$105,000 |
$105,000 |
On October 10, 1992, the bank accounts of $35,000 are the only countable assets. The Community Spouse gets to keep $20,880 and must spend or convert $14,120 before Mary becomes eligible for Medicaid. On January 1, 2008, the couple has spent $10,000 for funeral arrangements and bought a more expensive car. Mary is immediately eligible for Medicaid. Once Mary is determined eligible, Tom can do what he wants with his assets, and these assets will not affect Mary’s eligibility. Mary and Tom will have 90 days after Mary is determined eligible to put all of their assets in Tom’s name.
There are several other planning options available to Tom. The following options could be used if Tom had more funds.
Example: Let us assume Mary and Tom owned the following assets and Tom is entering the nursing home on January 1, 2008, making that date the snapshot date.
| |
January 1, 2008 |
| Home |
$60,000 |
Car
|
10,000 |
| Stock |
60,000 |
| CD |
40,000 |
| Savings |
25,000 |
| |
$195,000 |
The home and the car are exempt assets reducing their countable assets to $125,000. One-half of this amount or $62,500 would be set aside for Mary, and she would have to spend the other $62,500 or convert it before Tom would be eligible for Medicaid.
Mary could do any of the following to make Tom eligible for Medicaid at an earlier date:
(A) Annuity. Mary could take $63,000 and purchase an irrevocable annuity. This converts this asset to income (see the income rules below) since Mary cannot cash-in the annuity policy. Typically, Mary would receive monthly payments from the insurance company for a certain number of years. If Mary selected a 5-year annuity period, she would receive monthly payments of approximately $1,075 from the annuity company for 60 months, and Tom would be eligible for Medicaid. The State of Indiana would have to be named as beneficiary for any health care payments made for Tom or Mary. Please note that annuities purchased after July 1, 2005, may be subject to estate recovery at the second death. Furthermore, the State of Indiana is authorized after July 1, 2005, to pursue estate recovery after the second death to recover payments made for a spouse in the nursing home.
(B) Income Producing Property. Mary could take $63,000 and purchase a rental home. Since the property will produce fair market value rent, the rental home will not count as an asset.
(C) Fair Hearing. If Tom and Mary have low income and high shelter expenses she could request that all of their assets be set aside in her name to enable her to have enough to live on. Mary and Tom own $125,000 of non-exempt assets. This sum would produce monthly income of $208.33 if invested at 2% interest. If Tom and Mary’s income is under the income standard of $1,712 by at least $208.33, she could use the fair hearing procedure to have all the assets allocated to her. This procedure involves making application for Medicaid, having the application turned down, and then appealing this decision to an Administrative Law Judge. The Administrative Law Judge has the authority to allow Mary to keep all of their assets.
Income Rules
Medicaid analyzes income for a couple according to the name on each check the couple receives, with joint payments attributable one-half to each.
Example: Let us assume Mary and Tom receive the following income:
| |
Mary |
Tom |
Social Security |
$420 |
$1,130 |
Pension
|
-- |
550 |
| Investment Income |
200 |
-- |
| |
$620 |
$1680 |
Let us further assume Tom is in the nursing home and eligible for Medicaid, and Mary is in assisted living. Mary is entitled to receive income of $1,712 per month. This sum can be increased by one dollar for each dollar of allowable shelter expenses Mary has which exceed $514 per month to a maximum of $2,610 per month.
In this example Mary already receives all of their investment income but still only has income of $620, so she will receive all of Tom’s income to help support her.
Waiver Programs
Indiana is making it easier for people to obtain help to stay in their home by use of a Medicaid Waiver program if we can demonstrate it is less costly for a person to stay at home rather than enter a nursing home. Please visit our webpage at www.dale-huffman.com for more information about Medicaid Waiver programs.
Transfer Penalties
Medicaid restricts the transfer of assets from one person to a non-spouse to enable that person to become eligible for Medicaid. Transfers between spouses are not penalized because the resources of both spouses are counted in determining eligibility.
The average cost of nursing home care is $4,249 in Indiana. If someone transfers an asset for less than fair market value, then he or she creates a period of ineligibility for Medicaid.
The ineligibility period is determined by taking the amount of the gift and dividing it by the sum of $4,249.
Example: If Mary gave away $10,000 to her son, Michael, she would be ineligible for Medicaid for two months ($10,000 ÷ 4,249 = 2.35 round down to 2). As of February 8, 2006, the period of ineligibility starts when a person is in a nursing home and runs out of money once Indiana changes its law to come into compliance with federal law.
If Mary gave away $20,000 to her son, Michael, she would be ineligible for Medicaid for four months ($20,000 ÷ 4,249 = 4.71).
The maximum look-back period is 60 months. Gifts made more than 60 months before a Medicaid application is filed are not counted.
Congress enacted a new law on February 8, 2006, which will make it extremely difficult for seniors to qualify for Medicaid to help pay for their nursing home care in the future. These reforms were buried in the proposed budget bill. We believe these so-called reforms are unfair to all of us and need to be changed by Congress.
The major change creates a floating penalty during a five year period before someone files for Medicaid to help pay for nursing home care. How does the floating penalty work? Dad dies and leaves Mom a $50,000 life insurance policy and $200,000 in CDs. Mom gives $30,000 to her children; $10,000 to a charity; and $10,000 to her church--just in case she has to enter a nursing home later. Mom has a stroke the next month and goes to the nursing home. She spends $200,000 on her care over the next four years and then applies for Medicaid. Imagine the shock she will face when she finds out the new law makes her ineligible for Medicaid for nearly a year--when she is out of money. Who will pay for her care? How will the nursing home be paid?
The new penalty rule has two parts. First, you must determine the length of the penalty. The length of the penalty is determined by taking the amount gifted and dividing this amount by the average cost of nursing home care in Indiana, which is currently $4,249 per month. In the last example, the total gift of $50,000 is divided by $4,249 to determine that the period of ineligibility created by the gifts is 11.78 months.
The second part of the rule states that the penalty for a gift starts on the date Mom is in the nursing home and she has $1,500 or less in her name within five years of making the gift. This is what makes Mom ineligible for Medicaid for 11.78 months once she is in the nursing home and out of money. The rule for gifts before February 8, 2006, imposed a transfer penalty from the date Mom made a gift, not some future unknown date.
This is easiest explained by example. Mom gives her son $10,000 in March 2006. Mom gives her church $200 per month for 36 months. Mom gives Christmas gifts of $500 for three consecutive years. Mom goes into the nursing home, pays for her care for a year, and runs out of money. This means Mom has given away $10,000 + $7,200 + $1,500, for a total amount transferred of $18,700. This amount is divided by the average cost of nursing home care in Indiana of $4,249. These transfers apparently make Mom ineligible for Medicaid for 4.40 months, when she has no money to pay for her care.
The new law now creates a penalty period for even the smallest of gifts. When Mom gives the kids $500 total at Christmas, she is not aware that she may have made herself ineligible for 3 days of Medicaid care in the nursing home if she enters a nursing home at any time in the next five years and runs out of money!
The new law creates a Hardship Waiver program that requires new regulations. The Hardship Waiver program will allow nursing homes and/or nursing home residents to ask that the penalty period be waived for a specific individual because the penalty will deprive the individual of medical care, food, clothing, shelter, or other necessities of life. We will not know what this means until the required regulations are implemented.
Indiana also has a little used law entitled “Contribution to Support of Parents” (IC 31-16-17-1). This law allows the Division of Family Resources or the prosecutor to sue children to compel the support of their parent if the parent is financially unable to furnish the parent’s own necessary food, clothing, shelter, and medical attention. The children are even responsible for the attorney fees incurred in compelling them to pay for the care for Mom or Dad.
How are we to advise seniors in the future? Should we discourage them from making gifts to their church, charity, and their family because they may need nursing home care in the future? We cannot believe this is the message Congress has sent to our seniors.
The new law still permits transfers of assets if a person can prove “the assets were transferred exclusively for a purpose other than to qualify for medical assistance.” While this requires you to prove a negative--which is very hard to do--it can be done. This is likely to be the case with those who tithe to a church.
I am advising my clients to continue to make contributions to the church if they have a history of making similar contributions. Medicaid caseworkers in Indiana have taken the position in a few cases that contributions to a church create a period of ineligibility the same as a gift to a child. An Administrative Law Judge has yet to rule on this issue. Clients should not make a large new gift to a church without seeking legal advice.
Gifts to other charities should be treated as gifts to churches. When a person has a pattern of making similar gifts over the years, the continued support of a charity should be permitted under the new gift rules. Gifts to church and charities will generally be treated as a transfer once a person has limited resources and is facing nursing home care.
Seniors will need to consult with an elder law attorney well in advance of needing nursing home care. These new transfer penalties apply to transfers made on or after February 8, 2006. Transfers prior to that date are under the old rules.
Many people believe they can gift away their annual exclusion of $10,000 (effective January 1, 2006, $12,000) without penalty, and without the donor having to file a gift tax return. Medicaid will not permit a gift of $10, let alone $12,000 if a person will be in a nursing home and out of funds at any time within the next five years. You should be aware that even the smallest gifts can trigger a period of ineligibility for needed Medicaid benefits.
Annuities
The new reforms are particularly harsh for anyone who would purchase or own an annuity after February 8, 2006. The law requires the State to be the primary or contingent beneficiary of any new annuity policy. The proceeds of any such annuity are intended to repay the State for any medical assistance furnished to an individual or their spouse. If the State is not named as beneficiary of your annuity, you and your spouse have made a transfer under the Medicaid laws, triggering a floating penalty for the next five years, even though you still have all of the money invested in the annuity. This law seems to require action by the State of Indiana before it becomes effective.
For example, Dad purchases an annuity for $50,000 naming Mom as primary beneficiary and the children as contingent beneficiaries. The State is not named as a beneficiary, so there is a floating penalty assessed even if the children receive nothing. Four years later Mom has died, the annuity is gone, and Dad has to go to the nursing home. He has run out of funds and applies for Medicaid. Imagine the shock the family will experience when they find out he may not be eligible for Medicaid because he bought an annuity.
The new law also adversely affects existing annuities. If Mom or Dad are in the nursing home and on Medicaid, the State will now become the remainder beneficiary at the second death when they apply for Medicaid or at the redetermination date.
The new law treats annuities purchased before February 8, 2006, as being purchased after February 8, 2006, if certain changes are made to an existing annuity. These changes include:
(1) Adding money to an existing annuity;
(2) Taking money out of an existing annuity;
(3) Changing the distribution from an annuity;
(4) Electing to annuitize the annuity; or
(5) Other similar actions.
The simple task of taking money out of your annuity for your use can now create penalty should you or your spouse need nursing home care at any time within the next five years.
Anyone over age 50 should have grave reservations about purchasing an annuity in the future. They should also seriously consider cashing in existing annuities. Americans invested over $23 billion in annuities for retirement in 2004 alone. The new law will result in a dramatic change in how we pay for our retirement.
NOTE: The Medicaid rules must be fully complied with when making application for Medicaid and while receiving benefits. You must disclose all gifts to the caseworker and all assets. There are many planning techniques available to enable a person to become eligible while playing within the rules.
Documents
Power of Attorney. Every citizen over age 50 should strongly consider giving someone else written authorization to act for them, either now or when he or she becomes incompetent. A properly executed power of attorney empowers another to act for you as to the management and disposition of your property. In light of today’s medical advances, you are statistically likely to face a period of incapacity prior to death. I, therefore, strongly recommend signing a properly prepared power of attorney to assist with the planning techniques set forth in this brochure, should you or your spouse enter the nursing home for an extended stay. This power of attorney should be durable--meaning it can be used to manage your affairs should you become incompetent.
This power of attorney should specifically authorize the attorney-in-fact to make gifts to your spouse, your children (including your attorney-in-fact) and their spouses. A properly prepared power of attorney is many times more important than a will.
Health Care Power of Attorney or Declaration of Health Care Representative. Separate from a Power of Attorney, a Health Care Power of Attorney allows you to designate another to make health care decisions for you in the event that you are unable to make those decisions yourself. This document is especially useful in second marriage situations, where one has several children, for single individuals without children, or where a parent would like to avoid potential conflict among the children. You can visit the forms section of our website at dale-huffman.com and print a Health Care Representative form. You can fill in the blanks, have your signature witnessed by a non-family member, and you will have a Health Care Representative.
Living Will. A living will is a fairly meaningless document. It is only effective after a physician certifies in writing that you are going to die within a short period of time. Physicians do not do this. A Living Will may provide some psychological benefit (i.e. we are doing what Dad wanted) but has little legal benefit. Your family would receive far greater benefit through a Health Care Power of Attorney with a careful choice of representative.
Out of Hospital Do Not Resuscitate Declarations. A recently enacted statute resolves what was previously a conflict in how life saving care was administered. With the new law, individuals with approval of their doctor who are not in a hospital can specify that EMTs and paramedics should refrain from performing CPR if that individual has enacted a proper declaration.
Will Every person should have a will. Please visit our website at www.dale-huffman.com and enter our “Articles” section for a thorough explanation of the benefits of having a will.
Age 70 - A Legal Tune Up
Just as you tune up your car every few years, I recommend a legal tune up at age 70. Specifically, you should organize your affairs and make sure you have the following documents in order:
1. A durable power of attorney authorizing someone to act for you if you cannot act for yourself. This power of attorney should specifically authorize the making of gifts to your attorney-in-fact without regard to the Indiana annual limit of $12,000.00.
2. A proper document authorizing someone to make health care decisions for you if you cannot act for yourself.
3. A proper will, or in some situations a trust, designed to minimize or eliminate taxes at your death, that has been prepared or reviewed by a lawyer within the last three years.
4. An organized notebook showing what you own, how you own it, and what it cost you to purchase it.
5. Prepaid funeral arrangements purchased by use of an irrevocable assignment of a life insurance policy based upon the value of the arrangements selected.
You should then consider the effect a long term nursing home stay will have on your finances. Many elderly citizens needlessly live in fear their spouse will have to go into the nursing home and the cost will either impoverish them or require a divorce. An hour spent with a lawyer specializing in elder law will eliminate these fears.
When your spouse has to enter a nursing home, the spouse at home has the right to keep most of their assets and to keep sufficient income to live independently. Should you be faced with placing your spouse in the nursing home, I strongly encourage you to consult with an elder law attorney as soon as possible.
Children faced with a decision to place Mom or Dad in the nursing home should also consult with an elder law attorney. Contrary to what many people believe, it is possible for Mom or Dad to leave some of the assets they have worked hard for to their children rather than spending it all on nursing home care.
My last recommendation is to have a family meeting and discuss each of the above issues. The more your family knows, the more they can assist you in your hour of need.
Valueable Resources
Our website, www.dale-huffman.com, includes all of the following links as well as all articles we write and forms to download for advanced medical care directives.
www.seniorlaw.com An excellent source of articles and information about Medicaid and elder law issues plus a comprehensive directory of attorneys practicing in this area.
www.medicare.gov/nhcompare/home.asp Provides detailed information about the performance of every Medicare and Medicaid certified nursing home in the country; a wonderful resource to help in your decision of choosing a nursing care facility for a loved one.
www.naela.org This website can help the client find an elder law attorney in every state.
www.state.in.us/fssa/rxprogram/rxhome.htm Are you a senior citizen facing the high cost of prescriptions in Indiana? If you meet the income requirements, you may qualify for assistance from a state program.
www.benefitscheckup.com This website provided by the National Council on Aging quickly lets you know whether you qualify for certain state and federal assistance programs based on your income and resource level.
www.savingsbonds.gov Everything you could possibly want to know about savings bonds, including the answers to all savings bond questions, current interest rates, and even savings bonds values, are provided in this website maintained by the Bureau of Public Debt.
www.medicare.gov The new Medicare Part D Prescription Drug Coverage is a complicated new program for Medicare beneficiaries. This site provides information about Part D.
Closing
Many senior citizens live in fear that their health problems will result in a significant financial hardship for his or her spouse and family. This is no longer true. There are many planning opportunities in addition to the ones presented in this article. So my final piece of advice is to enjoy your retirement and leave the worrying to your lawyer.
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