Long Term Care
Americans can no longer afford to ignore the potentially devastating costs of nursing home care and other long-term care. Because life expectancies have continued to increase, so has the statistical likelihood that you will need nursing home care or other types of long-term care. According to the Centers for Disease Control and Prevention only 39% of men and 43% of women who were born in the year 1900 lived to age 65. However, it is anticipated that 77% of men and 86% of women who were born in the year 1997 will now live to age 65 and beyond. With extended life expectancies, nursing homes are becoming a more likely and one of the most expensive creditors that the average American will face in his or her lifetime. Consider the following statistics:
- About 70% of Americans who live to age 65 will require some form of long-term care, with over 40% needing such care in a nursing home.
- As of 2008, the national average of a private room in a nursing home was $212 per day or $77,380 per year.
- One study by a prominent long-term care insurance company found that 46% of its long-term care claimants were under the age of 65 at the time of disability.
- On average, a 65 year-old individual will need some type of long term care for three years. Women need care for longer (approximately 3.7 years on average) than men (approximately 2.2 years on average). 20% of today’s 65-year olds will need long-term care for more than five years.
With these statistics in mind, people can choose from four different possible ways of paying for their long-term care costs: (1) private pay, (2) procuring a long-term care insurance policy, (3) Medicare, or (4) Medicaid.
Obviously, the most preferable option for individuals would be to have sufficient liquid funds available to fully pay for their long-term care needs. However, the unfortunate reality is that this option is not available to most Americans today.
For those who can qualify, a long-term care insurance policy is a great protection against devastating long-term care costs and is the best option for most individuals who will be faced with long-term care needs in the future. Unfortunately, these types of insurance products are relatively new to the marketplace and many individuals only learn of these policies after they have become uninsuranble or the premium costs are unaffordable.
Without the options to privately pay or procure long term care insurance, people must then turn to Medicare and Medicaid.
Many people receive long-term care benefits under Medicare. For those enrolled in Medicare, nursing home benefits are limited to a maximum of 100 days per “spell of illness.” Out of those 100 days, the first 20 days are covered by Medicare and the remaining 80 days of coverage requires the patient to pay a daily deductible, which is currently $133.50 per day. Medicare only provides coverage to individuals who previously have had a hospital stay of at least 3 days and require skilled nursing care or physical, occupational, or speech therapy on a daily basis.
Nevada Medicaid is funded jointly by the State of Nevada and the federal government and is administered by the State. Unlike Medicare, in which individuals age 65 or older are automatically eligible for benefits, Medicaid in Nevada only provides benefits for people who meet certain eligibility guidelines. In general, there are three categories of eligibility that an individual must meet to receive Medicaid benefits: categorical, resource and income.
The categorical requirement is met where an individual resides in a skilled nursing facility, intermediate care facility or hospital and is aged (65 years or older), blind or disabled. The applicant must also be a U.S. Citizen or a permanent resident alien lawfully admitted into the United States or permanently residing in the United States under color or law.
Under resource eligibility requirements, Nevada Medicaid applicants must meet strict guidelines on the amount of assets that they can keep. Without any additional planning, the following assets can be kept by a Medicaid applicant who is seeking to become eligible for Medicaid:
- Up to $2,000 cash
- A principal residence which does not exceed $500,000 in equity
- One automobile
- Personal belongings and household goods
- Up to $1,500 designated as a burial fund for the Medicaid applicant and spouse
- Burial spaces, containers, markers and certain related items for the Medicaid
- applicant and spouse
- All term life insurance policies
Finally, the Medicaid applicant must also meet Medicaid’s income requirements. Presently, the Medicaid applicant may not allowed to receive more than $2,022 per month. Out of this amount received, all but $35 per month will be used to offset the cost of the applicant’s monthly long-term care costs.
Although Nevada Medicaid has strict eligibility requirements, the rules allow for both the Medicaid applicant as well as a spouse of a Medicaid applicant to retain a significant amount of assets if the proper planning is done prior to the time of application. This often involves the use of certain types of trusts or petitioning the Court to increase the amount of assets that can be kept. With the proper advice and planning an individual can qualify for Medicaid benefits while still retaining assets either for a spouse or to pass on to loved ones at death.
A Medicaid annuity can be an excellent tool for a couple or individual to use in protecting against the high cost of long-term care. An annuity is a contract between an individual and a third party (usually an insurance company) in which the individual invests money in exchange for a guaranteed set of payments for life or a specified number of years. Under Nevada’s Medicaid rules, an individual or couple can purchase a particular type of annuity with assets in excess of the amounts allowed under Medicaid’s eligibility rules (see our article entitled “Long Term Care Through Medicare and Medicaid in Nevada” for more on Medicaid’s eligibility rules) and avoid any Medicaid eligibility disqualification period (see our article entitled “Transfers and Medicaid Eligibility” for more on the disqualification period).
However, the annuity must meet specific requirements, which includes the following:
- The annuity must be purchased from a life insurance company or other commercial company that sells annuities as part of its normal course of business.
- The annuity must be irrevocable (you cannot retain the right to retrieve the funds back from the insurance company except through the regular payments received).
- You must receive back the amount you provided to the insurance company during the actuarial life expectancy of you or your spouse in substantially equal installments.
- The annuity must begin making payments to you right away (this type of annuity is known as an “immediate annuity”).
- The State of Nevada must be named as a remainder beneficiary up to the amount Medicaid paid on the annuitant’s behalf.
After caring for her husband, who was diagnosed with Dementia several years ago, Mrs. Smith can no longer manage to take care of Mr. Smith on her own and decides to have Mr. Smith placed into a nursing home. Mr. and Mrs. Smith currently have $250,000 in assets, which is well above the $109,560 that Mrs. Smith will be allowed to keep and have Mr. Smith qualify for Medicaid benefits. Mrs. Smith can take the excess assets ($140,440) and purchase a Medicaid-compliant immediate annuity. This makes Mr. Smith immediately eligible for Medicaid benefits and Mrs. Smith will receive an annuity check for the rest of her life.
Although a Medicaid annuity is a powerful and effective tools in helping an individual qualify for Medicaid benefits, it is not for everyone. Furthermore, very few people understand the specific rules that an annuity must meet so that Medicaid benefits are received. If you are considering purchasing an annuity in an attempt to qualify for Medicaid benefits, it is important that you consult with an elder law attorney first.
TRANSFERS AND MEDICAID ELIGIBILITY
Making Transfers for Less than Fair Market Value
Because Medicaid limits the amount of assets an individual may have before they qualify for Medicaid benefits, individuals oftentimes desire to transfer away assets to their loved ones to try and qualify for Medicaid benefits without having to spend all of their assets first on nursing home care. For purposes of Medicaid eligibility, Medicaid distinguishes between assets transferred by gift and assets transferred for full fair market value. A person may transfer assets for full fair market value at any time without any penalty. However, a transfer for less than fair market value will result in the Medicaid applicant being ineligible for Medicaid for a period of time, known as the “disqualification period”.
Under the Deficit Reduction Act of 2005, which went into effect on February 8, 2006, Medicaid is required to determine whether a Medicaid applicant has made any transfers for less than fair market value at any time during the previous 60 months prior to the time of application. This 60 month time frame is known as the “look back period”. It is critical to understand that the disqualification period and the look back period are two separate things. A disqualification period results from making a transfer for less than fair market value at any time during the look back period.
Determining the Disqualification Period
The disqualification period is calculated by dividing the State of Nevada’s estimation of the average monthly cost of nursing home care by the amount of the gift made by the Medicaid applicant. Presently, the State’s estimation of the average cost of nursing home care is $5,865, but this number does generally fluctuate on an annual basis. In other words, a Medicaid applicant becomes ineligible for Medicaid benefits in Nevada for one month for every $5,865 that the Medicaid applicant transfers for less than fair market value. For example, if an individual transfers $29,325 away by gift, a 5 month disqualification period will be imposed ($29,325/$5,865 = 5).
Many clients assume that the disqualification period begins to run at the time that the gift is made. Prior to the Deficit Reduction Act of 2005, this was true. However, since the passing of the Deficit Reduction Act, the disqualification period begins to run as of the date of application for Medicaid benefits. For example, if an individual transfers $58,650 as a gift on July 1, 2009 and applies for Medicaid benefits on December 1, 2010, a 10 month disqualification period will begin to run starting on December 1, 2010 ($58,650/$5,865 = 10).
Although most transfers for less than fair market value are subject to a disqualification period, certain transfers are exempt from this penalty. These transfers include giving assets to:
– Your spouse
– Your child who is blind or permanently disabled
– Into a trust for the sole benefit of anyone under age 65 who is permanently disabled
– Your child who is under the age of 21
– Your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay in the home during that time
– A sibling who already has an equity interest in the house and who lived there for at least a year before you moved into a nursing home
Because of these stringent rules, transfers should be planned carefully with a full understanding of the consequences of making such transfers. If you are considering making a transfer for less than fair market value and believe you will need to receive Medicaid benefits in the future, it is important that you consult with an elder law attorney first.
If you have any questions regarding this article please call to schedule a consultation.