It is estimated that this year nearly nine million men and women over the age of 65 will need some form of long-term care. Long-term care includes a variety of services such as medical and non-medical care to those who have a chronic illness or disability. Most long-term care is designed to assist people with daily activities like eating, dressing, bathing and personal care (“custodial care”). It can vary depending on what kind of care is needed, such as community services, home care, assisted living, continuing care, retirement communities and nursing homes.
Long-term care services can be very expensive. Many people assume that these costs will be covered by Medicare or Medicare supplemental policies, or by Medicaid; but few understand what these programs offer or what their eligibility requirements and limitations are.
Medicare is the national health insurance program for people age 65 or older, certain individuals under 65 with disabilities, and those with End-Stage Renal Disease. In general, Medicare does not pay for long-term care or custodial care. Some Medicare plans offer limited skilled nursing facility and home health care coverage if the care is medically necessary and certain eligibility criteria are met. Even then the services are only covered on a part-time or intermittent basis and the individual may still have to pay some of the costs.
Medicaid is a program that is jointly funded by the federal and state governments to assist states in providing medical long-term care assistance to people with low income and limited assets. In most states, Medicaid also pays for some long-term care services at home and in the community. Eligibility and services vary from state to state. Most often, eligibility is based on income and personal resources. In Pennsylvania Medicaid is referred to as Medical Assistance.
If an individual meets all eligibility requirements, Medicaid pays the difference between the nursing facility’s charge and the amount that the individual is required to pay from his or her monthly income towards the cost of care.
To qualify, a person must meet a number of criteria. The person must be:
- Medically in need of nursing facility services;
- A U.S. citizen or a qualified non-citizen;
- Resident of Pennsylvania; and
- Financially in need.
To be financially eligible for Medicaid, the individual must have assets below $2,400. Most income is counted, including, Social Security payments, pensions, income from investments and savings, rental income, and withdrawals from IRAs. Most resources will be included as well, such as bank accounts, stocks and bonds, IRAs, and cash value of some life insurance. However, the good news is that there are some assets that are exempt:
- One home (if there is a plan to return or a spouse or dependent resides there);
- One motor vehicle;
- Burial spaces/plots; and
- Revocable and irrevocable burial reserves subject to specified limits.
The state will also examine certain transfers of assets. Any transfer of assets (income and resources) for less than fair market value in a three-year “look back” period prior to applying for Medicaid, or five years in the case of transfers to trusts, will be reviewed by the state. If the state determines that fair consideration was received from the sale or transfer of the property, the transfer will not disqualify the applicant.
However, if it finds that assets are transferred and fair consideration was not received, a period of ineligibility is established based on the value of the asset transferred. The penalty period is determined by dividing the value of the asset by the average private-pay rate for nursing facility care (which is currently $5,559.25). The result is the number of months during which the applicant will not qualify for Medical Assistance.
Fortunately, special Medicaid rules have been established for married couples when one spouse is admitted to a nursing home and the other is not. This allows the spouse who remains at home to keep one-half of the couple’s jointly held resources with a maximum of $92,760. Subject to these rules, the remaining spouse is not required to use his or her income to help pay for the nursing facility care received by the spouse in the nursing home.
Since nursing home costs can create a substantial financial burden on the individual and the family, planning is critical. Often, paying for long term care is not considered until the need arises, when it may be too late to plan properly. Many individuals end up paying for nursing facility care with personal funds and eventually reduce their resources to the Medicaid limits. Long-term care planning is very fact-specific. While one method may be perfect for one couple, it may be entirely unsuitable for another.
So what are the options?
- The first (obvious) option is to use savings or other personal resources to pay for long-term care. This is also called “self-insuring.” This option may only be practical for people with above-average resources.
- Making gifts of certain assets, while paying particular attention to the value of the asset and the penalty period, is another consideration. This could be a risky option because it exposes the individual to impoverishment if the gifts are not properly given or the beneficiaries turn out to be untrustworthy.
- A reverse mortgage is a type of loan used to convert the equity in a home into money. The amount of the loan depends on the age of the individual at the time of application for the loan, the equity in the home, the type of loan, and current interest rates. The individual can choose to receive payments in a lump sum, fixed monthly payments, a line of credit, or combination of methods. Move cautiously here, however; see our article on reverse mortgages in the Summer 2004 issue of our Law Update, which is accessible on-line.
- Long-term care insurance can buy additional time for long-term care planning. It can be affordable for those who plan ahead and purchase it before the need arises. There are advantages and disadvantages to all of these options, and long-term care insurance is no exception. Coverage can vary widely. Some policies may cover only nursing home care, while others may include coverage for a wide range of services like adult day care, assisted living, medical equipment, and home care. Long-term care insurance premiums vary depending on age, health status at the time of application, and the amount of coverage desired. Tax-qualified long-term care insurance policies offer certain tax benefits as well. Depending on the individual’s age, some or all of the premiums may be included as a medical deduction on his or her federal income tax return if deductions are itemized. There are also federal long-term care insurance programs which offer federal employees, members and retired members of the Uniformed Services, their spouses and other qualified relatives the opportunity to buy long-term care insurance at a group rate.
— Denise Ciampitti