It is no surprise that many Americans are discussing how they will address their future aging and long-term care needs. There are several reasons why. Perhaps the biggest one is a personal experience. The impact of longevity hits most families. Most people know first-hand a parent, aunt, uncle, grandparent, neighbor, co-worker, or even spouse who needed help at some point due to illness, accident, or the impact of growing older.
Without an advance plan, family members either become full or part-time caregivers. Paid care can quickly drain retirement accounts and have a negative impact on a person or couple’s income and lifestyle.
Your Goal Should Never Be Medicaid if You Have Savings
You often will see internet articles, advertisements, and even direct mail promotions promoting the idea that you can use Medicaid as a way to pay for long-term care services. Unless you are very few resources, Medicaid should never be the goal or the solution to pay for the financial costs and burdens associated with aging. You might see internet stories or advertisements that say, “Medicaid has become recognized as the long-term care insurance of the middle class.” This is just not true. Congress and the President put in place in 2016 a program to help people, especially in the middle and upper-middle class, to affordably pay for long-term care, either at home or in a facility and protect their savings.
It is true that Medicaid has become the primary payer of long-term care services in the United States. As the country’s public health insurance program for the poor, Medicaid was never intended to pay for everyone’s long-term care.
The Kaiser Family Foundation reports six in ten nursing home residents are on Medicaid. One in three people, age 65+, will spend time in a nursing home, not to mention long-term care services people need in their own home, adult day care center, assisted living, and memory care. Generally, Medicaid will only pay for care in a nursing home but in some states, they are testing community care programs to give other options for those who require care and have little or no resources.
Health Insurance and Medicareare Not Long-Term Care Solutions
Don’t confuse Medicaid with Medicare. Medicareis a health insurance program for those 65 and older. It becomes our primary health insurance when we are older (with an exception of a limited amount of people under age 65 who are on social security disability).
This is a tax-supported program but is also not an answer for long-term care. Medicarewill only pay for a limited amount of skilled services. They pay up to 100 days of "skilled nursing care" per diagnosis. However, you must use a Medicare-approved "skilled nursing facility" or nursing home within 30 days of a hospital stay that lasted at least three days. Plus, the care you receive must be for the exact same condition you were being treated for in the hospital.
For example, you have a stroke. You enter the hospital and stay six days. You then require rehab in a skilled rehabilitation nursing facility. Medicarewill then pay up to the 100 days total. If you require care longer you will pay for that care our-of-pocket unless you have Long-Term Care Insurance. If you are poor and qualify for Medicaid, a Medicaid approved facility will pay. Also, keep in mind Medicarehas large deductibles after day 20. Most people will have a supplement to Medicarewhich will pay those deductibles. However, MedicareSupplements follow the Medicarerules and will not pay beyond the 100 days limit.
Back to Medicaid. While it will pay for long-term care services you need to have little or no assets in order to qualify. Generally, a person can have no more than $2,000 in assets however some states allow more. Some assets are excluded by law. Find your state on the LTC NEWS MAP and see general information on not only the average cost of long-term care services and supports but the Medicaid requirements.
Hiding or Giving Away Assets? Not a Long-Term Care Solution
While some lawyers suggest finding ways to hide or give-away assets to qualify for Medicaid most of these schemes are questionable at best. The Deficit Reduction Act of 2015 (DRA) put more restrictions on these practices in an attempt to preserve the Medicaid program for the “true” poor, not for a clever person to find a way to get the taxpayer to pay for their long-term care.
The DRA made noteworthy changes to Medicaid’s long-term care rules which include:
• the look-back period • the penalty start date for transfers • the undue hardship exception • the treatment of annuities • community spouse income rules • home equity limits • the treatment of investments in continuing care retirement communities (CCRC’s) • promissory notes • life estates • long-term care partnership programs
Transfer Rules Under DRA Regulations
The DRA placed a five-year transfer rule on assets given away. While you can give away up to $15,000 a year to your children (or anyone for that matter) without incurring an IRS gift tax, doing so in order to qualify for Medicaid is problematic. Under the rules of Medicaid, such a gift can trigger the penalty period if you did the transfer during the look-back period of five years.
While some very good facilities have some Medicaid beds, often the quality care in primary Medicaid facilities is lacking due to the low reimbursements paid by Medicaid. If you can avoid Medicaid from the start that would be ideal for quality care. The DRA did do something that middle and upper-middle-class families can take advantage of when they are planning for future retirement. This is the Long-Term Care Partnership Program. The DRA extended the partnership program from the four original states and made it available, until updated rules, to the remaining states.
LTC Partnership Program Does Provide Dollar-for-Dollar Asset Protection
Forty-five states now have active partnership programs in place. Find your state by clicking here. The Long-Term Care Partnership Program may be one of the biggest secrets in retirement planning.
If you purchase a qualified partnership certified Long-Term Care Insurance policy you receive additional dollar-for-dollar asset protection or what a state bureaucrat would call “asset-disregard”. In the event you exhaust your benefits from your policy you are then able to legally shelter part of your estate based on the amount of money the policy paid out for your care and still qualify for Medicaid. In other words, you can get government assistance and not be poor. Many facilities will allow you to stay if you exhaust your insurance benefits and accept the Medicaid payment (as long as you had paid the normal rates for a period of time).
Choice is still the primary reason to avoid any scheme where you can hide or give-away money to access Medicaid. With an affordable Long-Term Care policy, you get coverage for your choice of care. It doesn't matter if you want your care at home, adult day care, assisted living, memory care, or a nursing home, most Long-Term Care policies will provide coverage. It also doesn't matter if you need skilled or custodial care. Some people will argue that Long-Term Care Insurance is expensive. This is just not true in most cases. First, policies are custom designed. You decide on the amount of coverage. If you live in a partnership state this gives you extra flexibility since you can design an affordable plan and protect as little or as much of your savings as you wish.
Fact: Long-Term Care Insurance is Affordable
Premiums are based first on your age and health. Then the premium is adjusted based on the amount of benefit you wish to have in place. Generally, you have a monthly or daily benefit, an initial “pool of money” which is how much your policy is worth at the time on inception, inflation benefit which increases your benefits every year, and elimination period which is a deductible based on “days” not “dollars”.
Many people can find the appropriate coverage for under $150 a month, sometimes less if you are younger and in good health. Discounts are available for couples. Shared benefits also exist for spouses/partners. Death benefits even exist with some policies.
If you have more assets to protect you might want a larger policy. However, policies, big or small, usually include professional case management to help you and your family develop a plan of care and find and arrange for care. This reduces the amount of stress that is otherwise placed on your family members.
Many States Have Rate Stability Rulesin Place
Many states have rate stability rules which make it very difficult to increase premiums on today's Long-Term Care Insurance. See if your state has this consumer protection by clicking here.
Asset-based policies which combine life insurance or annuities with a rider for long-term care are either single premium products or with guaranteed premiums you can pay on an ongoing basis. They also give you the extra security of a death benefit.
Your choice of quality care, asset protection, and peace-of-mind comes with a Long-Term Care policy but does not come from a scheme which places you directly into the Medicaid program. Experts suggest planning prior to your retirement, in your 40s or 50s, for the most options at the lowest premiums.
Start Your Research with LTC NEWS Tools
You should start your research by finding the current and future cost of long-term care services where you live. The LTC NEWS cost of care calculator is an outstanding tool. Access this tool by clicking here.
Your financial advisor or general insurance agents are usually not qualified to help you find appropriate coverage. The American Association for Long-Term Care Insurance, a national consumer advocacy and education group, recommends seeking the help of an experienced Long-Term Care Insurance specialist who works with multiple top insurance companies. Be sure they understand underwriting rules, policy design, partnership, hybrid options, and claims. You can find a qualified Long-Term Care specialist to help you design and shop for the best coverage at the best value by clicking here.
Know the facts and understand the real risks of longevity on you, your family, your savings, and your lifestyle.