Paying for Long-Term Care

Prepared by:

The Law Office of William J. Brisk

1340 Centre Street, Suite 205

Newton Center, MA 02459

(617) 244-4373

© 2007

Our office can assist you in determining the best strategies available to meet your estate and long-term care planning goals. For many elders, this includes planning for long-term care at home or in a skilled nursing facility. The following information is designed to help you understand your options.

I. Who Pays for Long-Term Care?

The cost of a nursing home (now reaching and even exceeding $10,000 per month in Massachusetts) and other personal expenses far exceeds most retired individuals’ income. Without planning, an elder’s entire savings may be exhausted before public benefits will begin to cover such expenses.

A. Medicare is available to all persons over the age of 65 who are eligible for Social Security benefits. It is also available to individuals entitled to public disability benefits, even if they are under age 65. Medicare Part A covers most inpatient hospital services for up to 90 days in any benefit period. However, each beneficiary has 60 additional “lifetime reserve days” that can be used only once. A benefit period or "spell of illness," begins with the first day on which you were given hospital or nursing home services and were entitled to Medicare coverage. The benefit period ends when you have been out of the hospital or nursing home for 60 consecutive days.

In addition to the coverage limitations discussed above, Medicare also limits coverage monetarily. Each beneficiary is responsible for an inpatient hospital deductible for each benefit period. In 2007, that deductible is $992. Medicare also requires co-insurance payments for days 61-90 of an inpatient hospital stay. In 2007, the co-insurance rate is $248 per day and goes up to $496 per day for days 91-150.

The optional Medicare Part B, which covers outpatient services, is considerably less generous.

Medicare Part A’s coverage of nursing home expenses is extremely limited. It covers up to 100 days of nursing home care per benefit period but only if (1) the beneficiary was hospitalized for at least three consecutive days, (2) entered a skilled nursing facility within 30 days of discharge from the hospital, and (3) actually receives skilled nursing care or active therapies. When all of those conditions are met, Medicare covers the costs of a skilled nursing facility stay for the first 20 days and will, for the next 80 days, pay all but a co-payment amount of $124.

The co-payment may be covered by many supplemental or “Medigap” insurance policies including HMO plans. Medicare beneficiaries who do not have Medigap policies or have coverage that either does NOT pay the coinsurance, or does not cover care in a specific facility, are responsible for making the full co-payment.

B. Long Term Care Insurance. Highly specialized insurance is available to protect against future costs of long-term care, whether provided in a nursing home or other facility or at home. The best policies are those approved by the Commonwealth’s Insurance Commissioner as individual policies. Other policies, which are not regulated by the Commonwealth (and therefore may not retain adequate reserves to meet future expenses and probably don’t have all of the features that state-approved policies must provide), are offered to groups. Premiums vary tremendously as do the particular features of such policies. Insurers, of course, sell policies to people they think are unlikely to require long-term care; persons who have recently been hospitalized, those with diagnosed conditions such as Alzheimer’s and Parkinson’s, as well as persons who have a propensity for strokes or other debilitating conditions, are generally rejected for such policies -- even if they might qualify for life insurance.

Long Term Care Insurance may be useful when (1) the individual can qualify for the insurance, (2) the premiums can be met comfortably from the individual’s income or other resources, and (3) there are sufficient assets to be protected. In such circumstances, we recommend that you explore such policies with a reputable agent or broker.

C. Medicaid (formally known in Massachusetts as MassHealth) is the ultimate "safety net" for persons requiring long term nursing home care, but have depleted their assets. Once an elder satisfies the complicated rules for eligibility, Medicaid will assume financial responsibility for virtually all medically-related costs, including residence in a nursing home. Enactment, on February 8, 2006, of the Deficit Reduction Act of 2005 complicates most planning and made it impossible for most people to gift their assets just before or after entering a nursing home. The question is, how does one qualify and what are the traps for the unwary?

1.Financial Eligibility/Asset Limitation. The basic rule of Medicaid eligibility is that to obtain this benefit one cannot own more than $2,000 in "countable" assets. "Countable" assets is a very broad term which includes most assets a person might own, whether held in theapplicant's name alone or jointly with another, except for the following items:

a.personal possessions, such as clothing, furniture and jewelry;

b.one automobile worth less than $4,500 or of any value if used for the applicant;

c.a burial account containing $1,500 or less and/or an irrevocable burial plan with a funeral home which, generally, does not exceed $10,000;

d.the applicant's residence (if it is in Massachusetts and its equity does not exceed $750,000);

e.business assets, including rental properties, which provide a profit;

f.assets that are inaccessible.

2.Medical Eligibility. Medicaid will only pay for nursing home care for an applicant who meets the medical qualifications for nursing home care. Before an application may be processed, the applicant must be evaluated by an independent agency. If the agency reports to the Medicaid Office that the applicant’s needs can be met “in the community,” the application will fail regardless of the applicant’s financial situation. Most assessments, however, document the applicant’s need for either medical or custodial care at a nursing home or similar institution based on the applicant’s inability to perform at least two of the basic activities of daily living (in the trade, they are called “ADL's”) which include dressing, toileting, hygiene, eating, continence, and mobility. The limited number of agencies that have contracted with MassHealth to perform these assessments often have a waiting list. For that reason, we encourage clients to indicate the need for such an evaluation as soon as it is decided that a Medicaid application is needed. Normally, the nursing home staff will advise family members if it feels there is any danger the patient will not medically qualify for Medicaid.

II.Accelerating Eligibility for MassHealth (Medicaid)

A. Spend-downs. Even if one is already in a nursing home, Medicaid permits certain expenses and investments that are not considered disqualifying transfers. We often recommend the purchase of non-countable assets (such as a burial contract), payments of outstanding loans (such as a mortgage on one’s house), contracting for reasonable repairs, and purchasing clothes or equipment that makes one’s life more comfortable, etc. Payments for services are also non-disqualifying. In some cases, a reserve held to pay future taxes (for example, if an appreciated asset has been sold generating a taxable gain) or to pay for house repairs is permissible.

1.Purchase Services. Elders may prepay for certain services without jeopardizing later applications for Medicaid. A growing number of housing options include prepayment for assistance in private living arrangements and, in some cases family members may commit themselves to provide needed assistance. The terms as well as compliance with such contracts will likely be very carefully scrutinized by DMA and may be subject the provider of the services to an income tax. Accordingly, we recommend that such “life care” contracts be entered into only in the most meritorious circumstances. Payment for past services raises a “red flag” for most MassHealth case workers and can be made safely only when extraordinarily detailed documentation is available and payments are modest.

2. Purchase Annuities. Since eligibility for MassHealth is strictly related to one’s assets, the conversion of assets into an “income stream” may hasten the time when MassHealth will pay for nursing home care. The use of annuities (essentially “reverse life insurance policies for which you pay a lump sum and the annuity company -- often a company which sells life insurance -- promises to pay you monthly stipends for the rest of your life or for a definite period) for such a purpose may seem like a “no brainer,” and was once the subject of a major loophole in Medicaid law. Care should be taken with any strategy that seems too good to be true and the use of annuities is certainly no exception.

Medicaid rules limit the pay-out period to one’s life expectancy. To reduce the risk that the company will not meet its obligations to pay you regularly for the entire term of the annuity, we recommend purchases from only the very highest rated companies. A more aggressive strategy may be to create a “private annuity” in which family members acquire assets of a future Medicaid applicant in return for their commitment to pay the elder an actuarially sound amount of periodic payments. We work directly with accountants who can devise specific terms that will satisfy both tax and Medicaid authorities.

3. Enhance a Spouse’s Rights to Assets. The greatest need for “Medicaid planning” typically applies to married couples where one spouse remains in the community. In many cases, even if the “community spouse” retains use of the family home, potential loss of the institutionalized spouse’s income as well as the loss of income from spent-down assets places the community spouse in grave financial straits. In order to be financially eligible for MassHealth, an applicant cannot have more than $2,000 in countable assets. The federal Spousal Impoverishment Protection Law does allow the applicant’s spouse to retain additional assets; the community spouse may keep some of the couple’s joint assets and income, as determined by the Commonwealth of Massachusetts.

When one spouse enters a nursing home for long-term care, MassHealth calculates the couple’s income and assets, excluding any non-countable assets, e.g., the family home, the community spouse’s car, etc. The community spouse may retain all of his or her income, regardless of amount; however, the MassHealth determines the amount of assets the community spouse may retain on a case-by-case basis. In 2007, the community spouse may keep as much as $101,640 in countable assets. In certain cases, a Community Spouse (CS) can retain some or all of the Institutionalized Spouse’s income to reach what the government terms the Minimum Monthly Maintenance Needs Allowance ($1,650sinceJuly 2006, although for CS whose shelter costs are considered high, currently, above $474 for a heated home the amount can be much greater). If the combined spousal income falls beneath the amount the government determines the CS Spouse can retain a greater amount of the couple’s assets (called the Community Spouse’ Resource Allowance or “CSRA”) to meet her budgetary needs. Since present law does not grant caseworkers discretion in such matters, an administrative “fair hearing” is necessary to preserve excess assets for the community spouse.

B. Transferring Assets or Making Gifts. If MassHealth applicants could, simply, transfer all of their assets without penalty, almost anyone could immediately qualify for medical assistance. Therefore, MassHealth penalizes gifts. The rules were quite complicated, but after the Deficit Reduction Act, enacted on February 8, 2006, they have become far more difficult. While MassHealth regulations on transfers can be confusing and are ALWAYS subject to change, there are four important concepts to understand:

  1. Transfers made during the “look-back period”are penalized. The DRA now mandates that for all gifts made on or after February 8, 2006, the look-back is 60 months. That look-back also applies to gifts to and from trusts even before February 8, 2006. A more positive description of the new law is that transfers made more than five years before one applies for MassHealth will not affect eligibility. The look-back for common gifts made before February 8, 2006remains 36 months.
  1. The length of the penalty is determined by the amount of gifts. MassHealth annually revises the “divisor,” i.e. its estimate of the “average cost of nursing home care in the Commonwealth.” In 2007, the divisor stands at $246 a day or $7,380 a month. Thus, if gifts made within the lookback period amount to $75,000, the penalty period would run for 305 days or about 10 months.

3. Transfersafter Februrary 7, 2006 trigger severe consequences under the DRA not just because of the extended look back butbecause the disqualification period for any gift after February 7, 2006 begins not on the date it was made (as in Pre-DRA) but only after the applicant needs look-term care AND has reduced his or her assets to $2,000. Thus, while the disqualifying period is calculated the same way as before (dividing the amount gifted by MassHealth’s current “divisor”), but post-DRA transfer disqualification periods don’t begin until the applicant is “medically needy,” which means that it doesn’t begin until:

  • The applicant is medically appropriate for nursing home care
  • The applicant’s funds have been spent down to $2,000 or less and, if married, his or her spouse does not have assets in excess of the CSRA.
  1. Certain gifts are permitted even if they would ordinarily result in a period of disqualification. The law favors transfers of an elder’s residence to a “caretaker” child who has lived with the elder, providing assistance that, in the written opinion of a physician, enabled the elder to remain at home for at least two years. When such conditions can be met, we prefer to be in direct contact with the physician since his or her written opinion will be crucial for a favorable determination by the DMA.

C. Alternatives to Penalized Gifts

In the face of the DRA’s stringent treatment of gifts, Medicaid advisors have explored substitutes for penalized transfers. A parent can transfer – without penalty -- his or her home to a “caretaker child” (who lives with the parent and provides for two years or more the care needed to delay entering a nursing home. Relatives who provide care to elders may be compensated fairly for their services. In some cases, promissory notes or annuities may be used to convert assets to income streams and, thus, hasten eligibility for MassHealth.

C. Estate Recovery

MassHealth may place an Estate Recovery Lien on the probate estate of all MassHealth beneficiaries for the total amount it has paid for the long-term care of the beneficiary. The lien includes all real estate, countable and non-countable, which is in the probate estate of the recipient. The lien is not executed until the death of the applicant. If the applicant owned the home jointly with a sibling or spouse, imposition of the lien may be postponed. In order to complete the probate of aMassachusetts estate,the fiduciary must notify MassHealth of assets that may be subject to its lien. MassHealth’s calculation of exactly how much is owed to satisfy the lien should be carefully scrutinized. While the lien essentially reduces the private cost of long-term care (because Medicaid’s cost is less than the private pay rate), careful planning, in many situations, may reduce the eventual impact of the lien.

III.Conclusion

Proper long-term care planning may protect and preserve assets for the applicant, the community spouse and/or future generations but this requires carefully relating a client’s situation to applicable regulations to determine which strategies and s best meet the applicant’s goals and how to implement those strategies. Good record keeping and conscious planning are essential ingredients of any plan.

This article is offered for informational purposes only and should not be construed as legal advice. Appropriate plans take into consideration particular circumstances and preferences and analyze current regulations and recommend only those strategies permitted by law. MassHealth regulations can change rapidly. Before implementing any of the strategies referenced in this report, you should seek advice from our office or another qualified elder law attorney. Changes in the law and your personal circumstances may significantly alter the strategies recommended.

Page 1 of 7

Paying for Long-Term Care/ Rev. 4/2007

The Law Office of William J. Brisk