Introduction

In comparison to other practices of law, Elder Law attorneys work in an unusual field. Rather than having a distinct focus on one facet of the law, Elder Law is directed to fulfilling the needs of older adults. When dealing with such a diverse group of people, clients will have a wide variety of issues including public benefits and entitlements, incapacity planning, trusts and estates, property law, and taxation. 

In more recent times, Elder Law now includes younger people with special needs who very often have similar needs to those of older adults.

The information presented here should not seen as a do-it-yourself manual but rather a rough guide to basic concepts. Elder Law is a highly specialized and technical field. You must seek out professional advice to help formulate, implement, and periodically update your estate plan. But having a fundamental understanding of estate planning will help you not only choose the best advisor to help you, but also better prepare you to work effectively with the advisor you choose.

Paying for Long Term Health Care

Of course, the biggest concern that most people have about nursing homes is how to avoid being in one at all costs. Almost goes without saying, right? But beyond that, the big question is how to pay for that long-term health care if you or a loved one need that level of care. 

Basically, there are only four ways you can pay the cost of a long-term health care:

The first way to pay for long-term health care costs is to buy Long-term Care Insurance. If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of long-term health care. Long-term Care Insurance will help pay for the cost of long-term care that you would otherwise have to pay for privately. Most Long-term Care Insurance policies will cover not only nursing home care, but also home care, adult day care, respite care, and care in assisted living facilities. 

Premiums are based on a person's health and age, the number of years of coverage, the length of waiting periods before coverage starts, inflation adjustments, and the services that are covered. Unfortunately, many people who may need long-term care insurance may not be able to get coverage due to health problems. 

And, long-term care insurance can be very expensive for people on limited, fixed incomes. If premium payments go up or other expenses need to take priority, there could be a lapse in premium payments with a loss of all benefits.

There is a special kind of long-term care insurance that is part of Federally supported, state-operated initiative called the Long-Term Care Partnership Program. This program began in the 1980s to give people an incentive to purchase long-term care insurance. Initially, only California, Connecticut, Indiana, and New York were approved to offer this program. 

Under the program, the state approves certain long-term care insurance policies sold by private companies that meet certain standards. For example, a partnership-approved long-term care insurance must automatically increase the daily, weekly, monthly, and lifetime benefits annually by at least 5% to adjust for inflation for policyholders under the age 65 years old. 

Someone with a partnership-approved plan can later qualify for Medicaid and keep assets equal to the amount the policy has paid for their care. Only a partnership-approved policy has this Medicaid asset protection feature. 

With the passage of the Deficit Reduction Act of 2005 (DRA) by the Federal government on February 8, 2006, a nationwide expansion of the Long-Term Care Insurance Partnership Program has been permitted with each state able to choose whether to offer the program. 

The second way to pay for long-term health care costs is you can pay with your own money. This is the method many people are forced to use without proper planning. Quite simply, it means paying for the cost of a nursing home out of your own pocket. 

Unfortunately, with the astronomical costs involved, few people can afford paying for long-term health care out-of-pocket for very long. On the other hand, if you have adequate resources to pay for your own long-term health care costs, you may consider having life insurance in place to replenish the funds expended for your care when you pass away. This can be of great value for your surviving spouse and children. 

The third way that people mistakenly believe will pay for long-term health care costs is Medicare.  There is a great deal of confusion about Medicare and long-term health care costs. Medicare can provide short-term assistance with health care costs, but only if you meet the strict qualification rules. 

Medicare is a national health insurance program primarily for people 65 years of age and older, certain younger disabled people, and people with kidney failure. In general, if you are enrolled in the traditional Medicare plan, and you've had a hospital admission of at least three days, and then you are admitted into a skilled nursing facility (for rehabilitation or skilled nursing care); Medicare may pay for you to be restored to the optimal functional level for your situation. Medicare managed care plans do not require a three-day hospital stay to qualify though.

If you qualify, traditional Medicaid may pay the full cost of the nursing home stay for the first 20 days. Coverage can continue to pay the cost of the nursing home stay for the next 80 days, but with a 20% co-payment. Some Medicare supplement insurance policies will pay the cost of that co-payment. 

For Medicare managed care plan enrollees, there is no deductible for days 21 through 100 if the strict qualifying rules continue to be met.  So, in the best-case scenario, the traditional Medicare or the Medicare managed care plan may pay up to a hundred days for each “spell of illness.”  

To qualify for these 100 days of coverage, however, you must be receiving daily “skilled care” and generally must continue to make progress toward an optimal level of function. Once a Medicare and managed-care beneficiary has not received a Medicare coverage level of care for 60 consecutive days, the beneficiary may again be eligible for the 100 days of nursing coverage for the next spell of illness.

The fourth way to pay for long-term health care costs is Medicaid (also known as Title 19). Medicaid is a federal and state funded medical benefit program that is administered by the state. You can be eligible for this assistance if certain asset and income tests are met. 

One primary benefit of Medicaid is that, unlike Medicare, which only pays for skilled nursing, the Medicaid program will pay for long health care costs care in a nursing home once you've financially qualified. Medicaid does not pay for treatment for diseases or conditions. 

For example, a long-term stay in a nursing home may be caused by Alzheimer's or Parkinson's disease, and even though the patient receives medical care, the treatment will not be paid for by Medicare. These stays are called custodial nursing home stays. Medicare does not pay for custodial nursing home stays. 

There is some potential to have Medicaid cover the cost of home care as an alternative to nursing home care. As of April 2018, all 50 states and the District of Columbia have at least one Medicaid program that helps elderly individuals who are living outside of nursing homes - at home, in assisted living or in need adult day care- to pay for the costs associated with custodial care. Most states offer multiple programs. 

Understanding Medicaid

Medicaid is a federal and state funded medical benefit program. Each state administers the Medicaid program bound by federal standards. As life expectancy and long-term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay for the cost of a home care or a nursing home. Those who can pay for a while may find their life savings wiped out in a matter of months, rather than years.

The Deficit Reduction Act of 2005 (DRA) made significant changes to the Medicaid financial eligibility rules. For instance, the “look-back” period for making gifts has been extended from three years to five years and the “penalty period” for eligibility following a gift is now computed from the date you are financially eligible for Medicaid assistance instead of from the date the gift was made. In the next chapter we will explore these rules further and how to plan around them.

That is why Medicaid planning is so important. First, you need to provide enough assets for the security of your loved ones—not only do they need to afford to live, but they too may have a similar need for long-term care themselves. Second, the rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should, and their family’s financial security is jeopardized.

Certain assets will not be considered in determining eligibility for Medicaid. These are called exempt assets and include:  

  • Your home, whether single or multi-family, if you or your spouse lives in the home. The amount of equity that is exempt is limited though. The exempt amount is indexed for inflation any varies state-to-state. For 2020, the range of exempt equity is between $595,000 to $893,000. A retained life estate in your home if you or your spouse lives in the home is also considered an exempt asset.
  • Medical equipment, personal belongings, furniture, and household goods. is 
  • One car or truck. If you own additional vehicles, those vehicles are counted assets. The most expensive vehicle would be the one considered exempt.
  • Prepaid Irrevocable funeral contract. Most states do not set a limit on the value of these contracts, but a few states do. 
  • Burial plots and a revocable prepaid funeral contract to pay for certain related items such as a casket or urn, an outer burial liner or vault, cemetery expenses, monuments, markers, or mausoleum and engraving both for the applicant and the applicant’s spouse. There are state-to-state limits on these expenses.
  • Real or personal property used in a trade or business that is essential to self-support.
  • In most states, the cash value of whole or permanent life insurance if the face value is $1,500 or less with a few states setting higher limits. Term life insurance, on the other hand, of any amount is exempt because there is no cash value.
  • An amount equal to what has been paid out for your cost of care under the Partnership Long-Term Care Insurance policy. 
  • All other assets are generally non-exempt and are countable. Basically, money and property in any form, and any item that can be valued and turned into cash, is a countable asset.

Qualifying for Medicaid

While the Medicaid rules surrounding the transfer of assets are complicated and tricky, a person will qualify for Medicaid, if they have only exempt assets and no more than $2,000 ($1,600 in some states). The process of reaching that point is called the “spend down”.

The Medicaid eligibility rules for married couples are significantly different from how individuals are treated. When one spouse needs long-term care and the other spouse will remains in the community the determination of Medicaid eligibility begins with the “division of assets”. Division of assets is the name commonly used for the anti-spousal impoverishment provisions of the Medicare Catastrophic Coverage Act of 1988.  

These anti-spousal impoverishment rules apply only to married couples. The spouse at home gets to keep the Community Spouse Protected Amount (CSPA). The CSPA is one-half of the total assets of a married couple with the maximum set at $128,640 and a minimum of $25,728 for 2020. The figures are adjusted annually. The remaining assets above and beyond the CSPA are attributable to the institutionalized spouse and must be spent down to $1,600. 

In addition to an evaluation of assets, the couple’s income is also considered. First, the income of the community spouse is not counted when determining the Medicaid eligibility of an institutional spouse. Only income in the applicant’s name is counted. Then, a calculation is done to determine the monthly income for the community spouse called the Minimum Monthly Needs Allowance (MMNA). This permits the community spouse to keep a monthly income ranging from about $2,113.75 to $3,216. Under exceptional circumstances, a community spouse can seek an increase in their MMNAs either by appealing to the state Medicaid agency or by obtaining a court order of spousal support.

If diverting all the income of the institutional spouse to the community spouse is still not enough to bring the community spouse up to the required limits, there is a diversion of assets from the institutional spouse to the community spouse. This diversion of assets is intended to create additional investment income to increase the income of the community spouse up to the MMNA.

Gifting Assets

When you apply for Medicaid, the state will look back and audit all your financial transactions for the previous five years. Any of your assets were transferred for less than fair market value is considered a gift subject to a five-year look back period. But there is no look-back period and no penalty period for any asset transfers between spouses.

If the state determines a gift has been made to a non-spouse during the look back period, a penalty period will be calculated. The length of the penalty period is determined by dividing the size of the gift by the average monthly nursing home cost. The penalty period of ineligibility will be a month for every month of cost of care given away.

Estate Recovery

Under federal law, when someone receives Medicaid benefits, the state must try to recover what the state paid out for cost of care from that person’s estate when they die. To be subject to estate recovery, the person must have received Medicaid benefits after they were 55 years of age or older. 

Medicaid estate recovery is limited to the probate estate in most states. Some states have “expanded” estate recovery means that non-probate assets can be subject to estate recovery as well.

States are not permitted to recover from the estate of a deceased Medicaid recipient who is survived by a spouse, child under age 21, or blind or disabled child of any age. States must establish procedures for waiving estate recovery when recovery would cause an undue hardship.