A Path to Financial Freedom

What if there was a simple way to finance your future long-term care?

How can you age in place at home without spending a fortune? Does that sound too good to be true? It’s not. If you are still insurable, advance planning with long-term care insurance can keep your options open.

Most of us will need a skilled nursing level of care, some for months or years. Medicare, Medigap and other health insurance plans do not pay for custodial care. These policies will only pay for limited sub-acute and skilled care for limited periods. Disability insurance is intended to replace your earned income from work if you become disabled.

What if you have a medical crisis and need 24/7 care? At a cost of over $5,000 per month at the private pay rate, even staying at home with paid care can be very expensive. https://www.genworth.com/aging-and-you/finances/cost-of-care.html.

The benefits of long-term care insurance. Long-term care insurance can help protect your family’s financial and emotional freedom and can facilitate asset protection planning.

How to you get and pay for long-term care insurance? Policies are typically purchased while the insured has attained the age of forty and before approximately age 66. With age, the risk of uninsurability increases.

Some federal and state government employers offer long-term care insurance. It may also be available through some private employers. Long-term care insurance can also be purchased through an insurance agent. Private banks also can help high net worth individuals obtain specially priced policies. Some individuals use their qualified retirement assets to pay for long-term care insurance premiums. Many policies are tax-qualified, meaning that the benefits paid under the policy may not be subject to income taxes. Some policies have special Medicaid protections. These are called “partnership policies.”

It is very important to understand what the policy will cover and how the elimination period will work. Make sure any long-term care insurance you purchase is a policy you can still afford if the premiums increase. Talk to your elder care attorney if you think you may want to lower the benefit amount or increase the waiting period before benefits are payable under the policy.

Individuals who want to plan for themselves can benefit from long-term care insurance. Dick and Jane are married and in their mid-sixties. Dick is a government employee with a long-term care insurance policy through his work. The policy pays four years of benefits after a 90-day elimination period. Dick has a serious fall and fractures requiring surgery. He goes into the hospital for surgery and contracts COVID-19 in the hospital. By the time he is ready for discharge from the hospital, he is generally deconditioned and just wants to go home.

Jane is a petite woman. She tells the hospital discharge planner that she is afraid she might hurt herself if she tries to lift Dick himself. Dick needs constant hands-on assistance to perform activities like walking, dressing, bathing, toileting, and transferring from a bed to a chair. At first, the social worker was recommending placement in a nursing home or rehabilitation for Dick, due to concern that Jane can’t care for Dick safely in the home. But after learning that there is a long-term care insurance policy, the hospital discharges Dick to the home. Once Dick satisfies the policy’s 90-day elimination period, the benefits are triggered and the benefit payments can pay for Dick’s care, relieving the financial burden on Jane. Dick and Jane do not need to spend down their assets to qualify for Medicaid, due to the long-term care insurance benefit. If they have substantial additional assets and Dick and Jane wish to do so, they can work with an elder care attorney to protect additional assets that may be at risk after the policy term is exhausted.

 Adult children who want to plan for their parent or parents can benefit from long-term care insurance. Sarah was a single mother in her early 60’s who raised four very successful adult children while working two jobs and living frugally. She is active and healthy and still working at Dunkin Donuts every day. When she retires, based on current projections, her income will limited to Social Security of about $1,500 per month, which is not enough to pay for a nice assisted living facility, if she should need some care. Her now very successful adult children purchase a policy insuring their mother, so that she can now enjoy her golden years in a comfortable community setting if she should need assisted living care. With her income and several years of long-term care insurance, if Sarah were to need a skilled level of care, she could potentially age in place in assisted living, in a very comfortable setting, and then transition to Medicaid after the facility’s private pay period is satisfied.

More information about long-term care insurance in New Jersey is available online at https://www.state.nj.us/dobi/ins_ombudsman/ltcguide.htm.

Don’t File For Medicaid Too Soon!

Most people assume that they will age in place at home and never need long-term care, but statistics show that that is not the case.  Medicare may be available to pay for a limited period of care under limited circumstances, but if an individual does not have long-term care insurance, nursing home care can cost more than $12,000 per month in New Jersey.  And that is only the average monthly cost of care; many facilities charge a higher rate.  That translates to at least $144,000, which is an awful lot of money to pay out-of-pocket.  That is why many seniors who can no longer remain at home turn to Medicaid, which is a joint federal and state public benefits program, to help fund their care in a nursing home or an assisted living facility.

As part of the process of transitioning from hospital care to long-term care, you will probably be asked whether you have filed a Medicaid application. This is a routine part of the long-term care admissions process.  It is very important to avoid filing for Medicaid before it is needed, for at least two reasons. 

You cannot give away your assets and go directly on Medicaid.  Generally, any gifts made during the lookback period and not fully repaid, will be penalized. while there are a few exceptions, most uncompensated gifts made during the five year Medicaid lookback period will likely result in a Medicaid penalty period, which is the denial of payment through Medicaid for care in a nursing home or an assisted living facility for a period of time corresponding to the total of all the gifts made during the five year Medicaid lookback period.  However, Medicaid generally cannot take into account gifts made before the lookback period began. So if there is going to be gifting in large amounts, it is best for the gifts to be made before the beginning of the Medicaid lookback period. 

How do you know when the five year Medicaid lookback period is?  Actually, the term “five year” Medicaid lookback can be misleading.  Filing the first Medicaid application triggers the Medicaid lookback, which is a period of time running retroactively from the date of filing of the first Medicaid application.  For example, if Eric Early files a Medicaid application on June 1, 2021, and this is his first Medicaid application, then the lookback period will be from June 1, 2016 to June 1, 2021 (five years) and potentially continuing into the future. 

However, there are circumstances when the Medicaid lookback period can extend beyond five years.  In Eric’s case, if he withdraws his first Medicaid application and does not file another Medicaid application until January 1, 2022, the lookback period for his second Medicaid application will still run from June 1, 2016 through to June 1, 2021, but will continue thereafter until the date of filing of the second Medicaid application on January 1, 2022.  So if Eric (or his wife, if he is married) made large gifts in 2016, those gifts will be considered on his 2022 Medicaid application and will probably result in a gifting penalty which Eric could have avoided had he simply waited to file the Medicaid application.

If Eric is married, the first Medicaid application sets the “snapshot.” Medicaid looks at the assets of the husband, the wife and the assets in their joint names, totals the assets and that total is the snapshot.  The amount of the snapshot limits the amount the healthy spouse can keep.  You only get one Medicaid snapshot, so it is very important to get the highest snapshot possible.  Here is an example showing what can happen if you don’t do proper planning before filing a Medicaid application.  

For instance, if Jim was hospitalized in 2017, and the hospital social worker filed a Medicaid application for Jim thinking Jim might have to go into a nursing home, but it turns out that Jim was actually able to return to the home after all.  Jim’s Medicaid snapshot is permanently set in 2017.  His snapshot is set in stone and it is never going to change.  Suppose in 2017, Jim and his wife own a home and a joint checking account with $100,000 in 2017, the home is exempt, but the checking account is not. Jim’s snapshot is $100,000 based on the checking account balance. Jim can keep no more than $2,000 and his wife can keep $50,000 without additional planning or legal advocacy and representation. 

Suppose Jim never completed his Medicaid application in 2017 and his wife cares for him at home for another year and in 2018, re-files for Medicaid for Jim.  In 2018, she also sells the house which was jointly owned with Jim, for the sum of $150,000. If the deed to the house was left in Jim’s name, in 2018, Jim will be disqualified for Medicaid due to being over the $2,000 Medicaid resource limit, because he is entitled to half the house sale proceeds. Now Jim has to spend down an additional $75,000 that could have been saved, had the 2017 Medicaid application not been filed and had Jim and his wife consulted with an elder care attorney.  If you have questions about a Medicaid application, please feel free to contact me to discuss your unique situation.  

Questions? Let Jane know.