Medical Eligibility and the South Dakota Long-Term Care (LTC) Partnership Program

 

Introduction

 

The South Dakota LTC Partnership Program is a joint effort between private long-term care insurers, the Department of Social Services, and the Division of Insurance to encourage people to plan for their potential long-term care needs and expenses.

 

In order to participate in the South Dakota LTC Partnership Program a person must have purchased and received the benefits of a qualified Partnership policy. A qualified Partnership policy must meet all of the rules set out by the South Dakota Division of Insurance including a specific amount of inflation protection based on the persons age at the time he or she purchases the policy.

 

The South Dakota LTC Partnership Program benefits a person by protecting assets in an amount equal to the benefits utilized under a qualified Partnership program if the person ever applies for and qualifies for SD LTC Medicaid. These assets are protected because the DSS will not count the value of the individuals assets when determining eligibility and if they are retained by the individual, DSS will not claim them during estate recovery.

 

This training will provide you with:

 

The material presented here is a general guide to understanding payment of long-term care and the interaction between SD LTC Medicaid and the South Dakota LTC Partnership Program. LTC Medicaid eligibility policy is very complex and has many exceptions and special rules for various situations therefore this material should not be used to determine if an individual is eligible for South Dakota Medicaid. Inquiries about an individual who is enrolled in SD Medicaid must be made by that individual or the individuals authorized representative to the Long Term Care Benefits Specialist who maintains the individuals case. Inquiries about how eligibility policy would be applied to a specific individuals circumstances cannot be provided in advance of the individual filing an application and providing the information necessary to determine his or her eligibility.

 

Please refer specific questions regarding eligibility to your local Department of Social Services. http://dss.sd.gov/offices/

 

A. General Eligibility Criteria for LTC Medicaid

 

  1. South Dakota Residence

 

Federal residence rules require that an applicant must be a South Dakota resident and must intend to remain in South Dakota. The state of residence for people who live in a LTC facility is the state in which they are physically present with intent to remain on the date of application for Medicaid.

 

2. Citizen and Immigration Status

 

To be eligible for SD LTC Medicaid, a person must be either a U.S citizen or a non-citizen with a qualified immigration status.

 

3. Eligible Population

 

Residents of medical institutions (includes nursing facilities) for over 30 days and individuals receiving Home and Community Based Services (HCBS) Waiver services.

 

4. Third Party Liability

 

Medicaid is typically the payor of last resort.

 

 

This includes long term care insurance.

 

5. Specific Requirements for LTC Medicaid

 

A person must:

 

 

 

n  A nursing facility

n  An intermediate care facility for the mentally handicapped

n  Assisted Living

n  Swing-bed

 

o   The MRT or URT determines if the person qualifies to receive home and community based services through waiver programs. These services are provided to individuals who would otherwise be institutionalized in a Medicaid funded hospital, nursing facility, or an intermediate care facility for the mentally retarded The waiver programs are:

 

n  Developmentally Disabled - waiver for people with developmental disabilities providing service coordination, habilitation, supported employment services, nursing, and specialized medical equipment, supplies and drugs.

n  Family Support – services provided to eligible families of children or adults with a developmental disability such as Downs syndrome, mental retardation, autism or cerebral palsy. The developmentally disabled individual lives in the family home on a full time basis.

n  Adult Services and Aging Waiver - services provided to maintain eligible individuals at home, thus preventing or reducing unnecessary institutional care including homemaker services, private duty nursing, adult day care, emergency response systems, meals, specialized medical equipment and medication administration in an assisted living arrangement.

n  Assistive Daily Living Services – a program specifically for quadriplegics that may allow individuals to live independently in their own homes with the assistance of the following services: case management, consumer preparation, personal attendant, and ancillary services.

 

       Be a resident of a LTC facility or qualify to receive home and community based services under one of the Medicaid waiver programs

        

o   A LTC facility does not include placements in facilities that are not Medicaid-certified, such as the Veterans Administration facilities.

 

       Have home equity of $500,000 or less unless a spouse, child under the age of 21, or blind or disabled child is lawfully residing in the home.

       Not be in a penalty period for a transfer of income or assets for less than fair market value.

 

o   Penalty periods are assessed when a person or the persons spouse transfer assets for less than fair market value during a specified period of time (called the look-back period) prior to a person requesting SD LTC Medicaid or anytime while the person is receiving SD LTC Medicaid.

 

Some Exceptions Exist – Transfer of the home to one of the following people will NOT prevent or delay LTC eligibility:

 

n  Spouse

n  Son or daughter under age 21

n  Son or daughter on SSI due to disability or blindness

n  Son/daughter who lived in the home at least 2 years prior to parent entering a medical facility and who provided care to prevent earlier nursing home care

n  Brother/sister who has an equity interest in the home and who resided in the home at least 1 year prior to the individual entering a medical facility

 

o   For transfers made before 2/8/06, the look back period for the transfer of assets into a trust is 60 months. The look back period for other asset transfers is 36 months. For all transfers that occur on or after 02/08/06, the look back period is 60 months.

o   The penalty period is calculated by dividing the value of the assets transferred by the Statewide Average Payment for Skilled Nursing Care in effect at the time a person requests LTC Medicaid. This calculation results in a number of days during which the person is ineligible for SD LTC Medicaid to cover the cost of nursing home or waiver services.

o   For transfers made prior to 2/8/2006 the penalty period begins the first of the month in which the transfer occurred or the day after a prior penalty period has ended, whichever is later. For transfers made on or after 2/8/2006 the penalty period begins when the person applies for and is otherwise eligible to receive SD LTC Medicaid but for the penalty period, or the day after a prior penalty period has ended, whichever is later. For people receiving SD LTC Medicaid at the time of the transfer, the penalty period begins the month following the month in which the transfer occurred or the date after a prior period of ineligibility end, whichever is later.

 

EXAMPLE #1: Transfer occurred before February 8, 2006.

 

Ms. Smith entered a nursing home on February 23, 2006. An application for LTC assistance is received in the local Social Services Office on March 29, 2006. Ms. Smith reports on the application that she transferred $10,000 to her brother on December 20, 2005. She meets all other LTC Medicaid eligibility requirements for February and March 2006.

 

This transfer occurred prior to February 8, 2006, therefore the look back period is 36 months. The penalty period calculates to be approximately 2 ½ months and begins December 1, 2005 - the first day of the month in which the transfer occurred. The transfer penalty is over by the time Ms. Smith enters the nursing home

 

 

EXAMPLE # 2: Transfer occurred after February 8, 2006.

 

Ms. Jones enters a nursing home on May 3, 2006, and an application for LTC assistance is received in the local Social Services Office on June 29, 2006. Ms. Jones reports on the application that she transferred $10,000 to her brother on February 20, 2006. She meets all other LTC Medicaid eligibility requirements for May and June 2006.

 

The transfer occurred after February 8, 2006, therefore the look back period is 60 months. The penalty period calculates to be approximately. 2 ½ months and it begins May 3, 2006 - the date the individual is otherwise eligible for Medicaid for their LTC facility services, or the date a prior period of ineligibility ended, whichever is later. The penalty period runs until mid July 2006. Medicaid coverage for non-nursing home services (for example, doctor visits)

begins May 1, 2006.


 

o   Disclose any annuity interests, and if married, annuity interests of a spouse and name the State as a remainder beneficiary of any annuity owned by the person or persons spouse. This provision applies regardless of whether the annuity is irrevocable or treated as an asset, whether annuitized or not.

 

NOTE: Future payments from an annuity are countable assets.

 

 

6. Suitability of a Partnership Sale and Important Consumer Disclosures

 

 

B. Financial Eligibility Criteria for People Requesting SD LTC Medicaid

 

1. Income

 

Gross Income Limits Long Term Care income limit is $1,911 (effective 01-01-08). If income is over this amount, an income trust established for the sole purpose of paying for care is required to meet the income eligibility requirements.

 

Examples of Income:

Social Security or SSI

Workman's Compensation

VA Benefits

Pensions/Income

Railroad Retirement

Unemployment Benefits

Some Interest/Dividends

Life Insurance Proceeds

Trust Income

Earnings / Rent Income

Inheritance

Indian Lease Income over $2000 a year

 

 

Income not counted in the Gross Income Limits

County assistance

Income tax or sales tax refunds

Veteran's aid/attendance; some other VA payments

Dividends paid on life insurance policies

Irregular (receipt is unexpected) and infrequent income (received once a quarter from same source)

If earned income – amount is less than $30 a quarter

If unearned income – amount is less than $60 a quarter

 

 

2. Assets

 

Limit - $2,000

 

Examples of Countable Assets:

 

Bank Accounts / Bonds

Contract For Deeds

Stocks / Annuities (whether annuitized or not)

Real Property

Certificate of Deposits

Available Trust Funds

 

 

Common Assets Not Counted in Limits:

v  Most home property if the individual plans to return home or if it is occupied by the spouse

v  Most household/personal items

v  One vehicle used for transportation

v  Certain pre-paid burial expenses

 

Asset treatment for married couples

 

If one spouse is entering a medical facility (hospital/nursing home) or has entered since September 30, 1989 and is expected to remain or has remained in a medical or nursing facility for 30 or more days, eligibility for LTC Medicaid allows for some assets to be "protected" for the community spouse.

 

"Protecting" assets is also available for couples when the spouse needing assistance chooses:

 

v  To remain with the other spouse at home and is eligible for Medicaid waiver services, or

v  To be in an Assisted Living Facility and qualifies for Waiver Services based on the need for medication management.

 

The "protected share" for the community spouse is:

v  $20,880 (2008) minimum, or

v  1/2 of the countable assets up to a maximum of $104,400 (2008), or

v  Amount specified by court order or through a fair hearing.

 

Examples:

v  Combined assets of the couple are $28,000.

The "protected share" is $20,880. No eligibility until assets are spent down.

v  Combined assets of the couple are $100,000.

The "protected share" is $50,000. No eligibility until assets are spent down.

v  Combined assets of the couple are $350,000.

The protected share is $104,400. No eligibility until assets are spent down.

v  Combined assets of the couple are $18,000.

The "protected share" for the community spouse is $20,880 - there IS asset eligibility for the spouse in the medical/nursing facility or Waiver Program.

 

In addition to the protected share for the community spouse, the spouse in the nursing home or receiving waiver services may also have $2000 in assets.

 

Establishing "Protected Share"

 

To determine the "protected share" of the couple's combined assets for the community spouse, a Resource Assessment is completed based on the following:

 

v  Assets existing at 12:01 am on the day the spouse entered the medical facility (hospital; nursing home if not in hospital first; or began receiving Waiver Services).

v  Countable" assets of the couple, regardless of ownership.

(Prenuptial agreements are not recognized when looking at the total assets for couple.)

 

Common assets NOT counted in Protected Share"

- Home property occupied by the community spouse.

- Most household goods/personal effects.

- One vehicle used for transportation.

- Certain prepaid burial expenses

 

Assessment of assets may be done when one spouse enters a hospital/nursing home even though there may be no immediate plans to apply for financial assistance. (The advantage of NOT waiting is the ability to provide the necessary verification of the couple's assets the month the one spouse entered the hospital/nursing home.)

 

 

Examples:

A. Spouse entered a medical facility January 26, 2007, but does not apply for assistance until May 5, 2008.

 

B. Spouse entered a medical facility on February 12, 2005 but does not apply for assistance until April 2, 2007.

(They could have applied earlier!)

 

C. Interaction between the LTC Partnership Program and SD LTC Medicaid

 

1. How Asset Protection Works Under the LTC Partnership

 

South Dakotas LTC Medicaid program accepts a LTC policyholder as a LTC Partnership participant when a person requests LTC Medicaid.

 

A person who qualifies for participation in the Partnership program does not have to exhaust the benefits of his LTC policy, but will only receive a dollar for dollar disregard of the benefits used up to the point of application for SD LTC Medicaid.

 

Once identified the Partnership provides the participant with the following benefits:

 

For example: A single individual has a Partnership Policy that has paid out $100,000 in benefits.  The individual will be eligible for LTC Medicaid when he/she has $102,000 in assets instead of the $2,000 limit.

 

After becoming eligible, the individual gives $20,000 to his child. No penalty period is incurred due to this transfer. Upon the individuals death, the DSS Office of Recoveries and Fraud Investigation will only seek recovery if the estate is valued at over $80,000.

 

2. Interaction of Partnership Protection with other Medicaid Rules

 

The LTC Partnership affects some Medicaid rules discussed above. Partnership participation affects the following:

 

Third party liability: Benefits under a Partnership policy that is available while a person is receiving Medicaid payment of LTC services are treated as third party liability.

 

Protected share under spousal impoverishment rules: The protected share for a married couple is completed before the evaluation of assets for protection under the LTC Partnership program. This allows the full protection under the LTC Partnership program to be applied to the assets considered available to the LTC spouse.

 

Transfers for less than fair market value: People who transfer assets protected under the Partnership program are not subject to penalty.

 

D. How to Apply for SD LTC Medicaid.

A person may apply for any of the South Dakota health care programs by completing a South Dakota Application for Long Term Care or Related Medicaid (DSS EA 240).

 

 

 

       A person may download an application by visiting the following site:  http://dss.sd.gov/formspubs/

       The application can be faxed in or sent to their local office.

       A person may request help from the DSS in completing the application process, which includes help filling out the application form and contacting third parties to get needed information and/or verifications.

       DSS will verify the benefits paid by a LTC Partnership Plan at the time of application for LTC Medicaid.

Alternatives to Purchasing Insurance

 

 

  Not everyone needs to purchase a long-term care insurance policy.  Even those that make their living selling such products recognize that some do not have sufficient assets to warrant such a purchase.  Premiums can be high if the individual waits too long to make the purchase.

 

 

Assessing the Need

  Individuals need to determine at an appropriate age whether or not the purchase of a long-term care policy makes sense.  Waiting until health conditions develop may mean a higher LTC premium or not being able to purchase such a policy at all.

 

  Any method of investment or long term care funding that produces a pool of money could be considered as an alternative to an insurance policy.  It would not matter whether the funding came from stock profits, an inheritance, viaticals, or melted down gold teeth fillings.  Funding is funding.  If it produces enough money to pay for long-term care services, then it is an alternative to an insurance policy.

 

 

Realistically Speaking

  Few people actually set aside funds for long-term care nursing home needs.  Investing successfully is one thing and having the funds set aside purely for long-term care is another.  The problem is one of timing.  Generally, the need for long-term care comes as life is coming to a close.  The chances of putting money aside and using it for nothing else are small.  It can be done; it just isn't likely to be done.  Even so, it is possible to fund long-term care in ways that do not involve an insurance policy.

 

  Most people now realize that Medicare will not handle the costs of long-term nursing home care.  Medicare does a good job with hospital and doctor bills, but the limited amount of skilled care offered by Medicare is not adequate and cannot be considered coverage on a long-term basis.

 

  In addition, with few exceptions, private major medical insurance does not cover long-term nursing home care.  Only policies specifically designed to cover such expenses typically do so.  The general type of medical policies carried for major medical coverage exclude long-term care benefits in a nursing home.  Many state insurance departments are encouraging the use of nursing home policies because other types of coverage do not provide these benefits.

 

  Receiving long-term care in an institution is expensive.  The better the institution, the more expensive the care will be.  It is also more expensive in some areas of the country than others.  The time to find out what these costs will be is not when the care is actually needed.  Costs should be explored in advance of medical need.  Few people do this.  We spend more time comparing automobile costs than we do medical costs.

 

  Most of us have no desire to pay the costs of a nursing home out-of-pocket.  We prefer to think that we will remain at home and someone, probably our children, will come take care of us.  Realistically speaking, this is often not possible for many reasons including the inability of our children to leave their jobs or a lack of training on their part.

 

  For some, home care is not a possibility due to the type of medical care required.  While some may be able to pay for the cost of a nursing home out-of-pocket, it is not necessarily the wisest course of action.  Some individuals do elect to fund only a portion of nursing home costs through savings, expecting to pay the balance from current living budgets.  There are multiple funding options; some are more sensible than others, however.  There are also misconceptions regarding funding options that are available.

 

  There are numerous books available on personal finance, but they seldom address the costs of long-term care, except to suggest ways to go on Medicaid, shifting the burden to taxpayers.  Since states do not wish to be further burdened, they are or have taken measures to prevent this if assets actually exist. 

 

  By the time a person needs nursing home care they are past the point of financial planning, having already done so in his or her younger years.  Their "financial planning" involves hanging on to what they already have while still enjoying life.  There may be some sort of nestegg put away; but a nursing home confinement is likely to gobble it up within a year.

 

  When considering funds for long-term care, some types of protection should already be in place.  That would include coverage for hospital and doctor fees beyond Medicares payment (a Medigap policy).  There must also be funds to cover the living expenses of the non-institutionalized spouse.

 

  Many households end up paying, at least initially, for the long-term confinement of a member in a nursing home.  Sometimes this "self-pay" is not intentional; they simply did not plan ahead for this circumstance.  In other cases, it was intentional.  The household members felt they had the ability to do so if the need arose, or they simply did not believe that such a condition would ever exist for them personally.  It would always happen to that mysterious "other guy."

 

  For those who did plan to self-pay, there was hopefully some thought put into it beforehand.  Perhaps the individuals looked to their family heritage and did not see a past history of health conditions that would make a nursing home confinement likely.

 

  In addition to a review of their family's health history, they also should have looked at the financial aspects of a long nursing home confinement.  The financial devastation brought on by a nursing home confinement can be minimized to some degree.  In some situations, it may even be avoided.

 

 

Asset Inventory

  Certain steps should be taken immediately:

 

  An inventory of the person's, or couple's, net worth should be made.  It should include: 

        

Monetary Investments:

       cash on hand

       checking accounts

       savings accounts

       CDs (certificates of deposit)

       treasury notes

       bonds (corporate, Treasury, municipal, or convertible) mutual funds stocks

       IRAs

       Business & Real Estate:

o   business partnerships including limited partnerships

o   real estate property, including investment-types

o   Retirement Funds & Pensions:

       Civil Service

       foreign service

       military service

       railroad retirement

       corporate pension plans

       retirement plans of the corporate type

       Keogh profit sharing plans

       corporate profit sharing plans

 

Insurance Products:

       annuities

       cash value life insurances

       term life insurance

       medical policies, such as Medigap plans

       any other insurance that is carried

 

Personal Possessions:

       the personal home

       vehicles

       paintings and other artwork

       antiques

       rare books

       jewelry

       silverware, china or crystal

       any other valuables

 

 

Liabilities

  The previous list reflects assets.  Against this list must go liabilities or debts.  This might include, but would not be limited to:

 

       any outstanding mortgages, including rentals

       auto loans, including recreational vehicles

       credit card balances

       private or personal loans

       any other debts

 

  Do not overlook any loans for which the person or couple has acted as a co-signer.  If the borrower defaults, the co-signer will be liable for the debt.

 

  When the resulting figure is known (assets minus liabilities), you will have the person's or couple's net worth.

 

Assets minus Liabilities = Net Worth

 

  This resulting figure applies to either a single person or a married couple.  Some of the assets will be jointly owned while others will belong exclusively to one spouse.  The assets will also have to be viewed according to how the resident state views them.

 

  If the patient will be a private pay (at least initially), spending down may occur.  That means that the patient, in paying privately for his or her care, begins to diminish his or her personal assets.  This is likely to occur where the institutionalized person does not immediately meet qualifications for Medicaid.  At some point, it is likely that the beneficiary will qualify for Medicaid, since this is normally what eventually happens.

 

  It may be wise to seek some type of professional advice in trying to protect some portion of the acquired assets.  There are many possibilities, some of which may be applicable and some of which may not be, depending upon the individual circumstances.

 

 

Estate Planning Tools

  The non-institutionalized spouse should obtain a Power of Attorney.  This is a legal document granting another person the ability to act on behalf of another specified person.  Typically, it states certain conditions under which this may take place, and tends to end should the person become mentally incompetent.  A Durable Power of Attorney begins when a person becomes mentally incompetent.

 

  A trust of some type may be applicable.  There are many types of trusts, and many people willing to sell them.  A trust document basically creates another "entity", which holds the title to the property rather than the person.  There are many misconceptions when it comes to living trusts.  When a revocable living trust is used, it is unlikely that assets will be protected in any capacity.  It has become common for salespeople to say that a revocable living trust will protect the person from such things as creditors, lawsuits, and even taxes.  Any asset that may be removed and used for the benefit of the grantor carries NO special protections.  As we know, a revocable trust allows assets to be used in any way desired.  Therefore, a revocable living trust WILL NOT protect assets from a long-term care nursing home confinement.

 

  Trusts, while not protecting assets, can still be a valuable estate-planning tool.  Some types of trusts, such as the irrevocable trust may especially be beneficial.  Only a professional in this field, preferably an attorney, should be consulted.  Many banks have trust professionals that may be consulted and they often tend to give better advice than the mainstream council.

 

  Certainly, a will needs to be in place.  In fact, a will is one of the very first documents that every person of legal age should have in force.  Many professionals advise that the will be registered at the local government office. 

 

  There are other documents that may also be used, depending upon the circumstances.  A living will is a tool used in some states to avoid prolonging life by artificial means.  A living will states that the use of extraordinary means of life support systems may not be used to extend their life.

 

  Guardianships are often used to protect minors or handicapped individuals.  Sometimes the individual being protected is the institutionalized spouse.  This is especially true if the person's mental ability has diminished.

 

 

Asset Transfer

  The ability to legally transfer assets may vary to some extent from state to state.  Usually this applies when Medicaid application will be made.  It is legal to transfer any or all assets of any person applying for Medicaid, providing that the transfer has been completed 36 months prior to applying for Medicaid benefits.  If trusts are involved assets must be transferred 60 months in advance.

 

  Individuals may feel tempted to handle the preservation of their assets personally, either because they feel knowledgeable enough, or because some type of salesperson, friend or relative gave false or grossly limited information.  This is seldom wise.  So many details go into finances that it really does usually take professionals to cover all aspects of financial protection.  A mistake in this area can be extremely costly to all involved.

 

 

Government Sponsored Programs

  AARP states that their studies show more than two thirds of Americans would strongly support some sort of government sponsored program for nursing home care.  When President William Clinton and First Lady, Hillary Clinton, addressed our nation's health care needs, long-term nursing home care was not included.  It is reasonable to assume that the government is not likely to include it in any future health care programs either.

 

  Studies show the following results:

 

1.    64 percent, nearly two in three Americans, are "very concerned" about the cost of long term health care.

2.    53 percent, more than half of all Americans, are "not very" or "not at all" confident that they would be able to pay for long term care personally.

3.    73 percent, nearly three in four Americans, believe nursing home costs would wipe out their savings.

 

  The survey further stated that two out of three Americans (66 percent) have had direct or indirect experience with the problems of providing long-term care for family members.  Despite these figures, the study also revealed that many Americans are either misinformed or uninformed about the realities of who would pay for their long-term care. 

 

  In fact, 48 percent, almost half, stated they believed their long-term care bills would be covered by their private insurance policy.  In fact, it is extremely rare for a private policy to cover such costs (unless the policy is specifically designed to do so, such as an LTC policy).  One third of the Americans over the age of 65 who were polled, believed incorrectly that Medicare would pay for their long-term care needs.

 

  Once these misguided Americans were given correct information regarding the financial realities of long-term care, their confidence in their ability to receive such care plummeted. The survey used the range of $25,000 to $34,000 per year as their cost figures.  Since this study was over ten years old (AARP conducted it in 1990) it is reasonable to assume that people are more informed today.  In fact, the majority of nursing home policies have been sold in the last ten years.

 

  Regarding long-term care, the survey showed a wide consensus emerging on three components of a federal long-term care program:

 

1.    Most Americans would be willing to pay up to $50 per month for the "right package" of long-term care benefits.  In reality, of course, this may not be enough to cover the costs unless working Americans of all ages paid into this fund.

2.    Although other factors also play a role, the extent of nursing home coverage is a key element for most of those polled.

3.    Most Americans want a program that would be open to people of all ages and income levels.  This means that the 25 year old who ends up in long-term care due to a car accident would receive the same benefits as the 75 year old with a broken hip.

 

  It is obvious that the solution most are looking towards is the purchase of insurance products that will cover, at least partially, the cost of nursing homes.  Even state and federal agencies have begun to realize the need to promote private long-term care insurance policies.

 

 

Reverse Mortgages

  Until recently using one's home to pay for a long-term care confinement meant selling it, getting the cash, and moving out for someone else to move in.  Today, it can mean something much different.  Reverse mortgages offer the opportunity to sell ones home and still live in it.  Not all banks participate and it can be difficult to find the right contract, but it is an option that did not exist a few years ago.

 

  For the person or couple who owns their own home or have a low remaining mortgage, using a reverse mortgage to fund a nursing home stay (or anything else) may be an option.  A reverse mortgage takes the value out of the home and gives it to the owners.  It may be given in a variety of ways: monthly, quarterly, annually, or even in a lump sum, depending upon the loan contract.  It must be understood that the owners are giving up their home, but in a unique way.

 

  The homeowners are actually signing a loan against the value of their home.  In exchange, the lender receives the amount borrowed, loan interest and mortgage insurance costs when the house is sold.  In the meantime, the homeowner has the value to use as necessary.

 

  What is available will vary greatly, so the consumer may have to do a great deal of shopping to get the best opportunity.  There are actually some drawbacks to using reverse mortgages so contracts should be completely understood and all questions asked beforehand. 

 

1.    The loan must be paid back at some point.  Many consider a reverse mortgage as a means of selling one's home while still living in it.  This is true to a certain degree.  What may not be understood is that the lending institution is not necessarily the entity buying the home.  They may require that the homeowner's do the actual selling.  Therefore, if the home sells for less than expected, the owners will be required to come up with the difference.

2.    Contracts differ on the repayment time.  This can be a vital point.  If the repayment comes sooner than desired, the homeowners may end up having to move out before they wanted to.  Few contracts allow the homeowners to stay until death.  Normally, there is a stated time period for repayment, which means they must sell and move out by that time.

3.    Reverse mortgages can end up costing more than a traditional loan.  The interest is usually compounded, which means interest is charged on interest.  If the contract allows a long time before repayment, the interest charged can be substantial.  This should not be surprising.  Those who lend on reverse mortgages must feel that they have some advantage for doing so.  Otherwise, why would they do so?

4.    There are fees to apply for a reverse mortgage.  Those fees will vary, so it is wise to shop around.

 

  Sometimes locating a lender who will consider a reverse mortgage is not easy.  Traditional banks often do not participate.  The county property tax office may be able to offer some leads, as can the Area Agency on Aging.  The National Center for Home Equity Conversion may also be a good starting point.

 

 

Paid Family Members

  In some cases paying family members is a solution if long-term illness or injury arises.  Usually their care needs are the result of physical, mental or emotional problems that makes living alone dangerous.  The family members must be willing to take on the job of caring around-the-clock for the elderly family member.  Some families willingly accept this chore and are able to devote the necessary time to it.  In some cases, help from outside agencies may be able to supplement the care the family gives.  Whether or not this outside help was covered by insurance policies or government aide will depend upon multiple factors.  For the sake of planning, the family or individual should not depend upon payment from other sources.

 

  Any individual who plans to rely upon their family for their care must understand that they are taking a chance.  No matter how willing the family may be today, it will be difficult to access their availability in the years to come.  Family situations change; emotions change; financial circumstances change (the potential caretaker may have to take a job, for example); and the family's willingness to take on the chore may change.  In addition, taking in a family member affects everyone in the household, not just the actual caregiver.  There must be ample room in the house and financial resources must be available.  Everyone in the family is likely to give up something when an elderly person moves in.

 

  For some, promising a financial reward in return for care is the avenue chosen.  A financial reward may be an annuity, stocks, or any vehicle that will pay the caregiver at some specified point in time.  The care may be tied into a will or trust or a legal agreement may be drawn up.  Whatever the case, there is still no guarantee that it will work.  In addition, if the potential caregiver is providing care against their will, what kind of care will they actually be delivering?  Most people try to avoid a nursing home because they think their care will be less than they desire.  Their care would not be good even if a family member delivered it under some circumstances.  In fact, even well intentioned family members have been known to deliver poor care.  Nursing homes report that a substantial number of patients coming from private homes come with bedsores and other physical problems that developed due to inferior care.

 

 

Accelerated Life Insurance Benefits

  Some companies are offering accelerated benefits in their life insurance policies.  These may be a part of the policy itself, or an attached rider.  These benefits or riders may not take effect immediately upon the onset of illness, and sometimes put a limit on how much can be collected.  Exactly how the life insurance benefits pay for long-term care will be affected by many elements, including state laws that may apply.  Since a life insurance product does not put long-term care as its primary goal, it is unlikely that the benefits will work as well as a long-term care policy would.

 

  Premium rates tend to be higher for products with accelerated benefits, usually about two to ten percent higher.  For this amount, the insurer will pay part of the death benefit to the policyholder each month until the benefit is exhausted or a preset maximum is reached.  If the policyowner dies before the maximum benefit is exhausted, the remainder of the benefits will go to the beneficiaries named in the life insurance policy.

 

  For those life insurance policies set up to allow accelerated benefits, there are typically some codes which must be followed as dictated by the state where issued.  The words "accelerated benefit" must often be included in the title of the policy or rider.  Even though these benefits are accessible on an accelerated basis, the benefit is not typically described, advertised, marketed, or sold as either long-term care insurance or as providing long-term care benefits.  Long-term care insurance and benefits must comply with a strict code of requirements, which these accelerated benefits generally do not meet.

 

  The consumer must also be aware that there are possible tax consequences and possible consequences on eligibility for receipt of Medicare, Medicaid, Social Security, Supplemental Security Income (SSI), and other sources of public funding. 

 

  Some states have specifically addressed accelerated benefits.  Washington state, for example, requires the following statement in the disclosure form, which must be provided at specific times:

 

  "If you receive payment of accelerated benefits from a life insurance policy, you may lose your right to receive certain public funds, such as Medicare, Medicaid, Social Security, Supplemental Security, Supplemental Security Income (SSI), and possibly others.  Also, receiving accelerated benefits from a life insurance policy may have tax consequences for you.  We cannot give you advice about this.  You may wish to obtain advice from a tax professional or an attorney before you decide to receive accelerated benefits from a life insurance policy."

 

  The disclosure statement must give a brief and clear description of the accelerated benefits.  It must define all qualifying events that can trigger payment of the accelerated benefits.  It must also describe any effect the payment will have on the policy's cash value, accumulation account, death benefit, premium, policy loans, and policy liens.

 

  In the case of group life insurance policies, the disclosure statement is usually contained in the certificate of coverage, or certificate of insurability, or in any other related document furnished by the insurer to the members of the group.

 

 

The Largest Payer of LTC: Medicaid

  Medicaid is likely to be the major payer of an individuals nursing home costs.  We say "unfortunately" because the real payer is not the government, but rather our nations taxpayers.  For every elderly person receiving Medicaid payment, there are multiple taxpayers working to supply those funds.

 

  What is Medicaid?  It is a government program that pays for health care for our nations poor.  Any age qualifies, not simply the elderly.  Even so, the elderly eat up the largest portion of Medicaid funds due to their need for long-term nursing home care.  Ten years ago, Medicaid was paying $33 billion in nursing home confinements.  Added to that was an additional $8.1 billion for home care and community based services.  Today, it is even higher.  It cannot be stressed enough that our taxes fund Medicaid.  Every dollar paid out of Medicaid for someone in a nursing home is a dollar that cannot be used elsewhere for items that would benefit a wider array of people.  Medicaid is a grant program, not an insurance program. 

 

  Medicaid pays for two-thirds of all nursing-home residents.  Since Medicaid pays only for those who are poor, one might be tempted to believe that two-thirds of our elderly retired into poverty.  In fact, the median income of an elderly couple is $2,270 per month.  That is two and a half times the poverty level for a family of two, so clearly they did not retire into poverty.  They became impoverished because one of them entered a nursing home.  For those who lived comfortably in retirement, a nursing home confinement changes everything about their lives.

 

  The process of losing financial standing and reducing assets is called "spend-down."  An individual cannot get help from Medicaid unless this has occurred.  Medicaid requires nearly all assets to be depleted, although the home is exempt if there is a spouse or dependent children residing in it.  Also exempt are the furniture, one car, a burial plot, burial funds and a small amount of cash.  Each state is different regarding spend-down and the assets that are exempt.  It is important to consult an attorney that specializes in elder care law.

 

 

Asset Transfers for Medicaid Eligibility

  Because a nursing home confinement brings such fear, an industry of "asset-hiding" has developed.  Especially in states where there is an unusually high amount of retired people, the legal profession is busy helping people give away what they have in order to qualify for Medicaid.  This might involve an irrevocable trust (a revocable trust cannot hide assets), transferring assets to children or grandchildren, and other techniques designed to make one appear penniless.  Lawful transfers of assets varies from state to state so, again, an elder care attorney should be consulted.  Time limits may make asset transfers unworkable, since there is a three-year limit on doing so (60 months for trust transfers).  In addition, assets that are transferred to children or grandchildren can be totally lost if a divorce occurs.

 

   Very often the spouse and children of an ill or frail person desires to save the assets while transferring the cost of a nursing home stay to the government.  Of course, the term "government" actually means each tax-paying citizen.  There is a 36-month window that allows a spouse to move assets entirely into the name of another.  For this time period to be utilized, the illness must be handled at home for a long enough period of time to allow completion of the transfers and wait out the 36-month period of time.  This period of time is called the "look-back period."  Previously set at 30 months, it was extended to 36 months to prevent unwarranted fund transfers.  It states that an individual who enters a nursing home within 36 months of the transfer will be ineligible for Medicaid benefits.  The length of ineligibility will depend upon the size of the transfer.  Under some conditions, the time period may be unlimited.

 

  Each state sets an average cost for nursing home care.  The ineligible period is based on the costs set down by the state.  If the financial transfer would have covered 5 months of care, then that is the time period of ineligibility.  Whatever amount of time could have been covered by the financial value of the gift, that is the amount of time lost for Medicaid benefits.

 

EXAMPLE:

Care in a local nursing home costs $3,500 monthly.  The community spouse transfers $25,000 to her daughter within the 36-month period in an effort to protect the funds.  The state would divide the $25,000 by the cost of the nursing home ($3,500) to determine the length of time she is ineligible to receive benefits for the institutionalized spouse: $25,000 divided by $3,500 = 7.14 months.  Therefore, the ill spouse could not receive Medicaid benefits for 8 months due to the inappropriate transfer of assets.

 

  There is no maximum period for disqualification of benefits.  Only transfers made during the 36-month period prior to application for Medicaid benefits actually applies.  Therefore, if institutionalization occurs during the 36-month period following an asset transfer, it would be wise to delay application until that period of time has passed.

 

EXAMPLE: 

A married couple give their children $300,000 as a gift.  In the year following this transfer, one of the two enters a nursing home.  Because the gift would disallow benefits for 86 months, the community spouse does not apply for Medicaid or COPES benefits until 38 months have passed.  By doing so, she has eliminated a penalty because DSHS will not look beyond the 36-month eligibility period.

 

  Not all transfers are illegal causing periods of ineligibility.  Certainly, gifts made outside of the "look-back" 36-month period are not illegal.  For trusts, that period is 60 months prior to the month of Medicaid or COPES application.

 

  It is also legal to transfer a home to a child of the applicant, if the child has lived in the home and provided care to the beneficiary for the two years immediately prior to needing care in a nursing home or receiving COPES benefits.  It is also legal to transfer the home to a sibling of the applicant who has an equity interest in the home and who has lived in the home for a one-year period immediately prior to institutionalization or COPES eligibility.

 

  Transfers may be made to a spouse or to a trust for the sole benefit of the spouse.  This is also true for transfers made to an annuity for the sole benefit of the community spouse.

 

  Transfers may be made to a minor or disabled child or to a trust for the child.  In fact, transfers may be made to a trust for the sole benefit of any disabled person under the age of 65.

 

  Any transfer may legally be made in situations where the gifts will be returned to the Medicaid applicant. 

 

  Transfers of assets are generally exempt when a Partnership policy has been purchased.  This is because Partnership nursing home policies are for the explicit aim of preserving assets (but not income).  Most states do not have Partnership policies available, however, so the general population cannot take advantage of them.

 

  What many people may not realize is that many states have instituted penalties for those who refuse to return illegally made gifts.  The amount of penalty will depend upon the state in which it occurred.  In addition, illegal transfers that are not returned are deemed to be fraudulent conveyance, which gives DSHS the right to petition the court to set aside the transfer and require the return of the assets given away.

 

  What if the recipient of the gift no longer has the assets they were given?  DSHS can waive the application of the transfer penalty if they feel undue hardship would result.  This might happen if the money had been spent and there was no way to recover it.  Probably DSHS would only waive the application of the transfer penalty if it were felt that no intent to defraud Medicaid existed and if recovery of the gift might cause the recipient or their family to face loss of shelter, food, clothing, or health care.

 

 

Trust Shelters

  Some types of trusts may be used to shelter funds and allow Medicaid qualification.  To use a trust as a means of protection, a specialized attorney should be sought out.  While any attorney may legally draw up a trust, only attorneys with specialized training will do the type of job desired.  Only attorneys should draw up trusts intended to shelter assets.  Companies who sell trusts should not be relied upon.  They simply are not geared for such complex situations.

 

  Medicaid has many avenues, but we are going to look only at Medicaid as it applies to long-term care needs.  There are some basic applications to Medicaid that tend to hold true in all states.  To apply for Medicaid, a person must:

 

1.    Be aged,

2.    Reside in the state in which he or she is applying,

3.    Be a legal citizen, or a legal alien, and

4.    Be medically in need of a nursing home facility.

 

  Let's look at these requirements a little closer.  The term aged means 65 years or older.  Although Medicaid is medical welfare for a person of any age, qualifying for benefits in a nursing home does have age requirements.

 

  The residency requirement is usually immediate.  That means the legal domicile, or residence, at the time that the nursing home confinement is required.  Durational residence is not required.  Durational residency means having to reside in a state for a specified period of time, in order to qualify as a resident.  The simple legal residence at the time of Medicaid application is sufficient.

 

  The citizenship requirement is either United States citizenship or a legal alien status.  Some states are also working to include people who are eligible under the new Amnesty regulations, so it may apply in those states.  Such people may be referred to as Legal Permanent Residents.

 

  It is not surprising that Medicaid requires the beneficiary be in need of medical care.  We have seen cases in the news of elderly parents being "dumped" by their children.  If Medicaid would pay in a nursing home for any reason, it may be assumed that these homes would surely become a dumping ground.

 

  There is one last requirement not previously mentioned that is certainly important.  The family must find an available bed in a facility willing to admit the person.  If the beneficiary is being discharged from a hospital, this is not likely to be a problem.  Typically, hospitals must find an available bed in order to discharge the patient.  If, however, hospitalization was not a factor, it will be up to the family to find an appropriate facility willing to take on a Medicaid patient.

 

  Getting into financial qualifications for Medicaid is tricky.  Requirements may change from time to time within any given state.  It is necessary to understand that this program is massive.  It would take an extremely large manual to fully cover the financial aspects of Medicaid.  Once done, it is unlikely that anyone (with a sane mind) would even want to read it.  However, there are some generalities that we will mention.

 

  As we stated, different states will treat the income of the non-institutionalized spouse in various ways.  Some states set a specific level of income that the non-institutionalized spouse may receive without affecting the institutionalized spouse's qualifications.  If the non-institutionalized spouse receives over that amount, the portion that is above the line may be used to either offset what Medicaid will pay (with the well spouse perhaps having to chip in) or will affect the actual qualification.

 

  If the non-institutionalized spouse makes less than a specified amount, the spouse who is in the nursing home may actually have some of his or her income diverted to the non-institutionalized spouse.

 

 

Catastrophic Coverage Act of 1988

  In September 1989, there were changes in how individuals qualified for Medicaid.  The Medicare Catastrophic Coverage Act of 1988 was originally a lengthy bill, which was repealed on December 13th, 1989.  Only a small section of this bill affecting Medicaid for the aged (not all Medicaid beneficiaries) in long-term health care facilities was left in effect.  This section had been written specifically in an effort to aid the spouse who was not institutionalized.  It was hoped it would protect the income and resources of the couples in order to guard against impoverishing the community spouse along with the individual in the nursing home.

 

  In simple terms:

 

1.    All states are required to exempt the home from being included in the countable resources provided the community spouse (or dependent child in some cases) has been living in the residence prior to institutionalization of the ill person.  All personal property and household goods are also exempt.

2.    The transfer of assets for the purpose of meeting eligibility requirements for Medicaid must be completed 36 months prior to application.  Sixty months is required for trusts.

3.    Each state will determine the amount of liquid assets the community spouse is permitted to retain, thus the variations from state to state.  In all states, it will be one half of all assets providing that figure is not less than the minimum requirement, and does not exceed the maximum requirement.  No resources of the community spouse will be considered available to the institutionalized spouse after he or she has been declared eligible for Medicaid.  Therefore, once eligibility has been met, the community spouse may have more than initially allowed by the state.

4.    In applicable situations, the monthly income that can be retained by the community spouse will gradually be raised.  This often has to do with the federal poverty levels.

 

 

Information Required When Applying to Medicaid

  When applying to Medicaid, there will be some basic information that will be required.  The following list includes what will be requested.  Additional information may be required beyond what we have listed.

 

1.    A birth certificate, or other proof of age.

2.    The applicant's Social Security number.  This is an absolute must in any state.

3.    Proof of any earnings, if applicable.

4.    Letters or forms with amounts of income from Social Security, SSI, VA, or pensions that are being received.  In fact, any monthly income must be reported.

5.    Life insurance and medical insurance policies.  It is best to simply bring in the policies when applying.

6.    Savings accounts or banking statements.

7.    Information on ownership of real property and motor vehicles.

 

  Processing the application for Medicaid usually takes between 30 and 45 days, but may take as long as 60 days.  When an applicant is approved for Medicaid, that status will usually be reviewed annually. Any significant changes in that person's financial standing could cause him or her to become ineligible for future Medicaid benefits.

 

 

Viatical Settlements

  Funding long-term care benefits may involve anything that produces income.  Viaticals have become widely advertised, for example.  Viaticals are an investment in the death of another.  The investor purchases a share in a life insurance policy on someone who is terminally ill, paying a discount from the policy's face value.  The ill person receives the money to use prior to death.  The investor receives the insurance payoff (in proportion to their investment) when the seller dies.

 

  Although viaticals do have the potential of giving a high return, there is certainly no guarantee of that.  The U.S. Securities and Exchange Commission cannot compel full disclosure and no other jurisdiction seems interested in doing so at this point.

 

  The investor does not own the policy he or she has invested in.  The viatical company or a trust company does.  The investor has a lien on it.  If the viatical company goes out of business, there is no clear indication as to how long the investors would have to wait for their money even if the insured person dies.  In fact, there is no guarantee that their investment will be returned at all.  Several states have investigated viatical companies following consumer complaints.

 

  Another item generally not disclosed to the investor is the possibility of having to pay the insured's premiums if he or she lives longer than expected.  Certainly, the investor would not want the policy to lapse, so there is little choice in the matter. 

 

 

Any Income Available

  Financial planners have used various investments with the intention of funding long-term care if the need arose.  Often they promote the theory that the money is there for long-term care needs, but if not needed, it is there for something else.  The problem with this becomes obvious.  It is too easy to use the money for that something else.  Long-term care medical needs tend to be the last medical requirement prior to death.  Therefore, the only other use for the money should be gifts to beneficiaries.  Investments solely intended for funding long-term care could work, as long as the money is not used for living costs.  Money that is intended for long-term care needs cannot be used elsewhere for any reason.  If it is, then the money is no longer available for long-term medical needs.

 

End of Supplemental Chapter

United Insurance Educators, Inc.