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PLANNING FOR THE NURSING HOME: PAYING THE NURSING HOME ALTCS AND OTHER ISSUES FACING THE ELDERLY AND THEIR CHILDREN IN ARIZONA
Presented by Thomas J. Murphy Murphy Law Firm, Inc. P O Box 51244 Phoenix, AZ 85076 (480) 838-4838
NURSING HOME ISSUES
43% of all Americans who reach age 65 will eventually enter a nursing home 21% will stay at least 5 years 34% will stay 1 – 5 years 19% will stay 3 -- 12 months 26% will stay less than 3 months
Average length of stay – 2.3 years
Average cost of care in Maricopa County -- $4,027.61 per month (according to CMS, fka HCFA) Average cost of care for all counties outside of Maricopa, Pima and Pinal counties -- $3,743.78 per month Early stages of Alzheimer’s -- $2,000.00 per month Realistic average -- $3,000 to $5,000 per month Ventilator -- $8,000 to $12,000 per month 24 hour at-home care -- $15,000 per month
A. WHO PAYS? 44% paid by patient’s own funds 38% paid by Medicaid (ALTCS) 11% paid by Medicare 7% paid by long term care insurance
B. 3 WAYS TO PAY Option #1: Pay as you go Option #2: Medicaid (ALTCS) Option #3: Long term care insurance
Option #1: Pay as you go Not covered by health insurance Very limited coverage Medicare - Must have been discharged from hospital within previous 30 days - Only covers daily skilled nursing or skilled rehabilitation (as opposed to custodial care) - 1st 20 days paid in full by Medicare - Next 80 days – co-pay of $101.00 per day - After 100 days – No further Medicare payments – patient pays all costs
C. ALTCS ELIGIBILITY RULES
In Arizona, Medicaid = ALTCS (Arizona Long Term Care System). ALTCS is division of AHCCCS
MEDICARE ALTCS Over 65 years of age Any age Automatic eligibility Means-tested Hospital and doctor visits Nursing home Never have to repay for care received Estate recovery
ELIGIBILITY Two tests – income test and asset test
Single person Income test – cannot exceed $1,692.00 per month Includes ALL income, regardless of tax characterization
Asset test – cannot exceed $2,000.00 in countable assets Countable assets are everything except: Primary residence No limit on value Automobile Not have to have drivers license but must be used to transport the person Prepaid burial plan Includes gravesite/crypt, headstones, casket, urn, costs of opening and closing of gravesite and costs for perpetual care Can be done for both spouses Must be irrevocable $1,500 burial fund -- for flowers, cost of service, etc. Must be in a separate, designated account Household goods and personal effects Artwork and antiques are excluded
Married person Income test Combined income cannot exceed $3,384.00 ($1,692.00 X 2) If more than $3,312.00, then use “name on check” rule plus one-half of all jointly titled checks. The total for that particular spouse cannot exceed $1,656.00.
Asset test “Snapshot date”: look to when ill spouse entered the nursing home, even if it is well before applying for ALTCS Take total combined countable assets and divide in half Healthy spouse gets to keep his or her one-half Minimum of $18,552.00 Maximum of $92,760.00 Ill spouse must “spend down” his or her one-half to $2,000.00
“Income only” or “Miller” Trust Problem: you have $2,000.00 in income but your cost of care is $5,000.00. Solution: create trust with all of person’s income (not assets) assigned to the trust to pay ALTCS for cost of care Cannot be used if monthly income exceeds private pay rate: $4,027.61/$3,743.78 for single person Double this amount for married couple or use “name on check” rule.
QUALIFYING FOR ALTCS WHILE PRESERVING ASSETS
Sheltering funds in excluded resources Purchase a home if none owned Must be done before entry into nursing home Pay down mortgage Do repair work or modify and improve home New roof, paint, carpeting or A/C Add garage or enclose carport Build a pool Purchase burial insurance Policy is irrevocably assigned to mortuary Purchase the parcel of land next-door Must be contiguous Purchase automobile Unlimited value if necessary for medical treatment Travel to doctor’s office should be “necessary” Otherwise, FMV cannot exceed $4,500.00 Only one car per couple Auto can then be gifted with no penalty Purchase burial plan Create burial fund up to $1,500.00 Use for payment of flowers, transportation for family, embalming, cost of church service Must be in separate account designated as such Purchase new household goods New furniture or appliances Useful to buy items for “homier” nursing home Travel or take a vacation Purchase a single premium immediate annuity Converts an asset into an income stream Can be very useful for married couple. Unlikely to work for single person Once again, be careful. Many requirements to satisfy, ie must have repayment of principal within annuitant’s life expectancy (using CMS, not IRS, tables), must be irrevocable and non-assignable, no withdrawal rights, no balloon payment and must be made payable to healthy spouse. Always compute effect on share of cost Best source of information on Medicaid annuities: Dale M. Krause, JD. LLM Krause Financial Services 1120 Red Wing Trail De Pere, WI 54115 (888) 605-4222 www.medicaidannuity.com
MARRIED COUPLES AND MMMNA In most cases, healthy spouse will be able to retain most, if not all, of the couple’s income under the concept known as “minimum monthly maintenance needs allowance” or “MMMNA” Healthy spouse is entitled to minimum monthly income of at least $1,515.00 but cannot exceed $2,319.00
GIFTING Be very, very careful in this area Includes any transfer for less than FMV Easy, bullet-proof method: $3,500 monthly gifts Total amount per month, not per person If gift more than this, then will have 36 month lookback period. Watch out for revocable trusts. If transfer from a trust, then 60 month lookback period applies If using a trust, transfer property out of trust and then gift. But watch out for amount of distribution – ALTCS takes position that if it is more than $4,027.61, distribution will result in disqualification even if distribution is of principal. Be careful of home that is titled in name of trust. ALTCS takes position that the home is not an excluded resource (ie, that it is a countable asset). Solution – deed home out of trust to the owner/grantor prior to application. Be mindful that home is the trust may actually be advantageous by increasing the amount of property that the healthy spouse can retain.
Pay for services provided by children or reimburse them for expenses paid on parents’ behalf. Best to have written agreement Payment for services is taxable income to children Best to have a 1099 issued
Divorce Suitable only when healthy spouse has a large amount of sole and separate (ie, pre-marital) property.
PLANNING THAT WILL NOT WORK AND OTHER PROBLEMS
IRAs and other retirement entities are not excluded (ie, they are countable assets) unless they are annuitized. Same with cash value of life insurance policies and deferred annuities. Liquidating these accounts can create big income tax problems. Estate recovery – ALTCS will file claim in probate court for cost of services rendered once ill spouse has passed away. No lien or other collection activity is undertaken while either spouse is alive. Solution – title property so that title passes outside probate. Jointly titled assets between spouses work very well here but can be a disaster if healthy spouse dies first. Problem – Effective August 9, 2001, new statute, ARS 14-6102, may broaden ALTCS’s estate recovery options but unclear at this time. ALTCS has yet to issue policy directive on this. Will not effect jointly held real estate.
$11,000 annual exclusion gifts Consider making 3 monthly gifts of $3,666.00.
Do not forget share of cost – often overlooked or misunderstood Much of the patient’s income will be paid to the nursing home with ALTCS paying any amount owed the home over and above the patient’s contribution. Ill spouse is only entitled to keep $84.60 per month for personal needs, such as haircuts, clothes, etc. ALTCS will allow payment of health insurance premiums (up to $120.00 per month), non-covered medical expenses (up to $95.00 per month) and a needs allowance for spouse or for home maintenance (up to $200.00 per month)
With MMMNA, healthy spouse can have income with a minimum of $1,515.00 per month and maximum of $2,319.00
Third party guarantees of nursing home bill are unenforceable and probably illegal (ie, children cannot be forced to pay for parents’ care). 42 CFR 483.12(d)
Cannot disclaim property that is about to be inherited or is otherwise due to applicant or spouse (except that healthy spouse can inherit or disclaim if it occurs after snapshot date)
Loss of control on health care matters once ALTCS is paying. Your doctor must be an ALTCS program contractor or ALTCS will not pay. Very limited services in certain areas – non-emergency dental and eye care, hearing aids and batteries, chiropractic care, occupational therapy, experimental treatments and most routine foot care
Most (around 70%) nursing homes in the Phoenix area accept ALTCS patients Always check on this if patient is initially going to pay with his or her own funds so that patient can remain in same facility once ALTCS assumes responsibility for payment
ALTCS provides VERY limited coverage for assisted living facilities Only provides for care that is 1) “medically necessary” – must prevent death, treat or cure disease, ameliorate disabilities or prolong life; and 2) at risk of institutionalization Care at ALFs is considered to be “supervisory care” ALFs are not considered to be a “nursing facility”. Come within characterization of “Home and Community Based Services” Will cover personal care and homemaker services but NOT room and board
Where to go for help in finding placement in a nursing home Alzheimer’s Association 1036 East McDowell Phoenix, AZ 85006 (602) 528-0545 Area Agency on Aging 1366 East Thomas Phoenix, AZ 85014 (602) 264-2255 CMS National Nursing Home Database www.medicare.gov/nursing/home.asp Consumer Consortium on Assisted Living P O Box 3375 Arlington, VA 22203
OPTION #3 – LONG TERM CARE INSURANCE
Does the person need LTC insurance? Purchasing life insurance may be a better option Death benefit can be used for anything rather than only LTC Person may never enter a nursing home so may never end up using the policy Does client have Medigap or supplemental insurance? Medigap policies C through J usually provide some coverage
The big debate – qualified or non-qualified policy? Qualified plan – IRC Sec. 7702B – premiums are partly deductible and benefit payouts are not taxable. Over 90 percent of all LTC policies meet the tax-qualified requirements but this is not always the best for a given situation. Must be chronically ill Unable to perform at least 2 of 6 ADLs (as defined below) for at least 90 days or Severe cognitive impairment – not defined
Always look for the date of when of when the policy was issued. The critical date is August 21, 1996, which is the date that the Health Insurance Portability and Accounting Act of 1996 (“HIPAA”) was signed into law. HIPAA significantly restricted the conditions that insurers could impose to trigger coverage but this only applies to policies issued after the enactment of HIPAA. It has been my experience that any policy issued prior to August 1996 is highly suspect and should be reviewed very closely by someone knowledgeable in long term care insurance. Most pre-August 1996 are not worth paying for – either a rider should be added to the policy or, if possible, obtain a new policy.
Among the terms to address in reviewing a policy are:
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