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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 V. ALTCS(Medicaid)
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
www.ccal.org
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
Problem #1: services deemed “medically necessary” are not enough
Must be chronically ill
Non-qualified LTC policies only require cognitive impairment, not “severe”
cognitive impairment. There is not yet enough claims data to determine if this
is a significant difference
Problem #2: 7702B does not deal with the consequences of non-qualified policies.
The inadvertent effect of the statute is to create a safe harbor for qualified
policies. In other words, simply because a policy does not come within the safe
harbor does not mean it will not get tax advantaged treatment. No official
guidance yet from IRS but IRS has indicated to Congress that many non-qualified
policies may get the tax advantages by coming within IRC Sec 104, 105 or 106 and
thereby qualifying as an accident and health policy. Stay tuned.
Problem #3: Forms 1099-LTC must be generated for benefits received from all
policies. But this is only a reporting requirement – does not mean the amount is
taxable.
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:
1. What services are covered?
Skilled, intermediate and custodial care are usually covered
Home care, adult day care and assisted living – often not covered
2. When does the policy take effect (aka “triggering events” or “gatekeepers”)
Triple trigger is best:
Cognitive impairment (ie, Alzheimer’s), or
Medical necessity, or
2 of 6 ADLs (activities of daily living)
Eating, toileting, transferring, bathing, dressing & continence
When will benefits start (aka “elimination period”)
Sets forth the number of days you will pay the bill yourself
Same idea as deductible, only measured in days, not dollars
How much will be benefits be?
Is there a lesser rate for home care?
How long will the benefits last?
Typically one to five years. With proper ALTCS planning, there shouldn’t be a
need for longer than 3 years.
Is there a waiver of premium?
Not have to pay while receiving benefits under the policy
Repeat stays in nursing home
Is there an elimination period – a certain number of days required between
stays? Best to have a single, accumulated number of days over life of policy
Is there inflation protection?
A specified factor or index or an option to purchase additional coverage.
Usually 5% compounded
Is the plan “indemnity” or “up to”?
“Indemnity” – paying a set, predetermined amount
“Up to” – paying up to the amount charged by the nursing home
Preexisting conditions – what is excluded from coverage?