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Life Health > Long-Term Care Planning

Long Overdue

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Congress finally acted. With the passage of the Deficit Reduction Omnibus Reconciliation Act of 2005, enhancements safeguarding the faltering Medicaid system from the financial bleeding caused by professional Medicaid planning are finally in place.

Medicaid planning is a service primarily provided by elder law attorneys. Its goal is to help clients (some of whom are affluent) qualify a physically or cognitively disabled family member for Medicaid-paid extended care.

The new rules include a number of key provisions to make that more difficult:

1. The look-back period (a period where personal financial history is scrutinized to determine if countable assets were transferred to others) was extended from three years to five. If a transfer is discovered during the five years, an ineligibility period measured in a set number of months is applied, in which the family member is disqualified for Medicaid benefits. The number of months is determined by formula in which the dollar value of the transfer is divided by the average monthly cost of nursing home care (usually the state average).

2. The ineligibility period now is assessed after a nursing home patient applies for Medicaid-paid care. Previously, it was applied from the date of the transfer. The elder law community had identified this as an exploitable loophole, nicknamed the “half a loaf” strategy: transfer away all countable assets (especially liquid) to a family member except those needed to cover the cost of care during the three-year look-back period. Under this approach, you spend down only those assets. The rest is transferred safely to others, such as family members, and the applicant qualifies ultimately for government-paid care.

The new provisions render the half-a-loaf strategy inoperative for most of the elder law practitioner’s prospective clients.

The legislation restates the government’s position that long term care is first the responsibility of the individual and the individual’s family. Only the truly impoverished should expect government assistance.

Critics of these changes will waste no time in pointing out what they view as the unfairness of narrowing the gate to government-paid care. They will likely exclaim: “The free market is not functional in providing protection to most average Americans, because LTC insurance is just too expensive.” Or: “Some people can’t purchase private LTC plans due to disqualifying health conditions.”

Both are legitimate issues that need to be addressed head on. I don’t propose to have all the answers to these and other points, but I’m convinced the issues can be answered for the most part in favor of individuals protecting themselves rather than continually hauling up government-based solutions.

Let’s start by assuming we live in a perfect world where all LTC agents have learned to program affordable middle-class benefits by using insurance dollars to supplement the client’s own available resources. Because extended care risks are hierarchical, in that they range from relatively short to severe, benefits should be targeted toward covering the most likely care scenarios. This is opposed to the ingrained industry habit of using insurance benefits to blanket risks that are considered “outliers” or “worst-case scenarios.”

So, now that we have common-sense plan designs, how do we assist those whose incomes still make it impossible to purchase reasonably designed and priced plans?

The most obvious solution for those 62 and older who own their home is the reverse mortgage. Before the recent Medicare prescription drug legislation, I sent senior clients with unmanageable prescription bills to reverse mortgage experts for assistance. With the threat of living beyond one’s ability to function independently, why not suggest funding an LTC plan with a reverse mortgage? Many seniors are house rich and income poor. With the threat of losing it all due to disability, winding up on Medicaid and having the government lien the property under mandated estate recovery, common sense dictates that a small personal loan made against your own property to leverage insurance protection is good planning. Only after the owner vacates the property does the loan come due. For example, a 62-year-old individual owning a home worth $100,000 can get $250 a month, while a 75-year-old person similarly situated can access $380 a month.

The sale of health savings accounts has not only brought hitherto uninsured individuals under the umbrella of private catastrophic protection but also offered them an opportunity to save for their retirement years in an IRA-type fashion. Tax-deductible funding of these accounts will result in significant accumulations over the years. HSA provisions allow withdrawals for funding LTC premiums. Now, we have a second potential funding source for LTC.

Here’s an itemized list of other tools worth considering:

1. Reestablishment of partnership policies that offer federal protection against Medicaid spend-down requirements to those who purchase a specified level of LTC protection, as a number of states now are considering.

2. Above-the-line deduction for LTC premiums, currently being considered in Congress.

3. High-risk pools to provide LTC insurance to individuals who are financially solvent but uninsurable due to health conditions.

In the end, there is no limit to creative approaches to a private approach to LTC funding where the will exists to create a system based on individual responsibility and personal choice.


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