Advisors who serve veterans with extended long-term care needs may want to consider an immediate annuity to help them qualify for an aid and attendance (A&A) or housebound pension through the Veterans Administration, according to Dale Krause, president and CEO of The Krause Agency and an elder law attorney.
Veterans may qualify for one of these types of supplemental pensions in addition to their base pension if they have long-term care needs. However, there are income restrictions to qualify for the benefit that may force veterans to reduce their monthly income and net worth.
Krause spoke on a webinar held by Retirement Experts Network on Tuesday explaining who qualifies for these types of supplemental pensions, and how advisors can use them to help those clients.
Qualification and Eligibility
Veterans are eligible for a base pension from the Veterans Administration, which can be supplemented by the housebound pension or aid and attendance pension if they have long-term care needs. There are three benefit tiers for single or married veterans, and spouses of deceased veterans as long as they haven’t remarried, Krause said.
Veterans can qualify for the A&A pension booster if they require help with daily activities like dressing, eating, bathing or adjusting prosthetic devices. Combined base pension and A&A benefits are as much as $1,794 per month for a single veteran, while married veterans who need care may qualify for up to $2,127 per month, according to Krause. Surviving spouses may receive up to $1,153.
However, Genworth’s 2016 Cost of Care survey found that the average cost of a private, one-bedroom room in an assisted living facility was $3,628 per month.
A&A benefits are “really there as an extra pension check to help qualified veterans pay for their long-term care services,” Krause said.
The housebound pension is available for veterans who are “substantially confined” to their homes due to a permanent disability, according to the VA, and who aren’t receiving A&A benefits. Combined benefits for claimants who receive the housebound pension range from $1,314 to $1,647 per month for single or married veterans, or $881 per month for a surviving spouse who has not remarried.
Genworth found the cost of homemaker services or home health aides was between $3,813 and $3,861.
To qualify for a VA pension, veterans must have served at least 90 days of active duty, including at least one day of wartime service; may not have a dishonorable or bad conduct discharge; and must be permanently disabled.
Krause noted that for veterans who are 65 or older, “because you’re getting a Social Security check and you’re no longer employed, you’re typically presumed to be disabled” by the VA.
Financially, veterans must have a limited net worth and a low monthly income to qualify for the benefits.
There’s no set limit to meet the low net worth qualification, Krause said, but he recommended the veteran keep net worth around $15,000 in cash assets to qualify for the benefit. The VA includes things like second cars or boats, checking and savings accounts including retirement accounts, CDs, cash value life insurance and tax deferred annuities when determining a claimant’s net worth.
Things that aren’t included in a claimant’s net worth are the home, regardless of its value; a single vehicle; immediate annuities; a prepaid burial plan; and the $15,000 in cash Krause recommended.
Krause looks at his veteran clients’ total out-of-pocket medical expenses to see if they exceed the client’s income. “Any time that the income is more than their medical expenses, then typically you’re going to reduce the potential benefit,” he said. “For every dollar that your monthly income is more than your unreimbursed monthly medical expenses, you potentially [have] a dollar-for-dollar reduction in the pension benefit,” he said.
Clients with a negative IVAP (income for VA purposes) can get the maximum benefit, Krause said. IVAP is the difference between a veteran’s recurring monthly unreimbursed medical expenses and his or her monthly income.
For example, if a veteran has $3,000 in medical expenses and $3,600 of monthly income, he or she has a positive IVAP that reduces the A&A benefit by the same amount; a single veteran, then, would receive $1,194 rather than the full $1,794 benefit.
Krause stressed that advisors should only consider a veteran client’s recurring monthly expenses, which may exclude things like prescriptions or hearing aids that are paid in installments. “The fact that it may take you a while to pay it off doesn’t mean that it’s recurring,” he said. Recurring expenses include things like home health and assisted living care bills, Medicare and insurance premiums, copays and deductibles or lease payments on medical equipment and supplies.
Paying for Long-Term Care
Most long-term care is provided by family, Krause said. Even when care is provided by professionals, recent data from the American Association for Long-Term Care Insurance shows that most LCTI claims are for home care.
A&A benefits are limited and typically won’t cover a veteran’s entire LTC costs, Krause said, “but the benefit is large enough that most veterans who qualify are going to find, ‘If I can get home health care and get a check each month to pay for it, it makes it a lot easier, one, to take on the care, or two, to maintain the care over a long period of time because I can stretch my life savings.”
Krause said that in some cases, Medicaid may pay up to 100% of nursing home care, which could reduce clients’ A&A benefits.
“It’s wrong to say you can’t qualify for both programs at the same time, but if you transition from VA because of an assisted living stay to a nursing home and you get on Medicaid, the veterans’ pension benefit is going to drop to $90 per month and Medicaid will help pay the balance,” he explained.
Krause noted that this strategy isn’t meant for veterans with service-connected disabilities. Veterans who leave the service with a related disability will get a disability rating that determines the size of their benefit. An A&A pension is aimed at veterans who have left the military and now have a non-service related illness that requires long-term care.
Furthermore, Krause added that these benefits are best suited for veterans who are receiving care at home or in an assisted living facility and aren’t expected to improve, and who have excess assets that would be counted in their net worth by the VA.
Immediate Annuities in VA Pension Planning
Clients whose net worth is limited to their home and $20,000 “will probably qualify immediately” for A&A benefits, Krause said, but “if that’s all they have, they’re probably not paying for home health care or assisted living.”
The type of client most interested in this type of planning, Krause said, is someone with a higher net worth who wants to “accelerate their VA eligibility” by excluding some of those countable assets.
Krause stressed that advisors need to use immediate annuities because tax-deferred annuities will be counted by the VA as part of the veteran’s net worth. Krause uses a level income or balloon payout, or a combination of the two.
He warned that advisors should be careful about the annuity’s term so that it doesn’t exceed the veteran’s Medicaid life expectancy. “If you create an annuity and it’s too long, and they subsequently transition into a nursing home and need Medicaid,” they may not qualify for those benefits.
Krause also warned that the annuity needs to be listed under income, not assets, on the VA application.
— Read State Crackdown on Annuities Sharpens Suitability Issues for Advisors on ThinkAdvisor.