Long-Term Healthcare Planning

Unfortunately, your long-time family lawyer, your banker, and your insurance brokers are unlikely to have sufficient expertise, and there is a lot of dangerous misinformation out there – even among professionals. For example, laypersons and financial/legal professionals alike are generally aware of the “five-year lookback” for asset transfers that will disqualify you from receiving Medicaid, but many believe that you can make gifts of $14,000 per year without a problem. This is not true – that amount is the federal gift tax annual exclusion amount ($15,000 in 2018) and has nothing to do with Medicaid eligibility.

Medicaid does not care that the farm has been in your family for five generations. Medicaid does not care that you’ve finally found the perfect young farmer to buy your place after searching for years. Medicaid does not care that you’ve been paying your taxes for decades. If you need long-term care, you, your children, or your buyers may well have to give up assets that you thought were safe.

The good news is that with planning – preferably four or five years before anyone needs nursing home care – professionals can help you protect an almost unlimited amount of asset value, or ensure that the succession plan you’ve worked so hard on won’t be undone by a Medicaid lien on the farm (which you may have sold several years before). On the other hand, waiting until you need care makes it MUCH less likely that you’ll be able to preserve assets. By the way, we know you don’t plan to go to a nursing home. Do you think anyone in all those nursing homes did?

“Elder law” is a code phrase for lawyers who specialize in planning for public benefits like Medicaid and social security disability. Their main trade group is the National Academy of Elder Law Attorneys (NAELA). The NAELA website has an attorney locator here. However, one only need pay the annual dues to be listed there, so you’ll still need to do some investigation to know if you’ve found an experienced elder law attorney. Meet with them first, before you meet with your personal or business attorney, or better yet, bring your personal or business attorney to the meeting with the Elder Law attorney. This is not an area in which to be penny-wise and pound-foolish.

It would be reasonable to expect the attorney or her office staff to be able to respond to these questions ahead of time:

– How long have you been practicing Elder Law?

– How many Medicaid applications have you done?

– How many Medicaid appeals (when an application is denied) have you done?

– How many Medicaid irrevocable trusts have you done?

Here are some questions to ask a long-term care insurance salesperson:

– How long have you been selling long-term care insurance?

– How many policies have you sold?

– Do you sell asset-based or “hybrid” policies as well as traditional insurance?

It’s best to consult with both an attorney and an insurance professional. Attorneys tend to make their money by selling trusts and doing Medicaid applications and appeals. Insurance professionals tend to make their money by selling insurance. Don’t be surprised if their prescriptions follow the way they are paid. However, an experienced Elder Law attorney is likely to have a bigger picture of how Medicaid works, especially in the context of an estate or farm transfer plan, and should also have no hesitation about referring you to an insurance professional for additional advice.

A final warning: Medicaid is jointly funded by the Federal and State governments, and the background law is Federal – but the States have a great deal of leeway in how they administer the programs, so don't trust information that comes from professionals in other states. In other words, don’t believe what you read on the internet.

For example, in Vermont in 2017, you can deed your home to your child in a “Lady Bird” or “enhanced life estate” deed in which you reserve the right to live there for your life, and decide at some later date who gets the property upon your death, and the value of your retained rights has no effect on qualifying for Medicaid. In Massachusetts and New Hampshire, however, if you hold a life estate, when you apply for Medicaid, you have to come up with the remaining value of the life estate – basically, what the place would rent for, multiplied by your life expectancy according to special actuarial tables – and pay for that much care before Medicaid will kick in.

Learn more about Donald Sienkiewicz here.

This method is generally not recommended because most people have not saved enough money to afford the cost of care. As shown above, the costs for long-term care are often extremely high and in many cases, planning to cover long-term care costs out of pocket would be unrealistic. Even if paying out of pocket is a realistic option, though, long-term care insurance could be a more effective use of funds. While it is generally not recommended to plan to pay out of pocket, it is necessary in some cases when the patient does not have insurance and/or needs to pay down assets in order to qualify for Medicaid.

Most standard health insurance policies do not cover long-term care services. Generally, standard plans are designed to cover short-term, medically necessary skilled care rather than long-term custodial or personal care services (like nursing home or home health aide services). Standard health insurance might cover an initial illness or injury, but if that initial situation leads to long-term care needs, a standard plan likely won’t be of much help. Be sure to carefully study current standard health insurance coverage before purchasing a long-term healthcare insurance policy to ensure there is no gap in coverage.

Long-term care insurance policies are designed specifically to cover the needs of long-term care patients. Generally, these policies pay up to a specified daily amount to policyholders for custodial care services that assist the patient with the daily activities of living. This option may be a more affordable method of covering long-term care costs (when compared to the actual cost of long-term care), but will require monthly premiums to be paid in advance of any potential long-term care needs. The average long-term health care premium cost for couples over 60 is $3,930 per year ($327.50 per month), according to the most recent Long-Term Health Insurance Price Index numbers (2015) from the American Association for Long-Term Care Insurance.

Note that it is best to investigate long-term care insurance sooner rather than later because 1) not all people will be eligible for long-term care insurance; 2) a farmer’s likelihood of qualifying for insurance decreases with age; 3) premiums are often cheaper for younger people and more expensive for older people; and 4) long-term care insurance must generally be purchased in advance of needing care in order to receive coverage. The American Association for Long-Term Care Insurance recommends mid-50s to mid-60s as the ideal age to start looking into long-term care insurance, and provides a helpful primer on long-term care insurance here.

Look for these terms when reviewing and comparing policies:

– Benefit Trigger: The criteria a company will use to determine eligibility for coverage, like the Activities of Daily Living.

– Elimination Period: Generally a time period between 30 and 90 days during which the patient will have to cover the costs of long-term care before coverage under a long-term care policy begins.

– Premium Rate History: Investigating an insurance company’s premium rate history could show if it is likely they will raise the policy premium.

See longtermcare.gov for more tips on purchasing long-term care insurance. For veterans, there are benefits available through the VA Healthcare Program.

Medicare is a federal government insurance program for people over the age of 65 or for people of any age with certain disabilities or end-stage renal disease. Medicare is designed to cover short stays in skilled nursing facilities. It is not designed to cover long-term custodial care. Generally, after a patient is admitted into a Medicare-approved facility, Medicare will cover the costs of skilled care for the first 20 days and any costs beyond $140 for the following 80 days. In most cases, Medicare should not be depended upon to cover the costs of long-term care. It is a common misunderstanding that Medicare pays for long-term care – it does not. The chart below shows the differences between Medicaid and Medicare.

Medicaid is a federal and state assistance program designed to help those with low income or limited assets cover the costs of medical care, including long-term care services. While the federal government sets requirements for eligibility and available services, the manner in which individual states operate their programs varies considerably. Farmers should check their state’s eligibility requirements (specifically the asset limits and coverage options) to determine if Medicaid will cover their long-term care costs. Each state has a Medicaid assistance office. Medicaid eligibility can be affected by the method of farm transfer farmers choose. Keep reading to find out more.

Each of the individual methods of paying for long-term healthcare provide access to a range of different levels of care at widely variable costs. For most farmers, using a combination of methods will be the most effective method of covering long-term care needs. Here are some common combinations:

– Long-Term Care Insurance + Standard Health Insurance: This method generally does not require a farmer’s assets be limited or spent down (meaning valuable farmland could more likely be kept in the family, and caregivers could have more financial stability and peace of mind). With both forms of health insurance working together, farmers should be able to access services like a nursing home or in-home care at a cost significantly lower than paying out-of-pocket. However, farmers will have to pay the up-front costs of monthly premiums.

– Long-Term Care Insurance + Medicaid + Medicare: This combination could help those who need care before their assets are low enough to qualify for Medicaid (see below for information on Medicaid asset limits). Should farmers also qualify for Medicare, farmers should receive additional coverage for short-term care.

– Medicaid + Medicare: This method works best for those who already qualify for Medicare and currently have assets low enough to qualify for Medicaid (note that farmland ownership could make qualification for Medicaid difficult or impossible without proper planning). Between the two programs, there should be enough coverage for all long-term care needs.

– Out-of-Pocket + Medicaid + Medicare: Because qualifying asset levels are set so low for Medicaid, if a farmer does not have long-term care insurance, the farmer may have to pay for care costs out-of-pocket until the farmer’s assets are low enough to become eligible for Medicaid coverage. Should the farmer also qualify for Medicare, the farmer will likely not need standard health care insurance.