Ep. 8: Medicaid Planning 101 - How to Use It to Pay For Long-Term Care

Welcome to our show. This is episode eight. Crisis Medicaid planning basics. Many of us across the country have had family members in need of long-term care. What we’ve observed over the last several years is an increasingly rising cost. For this care, whether it is at home, in assisted living, or in a nursing home. Some steps have been taken to expand Medicaid coverage in certain states, while other states are trying to restrict coverage. In today’s episode, we’re going to talk about the basics of crisis Medicaid planning, so that if you find yourself in a crisis with respect to a family member, you may be able to take some steps and protect some assets while qualifying your loved one for payment through the Medicaid program.

So let’s start with the basics. Let’s talk about the nature of the problem that exists today. Here in Dayton, Ohio, it is not uncommon for us to see nursing home costs exceed $10,000 per month for our residents. I have a client right now whose wife is in assisted living, the husband is in a nursing home, and the total private pay cost is $17,000. I have another client whose family is fairly wealthy, but they did not make total plans for their loved one. And therefore, today, the total cost exceeds $30,000 per month. Now that, of course, is being in independent living with 24/7 round the clock personal care being provided by one of our local agencies. So the cost of care has risen significantly, even for those of us who want to go into assisted care. Back in the day, when my father had Alzheimer’s, assisted living care was our family’s option. My mom had passed away from cancer, and my dad needed to be cared for because he certainly could not care for himself. The cost, back then, was $2,000 per month. Recently, I helped a client move her husband into an assisted care facility. And the cost here in Dayton, Ohio, in the Midwest, was $8,000 per month for assisted living care. The cost of care has substantially gone up. And therefore, the need to pay attention to Medicaid planning and other long-term care planning options is critical.

Now, why are we in this situation? Well, the reality is, is that the insurance market, until rather recently, did not have a very good product for long-term care. Less than 10% of individuals in the country have long-term care insurance that enables them to pay for this care. Then on top of that, the Medicare system, which some believe should pay for long-term care, unfortunately, doesn’t pay for much. For most of us across the country, Medicare will pay no more than 100 days of care. And that’s only if you’ve spent three nights in a hospital and you still need skilled care. What happens most often for my clients here in Dayton is, either they’ll go into the hospital and be put under quote, observation and never be admitted, therefore not being eligible for Medicare to pay for any long-term care or two if they are admitted for the requisite three days when they’re transported to a nursing home. They only need skilled care for a short period of time. I would say my average client gets about 17 days of Medicare coverage in a nursing home primarily because they can’t meet the skilled care requirements thereafter. There have been proposals in QA members to modify Medicare to pay for long-term care. But it would appear, at least at this juncture, that that’s not possible or not likely to happen. Medicare also will pay for end-of-life hospice care. But as we all know, in order to get hospice care, we have to be diagnosed as being terminal. That is, someone in the medical profession has to say that we’re likely to pass away within the next six months. So while those benefits under Medicare are important, they’re not there for those of us who need custodial care for the long haul.

Now, Medicaid is a federal program, but it is administered by our 50 states. And those 50 states are allowed to set ground rules that can’t conflict with the federal law, but they certainly can devise their own program. Here in Ohio, there have been significant steps taken in the last 10 years to really beef up the Medicaid estate recovery program. It’s part of the expanded program that we talked about. Other changes have been made in Medicaid, whereas, for the most part, an individual’s house is no longer exempt unless they intend to return to it. Other changes have been made in the Ohio Medicaid program that certainly make this program less available because they’re trying to restrict the costs.

Let’s talk briefly about the difference between pre-planning and crisis planning. You know, I’ve been doing estate planning here in the greater Dayton area for over 30 years. One of the key ways that we help some of our clients plan is we ask them to figure out a long-term care planning solution early on in the planning process. And we tell them quite simply, you really have four options, you can stick your head in the sand and do nothing, and maybe go broke in the process. Number two, you might be able to devise a plan to go live with your children if you need long-term care. But that’s not a viable option for many of us. The third option, frankly, my preferred option, is that we go to the private insurance market and purchase what I call asset-based Long Term Care Insurance, where we have a whole life insurance policy that will provide a death benefit in the event we don’t need the long term care benefits. But it includes multiple long-term care benefits, if, in fact, we need care. A recent case example in long-term care insurance, which suggests that for a 65-year-old couple, if they put $100,000 in the policy all that upfront at once as a single premium, they could get a death benefit that would exceed roughly $170,000. And for long-term care, it would exceed $250,000 worth of long-term care benefits. Now, these asset-based long-term care policies are tied to whatever the interest rate is. So in our current changing interest rate environment, the benefits under the policies are rising rather significantly. And I really believe that in 2023, asset-based long-term care will be in its heyday as these interest rates rise.

But not everybody can afford to purchase private insurance or remember that private insurance is medically underwritten, and you may not be healthy enough to be able to get insured. Obviously, most of the insurance companies have come up with another solution through an annuity product rather than life insurance for those who are less healthy. And sometimes, those annuity products are worthwhile to look at. So part of the pre-planning process is for you to consider having long-term care insurance in place. Another option on the pre-plan is if you can’t get asset-based long-term care for whatever reason, or you simply don’t want it. You can consider doing a five-year Medicaid pre-plan where you create an IR revocable trust, oftentimes called a Medicaid asset protection trust, and you can take the assets that you own and place them in that trust. And the law says that if you create the trust and funded five years after you do that, the assets that are placed in a properly drafted trust are no longer countable for purposes of determining your eligibility for Medicaid to pay for your long-term care. That is a very popular pre-planning strategy that we utilize for our clients.

Now, it is important as we look at pre-planning for Medicaid, and then we’ll discuss crisis planning. It’s important that we understand what Medicaid will or won’t pay for, you know, there’s a lot of confusion here in Ohio when we go to trying to figure out what long-term care is available through Medicaid, you know, here we have a program for in-home care called passport that is valuable for a few of our clients, but not most of us. The benefits are that we can stay at home and get some level of care. Typically, it’s pretty minimal care. In theory, it could range all the way anywhere from, say, 8 hours per week to 40 hours per week. But it is done based on an assessment. Once that assessment is completed, they will assign an aide to provide that care. It may be to come over and wash our hair, helps us shower, help us go to the bathroom, maybe clean the floor, cook a meal, or something like that. But it’s not significant care. It certainly isn’t anything above and beyond aid. And it is minimal hours. Having said that, in some cases, it gets the job done. And that’s called the passport program.

Now the second type of program here in Ohio, is called assisted living waiver. The waiver program works in a kind of an unusual way. First of all, of all of the assisted living facilities in Ohio, a handful of them, less than a third, have agreed to participate in the Medicaid waiver program. Most assisted living facilities here do not accept any type of Medicaid, they are 100% private pay. Now in the assisted living arena, again, the cost of care can be anywhere from, say $3500 to $8,500 per month, depending upon the level of care that is needed. Of those who have signed up for the Medicaid program. Very, very few, although there are a couple who will accept Medicaid on the waiver program on day one. Most assisted living facilities in the greater Dayton area are going to require private pay for at least a two-year period. What that means is, you know that $8,500 rate that I talked about, that’s going to have to be privately paid. You’re going to have to agree to privately pay that on a monthly basis, say for one year or two years, some places might be three years before you’re even allowed to apply for Medicaid. So when we go looking at assisted living facilities, and they say they take Medicaid, please understand that the most important question to ask is, do you require private payment? And if so, for what period of time before you can apply for Medicaid? So that’s the assisted living waiver program here in Ohio.

Now, on the nursing home side, the good news is just about every nursing home in Ohio, not all but just about everyone does take Medicaid, and it does allow us to do Medicaid planning on a crisis level. So when we look at pre-planning versus crisis planning, obviously, our goal for all of our clients, first and foremost, is to discuss asset-based long-term care. Next, we want to talk about pre-planning for Medicaid by creating a five-year trust. Thirdly, if we’re not able to do those two, we want to talk about crisis Medicaid planning. So let’s talk about the basics of crisis Medicaid planning for long-term homecare. The important thing that I tell everybody that you have to know is that, first and foremost, Medicaid is not free. You have a patient liability, and your patient liability that must be paid to the nursing home is your income. Now, depending upon your income level, here in Ohio, once you exceed roughly $2,200, you have to have what’s called a qualified income trust to receive the excess income. But setting that strategy aside, the reality is, all of your income, ultimately, is going to end up going to the facility to pay your bill, whether that be your Social Security, whether that be your pension, your RMD distributions, whatever it may be, your income has to go to pay the bill first. Now, here in Ohio, we do allow you to have a $50 special needs allowance. So that is permitted for you to be able to purchase some basic toiletries, things like that if you’re in a facility. But the bottom line is, is that if you’re like my mom, who had Social Security, maybe $350 per month, or a recent client of mine, who had three government pensions totaling over $7000 per month, just understand that there’s nothing we can do to really protect that income that you have coming in. On the other hand, things that you own, your assets, can be protected. Even though we’re doing crisis planning, even though you’ve not purchased Long Term Care Insurance, even though you haven’t set up a five-year trust. We can do crisis planning now.

What’s the basic fundamental difference between crisis planning and pre-planning? Well, in pre-planning, our goal is to save 100% of your assets by placing them in a trust while in crisis planning, our goal is to protect at least 50% of your remaining assets. Well, why is that? Well, under Medicaid crisis planning, we are allowed to transfer assets. Whether those assets are transferred to a trust or to individuals, really is inconsequential. But once we transfer certain assets, Medicaid is going to invoke a penalty period that we’re going to have to pay through. That amount of penalty period is determined by dividing a divisor that Medicaid gives us, that’s a number they give us that changes periodically. We divide that number into the total assets that we’re going to transfer. And that tells us the number of months that we’re going to have as a penalty period. And during that penalty period, we’re going to have to pay for care. But the good news is, at the end of that penalty period, we’re going to qualify for care.

Now, just remember that if you’re a single person, Medicaid is not going to allow us to have more than $2,000 worth of assets in our name. And they look at everything. There are no exemptions. Well, that’s a bit of an overstatement. But any life insurance policy that has a face value under $1,500 is not a countable asset. But other than that, we’re pretty well going to count everything that is in your name that you own. Whether that is a checking account, a savings account, a car, a boat, an airplane, we’re going to count your house unless you can sign a statement that you intend to return. And even if you do intend to return, we have to be careful because that house may be subject to estate recovery once you pass away. So keeping the house in your name, oftentimes, is not the right planning strategy. Instead, what we may do is we may gift half your assets and then figure out a way to take the other half of those assets and pay through a penalty period. Oftentimes, we’re going to purchase a Medicaid-qualified annuity with your half of the assets to pay through the penalty period plus your income. So the overall gifting strategy is designed to try to save at least one-half of your assets for some of our clients and happens to end up being 40% for other clients and 60% that is in part dependent upon the amount of income that you have, the amount of assets that you have, and the cost of care at the facility. So, just suffice it to say, just a rule of thumb is that through this gifting strategy for a single person, we’re able to save roughly half of your assets and then qualify you for Medicaid at the end. That is very significant. And that forms the basis of crisis Medicaid planning for individuals who are single.

Now let’s talk briefly about individuals who are married. The rules don’t change a whole lot if you’re married and both of you need care. The bottom line is both of your incomes are going to need to go to the facility, and we can gift half of your assets and qualify you for Medicaid planning. But again, our goal is to save 50%. The situation changes rather dramatically if we have a healthy spouse at home. And we have the other spouse, called the institutional spouse, who needs care. In those circumstances, the law will allow us to do crisis Medicaid planning, and if done properly, and if the community spouse survives and outlives the institutional spouse through crisis Medicaid planning, we can save 100% of a couple’s assets with the single exception of the institutional spouse’s income. Now, how does it work?

Well, briefly, we are able to take all of the assets that are in the institutional spouse’s name and transfer them over to the community spouse. The income of the institutional spouse will go to the facility, the assets from the institutional spouse get transferred over to the community spouse, and the community spouse has what we call under Medicaid, the Cizre, the community spouse resource allowance, that is a fixed amount that Medicaid determines that the community spouse is allowed to have, again. That dollar amount of assets has risen over the years a little bit each and every year. Right now, it is approximately $150,000 that are allowed to be kept in the community spouse’s name. Well, what happens if we have resources in excess of $150,000? Well, the law says that the community spouse, in addition to the $150,000, is allowed to keep the house as long as it’s not an extravagant house. I think under the current law, the maximum house you’re allowed to have is somewhere over $600,000. So the community spouse gets to keep the house in their name, they get to keep a car in their name, and they get to keep this community. So spouse resource allowance, now that resource allowance, again, does change over time. Now, what we are able to do is take the excess resources above and beyond the Cizre amount. Oftentimes, what we’ll do in Ohio is purchase a Medicaid complaint annuity, while other states will allow individuals to do different strategies. But for the most part, here in Ohio, we’re going to do a Medicaid complaint and annuity. What that annuity does over a very short period of time, is that it enables us to return 100% of the assets back to the community spouse, who then can take those assets and reinvest them.

Why does this work? Well, remember, the income of the community spouse is totally exempt from Medicaid consideration. Regardless of the dollar amount, it’s only the institutional spouse’s income that has to go to the facility. So in this instance, if we take the house and put it in the community spouse’s name, if we take one car and put it in the community spouse’s name, we take the Cizre amount, whatever that amount happens to be at the time, put that into the community spouses name, and then we take the remaining assets, whatever they may be, assuming they’re liquid, and we’re able to purchase a Medicaid complaint annuity from one of the two or three companies in the country that sell these Medicaid complain annuities, and that creates an income stream back to the community spouse. And because the income of the community spouse is exempt, the institutional spouse, will qualify immediately for Medicaid.

So you can see the significant benefits of doing Medicaid planning for a single person. Whereas our goal is to save half of their assets, with a married couple, if we have a healthy spouse at home, we can, through crisis Medicaid planning, save nearly 100% of this couple’s assets and have Medicaid to pay the bill above and beyond the institutional spouse’s income. Those are the primary strategies we’re able to utilize here in Ohio. You should also know in Ohio, we’re allowed to do a pooled trust. So if we have somebody, let’s say they have under $100,000 worth of assets, and they’re a single person, we’re allowed to transfer $98,000. Remember, the person in the facility is allowed to keep $2000. So if we keep $2000 in their name, transfer $98,000, or whatever the amount happens to be, to the pooled trust. A transfer to a pooled trust is an exempt transfer. And those funds can be utilized for the institutionalized person’s benefit while they’re receiving care, and it can be used for their special needs, whatever that may be. It may be something as simple as prepaying for their funeral. It may be buying them a TV or a computer or taking them on vacation. But the bottom line is that that transfer to the pooled trust is exempt. We will utilize the pooled trust approach for clients of ours, typically who have less than $100,000 worth of assets, and who want to immediately qualify for Medicaid. That’s another type of strategy.

Well, the most important thing I can tell you is that for those of us, like myself, who have LLM in elder law planning, other individual attorneys have been board certified in elder law. The important thing for you to know is that there are strategies available to you in order to do crisis Medicaid planning. I hope today’s podcast has given you some clarity and maybe given you a little bit of confidence that as we’re facing these increased long-term care costs, we do have some options out here to do Medicaid planning. My advice to you is to remember, to repair the roof when the sun is shining, rather than waiting until there is a crisis. Having said that, if there is a crisis, feel free to give us a call because elder law attorneys are here to help families save and protect 10s if not hundreds of 1000s of dollars worth of assets. Thank you for your time. Stay warm out there. Have a great day. Thank you so much.