Planning for Long-Term Care (Part 3)

In Part 1 of this series I outlined the necessity to create a good Long Term Care Plan and in Part 2 I discussed the three most essential documents found in that plan.

The first essential document is a General Power of Attorney (POA) containing Asset Protection Powers. This document authorizes your “Agent” to act on your behalf and to sign your name to legal and financial documents. The Asset Protection powers contained therein enable your agent to do Medicaid Asset Protection if you have not already begun this process. The second essential document is an Advance Medical Directive (AMD) containing a Long-Term Care Directive. This document authorizes your “Medical Agent” to make decisions with respect to your medical care. Both the POA and AMD authorize your agents to intervene in the event that you are physically or mentally unable to do so. The third essential document is an Advance Care Plan that identifies and details your specific needs, desires and habits for your future caregiver so that you will receive long-term care uniquely tailored to you.

As explained in Part 2, a good Long-Term Care Plan will also typically a Living Trust – either a Revocable Living Trust (RLT) or a Living Trust Plus™. If you become incapacitated, an RLT can provide management of your assets by your trustee similar to a POA. However, as was noted, an RLT does not protect your assets from the expenses of long-term care.  The Living Trust Plus™, which will be discussed in detail in Part 4, is a tool that protects you not only from probate, as an RLT does, but also from the expenses of long-term care.  Part 3 will now discuss using long-term care insurance as part of a Long-Term Care Plan.

Virginia’s Qualified State Long-Term Care Insurance Partnership

Virginia’s Long-Term Care Insurance Partnership Program, which became effective on September 1, 2007, allows consumers to obtain Long-Term Care Insurance as part of a Long-Term Care Plan and as part of a Medicaid Asset Protection Plan. This program allows individuals obtaining Partnership-qualified policies to protect assets that otherwise might have to be paid to a nursing home prior to obtaining eligibility for Medicaid benefits. A Partnership-qualified policy enables policyholders to protect one dollar of personal assets for every dollar the policy pays out in benefits.

One of the main purposes of this Long-Term Care Insurance Partnership Program is to offer government-endorsed “Medicaid Asset Protection” to consumers who buy long-term care insurance, enabling these consumers to protect an additional dollar amount of personal assets while still remaining eligible to apply for Medicaid coverage of long-term care. The amount protected with a Partnership-qualified policy will be equal to the sum of all benefits paid under the Partnership-qualified policy when the applicant seeks to qualify for Medicaid. The total amount of assets that a policyholder may protect as a result of a Partnership-qualified policy is above and beyond the basic allowances that a client and a client’s spouse may keep under the basic rules of the Medicaid program.

Benefits of Partnership LTC Insurance

Long-term care insurance was, and is (especially in light of Virginia’s Long-Term Care Insurance Partnership Program), one of the best ways to provide for you future long-term care needs. With the baby boomers facing projected federal deficits, reductions in Medicaid spending, as well as rapidly rising health care costs, it is clear that alternative methods of financing long-term care support are critical. Long-term care insurance is preferred not just by consumers, but by the Commonwealth of Virginia and by the Federal Government because it is often the only option that can help keep clients out of the nursing home — by paying for home care. We’ve had many clients over the years who were forced to spend their final days in a facility simply because they ran out of money to pay for home health aides.

Elder Law Considerations

When shopping for a long-term care insurance policy, it is crucial to consider carefully the entire financial situation of both spouses and to consider the possible alternative of not purchasing long-term care insurance. Failure to consider these issues can result in purchasing too little coverage, which can actually be worse than purchasing no coverage at all.

For example, consider Joe and Linda, a married couple, facing Joe’s nursing home costs of $9,500 per month. Joe has $4,000 in monthly retirement income, as well as a long-term care insurance policy with a monthly benefit of $6,000 (based on a daily benefit of $200). Linda’s only income is Social Security of $700 per month. At first glance, the couple seems better off with the long-term care policy — they have an extra $6,000 per month, without which they could not afford the nursing home. They can pay for Joe’s nursing home and have an extra $500 per month to put towards Linda’s monthly expenses. Unfortunately, Linda’s regular expenses are approximately $2,400 per month, so with only $1,200 per month of income she is unable to make ends meet. Joe is not eligible for Medicaid assistance because his income (including the long-term care insurance benefit) is greater than the nursing home bill. In this example, Joe’s long-term care insurance policy does not provide enough of a benefit to allow Linda to have sufficient income to meet her needs. If Joe’s long-term care insurance policy provided a $7,500 monthly benefit ($250 per day instead of $200), then $2,000 of Joe’s retirement income would be available for Linda’s monthly expenses, so Linda would have $2,700 per month — enough income to live on.

If Joe and Linda had recognized this shortfall and decided to not purchase the long-term care insurance, or if they could not afford the increased premiums for the increased monthly benefit, they could instead use Medicaid assistance to help pay for Joe’s nursing home costs. Most of Joe’s $4,000 per month of income would normally be required to pay the nursing home expenses; Linda would keep her $700 per month. However, because Linda’s income is so low, the Medicaid rules would allow Linda to receive part of Joe’s income to help her with her monthly living expenses. Linda could receive a monthly maintenance needs allowance of up to $2,841 (including her income) which includes allowances for housing and utilities. Therefore, in this case, Joe and Linda would have the nursing home costs paid, and Linda would have $2,841.00 monthly for her support – more than enough for her regular needs.

The bottom line? Be sure to buy enough coverage, and be sure to buy it for the right spouse.

Which Spouse Should Get Coverage?

Often a married couple will be able to afford coverage for only one spouse. Looking at statistics alone, the wife should purchase the policy, as women tend to live longer than men are therefore more likely than men to end up in a nursing home for a long period of time. However, this is often the wrong answer!  For a couple where the husband’s retirement income is much higher than the wife’s retirement income, it is actually much more important to purchase coverage for the husband.  The reason for this is partly revealed in the story about Joe and Linda. But this addresses only half of the story,  i.e., what happens if Joe enters the nursing home first. The other half of the story is what happens if Linda goes into the nursing home first. Using the same fact scenario, let’s now assume that Linda enters the nursing home first and does not have long-term care insurance. Is there any problem?  No, not at all, because we can get Linda’s nursing home paid for almost entirely through Medicaid assistance. Linda’s  $700 monthly income would have to go to the nursing home, but Medicaid will pay the rest. Joe will be able to keep 100% of his retirement income and, with proper Medicaid Asset Protection Planning, will be able to keep all of his assets.

How Much Coverage Do You Need?

I don’t recommend anyone purchasing more than five years of long-term care insurance coverage. For one reason, the average nursing home stay is only approximately 2.9 years. Secondly, after moving to a nursing home, your family can commence the process of Medicaid Asset Protection, provided you have an appropriate Long-Term Care Plan in place.

For example, you could transfer your assets into a Living Trust Plus™ that will managed by your children. After five years have passed, the lookback period will have expired. If you are still alive, you should then be able to qualify for Medicaid to pay you nursing home costs (provided you are otherwise eligible based on income, assets, and medical condition). Using this strategy, there would be no need to purchase more than five years of long-term care coverage.

It doesn’t make sense to pay insurance premiums and then be bankrupted by nursing home fees anyway because of insufficient coverage. As with other medical expenses, the inflation rate in nursing home fees is currently quite high. In 10 years, the cost of the nursing homes, at the current rate of inflation, will be about twice what it is today.

A good Long-Term Care Plan may or may not include long-term care insurance. As you make your decision, it is prudent to seek the advice of a Certified Elder Law Attorney. The Farr Law Firm can help guide you through the considerations of whether or not long-term care insurance makes sense for your Long-Term Care Plan.