Over half of the population will require long-term care at some point in their lives. Paying for long-term care is a topic that many people avoid addressing until the last minute; however, due to the rising costs of skilled nursing care it should really be addressed sooner rather than later. In Minnesota the average daily cost of care for a skilled nursing facility is $198 per day, or $6023 per month. This is not an amount that the average person is able to pay on a monthly basis, much less for three years, which is the average duration of long-term care services.
There are many ways to pay for long-term care. This article shall address the most common payment methods used, as well as provide a basic explanation of Medical Assistance and the asset qualification requirements. Medical Assistance is a very complex area with constantly changing rules. Future articles shall address further qualification requirements and rules for receiving Medical Assistance.
Medicare
The average layperson doesn’t realize that long-term care is not a cost that is covered by Medicare, and usually doesn’t learn this until they or one of their family members enters a skilled nursing facility. In fact, Medicare only will cover long-term care for up to 100 days if the long-term care stay was preceded by a 3-night stay in a hospital. The patient must be admitted to the hospital and not just under observation. Additionally, the patient must be receiving skilled care in a Medicare qualified facility. Medicare will pay for the first 20 days at 100% and there is a costly co-pay for days 21-100. Sometimes the patient’s Medicare supplemental insurance will cover the co-pay; however this is not always true. After the days covered by Medicare have elapsed, the patient and their family must find an alternative pay source.
Private Payment Sources for Long-Term Care
Self-Finance
One option for payment of long-term care is to utilize one’s own funds. Depending on the asset mix of an individual this may be the only option for a period of time. For example, if the nursing home patient is a single individual with the majority of their assets in retirement accounts such as IRAs, 401ks, etc. These types of assets have income tax consequences upon distribution that make them not well suited to any type of structured gifting program; however, when used to finance long-term care, the income taxes resulting from distributions will usually have a corresponding deduction for medical expenses. However, in most cases, this option is not feasible for long because of the high cost of care at the facility.
Long-term Care Insurance
Another option for payment of long-term care is a long-term care insurance policy, which may help to significantly offset the cost of long-term care. Minnesota has a Long-Term Care Partnership program that rewards individuals for purchasing a long-term care policy. Qualifying policies allow the policy holders to shield additional assets from long-term care costs. Unfortunately, the benefits from a long-term care policy are limited by the coverage purchased under the policy. In many cases a long-term care policy is simply not enough.
Medical Assistance
Medical Assistance (or Medicaid in other states) is the government entitlement program that funds long-term care costs for individuals who meet certain income and asset limitations. The program is administered by the State of Minnesota on the county level.
Asset Qualification
In order to qualify for Medical Assistance, the applicant must reduce their countable or available assets to no more than $3,000.
If the applicant is married, there are federal spousal impoverishment rules that apply toward the division of assets between the applicant and the spouse remaining in the community. The assets encompassed in this division are itemized on the asset assessment date. The asset assessment date is the first day the applicant enters a skilled nursing facility and stays for 30 continuous days, or the first day the applicant was admitted to the hospital and directly discharged into a skilled nursing facility and the combined stay totals 30 days or more.
On this date the couples’ assets are divided into three categories: exempt, excluded and available.
- Exempt assets are assets that are disregarded for determining Medical Assistance eligibility. Examples of these types of assets are pre-paid burials, gifts made beyond the applicable look-back period, and life estate interests granted prior to August 1, 2003.
- Excluded assets are assets that are not counted toward the determination of Medical Assistance eligibility, usually because there is a spouse living in the community. Common examples of excluded assets are:
- Primary Residence
- One Vehicle
- Personal Property
For example, the primary residence of the community spouse is an excluded asset while the community spouse resides there. The value of the primary residence is not incorporated into the couple’s division of assets.
- Available assets are everything else the couple owns that is not an exempt or an excluded asset.
Division of Assets
The couples’ available assets are split 50-50 between the applicant spouse and the community spouse with a maximum allocation of $117,240 and a minimum allocation of $33,278. The applicant spouse may have no more than $3,000, so any amount in this split which leaves the applicant spouse over $3,000 must be reduced. The following examples illustrate how this asset division operates:
John and Jane Doe have available assets totaling $250,000. John is in long-term care. Jane will be allowed to keep $117,240 and John may keep no more than $3,000. As such, John and Jane will have to reduce excess assets of $132,760 ($250,000 – $117,240) to no more than $3,000 before John will be eligible for Medical Assistance benefits.
Jack and Mary Olson have available assets totaling $100,000. Mary is in long-term care. The couples’ assets will be subject to a 50-50 split. Jack will be able to keep $50,000 and the other $50,000 will have to be reduced to no more than $3,000 before Mary will qualify for Medical Assistance benefits.
There are additional circumstances where the community spouse may be able to retain additional assets. These generally arise when the community spouse receives an additional allowance due to their income falling below a certain amount. These circumstances will be addressed in a future posting regarding income qualifications for Medical Assistance.
Conclusion
Choosing a method for paying for long-term care is complicated, and for individuals with limited assets there may not be much of a choice beyond Medical Assistance. It is important to be well informed of the rules surrounding Medical Assistance in order to make sure that no detrimental decisions are made in the years prior to needing Medical Assistance that would negatively affect the application process. It is essential to have a qualified attorney on your side to ensure that you have properly planned for your long-term care needs if and when they arise.
