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About Financial and Insurance Ideas and Help
Protecting Assets from Nursing Home Costs
Nursing homes are extremely expensive. Depending on the geographic area, costs can range from $4,000 a month to $7,000 a month and in some areas in the Northeast, nursing home costs can be as much as $10,000 to $12,000 a month. Any retirement savings a nursing home resident has accumulated are often quickly depleted.
A vast majority of Americans simply don't have the money to pay for any more than a few months of nursing home care and they must eventually rely on Medicaid to make up the difference between
their income and the cost of the facility. Medicaid requires an eligible beneficiary to have less than $2,000 in liquid assets. This means any savings or investments must be spent first before
Medicaid takes over. If there is a spouse at home, there are special impoverishment rules that allow that spouse to keep a certain amount of assets and income, but oftentimes these spousal allowances
result in a significant reduction in the standard of living for the healthy spouse. In addition, members of the family
who provide long term care care services and housing prior to the need for a nursing home are not recognized by Medicaid for their sacrifice and they are not allowed to receive any transfers of money from the Medicaid recipient or the spouse.
There are legal ways to transfer more money or income to a healthy spouse or to transfer assets to family members. Medicaid does not share these strategies with the public. But there are attorneys and specialists who do understand Medicaid transfer rules and can help with providing more for a healthy spouse or transferring assets to other deserving family members. Our OMEGA Team is familiar with these strategies.
Government Programs That Allow for Family Members to Provide Care
Both Medicaid and the "Veterans Aid and Attendance Benefit" allow a long term care recipient to pay members of the family to provide legitimate care. This can be an effective way of recognizing the sacrifice of family members who care for their loved ones by transferring assets to them in the form of payments for care. Otherwise -- primarily with Medicaid -- money cannot be directly gifted to family members without creating an eligibility penalty. In addition, with the Veterans Aid and Attendance Program, money paid to family members can usually be replaced in the form of additional income to the veteran household.
Our area Directors understand this "hired family caregiver" concept and can help you find a specialist to set up such arrangements. Veterans Administration Long Term Care Reimbursement for 1/3 of all Senior. At least 33% of all seniors age 65 and older could qualify for a little-known veterans benefit called "Aid and Attendance Pension Benefit." That's how many war veterans or their single surviving spouses there are in this country. Under the right circumstances, these veteran households could qualify for up to $1,800 a month in additional income to help pay the costs of long term care. State service area Directors are familiar with this program and can explain it to interested individuals as well as directing those individuals to the person who can help them.
Contingency Funds for Long Term Care Costs
According to some sources, at least 60% of all individuals in this country will experience the need for long term care services. In many cases, this care might only last for a few weeks or months.
But for those unfortunate individuals where care lasts for years, the financial cost can be significant. In many
cases, retirement savings accounts are completely wiped out. A good strategy for preparing for this eventuality in old age is to set aside money when one is young and is working. Congress is also toying with the idea of allowing such contingency funds to accumulate and be used for long term care,
free from taxes. If this happens, this might provide an additional incentive for people to save for the need for long term care. Our area managers understand the concepts of periodic purchase savings and
the power of compounded interest earnings. They can explain how such a contingency fund code be set up, where it could be invested and how much would be required yearly or monthly to provide adequate funds in old age.
Protecting Assets from Medicaid Recovery
As far as we know, Medicaid is the only government entitlement program that attempts to go after a beneficiary’s home after that person dies. Medicare, Social Security, disaster relief, crop subsidies, income assistance and a host of other government support programs do not place liens against someone's property after they die to repay the government for the money it spent on that person's behalf. A great amount of the money for government support programs does not come from beneficiary contributions but directly from the general budget. This includes Medicare and Social Security. Yet, Medicaid appears to be the only program that tries to recover these general budget dollars. As unfair and inequitable as Medicaid recovery is, it is still a reality that must be dealt with. There are legal ways to keep property out of the hands of Medicaid recovery. Our area Directors are familiar with these concepts and can arrange for specialists to help retain property from Medicaid recovery.
Life Insurance and Annuities for Estate Planning and Long Term Care
Deferred Annuities Provide Tax Advantages and Potentially Better
Earnings - The appeal of deferred annuities is the deferral of taxes on earnings until money is withdrawn or the annuity is converted into a guaranteed income stream. Deferred annuities can also avoid probate if the owner chooses not to create a living trust for this purpose. As a general rule, annuities have the potential of producing an average yearly rate of return somewhat better than a bank CD or savings account. Annuity returns also tend to be more stable than short-term savings.
Life Insurance for Long Term Care Planning
Life insurance companies have become more competitive in recent years for policies issued on people over age 70. Good health is still a major consideration for low premiums but policies have been redesigned to provide more death benefit and less cash value. Some term policies and certain universal life permanent policies are designed to provide a guaranteed death benefit up to age 95 with a guaranteed premium and no cash value at all. This design generally results in more death benefit for each premium dollar. Also, policies designed for couples-- second-to-die policies -- can provide a significant amount of insurance for a one-time single premium even if one of the partners is in very poor health.
An important concept to consider is that single premium life policies with no cash value and purchased for estate planning purposes, many years in advance of applying for Medicaid, can be a
valuable planning tool if the need for Medicaid arises. Medicaid does not apply the death benefit of a life insurance policy to the asset spend down rule. But the cash value of any policy that has
$1,500 in cash will count towards the asset test and could disqualify a Medicaid applicant. As an example, a person could have $1 million of life insurance with cash value less than $1,500 and it would not prevent that person from receiving Medicaid. However, cash value of more than $1,500 in this example will apply toward the asset test. It is important to know, for planning purposes, that people who apply for Medicaid and then transfer assets to a life insurance policy, while they are going through spend down, could be in violation of their state' s Medicaid transfer rules and such an act may disqualify the applicant.
Life insurance can be used as an alternative for funding the cost of long term care. If someone planning for the eventuality of long term care is concerned about losing assets that would normally
be passed on to the children or be needed by a surviving spouse, that person can invest a portion of those assets in life insurance and leverage a death benefit payout -- sometimes for up to $3.00 in
death benefit for every $1.00 in single premium. The death benefit is also income tax-free. A person creating such an estate can then use remaining assets for long term care needs in the future but
still be assured that the
children or a surviving spouse will receive an inheritance at death through the life insurance. And, as discussed above, if the money runs out and Medicaid has to start picking up the costs, a single premium life insurance policy with less than $1,500 cash value will not disqualify the applicant owning the policy
Another use for life insurance for the elderly is in paying the cost of final expenses such as funeral and burial. A number of companies will issue policies without any health questions for people
who may not have very long to live. Most of these policies will provide little or no death benefit in the first two years
after issue and so there is some risk, but most companies will also return the premiums paid if death occurs in the first two years.
IRA or 401(k) Income Life Annuity to Buy Life
Tax qualified investments such as IRAs, 401(k)s, Tax Sheltered Annuities and other plans are great for saving taxes while one is working but many seniors find they don't need that money during retirement and they may want to pass on some of this tax sheltered money to their children. New "stretch IRA" rules have made it easier to reduce the immediate tax burden on these transfers at death but income tax that was deferred must still be paid. The income tax on these transferred assets can eat up a significant portion of the investment. One way to create a tax-free transfer at death is to convert the IRA or 401(k) into a life annuity income while the owner is alive and use part of the income to purchase a life insurance policy that would equal the amount of money in the IRA -- intended as an inheritance. A life insurance death benefit is income tax-free and thus the loss of a significant part of the account to taxeshas been avoided.
Medicaid Spend down for Funeral Trust
Medicaid will allow a Medicaid applicant to transfer a certain amount of assets into a trust that will pay for funeral and/or burial costs at death. In many states the maximum allowable amount is $15,000. These trusts are often funded with special life insurance policies. The trust must be irrevocable and meet Medicaid rules for such trusts.
If one spouse in a couple needs long term care costs to be covered by Medicaid, the couple must divide
combined assets in half and the spouse needing care must spend his or her half of the assets down to less than $2,000 remaining. This loss of assets may reduce the standard of living for the healthy spouse at home. Medicaid will allow the spouse needing care to convert his or her share of the assets into an income annuity that belongs to the healthy spouse. This legal strategy provides the healthy spouse with more income and avoids the impoverishment imposed by the spend down. These annuities must meet strict rules imposed by Medicaid and an expert in this area should be sought out. In the past, advisers also recommended these income annuities for single Medicaid beneficiaries in order to transfer some of the spend down assets to members of the family at the death of the annuitant. The Deficit Reduction Act of 2006 changed the rules for these single Medicaid beneficiary annuities and did away with their use as a planning tool for asset transfers. Under certain circumstances partial transfers can still be done using a Medicaid beneficiary income annuity called a "half-a-loaf" transfer. As with a spouse annuity, an
expert should be sought in order to make sure this is done properly.
Medicaid Anticipation Deferred Annuity
Money can be invested in deferred annuities anticipating the eventual annuitization (conversion into guaranteed income) for Medicaid purposes. Many practitioners set up these investments inside of living trusts which also avoid probate. These deferred annuities should be designed so that the money can be turned into a guaranteed income stream for either spouse of a couple. The income stream must
go to the healthy spouse -- the one not requiring Medicaid assistance.
Charitable Annuity Remainder Trusts
Many people have investment property that has accrued a significant capital gains tax liability in the event of a sale. Some people prefer to give their assets to charity and a charitable remainder trust is a way to transfer property with capital gains liability to a charity and avoid the taxes. These arrangements
also include a lifetime income option for the individual or couple making the donation. The charity provides the income and in many cases will use a single premium income annuity to create the monthly cash flow. In the case where a person receiving this income anticipates needing Medicaid or the VA benefit in the future, the income must be set up as an irrevocable annuity and the charity must be the owner and not allow the annuitant any control over the income. State service area Directors are familiar with all of these life insurance and annuity products and concepts and help the public understand the various options and find suitable products if necessary.
Finding Money through Life Settlements
In recent years, a large and growing industry has emerged where major investment groups, mutual funds or hedge funds purchase the life insurance policies owned by older Americans. The purchasers
become the new owners and beneficiaries for the death benefits of these purchased policies. They also take over paying the premiums. This is a legitimate investment in the death of another person.
The investor will pay the insured 20% to 80% of the face value of the policy depending on the age and health of the seller. The purchaser must be able to invest in a large number of policies and
be able to reasonably predict when death will occur for those policies. Historic death rates typically enable determination of what costs should be put into purchasing the policy and paying for premiums in order to achieve a reasonable investment return in the payout of the death benefits. Policies generally have to have a face value of more than $100,000 and in order to receive a reasonable purchase price for the policy, the owner should not be expected to live much longer than three to five years. For those life insurance owners who also need long term care, this is an excellent way to free up money to pay for the immediate costs of that care.
Long Term Care Insurance
We discussed above the use of a contingency fund, begun early in life, to pay for long term care in later years. The most efficient and the least expensive way to pay for care, is to purchase long term care insurance. For every $1.00 put into a contingency fund, $.10 could be put into a long term care insurance policy and produce the same dollar benefit at age 75. Or stated another way, a long term care insurance policy could produce 10 times more benefit than the same money put into a contingency fund. Some policies also allow return of premiums at death if the policy benefits are not fully utilized. Area Directors are knowledgeable about long term care insurance and can discuss this as an option for family members of seniors needing care. Family members confronting the need for care for loved ones often see the need for planning for themselves and if they are under the age of 65, long term care insurance should be a major part of that planning.
The Use of Reverse Mortgages
Most elderly homeowners fail to recognize the value of a reverse mortgage. If you ask individuals what their largest investment is, most people will answer, "their home." But the equity in a home
is only an investment when you can get to it. Unfortunately, equity is not liquid and the only way in the past for people to cash out equity was to sell their home. However, much of that equity cash
had to be used to rent a new home, pay for facility care or purchase a new residence. In other words, the freed equity ended up being locked-up again because of the need of retaining a place to live
in. A reverse mortgage allows a property owner to remain in his or her home but still get to the equity with no risk, no income requirements, no credit check and no monthly payments.
Most people who are doing reverse mortgages are seeking the money in order to pay off an existing mortgage or pay off debt. Many more should be using their equity to pay for long term care and remain in their homes. Money should also be used for the single premium life insurance strategies we discussed above. For healthy seniors, reverse mortgage money could also be used to purchase long term care insurance. Reverse mortgage money used to purchase a single premium income annuity or left in the mortgage line of credit will not bar that person or his or her spouse from qualifying for Medicaid.
Asset Transfers to Qualify for the Veterans Aid and Attendance Benefit
Even though 1/3 of seniors could qualify for the aid and attendance benefit, they must meet an income and asset test. It is not usually difficult to meet the income test if the veteran or the veteran's surviving spouse incurs the high cost of long term care. These ongoing care costs can be subtracted from income to meet that test. However, assets in excess of $80,000 will disqualify applicants. And any level of assets below $80,000 could block a claim depending on the decision of the VA employee processing that claim. A home, vehicle and personal property are exempt from this asset test.
Applicants can give away assets or convert those assets to income and VA will not penalize them as with Medicaid. And unlike Medicaid there is no look back penalty period either. But these transfers have to be done correctly. It is also extremely important that any transfers meet Medicaid transfer rules, since it is highly possible that the VA beneficiary might also need to apply for Medicaid inside the five-year look back for asset transfers. Area Directors understand the rules governing the veterans aid and attendance benefit and Medicaid and can help potential applicants by providing information or directing those applicants to someone who can provide that information.
Medicaid or VA Benefits and an Unoccupied Home
In most states Medicaid will allow a single Medicaid beneficiary to leave his or her primary residence unoccupied while that person is residing in a facility. Not living in the home does not disqualify a person from receiving Medicaid in most states. VA takes the same attitude when someone is receiving the aid and attendance benefit in a facility.
Any rental income from an unoccupied home must be counted as income for both programs and could create a problem with eligibility. The family could also be tempted to sell the residence which would then create assets that would disqualify the recipient for both programs -- Medicaid and VA. Finally, family members might transfer the title to the property which would also disqualify the Medicaid recipient and cause problems with the VA benefit.
When the Value of the House Exceeds $500,000 ($750,000 in Some States)
Any single person applying for Medicaid in a facility, and owning a house worth more than $500,000 ($750,000 in some states) is ineligible for Medicaid assistance. This is only the case where the house is not occupied by a spouse or other qualifying dependent. Apparently, the intent of this rule is to have the house sold and the proceeds used towards paying the facility care before Medicaid needs to take over. This is a new rule and its application in practice is going to be difficult for some applicants to handle due to a number of underlying problems associated with disposing of the property.
Medicare Supplements, Medicare Advantage Plans and Drug Plans
Our OMEGA TEAM - WORK with specialists who can provide information and insurance plans.
Long term Care Insurance--Why Should You Buy It?
How to Buy Long Term Care insurance
There are hundreds of long term care insurance companies selling hundreds of different types of policies. It can become very confusing. There are various conditions for home care and nursing home care, waiting periods, qualifying periods, inflation clauses and the list goes on. Here is a checklist of some of the things you need to know before you purchase a policy.
LONG TERM CARE INSURANCE BUYING CHECKLIST
The more "yes" answers you get the better off you are
• Is the insurance company rated at least A, A+ or A++ by A.M. Best?
• Is it a large diversified company selling more than just long-term care insurance?
• Is the insurance representative an expert in long-term care insurance? (Because of its complexity, almost all LTCi experts only sell LTCi; they seldom sell anything else.)
• Does the representative own a personal long-term care insurance policy?
• Is the policy you like tax qualified and if not, do you understand the ramifications?
• Are there at least 6 ADL's allowed for certification?
• Does it allow "standby assistance"?
• Is it a "pool of money" as opposed to a "stated period"?
• Do you understand how the elimination period works? (This is extremely important.)
• Does it have an absence of prohibitive cost containment provisions?
• Is there an absence of "capping" of automatic benefit increase riders?
• Do you understand how the waiver of premium works?
• Does the assisted living facility benefit pay the same as for nursing home?
• Are you buying adequate home care coverage?
• Does the company lack a history of rate increases?
• Does the policy pay for homemaker services?
• Are the requirements for providers of home care reasonable and not excessively strict?
• Does the policy offer an alternative plan of care for coverage that doesn't exist today?
Underwriting Individual Policies
The uniform insurance code adopted by all states requires individual policies to be fully and medically underwritten. This means an insurance company must verify, through means legally available, the applicant's medical history, lifestyle and potential for cognitive impairment prior to issuing the policy. Once this has been done the company cannot refuse to pay claims based on a condition that did not exist at the time of application. On the other hand the underwriting process also allows a company to refuse to cover someone who poses a significant risk for future claims. The underwriting process prevents the future denial of claims based on the fact that the insurance company was unaware of the risk at the time that it issued the policy. The insurance code also allows a company to defer coverage for pre-existing conditions, after issue of the policy, for a certain time period, say six months. The majority of insurance companies do not use pre-existing conditions and for the majority of companies, the policy is in effect at the time it is paid and issued .
Companies are protected from fraud by being able to deny claims if an applicant deliberately withheld information that would have affected whether the policy would have been issued or not. If an applicant in good faith did not reveal information that would not have significantly affected the issuing of a policy, then the insurance company cannot challenge any future claims after the policy has been in force two years or longer. If an applicant did not state his or her age properly, the policy benefits will be altered to reflect the amount of benefit the premium would have bought at the correct age.
Unlike life insurance companies which often rely heavily on medical exams and current health to issue a policy, long-term care companies rely heavily on medical records and the history of past medical conditions. For older ages, companies also use a phone interview or schedule a personal interview with a nurse. In the interview the company is looking for lifestyles, activities and hobbies or pursuits to indicate whether a person is already partially disabled or not. The phone interview also helps keep agents honest who for the sake of trying to get a policy issued may have deliberately downplayed or excluded information on the application that could affect whether a policy is issued or not. Finally, the insurance company is extremely interested in whether a person is struggling with short term memory problems. The phone interview is designed to uncover this and if it is suspected a person has cognitive impairment of any kind, the interviewer will conduct a cognitive impairment survey.
In the past, companies have been more liberal in issuing policies than they are today. This change of attitude has probably come from the companies misjudging the amount of current claims resulting from more liberal, past underwriting assumptions. Because of this change, if you are thinking about buying long-term care insurance and are in good health, but you are delaying buying it for whatever reason, you should not wait until your health changes because it may be too late at that point to buy it. You should buy it now.
In recent years long-term care insurance companies have been following a pattern of designing new policy forms about every two years. Part of the reason for new policies superseding old ones is that companies want to offer newer and better benefits. But I also believe that the issuing of new policies is a way to cover the increasing costs of claims. Almost without exception the new policies are more expensive at the same age than the old ones were. Many companies are reluctant to raise rates on existing policyholders and a few of them are even advertising it as part of their sales process. These companies are claiming they have never raised rates on any policies some dating back as far as twenty years.
The new code-mandated application process also requires companies to disclose in writing to the applicant, whether there have been any rate increases on existing policyholders and the details of these rate increases. Because of these pressures to not raise existing rates, I believe companies can only cover increased costs by having new policyholders subsidize the policies of previous insureds. This is certainly an advantage to existing policyholders who are concerned about future rate increases, but new policyholders are paying higher rates at the same age than existing policyholders would have paid on the old policy at that same age. This is all the more reason to buy insurance now instead of delaying the purchase. The combination of higher rates at an older age as well as higher premiums due to rate creep, could make the delayed purchase of insurance a very expensive decision.
Underwriting and Pricing Group Policies
So-called large group policies, policies offered through very large employers, are not medically underwritten when people sign on during the initial enrollment period. The question is how do companies control their risk of not getting too many people who have health problems and who may cause a large number of future claims? This is done in two ways. First, there is a concerted effort to get as many employees to sign on as possible. This helps dilute the number of people who have health problems, who would naturally be attracted to the coverage, with people who are healthy. Unfortunately, large group plans are only signing up about 6% of eligible employees nationwide. This low participation rate does not significantly weed out the ratio of unhealthy to healthy applicants and so the insurance companies offering group plans must charge higher rates for benefits than they would for underwritten individual plans.
On the other hand, the participation of younger employees is encouraged by keeping their rates very low. Since younger employees are less likely to have health problems, this helps reduce the risk of future claims for the insurance company. Also the enrollment of healthy younger employees has another benefit. These people are more likely to leave their jobs for another company and will probably not take their insurance with them. This means the insurance company will never have to make a payment for claim with younger employees who leave and the insurance company has made some additional profit that it normally would not have made with older policyholders who tend to keep their coverage for life.
The second way that an insurance company controls its future costs with group policies is to limit the benefits that are available to employees. This is done by providing only three or four choices for employees and limiting the amount of home care and downplaying the availability of inflation protection. By skimping on benefits the company will have a better handle on future claims. Limited benefits also make the policies less expensive and this helps encourage more people to sign on thus increasing the participation rate.
But limited benefits pose a huge future risk for existing group policies. By not offering automatic inflation protection and limiting home care benefits, group policies will be woefully lacking 30 years from now when claims are made. Since it is not in the best interest of the insurance company to explain this problem with group policies, employees who buy group policies think that they have adequate coverage when in reality they don't.
Insurance for Medicare
Gaps in traditional Medicare insurance have led people over the past 40 years to purchase supplemental or Medigap insurance policies to provide less worry-free coverage under Medicare.
Medicare Advantage plans were created along with the Medicare drug benefit as a result of the 2003 Medicare Modernization Act. The plans are funded by Medicare but design and administration are carried out by private-sector insurers. An Advantage plan must offer at least the same benefits of original Medicare but may offer better benefits as well. MA plans are designed around provisions of modern group insurance coverage and these plans do away with the gaps in coverage with original Medicare. Many of these plans are integrated with the new Medicare drug benefit as well. Because of the modern design, there is no need for a Medicare supplement (Medigap) policy and the additional cost of the supplement is eliminated. The trade-off for this improvement is generally more direct out-of-pocket costs for MA beneficiaries. Eligible Medicare beneficiaries typically enroll with an MA by signing on with a designated agent of the insurer.