The Deficit Reduction Act (DRA) of 2005 had a major impact on long-term care planning. The DRA was passed to help reduce the national deficit by discouraging and making it more difficult for folks to qualify for Medicaid.
Medicaid is a state and federally funded program to help citizens pay for long-term care if they run out of money. In the past, it was not too difficult with some creative planning to shelter accumulated assets from being exhausted too quickly by the high cost of long-term care. It is appealing to many to hang onto what they have worked a lifetime to accumulate and have the government pay their nursing home bills.
Among the more significant changes was adjusting the “look back” period from 36 to 60 months. This is a period that Medicaid will look to see if there have been any “improper transfers” designed to get an individual down to the state- mandated level for resources to qualify. Typically, an individual is allowed only $2,000 or $1,500 in assets, depending on the state, and a married couple can keep half of their assets up to a little more than $100,000. If a person applying for Medicaid had made one of these improper transfers in the 60 months prior to applying, a penalty period will be imposed and is determined by the amount of the transfer.
Another change, according to the DRA, is a limit on the value of a home that would be excluded from being a countable asset for qualifying purposes. In the past there was no limit on the value of a residence that could be owned while still qualifying for Medicaid. Now, depending on the state the Medicaid applicant lives in, the residence value is limited to either $500,000 or $750,000.
This type of planning is just one more area where financial and legal planning overlap. It’s important to do non-crisis insurance and investment planning when it comes to protecting yourself from a long-term care crisis. Although, there are many steps a family can take when a crisis hits so they don’t lose all of their assets, being proactive will give you the most choices.
Partnership for Long-term Care Insurance (LTC) programs also grew in many states to provide additional protection for families who purchase long-term care insurance because of the DRA. Essentially, the state will match policy limits once a policy has been exhausted if Medicaid is required. An example would be a single person who had a qualified LTC policy for $200,000 would have an additional $200,000 of protection from Medicaid spend-down if a crisis occurs. Prior to this new partnership, an individual would only be protected up to $1,500 in Ohio.
Those who are considering protecting their assets from a health care crisis should review the partnership plans available in each state. If not, you still run the risk of depleting all of your assets if Medicaid is ever needed. If you purchased an LTC policy many years ago or are considering purchasing a new policy, make sure the policy matches the requirements to meet the new partnership program. “If your current long-term care policy was purchased on or after Aug. 12, 2002, your insurance company must offer you the option to exchange it for a partnership policy. The insurance company cannot discriminate on the basis of your age or health status when making the exchange offer,” according to the Web site for Ohio’s Partnership for Long-Term Care Insurance.
Legally and financially, it makes sense to put a long-term care plan in place. Some people feel it will never happen to them. But statistics prove otherwise. Nearly 60 percent of people over age 65 will require some form of care in their lifetime. Having a protection plan in place can also give you more control and independence in retirement. The government is not going to take care of you, so plan ahead.
For more information about today’s column and The Retirement Guys, tune in every Saturday at noon on 1230 WCWA and every Sunday at 11 a.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is located at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537.