Public-Private LTC Insurance Medicaid Program Protects Savings & Funds Long Term Care
© 2008 by Lawrence A. Friedman, Esq
The old expression “what one hand takes the other gives back” could have been coined to describe the Medicaid provisions enacted February 8, 2006 in the Deficit Reduction Act of 2005 (“Act”). While the Act forecloses several previously popular Medicaid planning techniques, it gives rise to others including New Jersey’s new Qualified Long Term Care Insurance Partnership Program (“Partnership Program”).
Long term care can be provided in a nursing home, assisted living facility, or private residence, but regardless of setting, the cost can be prohibitive- over $10,000 per month in some nursing homes. Fortunately, New Jersey Medicaid does pay for care in each of these settings although eligibility requirements and available benefits can differ depending on circumstances.
To qualify for Medicaid, countable assets and income must fall within Medicaid limits. The usual countable asset limit is minimal when a Medicaid applicant is single and up to just over $100,000 for married applicants. However, because both spouses’ assets count against Medicaid caps, even a spouse that never needs long term care can face financial ruin without expert guidance. Fortunately, a primary residence and vehicle for a Medicaid applicant’s spouse are exempt, but nearly all other available amounts (such as each spouse’s savings, investments, valuables, income, and Social Security) are Medicaid countable assets.
While Medicaid eligibility rules seek to force the uninitiated to spend their savings beyond asset limits for long term care, elder law attorneys can employ a crazy quilt patchwork of Medicaid exemptions, limitations, and inconsistencies to help people needing long term care preserve significant amounts. To protect some savings, families can pay down debt, improve the house, buy a more expensive replacement home or vehicle, make routine purchases, contract with a child for services, and prefund funerals. However, not every approach will be appropriate for all families and each technique has intricacies beyond the scope of this article.
Prior to the Act, gifts were a very attractive means to preserve savings. Although gifts remain an important Medicaid planning vehicle in the right circumstances, the new five year look-back period and more onerous penalty provisions make gift planning less routine. Loans to children, annuity purchases, Medicaid divorces, and other transactions also can save additional amounts, but all of these devices are less settled, which can lead to litigation with no guaranty of success.
Normal Medicaid asset limits are so low that even with the best planning, most families must radically restructure finances when a loved one needs long term care. Now, however, New Jersey elder law attorneys can meld traditional Medicaid planning with the new Partnership Program to dramatically limit the financial upheaval previously attendant to nearly all long term care planning
New Jersey’s Partnership Program has its roots in the innovative public-private cost sharing model (“RWJ Model”) that the Robert Wood Johnson Foundation proposed in 1987 to defray pressure on Medicaid. The RWJ Model encourages people to buy long term care insurance while healthy by allowing participants who later need long term care to retain extra savings and still qualify for Medicaid to fund costs beyond the insurance coverage. Thus, Medicaid might pay long term care costs for an RWJ Model participant with $350,000 in savings whereas his non-participating neighbor couldn’t obtain Medicaid with a mere fraction of that amount.
While the RWJ Model is a logical means to convince the public to fund some long term care through insurance instead of strained public coffers, Congress apparently found the cost too high. Thus, the Omnibus Budget Reconciliation Act of 1993 limited the RWJ Model to the four states then participating- California, Connecticut, Indiana, and New York. Twelve years later Congress changed their minds and the Act authorized other states to establish RWJ Model programs. New Jersey is now taking advantage of this new opportunity.
In Bulletin 08-05, the New Jersey Department of Banking and Insurance announced that New Jersey’s own Partnership Program would take effect July 1, 2008. New Jersey’s Partnership Program implements the RWJ Model by enhancing the Medicaid asset allowance for purchasers of qualifying long term care insurance. In exchange for paying some insurance premiums, families can be certain to protect substantial savings from being ravaged by long term care costs.
To see how elder law attorneys can offer families more savings and greater flexibility by joining the Partnership Program with traditional Medicaid planning, let’s contrast two couples with nice homes and several hundred thousand dollars in savings and investments. Couple one waits to protect assets until husband has a stroke that necessitates long term care. In contrast, the second couple purchases $300,000 Partnership Program qualifying long term care insurance before husband suffers his stroke.
Both couples can keep a primary residence, vehicle, and about $100,000 in savings and engage in traditional planning as outlined above to obtain Medicaid and preserve a substantial share of excess countable assets within the family. However, Medicaid accords participants in the Partnership Program an additional asset allowance. Medicaid authorities have not yet spelled out Partnership Program details, but it appears that husband’s $300,000 in Partnership Program qualifying long term care insurance would permit couple 2 to retain an extra $300,000 when husband’s Medicaid starts.
Medicaid planning should permit both families to shelter significant amounts, but when husband begins Medicaid, wife one may keep only about $100,000 in liquid assets, whereas her counterpart may access $400,000. (As explained above, this $400,000 estimate could change when Program details are issued.) In addition, because husband’s policy also will cover his first $300,000 in long term care costs, our second couple can consider gift planning (despite Medicaid lookback penalties) and other options that may prove out of reach for the first family. Thus, coupling traditional Medicaid planning techniques with the Partnership Program’s long term care insurance benefit offers families greater flexibility and permits them to retain more liquid assets. This can protect the lion’s share of savings and make the difference between wife struggling to pay bills or maintaining a decent lifestyle while husband is in long term care.
The Partnership Program can dramatically increase flexibility and potential savings for many New Jersey families. However, not everyone should rush out and buy a Partnership Program policy. Families in certain less common situations may be able to realize similar savings without insurance. Also, even ideal candidates for the Partnership Program can benefit from an elder law attorney’s guidance on how much insurance to buy and which options to consider.
Elder law attorneys usually can help persons needing long term care realize significant savings even in crisis mode, although greater savings may be realized when planning starts earlier. Planning ahead with New Jersey’s new Partnership Program can offer families a welcome opportunity to tame long term care costs, but with all Medicaid planning techniques, expert guidance is essential to enjoy maximum benefit.
Lawrence A. Friedman, a former chair of the New Jersey State Bar Association Elder & Disabilities Law Section, has been Certified as an Elder Law Attorney by the A.B.A. approved National Elder Law Foundation and moderates ICLE’s annual Sophisticated Elder Law Concepts program. Friedman received the NJSBA’s Distinguished Legislative Service Award for elder and disabilities legislation and received his LL.M. in Taxation and J.D. from New York University School of Law. He practices elder, special needs, estate planning, and tax law in Bridgewater, New Jersey.