Over the last several years, I have found that many of our clients are particularly concerned with their ability to pay for nursing home care if circumstances warrant their confinement to a skilled nursing facility. Couples worry that their homes may be sold out from under them or that one of them will become impoverished because of the cost of the care for the incapacitated spouse.
The intent of the law has always been to provide care to those who are in need, regardless of their ability to pay for it, and not to impoverish anyone. But because we are living longer (though not necessarily better), the resources available for payment of our care are becoming increasingly strained. Since 1965, medical assistance (Medicaid) has been available to those who are 65 years or older, disabled or blind to pay for skilled nursing care, if the individual is financially eligible. Over the years, Congress and economics have changed who is financially eligible. The most recent change occurred on February 8, 2006.
How Does The Law Impact You?
Let’s talk for a moment about a fictitious couple, John and Katie Elder. This Latrobe couple has been married for fifty years. They have four children. Their assets are as follows:
Both spouses have Social Security income (John at $950/month and Katie at $500/month) and John has his monthly pension of $900 from Timken Co. Of course, they do not have any debt!!!
John Elder is now 79 years old. He has suffered a stroke and is being treated at Latrobe Hospital. The doctors have informed Katie that John will need to be discharged to a skilled nursing facility.
Since John has been in the hospital longer than three days, Medicare (not Medicaid) will pay for his nursing home stay for the first twenty days. It may also pay a small portion of the care for the next eighty days of care. After that, Katie has to figure out how to pay for John’s continued care in a skilled facility which now costs an average of $6,062 per month. From this example, it is easy to see that John and Katie’s monthly income ($2350) is insufficient to pay for this care. Their assets are going to have to be utilized to make up the difference, unless they had previously purchased long term care insurance to help defray these expenses (they did NOT). Beyond that, Katie is going to need help through the Medicaid program.
What Issues Does Katie Face In Qualifying John For Medicaid Relief?
First issue: The couple’s home. In most circumstances, the family home is a protected asset between spouses. The February 2006 Medicaid law change permits Katie to keep her home as long as it has less than $500,000 in equity value. She may also keep its furnishings and equipment as well as her personal items such as jewelry.
Second issue: the Buick. Katie may keep the Buick. One vehicle of any value is excluded from consideration.
Third issue: PNC accounts of $150,000, stock value of $6,000 and life insurance cash value of $20,000. Under the regulations, Katie cannot keep all of these resources and still qualify John for medical assistance. Of the total assets of $176,000, the rules generally permit Katie to retain approximately 50% ($88,000) for her own use, while committing the other half to the cost of John’s care.
But let’s not stop the analysis here – let’s dig a little deeper. In reality, John will be permitted to maintain his own bank account with a minimum of $2,400. Both spouses are permitted to purchase their burial plots, grave markers and prepay their funerals. The value of the life insurance policies ($20,000) could easily be committed for that purpose. Katie has always wanted a bathroom on the first floor of the house, and a new roof is in order. Perhaps $25,000 or $30,000 of the PNC accounts could be used for these improvements. Katie could upgrade the 2005 Buick to a 2007 Buick. These are just a few ways to reduce the amount of money that we originally thought would have to be committed to the cost of John’s care.
What About Giving Assets Away?
Under prior law, a planning strategy that had been used successfully was to give a portion of the parties’ assets to their children. There was risk involved in this strategy since once given, assets could not be regained.
Prior to February 8, 2006, the Medicaid rules dictated that Katie would have to disclose any gift transfer that she or John made within the past three years. Once those gifts were totaled, John would be disqualified from receiving Medicaid assistance for a number of months from the time the gifts were made.
Suppose John and Katie give each of their four children $10,000. This gift of $40,000 prevents John from receiving medical assistance for a period of approximately seven months. Under the old rules, this seven-month period began the date the gift was made. The new rules provide that the seven-month period begins to run the day that John actually enters the nursing home. This is a significant change since gifts timely made under the old law might not affect John’s ability to receive Medicaid help.
In 2006, Congress increased the “look back” period on gifting from three years to five years. This period is the time that must pass between the date of the gift and the date of application for medical assistance for nursing home costs. This further complicates the practice of using gifts to children to become Medicaid eligible.
Monthly Income Considerations
If you recall, John receives Social Security and his Timken pension, and Katie receives only her Social Security. What impact does John’s entry into a nursing home have on their income?
Under the new law, Katie would be entitled to keep her $500 per month Social Security check to help her pay her daily living expenses and those associated with the family home. In addition, she can retain a portion of John’s income (approximately $1100).
What happens to this income if John dies? Like many other types of pensions, John’s pension dies with him. Likewise, his Social Security benefits cease. Katie will receive an increased Social Security benefit. This scenario is not changed by the new law. However, under the old law, there would have been an opportunity for Katie to legally retain some additional assets when John entered the nursing home. Unfortunately, the opportunity to retain additional assets was stamped out by the February 2006 changes to the law.
Careful examination of financial circumstances is needed to protect the assets and income of the spouse at home while still providing sufficient money for nursing home care for the other spouse. Each family’s case must be individually evaluated to accomplish the best estate plan possible. It is ill-advised to make these decisions in a vacuum. Our office can help you explore the needs, wants, health and financial security of your family, special needs of family members, the value of your assets and other important factors necessary to make proper decisions. (Even your marital status needs to be taken into account-planning alternatives are different for widows and widowers than for married couples.)
An alternative that may be considered is long-term care insurance. Depending on health and age, this planning tool may give peace of mind at a reasonable cost. Also, use of a “reverse mortgage” can help increase monthly income for the spouse who remains at home. If these are not options, then gifting, purchasing certain types of annuities, making home improvements, buying a new car, making burial arrangements and other similar strategies may be better.
As I have said in previous newsletter articles, there is no substitute for good planning. Please view the law, even the recent changes, as a planning opportunity, not a planning roadblock. I hope you will contact me with your questions and concerns.
Social Security & Workers’ Compensation — Can I Receive Both?
By Barbara J. Artuso, Esq. and A. Tereasa Rerko, Esq.
If you’re receiving workers’ compensation benefits, it may seem that filing for Social Security Disability benefits is unnecessary. Nothing could be further from the truth. For someone who may not work for at least a year, there are significant reasons to consider filing for Social Security Disability benefits, even before workers’ compensation benefits end.
Social Security Disability benefits are insurance benefits, so eligibility for receiving them has a time limit. Generally speaking, you must prove you are disabled within five years of ending your employment. For example, someone who is injured in 2001, and stops working for wages that year, must usually establish disability by some time in 2006. Waiting until the workers’ compensation claim is resolved in 2008 will make it more difficult to obtain the medical evidence and testimony necessary to establish disability before 2006. Therefore, if you expect to be out of work for more than a year due to your disability, consider filing for Social Security Disability benefits as soon as you stop working.
Another reason to apply for Social Security Disability benefits at that time is to protect your Social Security retirement benefits. Payroll taxes support the payment of Social Security Disability benefits, and payment of these taxes ends when you stop working. This means that if you leave the workforce before age 62, your retirement account will show a number of years of “zero” income. However, when you are declared disabled by the Social Security Administration, your retirement account is not affected by those years of zero income because your earnings record is “frozen” by your receipt of Social Security Disability benefits.
Additionally, if you are awarded Social Security Disability benefits, you become entitled to Medicare two years after you begin receiving those benefits. Even while receiving workers’ compensation payments, Medicare eligibility can provide access to valuable medical insurance and prescription benefits for non-work-related conditions.
Finally, an award of Social Security Disability benefits can provide you with income protection if your workers’ compensation benefits are terminated. Also, an award of Social Security Disability benefits gives you the opportunity to resolve your workers’ compensation claim for a lump sum, knowing that you have another source of income.
Contrary to what you may have been told, it is a good idea to explore the possibility of filing for Social Security Disability benefits as soon as you leave the job market due to illness or injury. Contact us to discuss your specific situation.
Home Loan Help For The Disabled
By Barbara J. Artuso, Esq.
Disability is often a major roadblock to owning a home. The expenses associated with a disability, coupled with a lack of income, can exhaust savings put aside for a down payment on a home. Sometimes, lenders deny mortgages to the disabled because of limited income and large medical expenses. The good news is that there are lenders and nonprofit groups who can help.
Fannie Mae, a quasi-government corporation, supports the largest and most comprehensive nationwide loan program designed for borrowers with disabilities. Through traditional lenders, Fannie Mae’s Community HomeChoice program provides assistance to low and moderate income people with disabilities, and also to their able-bodied caregivers. Eligible borrowers do not have to meet the more rigorous down payment and income standards imposed on traditional buyers. To find a lender near you who makes HomeChoice loans, go to www.fanniemae.com or call 1-800-732-6643.
Another resource helping the disabled buy or refinance homes is the U.S. Department of Housing and Urban Development. For details, visit www.hud.gov/groups/disabilities.cfm or contact your regional HUD office (listed under the “Federal Government” heading of the local phone book).
When Social Security Sends You To “Their” Doctor
By Barbara J. Artuso, Esq. and Brian Patrick Bronson, Esq.
When applying for Social Security Disability benefits, the Social Security Administration sometimes sends you to one of “their” doctors. What does this mean?
When you make an application for benefits, your application is assigned to an adjudicator for evaluation. There are specific rules and regulations that the administration uses in deciding whether or not to have a claimant evaluated. Generally speaking, if the adjudicator reviewing your claim feels as if there is enough evidence provided by the doctors who treat you, an examination will not be necessary. If your adjudicator feels your medical information is insufficient, an examination will be scheduled with a physician selected by the Social Security Administration. Benefits may be awarded whether or not you are scheduled for one of these examinations.
How does the Administration choose which doctor performs your examination? Doctors apply to be on the list of physicians who see disability claimants, and the doctor who is chosen from the list to evaluate you depends on geographical considerations and what medical information the administration is seeking.
The doctor who is examining you is paid a relatively small sum by the Social Security Administration to provide medical information about you. The doctor may or may not give you a thorough examination, spend much time with you or be sympathetic to your circumstances. You will probably not receive any treatment recommendations; this examination is merely designed to provide information to the Social Security Administration.
Keep in mind that this physician does not tell the Social Security Administration whether or not to pay your claim and has no idea whether your application will be granted. The rules regarding payment of disability claims are complex and involve issues in addition to your health. Therefore, do not be encouraged or discouraged by anything that the doctor says about your likelihood of getting benefits, since his evaluation is just one of the steps in the process.
An examination ordered by the Social Security Administration can often provide additional evidence in support of a claim. However, it is not the only medical evidence used to reach a decision. Based on my experience, this step in the process should not cause additional anxiety. As always, we are available to discuss any questions or concerns about your application for Social Security Disability benefits.