PUBLISHED WED, JAN
26 20228:00 AM EST Sarah O’Brien@SARAHTGOBRIEN
KEY POINTS
·
Medicare generally
doesn’t cover long-term care.
·
The median monthly
cost of a private room at a nursing home is more than $8,800.
·
Medicaid steps in to
help with that expense for people with limited assets and income.
·
For couples who face
depleting their own assets, using a Medicaid-compliant annuity could be a way
to preserve assets and still qualify for Medicaid.
t’s
not uncommon for older couples to reach a point when nursing home care is
needed for one spouse — and the cost isn’t something they were prepared for.
Generally
speaking, Medicare doesn’t cover such long-term care. While Medicaid steps in
when a person’s financial resources are minimal, some couples face the
possibility of depleting their own assets to pay for nursing home care — which is roughly $8,821 monthly,
or nearly $106,000 a year — and leaving the healthy spouse in a precarious
financial situation.
“They
realize they’re in a tough position because they have extra cash that will
prevent them from qualifying for Medicaid initially,” said certified financial
planner and CPA Jeffrey Levine, chief planning officer at Buckingham Wealth
Partners in Garden City, New York.
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“So
the question is what can they do to preserve the value of those assets,” Levine
said.
While
some couples “spend down” their assets — paying off debt or making purchases
that won’t inhibit their Medicaid eligibility — in order to qualify, another
option may be purchasing what’s called a Medicaid annuity.
This
strategy basically allows you to convert countable assets (for Medicaid
eligibility purposes) into an income stream for the healthy spouse — and not
have it factor into the calculation.
A lot of times these are used as crisis planning tools.
Jeffrey Levine Chief Planning Officer At Buckingham Wealth
Partners
However,
there are lots of details to know before running out to purchase an annuity for
this purpose. And, its usefulness may be limited to a situation with no better
alternatives.
“A
lot of times these are used as crisis planning tools,” Levine said. “It’s not a
great option, but may be the best of a series of bad options.”
What to know
When
you apply to have Medicaid cover the cost of institutional care, the program
takes a snapshot of your assets to determine eligibility.
“Assets
are generally viewed jointly, even if they are in your spouse’s name, not
yours,” Levine said.
The
specific limits on those assets (including cash, investments, bank accounts and
the like) depend on the state, yet can be as low as $2,000 for an
individual.
For
married couples, though, many states allow the healthy spouse to maintain up to
$137,400 in assets (i.e., cash, investments, bank accounts) that don’t count
toward the eligibility calculation (some states have lower limits). Anything
above that threshold generally is considered available to pay for the other
spouse’s care.
Medicaid
also has a five-year “look-back” period in most states, which means the program
reviews the previous five years to ensure assets weren’t simply transferred to
family members solely so the person can qualify for Medicaid.
An
individual’s income matters as well. Many states have a $2,523 limit, although
some are lower. On the other hand, the healthy spouse’s income generally is not
counted.
That’s
where a Medicaid annuity comes into play. Say a couple has $100,000 above their
state’s asset cap. They would purchase an annuity with it that’s payable to the
healthy spouse, based on their own life expectancy.
he
annuity must meet some requirements to be compliant, including: the state
generally must be named as the remainder beneficiary for at least the amount
that Medicaid paid for the ill spouse’s nursing home care. It also must be an
immediate annuity (it begins paying the income stream right away instead of
being deferred) and be irrevocable.
If
there’s a chance a Medicaid annuity could be useful in your situation, it’s
wise to get guidance from a local attorney who specializes in elder law and
knows your state’s laws regarding this strategy — there may be states where it
won’t work.
And,
Levine said, be sure to look into other options, as well.
“There
could be programs in your state that are better,” he said. “In some states, you
can just say you’re not using your assets to pay for your spouse’s care ... or
you can petition the state for a larger [asset] limit.”
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