Basic Estate Planning: The Nursing Home Dilemma

Fact Sheet 10
EP-10
Community Development
Date: 
07/06/2012
James C. Skeeles, Ph.D., Extension Educator Emeritus in Agriculture and Natural Resources and Community Development, skeeles.1@osu.edu
Chris Bruynis, Ph.D., Assistant Professor and Extension Educator in Agriculture and Natural Resources, bruynis.1@osu.edu
Russell N. Cunningham, Attorney and OSBA Certified Specialist in Estate Planning, Trusts, and Probate Law, Barrett, Easterday, Cunningham & Eselgroth, LLP, rcunningham@ohiocounsel.com

This fact sheet has an additional reference that can be ordered at no cost. The Ohio Shopper's Guide to Long-Term Care Insurance is an excellent bulletin produced by The Ohio Department of Insurance. A copy can be obtained free of charge by calling 1-800-686-1526 or 1-800-686-1578. The Ohio Department of Insurance also has additional free consumer guides on automobile and home insurance, and numerous other insurance publications that you can also order by calling the above toll-free number.

The nursing home dilemma is of concern to all, but not totally different from other concerns. For instance, we are concerned about being sued because we might be liable for damages we cause in an automobile accident. Thus, most buy automobile liability insurance. We are also concerned about being disabled, loss of income, etc., but might or might not have insurance to cover those risks. Following are some things to consider concerning the nursing home dilemma and whether you should purchase long-term care insurance (nursing home insurance).

Medicaid and Medicare

Medicare pays about 10% of nursing home bills. In order for Medicare to provide coverage, you must be discharged directly from a hospital to a nursing home, and you must require skilled nursing care and show continued improvement to justify the skilled care. Even if you qualify for Medicare, Medicare pays the whole bill for 20 days and will pay the partial bill for generally no more than another 80 days.

Regrettably, personal savings and assets pay 40% and Medicaid (not Medicare) pays half of nursing home bills. Personal savings and assets are depleted, then Medicaid takes over. Therefore, at the end of their stay, nearly two-thirds of nursing home patients have essentially no assets and are on Medicaid.

Medicaid eligibility requires a combination of low income and very low assets. You can't make much or own much. To qualify for Medicaid for nursing home coverage, you must be older than 65 or disabled, and you must have low income and low assets or resources.

Medicaid Income Limits

Let's consider first the income limitation. In general, to qualify for full Medicaid coverage, one must have monthly income less than $718 if single or $1068 for a couple, not including medical insurance. If you are single and in a nursing home, all but $40 of unearned monthly income (except dollars used for medical insurance and other medical costs not covered by insurance, such as deductibles, copayments, and past medical bills) must be used to pay the nursing home bill. Anything over $40 per month must be used to pay nursing home, medical, or prescription expenses. If income is earned, a tad above $100 per month (plus dollars used for medical insurance) can be retained by a nursing home resident.

If married and one spouse is in a nursing home, Medicaid calls that spouse the "institutionalized spouse," and the spouse at home is called the "community spouse." If, and only if, the couple meets Medicaid's income and resource limits for a couple, the spouse in the nursing home is eligible for benefits. Once one qualifies for Medicaid, Medicaid allows the institutionalized spouse to keep only $40 per month (plus dollars used for medical insurance). However, the community spouse can keep his or her income. The community spouse might also be able to keep all or a portion of the institutionalized spouse's income, depending on the income of both spouses and the household expenses. However, the amount of the institutionalized spouse's gross income that can go to the community spouse is $2,841. The balance of the institutionalized spouse's income goes to pay nursing home bills and medical insurance. Medicaid then pays the rest of the nursing home bill. The County Department of Human Services determines the eligibility and income to be kept by each spouse on an individual basis.

Medicaid Asset or Resource Limits

If you are single and in a nursing home, all but $1,500 of counted or nonexempt resources or assets must be used to pay nursing home bills. Your vacant home is safe for six months, only if Human Services determines there is a chance that you will be able to return home after the nursing home stay. If Medicaid pays your nursing home bill and you are not been able to return to your home for six months, you might have to sell the house and use the proceeds to pay the nursing home bill. The same could happen sooner if Human Services decides you will never be able to return to your home.

If married, the couple can have $2,250 in combined, counted, or nonexempt assets in community property. If both are in a nursing home, each can have $1,500 in counted assets that are not exempt. All other counted assets must be used to 1) pay the bills that Medicaid would otherwise cover or 2) spend in other permitted ways such as prepaying funeral expenses. As with a single person, a couple's home is safe for six months as long as it is possible that at least one of the couple will return to the home.

If married and only one spouse is in the nursing home or applying for Medicaid coverage, a resource assessment is done by the County Department of Job and Family Services when the application is made. The assessment will tell the couple the amount of resources the couple can keep. Special rules apply for the treatment of resources when only one spouse enters a nursing home. All resources or assets are combined for the couple, regardless of ownership. In addition to the assets not counted (see below), the couple with one spouse in the nursing home can keep in entirety $22,728 of additional assets in 2012. The community spouse can keep a maximum of half of the assets valued between $22,728 and $113,640. All asset values of more than nearly $113,640 and the institutionalized spouse's half would then have to be liquidated and spent before becoming eligible for Medicaid. Historically, these asset limits are increased every year.

The following assets are not counted, so they are not figured into the above calculations. These assets can be retained (in addition to the above) by the community spouse: 1) the home; 2) the car, if it is a) the community spouse's, b) equipped for a disabled person, c) used for employment, or d) if it is valued at $4,500 or less; 3) wedding rings; 4) furniture; 5) certain other assets exempted by Medicaid.

However, if Medicaid pays your bills and you have the uncounted assets stated above, Medicaid can recover those bills up to the value of the remaining uncounted assets. The bills can be recovered in two ways. First, if your spouse or dependent children are not living in the home after Medicaid has paid for nursing home bills for six months or they determine you will not be able to return to your home, the uncounted or protected assets can be sold for the cash needed to pay the nursing home bills. Second, Medicaid's estate recovery program would have a claim against the proceeds of your estate for any expenses Medicaid paid for those 55 or older. Assets in an estate, such as a home, might have to be liquidated to cover the Medicaid claim.

That means your home is protected only for the use of you, your spouse, or your dependents. Your home is not protected from Medicaid for the purpose of passing it to heirs who are not dependents. It is protected for you or your spouse only as long as either of you lives there, and/or for dependents only as long as they are dependents and live there. If your home is vacant, it is protected for only 6 months and only if it will be possible for you to return to it.

Unless your heirs can persuade probate court that Medicaid recovery would work an undue hardship on them, Medicaid will have a claim against your estate when you and your spouse have both died and all taxes, funeral expenses, and other estate settlement costs have been paid. For example, if your estate were a family business (farm) and Medicaid recovery would put the survivors out of work, or if the survivors are disabled or minors, assets might be passed on to heirs.

A prior loophole was closed on June 30, 2005, as part of the state budget bill. Previously, if a married couple owned property (real estate, bank accounts, or other assets) in a form that avoided probate, such as joint tenants with right of survivorship (JTRS), the property passed directly to the person with survivorship rights. However, the change in the law now expands estate recovery to . . .

Then comes the question, can I qualify for Medicaid if I put my assets into a trust where they are not available for my care, or can I give my assets to my children? Maybe, but the action must have been done a significant amount of time before applying for Medicaid. If gifts were made too close to making application, Medicaid considers a portion of the assets gifted to be available and requires spend down of that portion of gifts before making Medicaid payment. As a result of a change in the law on February 8, 2006, gifts must be made 60 months before Medicaid application to avert a portion being required to be spent down. Any gifts made during this lookback period create a period of disqualification that begins at the date of application under the new law. Under the old law, the disqualification began at the time of gift. Therefore, it might be even more important for the application for Medicaid to occur 5 years after property is given away.

The terms of the trust will also make a difference for Medicaid eligibility. This is an area that changes often. The new estate recovery applies to life estates and living trusts. As such, it is easy to see that the state is trying to go after any retained interest in the trust. Ohio's new Trust Code that took effect on January 1, 2007 also contains an exception for the State of Ohio to potential y reach the interests of beneficiaries. However, a wholly discretionary trust cannot be considered as an available resource. Ohio has also become more aggressive at putting liens on property. A number of issues are being addressed in court.

Because the rules are getting more and more restrictive, you should plan well before requiring Medicaid benefits. As the proportion of the state's budget spent on Medicaid continues to increase, the State of Ohio will likely become more aggressive in its Medicaid recovery planning.

More on Medicare

Medicaid pays half of nursing home bills while Medicare pays 10% of the total United States nursing home bill. This is the case because Medicare pays only when these very strict conditions are met:

  1. You are hospitalized for at least four days in a row (counting the day of discharge).
  2. Your doctor has ordered daily skilled care.
  3. You enter a Medicare-approved skilled nursing home within 30 days of leaving the hospital.
  4. You are admitted to the nursing home for the same thing for which you were in the hospital.
  5. You require daily skilled care that can only be provided in a skilled nursing home facility.
  6. You continue to make progress and respond to skilled care.

If you do qualify for Medicare, it will pay for 100 days of nursing home care. Medicare will pay the total bill for the first 20 days of care. For the next 80 days, you pay up to the first $144.50 per day and Medicare pays the rest.

You or your insurance pay the total bill after 100 days. Medicare generally fully covers medically necessary home health visits if you are homebound and if the visits are part-time or intermittent skilled nursing services. However, full-time nursing care at home is not covered, nor are drugs or meals delivered to the home. You pay 20% of medical equipment costs, as well as personal care and housekeeping when cared for at home.

Those certified as terminally ill are eligible for hospice benefits from Medicare. In general, hospice services provided in your home are fully covered, except for needed drugs. If medical care is needed, but not for a condition related to the terminal illness, regular Medicare benefits are available.

Several words of caution are in order. First, the summaries of Medicaid and Medicare above are only that. Medicaid and Medicare are much more complicated than indicated above. Second, Medicare will be further discussed in the next fact sheet in this series. For more details contact your County Department of Job and Family Services or call the Ohio Medicaid Consumer Hotline (1-800-324-8680).

Some who qualify for Medicaid plan to protect their assets by giving or by putting the assets into a trust before any potential nursing home stay. Some plan to do this through a special kind of trust where they lose total control over the funds, and some do this by outright gift. However, these transfers need to be made at least five years before application, and recent law changes in Ohio have made this very difficult. Also, gifting might eliminate the benefit of stepped up basis. Before implementing such a strategy, obtain the advice and council of a competent attorney. Also, call 1-800-282-1206 to get the free brochure Understanding Estate Recovery from the Ohio Department of Aging.

Should You Buy Insurance to Protect Your Assets from Nursing Home Bills?

The cost of nursing home insurance is substantial, but it is one tool for protecting your assets from nursing home bills. The range of monthly premiums for nursing home coverage in 2012 was as follows. However, this is for two-year policies paying $6,000/month for a married couple with a 90-day elimination period (days in nursing home before coverage begins) and no pre-existing conditions but with home, day, assisted living, and caregiver benefits. This level of coverage would be enough to pay the average nursing home cost of $200/day, but certain facilities might exceed this coverage level.

Purchase Age                                   Cost/Person/Month with inflation protection
      55                                                                               80–105
      65                                                                             140–215
      75                                                                             380–475

Of course, premium costs will continue to increase with time. The rates are lower for those who purchase at a younger age. This is true because the younger the purchaser, the more money the insurance company will likely receive before the nursing home expenses begin.

When considering the nursing home insurance dilemma, one needs to consider the cost of nursing home insurance and its possible benefits. When looking at money considerations only, the less your assets the less nursing home insurance is likely to benefit you and your heirs. There is less money to be lost from paying nursing home bills before Medicaid takes over.

So how do you decide if you should purchase long-term care insurance? Many financial advisors don't recommend long-term care insurance unless the following are true:

• You have assets of at least $75,000 not including your house or car.

• You have retirement income of $25,000–$35,000 for an individual or $35,000–$50,000 for a couple.

—AND—

• You are able to pay premiums without difficulty,

• You have heirs to whom you wish to leave a significant inheritance.

—OR—

• Long-term health insurance will significantly increase your peace of mind.

How do financial advisors arrive at the above figures? First, there is a 52% chance of going into a nursing home for a woman but only a 33% chance for a man. So half of women but only one-third of men will get payment from nursing home insurance if they have the insurance when they enter the nursing home, and even then, they have to stay in the nursing home long enough to receive payment. Half of women and two-thirds of men will never get payment from nursing home insurance.

Table 1 outlines your odds of various lengths of nursing home stays and the approximate accompanying costs.

Table 1
Odds of Being in Nursing Home Women (Men) Length of Stay Approximate Cost for a Private Room at $180/day
52% (33%) - 0 -  - 0 -
 33% (22%) 3 months or less $18,000 or less
7% (5%) 6 months to 1 year $36,500 to $73,000
5% (3%) As long as 3 years $219,000 for 3 years

Odds are that those who purchase nursing home insurance will not get back the money they paid in, but those same odds are true with any insurance. However, those who end up staying in a nursing home long-term will likely use up all their assets to pay for the nursing home bill. Forty percent (40%) of nursing home bills are paid by individuals, 40% by Medicaid, nearly 20% by Medicare, but only about 1% by insurance.

So how much does nursing home care cost? A 2012 Genworth Financial survey found the following costs:

• $73,000/year ($200/day) for a semi-private nursing home room (add $8,225 for private)

• $44,550/year ($122/day) for a private, one bedroom assisted living facility

• $43,197/year ($831/week) for a Medicarecertified 44-hour/week home health aide

• $42,328/year ($814/week) for 5 days/week homemaker services

Many people spend down to Medicaid eligibility. This means they pay their own bills until they run out of money, then Medicaid begins paying their bills. At some point in their stay, almost two-thirds of Ohio's nursing home patients are covered by Medicaid.

A logical way to decide if nursing home or home care insurance should be purchased is to ask your heirs. Since your heirs are the ones who will get the money if not used for nursing or home care bills, they are the best ones to decide.

Ohio also has created a long-term care partnership program that helps to protect additional assets when you purchase new, qualified policies. For example, if you buy a qualified policy and receive $50,000 in benefits under the policy coverage, the Medicaid program will allow you to retain $50,000 of other assets and still apply for Medicaid. Normally, you would be required to spend down the $50,000 before Medicaid would provide any benefits.

Will You Need Long-Term Care and Who Will Pay?

The above are averages. Will you beat them? No one knows. But if your family members have lived long lives, it is likely that you will live a long life as well. The longer you live, the more likely it is that you will need nursing home care. If senility or Alzheimer's runs in your family, it is likely that you will need nursing home care. It is also likely that the care needed will be long-term. If you have had a history of health problems, have been a heavy smoker, have had or currently have high blood pressure or diabetes, or have had other conditions or habits that result in chronic health problems, your chances of being in a nursing home are higher. But if you are and have been healthy, nursing home care is less likely. A nursing home stay is also less likely if relatives or friends are willing and able to care for you if need be.

Shopping for Nursing Home Insurance

If you won't be purchasing nursing home insurance, you can ignore the rest of this fact sheet. If you are interested in nursing home insurance and you attempt to compare policies, you will be confused. But this is the case when attempting to compare any insurance policy. If you choose to shop around, compare policies by using the outline of coverage required to be given to you by each insurance agent with whom you speak.

Also, call the Ohio Department of Insurance at 1-800-686-1526 to request their free Guide to Long-Term Care Insurance. Get this bulletin before you begin shopping and definitely before you purchase a policy. Perhaps the most important features of this bulletin are the charts of premiums and benefits. The charts compare policies that will pay benefits for two or four years. Consumer Reports magazine, available at your local library, also has excellent articles on nursing home insurance. If you are approached by a company not listed in the Guide to Long-Term Care Insurance, call the Ohio Department of Insurance at 1-800-6861526 to see if the company is licensed in Ohio. Or, if you become confused, call the Ohio Senior Health Insurance Information Program (OSHIIP) at 1-800-686-1578 to speak with a counselor.

You should always buy from a reputable company. If you change your mind after purchasing a policy, you have 30 days to get a refund. Never pay for a policy with cash. If a licensed company goes bankrupt, your insurance is protected (up to $100,000 by the Ohio Life and Health Insurance Guaranty Association).

The following is an explanation of some of the features of nursing home insurance.

DAILY BENEFIT: The average cost of nursing home care in Ohio is about $200 per day, so policies should generally provide daily benefits of at least $100 per day.

ELIMINATION DAYS: Elimination days are similar to a deductible in car insurance. The more money you have to pay before your car insurance will pay, the lower the premium. The more days of nursing home stay you have to pay before the insurance pays, the lower your premium for nursing home care or the longer the waiting period before your insurance pays. Most policies in the Guide to Long-Term Care Insurance require you to pay between no days to 100 days before the insurance company pays anything. Assuming a cost in a nursing home of $200 per day, a 20-day waiting period would require you to first pay $4,000 before the insurance would pay. A 60-day waiting period would require you to pay $12,000 before the insurance would take effect, but a 100-day waiting period would require you to pay $20,000 before the insurance would pay anything.

HOME CARE: In addition to nursing home care, some policies offer a home care benefit. This benefit generally requires a higher premium cost. The payment amount for home health care is often only about one-half the amount that the policy pays for nursing home care. Some policies only offer home care benefits and do not offer nursing home care benefits.

INFLATION PROTECTION: Most policies add 5% inflation protection to the daily benefit amount each year. The cost of nursing home care increases at about that rate each year. If the benefit is compounded, it increases more than if simple interest is used to increase the benefit. So a compounded benefit on your policy is better than a simple rate increase. If the policy doesn't increase the benefit but allows you to add to benefits at specified times (GPO or Guaranteed Purchase Option), the premium might be lower at first, but it will likely catch up with the other policies as you add to your daily benefit in the future.

RESPITE: Respite care benefits pay for a temporary substitute if relatives or friends are caring for you at home. Those families who plan to provide the care for their aging members should pay special attention to respite care.

ACCIDENTAL LAPSE PROTECTION: This provision is required in all policies sold in Ohio since 1994. When you buy a policy, you are asked to designate another person who will receive a copy of all cancellation notices. Then, even if the policy is canceled for late payment, you can reinstate it within 5 months, if your doctor certifies that you had mental disability during that time.

Outline of Coverage and Shopping List

To help you compare the provisions of different policies, all long-term care insurance policies in Ohio are required to provide you with an outline of coverage. The first page of the outline must follow a standard format, which is provided to you in the Guide to Long-Term Care Insurance. Again, call 1-800-686-1526 to get this bulletin, as it will most certainly help you compare policies. The bulletin also contains a form to help you compare four different policies. The most important features of policies are listed on this form. If you have trouble using the form, call 1-800-686-1578 to be referred to a counselor.

Ohio Senior Health Insurance Information Program

The Ohio Department of Insurance coordinates a program to personally assist seniors. The Ohio Senior Health Insurance Information Program (OSHIIP), accessed by calling 1-800-686-1578, has volunteer counselors throughout Ohio to help you . . .

1) select an appropriate insurance program.

2) decide if your insurance coverage is adequate.

3) get the benefits to which you are entitled.

4) deal with and make sense of the medical bills and statements you receive.

5) better understand insurance and Medicare/Medicaid.

These fact sheets should in no manner be considered as a replacement for consulting with estate planning professionals, nor should the general principles in these fact sheets be applied to specific situations without consulting with an attorney.


Your Response

Fact Sheet 10

1. Assuming you hit the averages . . .

a. What are your chances of never being in a nursing home? ________________________
b. What are your chances of being in a nursing home? _____________________________
 

2. Assuming you hit the averages . . .

What are your chances of being in a nursing home . . .  
a. 3 months or less?  
b. 6 months to 1 year?  
c. as long as 3 years?  

3. Who pays the nursing home bill in the United States? Assuming all nursing home bills are combined and lumped together, the percent paid by Medicaid and the percent paid by the resident or his or her family are the same. What is that percent?

_____ 10%
_____ 40%
_____ 80%
 

4. Do you plan to investigate nursing home insurance?

Yes _____               No _____

Only you can decide if you need a policy. Only you can decide which policy is best for you. This fact sheet will help you decide whether you should buy a policy. And if you do decide to buy, call the Ohio Department of Insurance at 1-800-686-1526 to request their free Guide to Long-Term Care Insurance. At that number you can also ask to talk to a counselor.


Answers

Fact Sheet 10

1. Assuming you hit the averages . . .

a. What are your chances of never being in a nursing home? 48% for women; 67% for men 
b. What are your chances of being in a nursing home? 52% for women; 33% for men
 

2. Assuming you hit the averages . . .

What are your chances of being in a nursing home . . .  
a. 3 months or less? 33% women, 22% men
b. 6 months to 1 year? 7% women, 5% men
c. as long as 3 years? 5% women, 3% men

Women are more likely to go into a nursing home because they live longer and are more likely to become feeble.

3. Who pays the nursing home bill in the United States? Assuming all nursing home bills are combined and lumped together, the percent paid by Medicaid and the percent paid by the resident or his or her family are the same. What is that percent?

______10%

__X___ 40%  Forty percent of nursing home bills are paid by Medicaid. Two-thirds of those in a nursing home spend down their assets and savings so that Medicaid pays the remainder of their nursing home bill.

______80%

 

4. Do you plan to investigate nursing home insurance? Yes _____ No _____

Only you can decide if you need a policy. Only you can decide which policy is best for you. This fact sheet will help you decide whether you should buy a policy. And if you do decide to buy, call the Ohio Department of Insurance at 1-800-686-1526 to request their free Guide to Long-Term Care Insurance. At that number you can also ask to talk to a counselor.

For those who wish to purchase nursing home insurance, we hope you can afford the policy you desire. If so, you will likely take the next step and begin shopping. We suggest that your shopping start with the Guide to Long-Term Care Insurance.

If you don't wish to purchase nursing home insurance, you are the majority. This is not the end of the world, as most don't and won't have nursing home insurance. Remember that only 1% of nursing home bills are paid by insurance and that the chance of getting any payment from a policy with a 100-day waiting period is 33% for women and 22% for men.

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