According to the Genworth Cost of Care Survey 2018, the median annual cost of a private room in a Pennsylvania nursing home is $121,363 — well above the national median of $100,375.
The high cost of long-term care presents a threat to the savings and personal assets of all but the most affluent Pennsylvania households.
According to the Genworth Cost of Care Survey 2018, the median annual cost of a private room in a Pennsylvania nursing home is $121,363 — well above the national median of $100,375. Because Medicare does not pay for nursing home care except for limited circumstances (Medicare pays for up to 100 days of nursing home care if the beneficiary requires skilled nursing services or rehabilitation and had a qualifying 3-day prior hospital stay), payment for long-term care expenses must come from personal financial assets, private long-term care insurance or Medicaid.
People planning to pay privately for their nursing home care can expect to see their assets diminished by at least $100,000 for each year they spend in long-term care. Private payment for long-term nursing care is not without financial risk. Private rates are higher than Medicaid rates. Patients who exhaust their savings paying for long-term care risk eviction and lawsuits from nursing home operators, and the prospect of a poorly timed application for Medicaid under less-than-ideal circumstances.
Private long-term care insurance is another option for people desiring to protect financial assets while still guaranteeing payment of long-term nursing home expenses if necessary.
AARP estimates just 7.2 million Americans have long-term care insurance policies. With annual premiums averaging $2,700, long-term care policies are prohibitively expensive for many, particularly for those who purchase policies later in life.
Initial premiums rise steeply as beneficiaries approach retirement age. Nevertheless, for people in their 40s or 50s, the purchase of long-term care insurance may be worthwhile.
The third way to pay for long-term care is Medicaid. Medicaid finances nearly one-third of all nursing home costs in the United States.
In 2015, the Medicaid program spent $55 billion on long-term care. In Pennsylvania, 63 percent of all nursing home residents receive Medicaid assistance, according to statistics compiled by the Kaiser Family Foundation.
Unfortunately, Medicaid is a need-based program with strict eligibility requirements. The Medicaid program, which is operated jointly by the federal and Pennsylvania governments, is restricted to people whose assets and income fall below statutorily defined thresholds.
Medicaid Asset Limits
In Pennsylvania, the resource limit for Medicaid eligibility depends on the specific Medicaid program, but for nursing home care is either $2400 or $8000 depending upon the applicant’s income level. In the case of a married individual who is going into a long-term care facility, the assets of both spouses are considered in determining eligibility. The individual in the nursing home can keep between $2400 and $8000. The individual’s spouse is entitled to a resource allowance which is the lesser of half the available resources or $126,420, a maximum number that is adjusted annually.
Some assets are exempt from Medicaid eligibility calculations. These include:
- A family home with up to $585,000 in equity if the Medicaid applicant is planning to return to the home, or it a spouse, child (under age 21) or disabled person is living in the home;
- retirement accounts of the spouse in the community;
- one automobile;
- an irrevocable burial trust;
- furniture, clothing, jewelry and other non-sellable personal items; and
- life insurance policies that have no cash value.
It is important to note that selling an exempt asset — a family home, for example — will in most cases convert it to a non-exempt asset for Medicaid eligibility purposes.
Medicaid Income Limits
In 2019, the income limit for Medicaid eligibility for home and community based services is $2,313 per month. The income limit for nursing facility care is more complicated and takes into account gross income and unreimbursed medical expenses. The following types of income are included in the eligibility determination:
- Federal taxable wages and tips
- Self-employment income
- Unemployment compensation
- Social Security (disability and retirement)
- Retirement and pension income
- Investment income
- Rental income
There are a number of exclusions from income, including but not limited to the Veteran’s Aid and Attendance pension benefit.
With Medicaid’s asset and income restrictions in mind, there is one final — and critical consideration for people seeking Medicaid financing of long-term nursing home care: the five-year “look-back” period. In order to prevent people from giving away their assets in order to qualify for Medicaid, the government will examine all financial transactions made by the applicant during the five-year period preceding the filing of the application for Medicaid.
Asset Transfer Penalties
The Medicaid program will impose a penalty for most asset transfers within the five-year look-back period if the Medicaid applicant — or spouse — did not receive fair market value for the asset. This includes transfer of the home or other property for less than fair market value. Transferring a home to children for $1 is a gift for less than fair market value.
Most gifts made within the five-year period immediately preceding the Medicaid application will result in a period of ineligibility for benefits based on the number of days the gifted funds would have covered care in the nursing home based on the average cost of care in the state. Some transfers are exempt from the penalty period, so it is important to review each individual situation carefully. Nursing homes can sue children, based on filial support laws in Pennsylvania, when Medicaid benefits are denied and there is an unpaid bill. When transfers for less than fair consideration have been made, it is vital to seek the advice of an experienced elder law attorney before submitting any application for benefits to ensure the whole family is as protected as possible.
The best strategy for asset protection will depend on a person’s marital status, family circumstances, health, financial condition and whether the person is facing an immediate, long-term nursing home stay or is merely planning for that possibility at some future date. In all situations, it is important to have a carefully drafted power of attorney document.
In addition to routine financial decision-making powers, if the individual wants their agent to be able to take steps to protect assets in the event of long-term care, the power of attorney document must include specific powers authorizing the agent to engage in this type of planning.
Some planning alternatives that may be appropriate, depending upon the circumstances, are:
An irrevocable trust is one that cannot be modified or terminated without the agreement of the beneficiaries. Trusts designed to aid in Medicaid eligibility are often called “Medicaid trusts” or “asset protection trusts.” Because the grantor no longer has control over assets in the trust, these assets no longer count for Medicaid eligibility purposes. Trusts are preferable to outright transfers of assets because the grantor can specify conditions on the use of trust assets during their lifetime. Assets acquired via a trust receive favorable tax treatment for beneficiaries such as preserving a stepped-up cost basis for assets that have appreciated in value, and assets held in trust are protected from the claims of creditors.
Purchasing exempt assets
Non-exempt assets such as cash in bank accounts may be used to purchase an exempt asset (for example, a new automobile) and for making improvements and/or repairs to the family home.
Paying bills and pre-paying taxes
Non-exempt assets may also be used to pay outstanding bills and credit card debts. Medicaid applicants may also spend down non-exempt funds by prepaying real estate taxes and insurance.
Payments to caregivers
Payments to family caregivers are allowable if the payments represent fair consideration for the services provided and if done pursuant to the terms of a valid contract. Such payments are income for the family member and must be treated as such for purposes of income tax filings.
Immediate annuities that meet specific requirements may be useful in protecting assets for families. Done incorrectly, they could create a harmful pitfall in the planning process. Incorporating an annuity in planning must be done carefully, but can have significant protections for family members. Missteps in planning can result in costly mistakes.