LONG TERM CARE

Though he did not elaborate on the topic, C. S. Lewis commented in a letter to a friend that he was having a difficult time in adjusting to the “planned economy” of Great Britain (the letter was penned circa 1930). Today we have taken for granted the “planned economy” in which we live, but we must remember that life has not always been as it is now. Stated differently, and from a historical perspective, every society from the beginning of civilization until now, has fostered some type of government interference with our private lives. Through the annals of time people have always had to bow to the king, whether it be in tilling the soil for him, harvesting crops, raising cattle, being drafted on the spot for naval service, or in paying taxes. In the United States, the “king”, i.e., government, has now made us all a part of an economically planned community.

One attribute of being part of an economically planned community deals with care for the elderly. In times past, pneumonia routinely took the lives of the elderly, and society grieved the loss of its seniors – but prolonging the care of its elders was not a family or government issue. Times are now different. Medical science and pharmaceuticals have thumped life-taking diseases such as pneumonia, and we live longer lives. Because our parents do not want to burden the children with their care, society must now face the question of how best to care for mom and dad, outside the homes of the children. Obviously, nursing homes have become the answer, but the rising costs of such care is out of the reach of most families, so therefore has become a government issue. We are forced to now ask: how, within the confines of an economically planned community, can government deal with the expense of nursing homes?

Though the results were known before the legislation was passed, i.e., economic disaster for the national budget, Congress adopted the Medicaid program during the reign of Lyndon Johnson. This program is administered as part of our tax system, in that a portion of each dollar of wages paid is sent to Washington, D.C., to be used in funding the programs which Medicaid supports. One of those programs is, of course, for paying for the costs of nursing homes. Without being technical, here’s how the system works. Congress sends nationally collected dollars to the states, which are given some freedom in administering the use of those funds. Thus, the Oklahoma Health Authority receives “X” dollars each year, for use in paying for nursing home care. If an aged Oklahoman needs financial assistance to pay for nursing home bills, but has no financial resources, the state will pay for those expenses, using Federal dollars sent to the OHA.

As part of an economically planned community, there is an added cost to be paid: whoever is eligible for these benefits loses their property, which in effect, means the children lose their inheritance. Let’s see how this works.

Not every person who wants the state to pay for the cost of nursing homes is eligible. Each state establishes its own criteria for eligibility, but these are the general rules: a person cannot have too much wealth, nor can a person receive too much income. Unless a person is eligible under both criteria, the state will not pay the nursing home bills.

The local DHS office will provide a list of current eligibility rules (in Tulsa, call 918-428-0307); excerpts from these rules are reproduced at the end of this article. As of July, 2000, the current criteria in Oklahoma are these: a person’s income level cannot exceed $1536 per month, but if the income exceeds that amount, but the income is less than $2500 a month, an exception might be made through the use of a Medicaid Income Trust. Second, a person cannot own property in excess of $2,000 (or $27,000 for a married couple – however, certain property, generally referred to as excluded resources, are not always counted – for example, if the patient has the chance of returning to his or her home, then the home is not counted towards having too much wealth, and can be kept as an exempt asset or excluded resource). After the patient dies, and the assets are being probated, the state will make a claim against the probate estate, and seek reimbursement for every dollar paid for nursing home assistance.

A recent North Dakota case summarizes the process:

“Nathaniel Thompson received medical assistance benefits of $58,237.30 between January 1, 1991 and his death on December 20, 1992. His wife, Victoria Thompson died on September 15, 1995, leaving an estate of $46,507.98 . . . The Department (of Human Services) filed a claim against Victoria Thompson’s estate for $58,237.30 in medical assistance provided to Nathaniel Thompson and $9,356.79 in interest. (In North Dakota), on the death of any recipient of medical assistance who is 55 years of age or older when the recipient received the assistance, and on the death of the spouse of such deceased recipient, the total amount of medical assistance paid on behalf of the recipient following the participants 55th birthday must be allowed as a preferred claim against the decedent’s estate . . . We conclude in consideration of all the relevant statutory provisions, in light of the congressional purpose to provide medical care for the needy, reveals the legislative intention to allow states to trace the assets of recipients of medical assistance and recover the benefits paid when the recipient’s surviving spouse dies.” Estate of Thompson 1998 ND 226, 56NW 2nd 847 (ND1998).

Let me restate the holding of this case. During the time period when the husband was in the nursing home, DHS paid his bills, which totaled $58,237.30. He died. DHS made no claims against his estate (though that was an option available to DHS). His wife, who was never in a nursing home, died 3 years later. DHS made a creditor’s claim against her estate, in the amount of $58,237.30, plus interest. The claim was allowed, and her net estate was used to pay back DHS. Her children received no inheritance.

A similar holding would probably be reached in Oklahoma. Under 58 O.S. §591, Government claims are treated as priority creditor’s claims, and a DHS claim is a government claim. Oklahoma courts would probably follow the same logic the North Carolina Justices used, and permit the claim to be paid.

The question, then, is: How does one plan, within the confines of a “planned economy” for freedom in this part of our lives? Some parents will give all of their property to their children, and hope they never have to ask the state for assistance – if assistance is required, the parents assume DHS will pay for their nursing home bills. In doing such a plan, and from the parents’ perspective, the children will have received their inheritance (before they die), and all’s well that ends well. However, the planners of our economy have considered that technique, and have determined that if such a gift were made to the children, three years before the parents ask for DHS assistance, the value of the gift is to be considered as part of the parents’ assets, even though the parents don’t own the property anymore. In addition, the Federal government and Oklahoma change the rules of the game with some frequency, so that estate planners perceive they are playing Calvin-ball, or are standing by the side of Alice in Wonderland, trying to make sense of what the Queen is saying. In short, the planning of today will not necessary reflect the rules in effect tomorrow.

To compound matters, DHS is forcing couples into the probate arena. If the parents have decided to help their children avoid probate, by placing their property into a revocable trust, then when the parents are deceased, there is no probate estate against which to make a claim. If there is no probate estate, then DHS cannot make a creditor’s claim. Thus, if a parent requests DHS assistance, the parent must take his or her property out of the revocable trust, so that DHS might be in a position to file a creditor’s claim in a probate proceeding, when the parent dies.

Are there any planning alternatives, then, to consider, to escape these traps of a planned economic economy? There is one which, though somewhat expensive, ought to be considered in an estate plan: Long Term Health Care Insurance. Though it is sometimes difficult to find a life insurance agent who is knowledgeable about these products, or who has the desire to sell this type of insurance (the commissions paid are substantially less than commissions paid on other products), there are some agents who are well versed.

Of recent interest, you should be aware that insurance premiums for these products can, under certain instances, be deducted for income tax purposes. Here is some relevant information on the deductibility of premiums (check with your tax advisor for current information and amounts):

For individuals who itemize their deductions (subject to the 7.5% AGI floor):

Under age 40: $220 per individual, $440 per couple
Age 41-50: $410 per individual, $820 per couple
Age 51-60: $820 per individual, $1640 per couple
Age 61-70: $2200 per individual, $4400 per couple
Over age 70: $2750 per individual, $5500 per couple

For self-employed persons (includes sole proprietors, partners, members of most limited liability companies, and more than 2% shareholders of S Corporations) these are pre-tax, above the line dollars:

Under age 40: $220
Age 41-50: $410
Age 51-60: $820
Age 61-70: $2200
Age 71-80: $2750

Employees who are not treated as self-employed persons are entitled to have premiums excluded from their income, if the employer pays for the premium. In that instance, the employer will be entitled to deduct the premium under IRC§162(a).

There are some decisions to be made, however, when you consider this type of insurance. Obviously, no one wants to pay more for this type of insurance than he or she has to pay. So the insurance carriers have given us a series of questions to answer: first, do we want a lifetime benefit, a 5 year benefit, a 3 year benefit, or a 2 year benefit? The longer the coverage, the more expensive the premium. FYI, the average nursing home confinement (before death) for men is 2 years or less, for women, 3 years or less (but don’t rely on these actuarial averages when you are considering insurance benefits). The second question to be answered is, when should insurance coverage begin: Medicare might pay for 20 days of your coverage, or for 100 days – but after that, the patient begins paying for his or her confinement in a nursing home. If a patient has cash resources to pay for the first 100 days (at $100 a day, the total would be $10,000), then the patient should elect a 100 day deductible. If the patient only has $2000 in cash reserves, then the patient would need a 20 day deductible. The premiums charged will be less if a longer waiting period is chosen. And finally, the patient must decide what sort of benefits are to be paid: $50 a day, $75 a day, $100 a day. The lower the amount chosen, the lower the premium.

Most policies should index the daily amount each year for inflation, so if a benefit of $100 a day is selected, and inflation increases 3%, the benefit for the next year will be $103.

The last issues relate to increases in premiums and the market itself. To my knowledge, no insurance company offers a fixed premium policy anymore; each company reserves the right to increase the premiums each year, just as health insurance companies currently do. However, many of the companies are not exercising this option. If lots of claims are made, then premiums will increase each year, but you will have already experienced increases in premiums yourself, for that is part of doing business with an insurance company. In addition, there is a risk an insurance company offering this type of insurance will drop out of the market. If there are too many claims made, the insurance company will simply cancel all existing policies and its insured’s will have to find other carriers, assuming they are still insurable.

In conclusion, let me paraphrase Suze Orman’s philosophy on this topic: long term care insurance ought to be viewed as fire insurance on a home – you hope you will never have to make a claim for a fire loss, just as you hope you will never have to make a claim for long term care. However, this issue ought to be as considered part of an estate plan. I hope this article has given you some useful information. Good luck in your quest to find a good insurance carrier, if you decide that should be part of your overall estate plan.

©2000 James H. Beauchamp

Excerpts from Oklahoma’s DHS Rules (taken verbatim from information furnished by DHS):
DHS Nursing Home Information

EFFECTIVE 01-01-00

The Department of Human Services provides payment for nursing care within the scope of the Medicaid program, on behalf of clients who meet both the financial and medical eligibility requirements for Title XIX.

You must meet both the following criteria:

1. Must be over 65, disabled or blind, as determined by SSA.
2. Require professional nursing supervision and need maximum amount of non-professional nursing care.
3. Can relate to AFDC if there are minor children

Income

$1536/mo For patient in nursing home.

Resources/Assets

$ 2,000 Individual
$27,000 Couple

NOTE: If patient’s income is more than $1535 but less than $2500, please contact the office (428-0307) immediately regarding Medicaid Income Trust.

Medicaid Income Trust

For persons whose income is over $1536 but less than $2500, the person can set up the Medicaid Income Trust. The person elects a trustee; the trustee then pays the client one dollar less than Medicaid’s standard which is currently $1535. From this $1535, the client is allowed $30 per month for personal items while in the nursing home and health insurance premiums. The remainder of the income is his co-payment to nursing home unless he has a spouse in the home; then we may be able to divert all or part of the income to the spouse. The difference between the gross income and $1535 builds up as principal in the trust account. This principal can be used for medical items not covered by Medicaid during his nursing home stay such as eyeglasses, dental, etc. Upon his death, the remainder of the principal diverts to DHS.

This Trust must be set up before patient would be eligible for Medicaid, List the sources of income in the Trust and the amount received monthly, and name and address of financial institution on Schedule A.

TRANSFERS

Look-back period of 36 months, any assets deeded, or gifted to another during this time must be evaluated.

HOME PROPERTY

Depending upon the circumstances of your case, your home may or may not be excluded as a resource

SPOUSAL IMPOVERISHMENT

EFFECTIVE DATE 9-30-89

In accordance with the Medicare Catastrophic Bill, the Oklahoma Department of Human Services has made the following changes in income and resource eligibility for married couples. This change affects married couples when one person enters into a period of nursing care on or after 9-30-89, and the community spouse remains in the family home.

Resource/Assets

The community spouse may keep a minimum of $25,000 of the total assets owned by the married couple. The maximum in protected assets is $84,120. However, the only way we can protect this amount is if the couple had double ($164,240) that amount when one of them enters the nursing home. Assets may include savings, checking accounts, certificates of deposit, trusts, stocks, bonds, mineral rights, property, certain life insurance and burial policies. All protected assets must be placed in community spouse’s name only during the first year. The family home is not considered as an asset as long as the spouse lives in it.

It is important to contact to Department of Human Services when a period of nursing home care starts in order to determine the amount of assets the community spouse may keep and the amount which may be used for the needs of the nursing home patient.

Income:

Maximum income for the nursing care patient is $1536 per month. The community spouse may keep a portion of the married couple’s combined income. The income the community spouse may keep depends upon the amount of income received by each person and cost of monthly insurance premiums. Verification of all income for both is required.

Application process:

It is not necessary to make application for Medicaid prior to placement. You can place the person in the nursing home of your choices long as they accept Medicaid. Upon placement, inform the nursing home that you wish to apply for Medicaid. The nursing home is to send an admit form (ABCDM-83 & 96) and Title XIX Nursing Assessment to our office. If the patient meets both financial and medical eligibility on the date of admittance, Medicaid can start payment as of that date, The application process can take anywhere from 30 to 90 days to complete. In order to speed the process, you need to bring current documentation on all income, resource, property deeds, etc. to the face-to-face interview. If this documentation is not provided at interview, your Medicaid application will be denied. If application is denied and Medicaid is still needed, the above process must be repeated; we can only go back ninety days from date of application to start payment so it is imperative that the information is provided the first time so applicant will not lose any coverage.

Please bring the following Information with you at the Interview:

1. INCOME: All sources of gross Income is counted. Please provide a copy of current check stubs or award letter (Social Security, SSI, Railroad Retirement, *VA, Civil Service, pensions, annuities, dividends, contributions rental Income, etc.).
   
   *If client or spouse served in the military, you must contact Veterans Administration to apply for Aid & Attendance.
   
   NOTE: For those whose income exceed $565 a month, admissions to a nursing home totaling less than thirty (30) consecutive days will not qualify for state assistance. Hospital days are included in the thirty (30) consecutive day requirement.
   
2. Client’s full name.
   
3. Social Security number.
   
4. Medicare card.
   
5. Three (3) recent bank statements on all accounts at any financial institution (checking, savings, CD’s, stocks, bonds, annuities, investments, etc.
   
6. Address, legal description and value of all property that has been sold, deeded, or transferred in the last five (5) years and property currently owned by patient or co-owned.
   
7. Trust – copy of Trust with Schedule A attached and other list of items in Trust and their value.
   
8. Provide all insurance policies (medical, life; burial, etc.).
   
   A. Burial - Is this a revocable or irrevocable contract? If not irrevocable; we can only exempt up to $1500 for burial plan. If irrevocable, we can exempt up to $7500 but we must evaluate face value of burial in conjunction with life insurance policies. There is a thirty (30) day grace period before the irrevocable contract goes into effect.
   
   B. Medical - Provide copy of insurance card and verification of monthly premium - i.e. copy of bill, letter or cancelled check
   
   C. Life Insurance - Provide current letter from Insurance company verifying face value and cash value of all policies. Life Insurance policies can be assigned as part of the burial however both this assignment and the burial policy must be irrevocable. Life insurance policies are the main reason applicant’s resources might exceed standards. It is extremely important that this issue be resolved as quickly as possible. If you need further guidance, please feel free to contact our office.
   
9. Life Estate- Copy of deed reflecting life estate. Life Estates have value and must be considered as a resource unless placed on the market for sale.
   
10. Provide closing statement of any bank accounts, CD’s, stocks, bonds, etc. closed in the prior 36 months.
    
11. Power of Attorney or Guardianship papers.

2004 Footnote to this article: Because the rules change from time to time, DHS has now provided internet access to their current policies: Go to www.okdhs.org, click DHS Policy Outline, then go to DHS Forms and Appendices. Search for Appendix C-1.

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