I have written this article for information purposes, and I hope you learn something from it. Though I would like to state it is current and up to date, in all candor, I can't. In most cases, the concepts are relatively accurate (except for obviously old and dated materials, primarily related to taxes). You should confer with your own lawyer about issues that affect you and your family.
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, and in so doing, gives us a "planned economy", which we must work through or around.
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 caring 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 neutralized life-taking diseases such as pneumonia, and we live longer lives. Because our parents do not want to burden the children with their elder care needs, what solutions does our "planned economy" have in store for our parents and the elderly?
Simply put, how best can we care for mom and dad, when they cannot care for themselves? Though nursing homes have become the "answer" to the question, the costs associated with putting mom and dad in a nursing home is out of the reach of most families. If that is the case, does our government take over these expenses? Yes and no.
Let's begin with the economics involved, and start at the beginning, in 1965. Though the results were known before the legislation was passed, i.e., economic disaster for the national budget, during the Lyndon Johnson years, Congress adopted the Medicare program, which provided for health care benefits for those 65 and older. The program is paid for as part of our tax system, by Americans who earn wages (those who do not work, and who have passive or unearned income, might not have pay Medicare taxes). It is from this system that Medicaid programs began.
First, where does the government money come from? From every dollar of wages that is earned, employers send 15.3% of all wages paid to the Social Security Administration (and the U. S. Department of Treasury); half of the 15.3% is paid by the employee, half by the employer.
Though Congress has not earmarked funds paid into the U. S. Treasury, in the sense that all funds received are placed in a common pool, here's what is to happen, theoretically: 12.9% of the 15.3% is used to pay for social security benefits, and 2.4% of the 15.3% is used to pay for all other benefit programs, including nursing home costs (but only for people who qualify for benefits, most of whom are over age 65). The government then distributes the funds to the states, based on population (by and large), and the states administer the how the funds are distributed. There are strings attached to the federal funds, and that is the primary topic addressed in this article.
In Oklahoma, the funds are sent to the Oklahoma Health Care Authority. If an aged Oklahoman needs financial assistance to pay for nursing home bills, but has no financial resources, the Oklahoma Health Care Authority (through its agency, DHS) will pay for those expenses, using Federal dollars it has received. If we restrict the discussion to nursing homes (which we will), the program is called "Sooner Care".
Now what strings are attached to these funds? Whoever is eligible for nursing home benefits loses certain rights to their property, which in effect, means the children will lose any chance of inheriting property from mom and dad.
So who is eligible for nursing home benefits? Obviously, not every elderly person in Oklahoma who wants Oklahoma to foot the bill. Though each state establishes its own criteria for eligibility, these are the general requirements: 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); web links to the rules are reproduced at the end of this article, which might also be of assistance. As of 2010, the current criteria in Oklahoma are these: a person's income level cannot exceed $2,022 per month (Oklahoma is an income cap state, as opposed to a "spend down" state), but if the income exceeds that amount, an exception might be made through the use of a Medicaid Income Trust (a Miller Trust, also called an Income Cap Trust or Qualified 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 as a "resource", and is treated as an exempt asset or excluded resource). If the patient is married and his spouse is at home, that spouse can have $1,821 a month, and in certain instances, can have as much as (but not more) than $2,739 a month. Computing these amounts depends on formulas, which requires a bit of analysis of income, living expenses and so forth, and is beyond the scope of this article. The amounts given in this paragraph change from year to year.
Suppose an elderly person qualifies for nursing home benefits (remember, in Oklahoma this is called "Sooner Care"), and stays in a nursing home for two years, then dies. What happens to the exempt resources? After the person dies, and the assets are being probated (including the exempt resources), the state will make a claim against the probate estate, and seek reimbursement for every dollar paid for nursing home assistance (and this is reported to the federal government each year, so the feds will deduct the amounts recovered, from the overall funds Oklahoma is to receive). This is one of the strings attached by the federal government.
A North Dakota case gives a nice review of how the system actually works, when a person dies:
"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.
So exactly what can a person leave his or her heirs, after a spouse receives DHS assistance for nursing homes? Apparently, not very much, but there are a couple of techniques used, one of which is the Oklahoma Long Term Care Partnership (go to http://www.okltcpartnership.org/ for further information), which exempts cash assets from being considered as a resource.
Here's how it works: you have to buy long term care insurance (from a qualified insurance company; the current list of companies which offer such policies is reproduced at the end of this article), from a qualified insurance agent, and the policy will provide nursing home benefits (using actuarial tables, and other mathematical models, the benefits will have a current economic value; suppose that value is $150,000). Suppose the elderly person has a CD worth $150,000. Under normal circumstances, this person would be required to "spend down" the CD before he is eligible for Sooner Care benefits. However, in this example, the man applying for benefits has a qualified long term care policy, which will pay for $150,000 in nursing home costs. This policy is not counted as a resource (it is exempt), so he qualifies for Sooner Care.
He goes into the nursing home, and after the insurance company pays for $150,000 in nursing home benefits, Sooner Care (DHS) takes over all payments. When he dies, his children will inherit $150,000, and DHS will have no right to claim that amount (even though Sooner Care might have paid $100,000 in nursing home costs).
So what should you do? If you are insurable, and pass the other qualification criteria for Sooner Care, you should buy a qualified long term care policy from a qualified insurance agent.
If you are uninsurable, the question still remains: How does one plan to give an inheritance to children, if you need nursing home care? 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 following such a path, 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, five years before the parents ask for DHS assistance (Sooner Care), 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 (this is called the "look back" period). In addition, the Federal government and Oklahoma can change the rules of the game, and extend the look back period to seven years. In short, the planning of today will not necessary reflect the rules in effect tomorrow.
Other methods that might be used, to reduce assets include purchasing a Medicaid-compliant life insurance policy or purchasing a Medicaid-compliant annuity – because this article is longer than I intended it to be, I will not attempt to explain how these work. There are a handful of other methods used, to exempt the assets, but these are also beyond the scope of this article.
To compound matters, DHS would like to force couples to use the probate system. 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 will not know when the person dies, and cannot make a claim against the trust assets. DHS has required (in the past) that mom and dad take their property out of the revocable trust, so that DHS can file a creditor's claim in a probate proceeding, when mom and dad are deceased.
From my perspective, the best alternative is to purchase qualified long term care insurance (in certain instances, the premiums are deductible for income tax purposes). There are some decisions to be made, however, when you consider long term care 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 (if a nursing home charges $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 of nursing home benefits, for inflation, so if a benefit of $100 a day is selected, and inflation increases 3%, the nursing home 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. 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 insureds 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.
Long Term Care Partnership Approved List (as of April, 2011)
American General life Insurance Company
Assurity Life Insurance Company
Bankers Life and Casualty Company
Berkshire Life Insurance Company
Country Life Insurance Company
Equitable Life & Casualty Insurance Company Genworth Life Insurance Company
John Hancock Life Insurance Company
Life Secure Insurance Company
Massachusetts Mutual Life Insurance Company Metropolitan Life Insurance Company
Minnesota Life Insurance Company
Mutual of Omaha Life Insurance Company New York Life Insurance Company
Northwestern Long-Term Care Insurance Company Physicians Mutual Insurance Company
Prudential Life Insurance Company of America State Farm Mutual Automobile Insurance Company Sterling Life Insurance Company
Transamerica Life Insurance Company
United Healthcare Insurance Company
United of Omaha Life Insurance Company
Unum Life Insurance Company of America
Other links on this topic:
©2011 James H. Beauchamp
Other links on this topic:
The concept of recovery against an estate changes, with some regularity. I would suggest you review the current rules, found at the following website:
The application process, procedures, and eligibility rules are explained at these websites:
One other website that explains the Medicaid Rules (and this may be easier to understand than my article) is found at: