- Problem: Paying for Long Term Care
- Medicaid Eligibility Rules
- Qualifying for Medicaid: Planning Tools
- Maintaining Medicaid Eligibility
- Medicaid Lien
- Medicaid Recovery
Problem: Paying for Long Term Care
A Problem for Middle-Class Elderly
Advances in medicine have enabled humans to live longer,1 but scientific advances have not been matched by legal and financial innovations.2 The healthcare system in the United States fails seniors because it forces them to spend all of their hard-earned savings on long-term medical care before it helps. Being frail and need care is not enough, seniors are forced to bankrupt themselves before their long term care is covered.
The healthcare system is not only defective, but also it is inequitable. A senior who requires skilled care (e.g., for a surgery to replace a knee) has Medicare pay for it, but a senior who needs custodial care (e.g., help getting up or toileting because of a bad knee) has to pay for her care out of her own pocket because Medicaid will not pay for it. After she has depleted all of her assets, she can qualify for Medicaid.
As people age, their bodies (and even their brains) can whither. These ailments create a need for long term medical care to help with the activities of daily living: Dressing, toileting (going to the bathroom), showering, eating, and transferring (getting in and out of a chair). Seniors who need help with the activities of daily living struggle to take physical care of themselves and need costly medical assistance. Unfortunately, Medicare and traditional health insurance do not cover long term, non-skilled care. Seniors must pay for their care out-of-pocket, buy expensive long term care insurance (if they can qualify for it), or become poor enough to have Medicaid pay for their care.
“What is to be done?” asks Joel C. Dobris when writing about Medicaid planning for the elderly. “The prosperous take care of themselves. . . . It is the people in the middle who have a problem.”3
Until our healthcare system is fixed so that all seniors are treated equitably, seniors must take advantage of every legal opportunity to protect and preserve their resources. Medicaid planning allows a senior who has a long-term care illness to be in a similar position to a senior who needs skilled care: Both can have the government cover their Medical costs without having to make themselves bankrupt.
Skilled v. Custodial Care
A key distinction in elder law is the difference between skilled medical care and custodial medical care (which is also known as “long term care”) because Medicare covers only skilled care.4 The following table summarizes the differences between skilled and custodial care:
|Skilled Care||Custodial Care|
|Provided by:||Only medical professional (e.g., doctor or nurse)||Anyone (i.e., medical degree not required )|
|Example:||Cardiac patient needing heart transplant||Anyone (e.g., Alzheimer’s patient) needing assistance with activities of daily living (dressing, toileting, showering, or feeding)|
|Covered by private health insurance?||Yes||No (unless it includes a long term care rider)|
|Covered by long term care insurance?||No||Yes (if the senior can qualify and afford the premiums, but it might cover only a few years)|
|Covered by Medicare?||Yes||No|
|Covered by Medicaid?||Yes||Yes|
Likelihood of Custodial Illness Increases as People Age
The need for custodial care has increased because scientific breakthroughs are allowing people to live longer, and the likelihood of developing a custodial illness increases as people get older.
For example, most people with Alzheimer’s are 65 and older, informs the Alzheimer’s Association. “After age 65, the risk of Alzheimer’s doubles every five years. After age 85, the risk reaches nearly one-third.”
Custodial Care is Expensive
The cost of custodial care is expensive. As the discussion that follows shows, the least it will cost at least $10,000 per month (or $120,000 per year). Depending on where the individual lives, it can cost $200,000 or more per year. The problem is a person might need custodial for several years,5 which makes the accumulated costs devastating.6 Paying for long term care can easily exhaust all of the recourses of a middle class family.
Nursing Home. GIS 20 MA/12 provides the Medicaid regional nursing home rates for calculating the transfer of asset penalty. The rates are based on the average private pay nursing home costs in each region. As the following table shows, the lowest regional rate is $10,857 per month for the Central region. So, people who need long term care in a nursing home must pay at least $130,284 per year.
|Central||Broome, Cayuga, Chenango, Cortlandt, Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence, Tioga, Tompkins||$10,857|
|Long Island||Nassau, Suffolk||$13,834|
|New York City||Bronx, Kings (Brooklyn), New York (Manhattan), Queens, Richmond (Staten Island)||$13,037|
|Northeastern||Albany, Clinton, Columbia, Delaware, Essex, Franklin, Fulton, Greene, Hamilton, Montgomery, Otsego, Rensselaer, Saratoga, Schenectady, Schoharie, Warren, Washington||$11,689|
|Northern Metropolitan||Dutchess, Orange, Putnam, Rockland, Sullivan, Ulster, Westchester||$13,206|
|Rochester||Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates||$13,020|
|Western||Albany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming||$11,054|
Home Care. The 2020 Genworth Cost of Care Survey informs that the average cost of a home health aide in New York was $26 per hour in 2020. So, the average cost of 24-hour care was $624 per day (i.e, $18,720 per month and $227,760 per year).
Myth: Medicare Covers Long Term Care
Many people believe that Medicare will cover their long term care needs. This belief is simply wrong. To avoid a perilous financial trap, it is of paramount importance to understand that Medicare does not cover long term care. Medicare covers the skilled care, not custodial care.
There is an opportunity and a need for trusted advisors to educate people about the grave consequences of this mistaken belief. Without this knowledge, people would not know that they could spend all of their money to pay for long term care before the government pays for the rest with Medicaid. Equipped with the knowledge that Medicare does not pay for long term care, people can create a Medicaid plan that allows them to obtain long term health care without losing all of their hard-earned savings.
Three Ways to Pay for Custodial Care
There are three ways to pay for custodial care: (1) Pay out-of-pocket, (2) buy long term care insurance, or (3) qualify for Medicaid.
(1) Pay Out-of-Pocket. People can pay for long term care from their savings. But the cost of such health care is staggering, so only rich people have enough money to pay for long term care out of pocket.
(2) Buy Long Term Care Insurance. People can buy long term care insurance to help pay for long term care. But there are three problems with long term care insurance:
- (A) People don’t know they need to buy long term care insurance. They might ignore the risk of needing long term care, or they might erroneously believe that the costs of custodial care are covered by their health insurance or by Medicare.
- (B) The cost of long term care insurance is very expensive, unless the insurance is purchased early.
- (C) People with chronic illnesses generally do not qualify for long term care insurance.
- (D) Long term care insurance policies typically cover only a few years of care (the first three or so years), but long term care might be necessary for a much longer time.
(3) Qualify for Medicaid. Medicaid can cover the costs of long-term care for people who qualify. Medicaid is a jointly financed federal-state health insurance program for people who fall below specified income and resource limits.
Medicaid Law is Complex
Medicaid law is “extraordinarily complex.”7 Several reasons explain this complexity:
- complex laws and rules that are sometimes unclear
- local variation: state-to-state, and county-to-county
- bureaucracy and red tape
- unwritten rules and interpretations
Two Types of Medicaid Programs in New York
There are two types of Medicaid programs in New York: Nursing home Medicaid and home care Medicaid.8 These programs have different eligibility requirements.
Medicaid Eligibility Rules
Qualifying for Medicaid: Planning Tools
Exempt Asset Planning
Exempt asset planning entails taking advantage of Medicaid exemptions. The strategy is to use nonexempt resources to buy exempt assets.
- A renter can buy a home.
- A home owner with a mortgage can pay off the debt (if the total equity is under the exemption).
Divestment planning is transferring assets so a senior can qualify for Medicaid.
There are ways to types of uncompensated transfers:
- An uncompensated transfer that is exempt.
- An uncompensated transfer that is not exempt but is beyond Medicaid’s look back period.
There are two ways to transfer assets:
- Outright gift
- Transfer to a trust
The look back was increased to 2.5 years in 1988.[^lookback1998]
Divestment Planning Using an Irrevocable Asset Protection Trust
Who Can Establish a MAPT?
Risks of a MAPT
The risks to a MAPT are (1) estate recovery by Medicaid, and (2) Medicaid reaching the assets of a MAPT by forcing the recipient-surviving spouse to assert the right of election.
Maintaining Medicaid Eligibility
One Year in Abeyance
If the applicant qualifies for Medicaid – by passing the means-test – but does not receive home care because the applicant does not need assistance with the activities of daily living, then Medicaid will hold the application in abeyance for one year. After that year, the A/R would have to apply again.
Administering an Irrevocable Trust
NY Uses Narrow Definition of “Estate”
|Federal:||State chooses||State chooses|
|Estate includes probate assets?||Yes||Yes|
|Estate includes nonprobate assets?||No||Yes|
|Medicaid can recover from irrevocable trust under def?||No||Yes|
|New York’s def of estate:||Yes||No|
|Medicaid can recover from irrevocable trust in NY?||No||n/a|
Federal law allows states to choose whether to define an “estate” for purposes of Medicaid recovery narrowly or broadly:
- In the narrow definition, an “estate” includes only probate assets.
- In the broad definition, an “estate” includes any asset in which the decedent had an interest at death. So, it encompasses both probate and non-probate assets. And it can include assets transferred to a trust.
New York State has adopted a “narrow “ definition of “estate” for purposes of Medicaid recovery, SSL 369(6), so Medicaid cannot recover from the assets of a MAPT.
SSL 369(6) defines estate as “all real and personal property and other assets included within the individual’s estate and passing under the terms of a valid will or by intestacy.”
In 2011, the risk of estate recovery seemed to become real in New York when New York adopted an expanded definition of “estate.” But in 2012, this expanded definition was repealed as part of the budget process.
Recovery from MAPT is Unlikely
After a Medicaid recipient dies, Medicaid cannot recover from assets transferred to a MAPT because those assets pass outside of the probate estate, and they pass according to the terms of the trust, and not by intestacy. But there are still risks:
- Improper Drafting. The MAPT has to be correctly drafted. For example, Medicaid can recover from the assets of a MAPT if the grantor reserves a general power of appointment.9
- Right of Election. When spouses create a MAPT, there is a latent right of election problem.
See Joel C. Dobris, Medicaid Asset Planning By the Elderly: A Policy View of Expectations, Entitlement and Inheritance, 24 Real Property Property, Probate and Trust Journal, Spring 1989 (“Declining mortality is a function of improved health care and advances in life style.”). ↩
Id. (“The problem here is that insurance for middle-class Americans has not evolved to meet their needs.”). ↩
Id. Dobris defines “prosperous” as “probably” having “$500,000 in investment assets, or the equivalent in income, per senior citizen.” Using an online inflation calculator, $500,000 in 1989 would be around $1,106,089 in 2021. Using a hard number to define the middle class is misleading because it does not take into account particular facts. For example, a senior living in Brooklyn, New York, might seem wealthy on paper because their net worth is $1.2 million. But a closer look reveals that their wealth consists entirely of their home, which they purchased decades ago for $60,000 and has appreciated in value. Their “wealth” is illiquid. The health care system in the United States forces seniors to sell their home to get their long term care covered. Is it right to force an elderly widow – who is starting to get dementia and is struggling with mobility and other activities of daily living – to sell the only home she has known for decades? Should the rule be different if the facts were different, for example the senior purchased the home a year ago using liquid assets? The details should be important for defining a category, such as the middle class, and for setting health care policy. ↩
See Daniel G. Fish, The Distinction Between Skilled Care and Custodial Care, NYLJ, Aug. 11, 2021 (“The key to understanding elder law is the distinction between skilled medical care and custodial medical care. This concept is the wellspring, the foundation, of elder law.”). ↩
For example, the Alzheimer’s Association informs that “[o]n average, a person with Alzheimer’s lives four to eight years after diagnosis, but can live as long as 20 years, depending on other factors.” Similarly, the Parkinson’s Foundation informs that a person with Parkinson’s “can live many years with the disease,” and it underscores the importance of planning: “With that in mind, people living with these diseases, their care partners and their families can take steps to plan for their health care and make important financial decisions.” ↩
Daniel G. Fish, The Distinction Between Skilled Care and Custodial Care, NYLJ, Aug. 11, 2021 (“The cost of custodial care for a single day is not expensive. The devastating financial cost is a result of the fact that custodial care is usually needed for an extended period of time.”). ↩
Joel C. Dobris, Medicaid Asset Planning By the Elderly: A Policy View of Expectations, Entitlement and Inheritance, 24 Real Property Property, Probate and Trust Journal, Spring 1989. ↩
Each state’s participation in the Medicaid program is voluntary. Once it participates, a state must create its own Medicaid program within federal guidelines. It must provide certain mandatory services, such as doctor visits, hospitalization, and nursing home care. But a state can choose to other medical services that are options, such as home care services. New York provides the optional service of home care. ↩
Matter of Albasi, 196 Misc. 2d 314, 765 NYS2d 213 (Sur. Ct. Bronx County 2003). ↩