Long Term Care

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Understanding Planned Economy

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. This is where a long term care lawyer can help.

A Deep Dive

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. Times are now different. 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?

Though nursing homes have become the “answer” to the question, the costs associated with putting mom and dad in a nursing home are out of the reach of most families. If that is the case, does our government take over these expenses? Yes and no. Confused? Here’s my take as a long term care insurance lawyer

The Medicare Programs

Let’s begin with the economics involved, and start at the beginning, in 1965. 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. 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. The government then distributes the funds to the states, based on population (by and large), and the states administer how the funds are distributed. There are strings attached to the federal funds, and that is the primary topic addressed in this article.

Who is Eligible

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 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.

As of 2021, the current criteria in Oklahoma are these: a person’s income level cannot exceed $2,256 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, is not always counted.

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.

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Case Study

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 intent 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.

Oklahoma Long Term Care Partnership

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. Here’s how it works: you have to buy long term care insurance, from a qualified insurance agent, and the policy will provide nursing home benefits. 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 overall 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 parent's 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 necessarily 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.

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.

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 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.

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 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. However, this issue ought to be considered part of an estate plan.

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