Posts Tagged ‘Long Term Care’

New Medicaid Laws May Impact Families

Tuesday, November 1st, 2011

 

We just received confirmation from our Elder Care Attorney that the Illinois Medicaid Laws will change January 1, 2012.  Current and future planning needs are now at crucial issue.

 

Why should you care?

 

The current state laws are much more favorable to applicants and their families; the new laws will make it more difficult to receive Medicaid benefits.

 

This is extremely important news for all senior parents and adult children – those with current need and those who have yet to reach that advent.

 

Legislated changes such as these can severely impact assumed expectations. Assisted and higher level care can drain an average middle income estate very quickly; for those without long term care coverage, pre-planning for Medicaid in the event it may be needed should be of paramount consideration.

 

There are many changes to the Medicaid system which will take place in the coming year. These highlights examine the issues of timely application (all assets do not have to be spent down prior to filing a Medicaid application) and asset protection.

 

Applications Filed Prior to January 1, 2012 Will Fall Under Current Medicaid Laws

 

Under the current laws if a nursing home or supportive living resident applies for Medicaid benefits the applicant is required to provide three years for all financial records to verify their assets. This includes all bank, investment, pension and retirement account statements, life insurance policies, and tax returns.

 

Medicaid is particularly concerned with whether the applicant has given anything away during the three year “look back” period, such as a gift to help pay for a grandchild’s college tuition or to a son or daughter in need. The current laws allow any ineligibility created from the gifts to begin tolling immediately when the gift is given. This offers the Medicaid applicant an important advantage in avoiding any penalties which may result from the gift.

 

NOTE: For those who are planning to enter nursing home or supportive living facilities before January 1st,  it is essential to determine if Medicaid application should be filed before the implementation of the changes in Illinois law.

 

Applications Filed After January 1, 2012 Fall Under New Medicaid Laws

 

Applicants will be required to provide five years for all financial records to verify assets. More importantly, gifts will not begin to toll until the applicant is already spent down. This is a significant change between the old and new laws.

 

Under the new law, applicants will likely have to try to recoup any significant gifts that were made within five years of filing a Medicaid application. In the event that the applicant cannot recoup the funds that were given away, then they will have an opportunity to plead for a hardship waiver and hope that the waiver is granted in order to obtain Medicaid benefits. The criterion in which a hardship waiver will be granted is somewhat unclear at this time, but it is anticipated it will be a very difficult process.

 

The current laws allow the spouse (community spouse) of a Medicaid applicant to protect all the assets that the community spouse has held solely in their own name (for three years or more) prior to filing for Medicaid. Current laws also allow applicants and their spouse to divide their joint accounts in half, so that the community spouse can keep half of the joint accounts.

 

Under the new laws, joint accounts will not be permitted to be divided between spouses. The community spouse will be allowed to retain a specified amount of account funds (currently $109,560). This amount is also subject to change from year to year.

 

For many families, it may be extremely advantageous to file a Medicaid application prior to the law change from an asset protection planning standpoint. After January 1st, asset protection will become more difficult to navigate under the new rules.

 

Please consider these options now and do not hesitate to contact me if you are unsure of the timing regarding your family situation at hand.

 

Kurt Rusch CLU, ChFC

 

Many thanks to John Belconis, JD, for his help in sharing this information with us.

 


 

 

 

 

 

Proactive Retirement Planning

Tuesday, October 18th, 2011

 

I just read an article entitled, “5 Biggest Planning Retirement Mistakes”. The problem with titles like these in general is they are negative, and many times, as misleading as they are disheartening.

 

Proactive retirement planning on the other hand, is a different workhorse (pardon the pun) altogether. It should be ongoing and positive, starting over the course of your working years and cultivated throughout your retirement years. It also involves deliberate consideration beyond the lone act of making regular payments to employee contribution plans.

 

What type of proactive things should you be doing to plan for a life of leisure? Consider these 5 things now (even if you’re still working):

 

1.      VALUATION  

 

Project your current retirement programs forward to see how big of a lump sum you will have when you reach retirement and begin systematic liquidation.  While this may seem a monumental undertaking with market upheavals and historic lows in fixed income options, getting to that number will provide the baseline figure you need to work with.

 

If you tend to be risk averse, project your account balances into the future by using rates of return that could be obtained using less volatile investment choices. The worst case scenario here is that things change and you receive a higher rate of return netting a larger sum of distributable retirement funds.

 

On the other side of the coin, the market tends to be a lot more dependable over long periods of time than generally assumed. Utilizing these returns has not historically been as risky as you may think.  A volatile market is, in reality, a friend to those systematically investing via retirement plans at work and independently because: fixed amounts invested on a regular basis will always purchase more when the markets are at their lows and less when they are at their highs. This system allows you to buy low without ever having to consciously make investment decisions.

 

2.      DISRUPTION   

 

No one can possibly plan for every “what if?” in life, but addressing the types of disruptions to retirement income streams which may occur is essential.

 

Case in point; what would you do if Social Security changed drastically by the time you were counting on receiving it? Currently, with no modifications or adjustments, the Social Security Administration projects that by 2036 the Social Security Trust Fund will only be able to pay 75% of their obligations.  Would you be able to handle this decrease? Or any other type of unplanned reductions? If not, have you considered what you can do to make up possible shortfalls?

 

If you begin making up the gap sooner rather than later, the amount that would need to be set aside on a regular basis would be comparatively small. Conversely, if this gap is left unaddressed, the magnitude of future contributions could be daunting. Remember: Compound interest (really) is the Eighth Wonder of the World.

 

3.      VISUALIZATION 

 

Envision (literally) your retirement and what you (actually) want it to look like. While there are numerous statistics and figures utilized in planning, the best way to assure that you are planning for YOUR retirement is to personalize it.

 

Some people may think this silly but if you’ve never really taken a moment to think about how you’d like to see yourself in this future, you may be surprised what comes to mind. Are you planning on traveling a lot? Are you planning on working? If so, what is the magnitude of your commitment to work? What do you envision your living situation as being?

 

These kinds of questions and many more will affect the dynamics of your retirement plan. For example, if extensive travel is part of your plan, you must put more money aside than someone without these ambitions. On the other hand, if you plan on working, that may decrease the amount that must be set aside to meet expenses in retirement.

 

Housing will also greatly affect your financial situation. Many people “downsize” in retirement. Downsizing can often free up funds that can be invested to subsidize other plans already in place. These are just a few examples to consider.

 

4.      SAFEGUARDING

 

Have you safeguarded your plan for longevity?

 

If a husband and wife have plans in place as a couple in retirement, will they still be okay if one of them was no longer around? Upon passing, a surviving spouse will receive the higher of the two spouses’ Social Security payment. Would you be able to live the retirement lifestyle you envisioned without the aid of dual Social Security payments? Beyond Social Security, pension options must also be reviewed closely.

 

Pensions generally have irrevocable options that must be elected at the time of retirement. A sample of the array of these types of elections would include a single life option for the pensioner. This option would yield the highest monthly payment because it would continue only for the life of the pensioner. There would be no continuation of payment to a surviving spouse if the pensioner predeceased him/her.

 

At the other end of the spectrum, is a spousal option paying the surviving spouse 100% of the pensioner’s payment at the time of the pensioner’s death. This option would yield the lowest monthly payment to the recipient because essentially this pension plan is buying life insurance on the pensioner to be used to continue payments in the event of predeceasing their spouse. Examination of these costs should be made to see if the pensioner would be better off financially to receive the higher single life pension payment in combination with a taking out a private life policy to provide for the surviving spouse. This would also provide the flexibility to drop the policy or change beneficiaries to children in the event of the spouse predeceasing the pensioner.

 

5.      INCAPACITY   

 

Have you addressed the possibility of incapacity? While this is a very distasteful subject to broach, statistics indicate that up to 75% of couples will have at least one spouse needing some sort of long term care within their lifetimes. Given the state of rising healthcare costs, this situation can devastate a retirement plan very, very quickly.

 

Those who elect not to address the subject make a default decision to self-insure. This works out well only if you remain healthy without the need for support services. It is also a risky choice to make for the time period in your life when your options for financially rectifying an error in planning will be drastically limited.

 

Chicago nursing home costs currently run about $200 per day. For those who assume that this will be handled by Medicare, you are mostly incorrect. Medicare only covers follow up treatment after release from a hospital. There is no provision for convalescent care (long term daily living) from Medicare.

 

Coverage for long term care is available through Medicaid but to qualify, your assets must be liquidated and spent down. This radically limits your future choices. Home health care is also not covered by Medicaid. Many of the better nursing facilities may also refuse admittance to people   already on Medicaid. The last thing your loved ones need to face at a time like that is the challenge  of finding a geographically desirable and decent facility to take you in.

 

Valuation, Disruption, Visualization, Safeguarding and Incapacity are all key factors in planning for life after work. Safe, secure and solid navigation of this terrain should be done with the assistance of a licensed professional.

 

Kurt Rusch  CLU, ChFC

The Most Costly Mistake

Thursday, May 12th, 2011

 

According to a new report, “The cost of long-term care services continues to rise”. I don’t think any of us would consider that to be a newsflash by any means; quite the contrary really. Rising healthcare costs are and have been a nationwide topic du jour for quite some time. Why would long term healthcare costs be any different?

 

This latest study, published by John Hancock, incorporated “11,000 U.S. providers, including nursing homes, assisted living facilities and home health care agencies” into the mix. It was the fourth such study done by Hancock in the years, 2002, 2005, 2008 and 2011. Using a 9 year average to produce this year’s reported cost figures, results provided the following:

 

Average cost for a home health aide ($20 hourly/$37,440 annually) has risen an average 1.3%  per year.

Average cost for a month in an assisted living facility ($3,270 a month/$39,240 annually) has risen an average 3.4% per year.

Average cost of a semi-private nursing home room ($207 a day/$75,555 annually) has risen an average 3.2% per year

Average cost of a private nursing home room ($235 a day/$85,775 annually) has risen an average 3.5% per year.

 

Just for kicks I searched for the 2008 study to see how the numbers flowed – I would have preferred looking at the ‘02 or ‘05 report, but Hancock’s website did not provide archives that far back. In the same categories, and true to form, here are the 2008 figures:

 

Average cost for a home health aide ($19/hourly) has risen an average of 1.4% per year since 2002

Average cost for a month in an assisted living facility ($2,962 a month/$35,544 annually) has risen an average of 4% per year since 2002

Average cost of a semi-private nursing home room ($183/day/$66,795 annually) has risen 2.7% per year since 2002

Average cost of a private nursing home room ($204/day /$74,460 annually) has risen an average of 3.2% per year since 2002.

 

What neither of these studies provide is the average cost of long term care premiums per annum or month. This is due to the fact that long term care policies are extremely customizable offering a robust benefit menu of options to pick and choose from. Most people are surprised to learn they can personalize cost effective plans to fit their needs. Think: Cadillac vs. Chevy vs. Used Car; that’s how diverse it is. When you factor in inflationary, actuarial and other industry factors, creating an average cost across any year cannot provide realistic comparatives.

 

To provide a better grasp for value, understanding how and when long term care comes into play is essential. The following scenarios will give you a feel for how long term care works using simple round numbers:

 

Jean buys a long term care policy at the age of 55. The annual premium is $3,500; she can pay the premium semi-annually, quarterly or monthly. At age 65, Jean suffers a physically disabling stroke and needs to bring daily help into her home to assist her with ADL’s (Activities of Daily Living). She exercises her policy benefits and meets her elected 90 day “elimination period”, (deductible requirements), to avoid using her monthly pension income to cover home care costs.


Up until this point, Jean has paid in a total of $38,500 in annual premiums; now is when she will begin to reap the benefits of her long term care investment by putting her premium dollars to work for her. She hires 4 hours of help 7 days a week at $20/hour for a cost of: $2,427 per mo / $29,120 annually. She will recoup 56% of what she paid in over 10 years within the first 12 months of care: $38,500 Total Premiums Paid for 10 years – $29,120 Total First Year of Home Help Cost – the 90 Day Deductible total of $7,281. By the end of the second year, the benefits paid out for home care will be higher than the total premiums she paid in.


NOTE: When long term care benefits are activated, premiums are no longer due. The amount of total benefit payout is chosen by the policyholder at the time of purchase between maximum and unlimited amounts.

 

The next scenario illustrates what Jean’s self care cost would be without long term care insurance:

 

Jean receives a monthly pension of $2,000 plus another $1,000 in social security income providing her a tidy sum of $3,000 per month / $36,000 per year. Her annual fixed costs are as follows: $6,000 Property Taxes (her home is paid for), $ 1,800 Supplemental Health Insurance, $600 Prescription Drug Coverage, $700 Auto/Home Insurance, $ 3,000 Estimated Tax Payments, for an annual total of $12,100 / $1,008 per month. Her monthly daily living expenses for food, gas, electric, entertainment, dental, clothing, gifts and miscellaneous is budgeted at $500. Her monthly retirement income minus her total monthly expense of $1,508 leaves her with $1,492 a month for home care expense. Given her monthly home care expense is $2,427, she will have to tap into her retirement savings to cover the $935 deficit each month, $11,220 annually, to keep up with her expenses.


Realizing she will have to begin to drain her assets to pay for home care, Jean looks for ways to tweak her budget. She can’t drive herself anymore, but she needs to keep her car for care-giving services. Selling her home and moving into a single bedroom condo could pay off but she hesitates to do so in the event she’ll need a second bedroom for live in care down the road; at 65, she knows she can easily live another 15-20 years. She decides to live frugally and hope for the best.


Does Jean have enough retirement savings to draw upon for the next 15-20 years? In just 10 years she will liquidate $112,200 of assets, paying out $73,700 more than if she had a long term care plan – just to cover part time help.

 

How will Jean cover her costs if she needs to up the amount of home care to 8 hours a day or more? She may not, and outlive her retirement savings. If that happens, she will then need to go on Medicaid, which means she will have to live in a nursing home because neither Medicaid, nor Medicare, as many people mistakenly think, do not pay for home care expenses in the long term.

 

Conversely, the most costly mistake people make about long term care insurance is the assumption that the money spent on long term care premiums won’t pay off unless they need long term care whether in a facility or at home. Why would you pay in $3,500 a year for 10 years or more for something if you never need the benefit?

 

The correct answer to this question is: leveraged amounts are an available contract option. Simply stated, people can tailor their policies to execute the following actions if they do not use their benefits: 1) The balance can be transferred as a tax free death benefit to their heirs. 2) The contract can be cancelled and most or all of the paid premium dollars are refunded. This is known as a “liquidity” feature.

 

Jean’s scenario succinctly demonstrates why long term care plans should be a part of planning for retirement. When care is needed, policy holders will not have to worry about tapping into, nor bleeding dry, their investment/retirement accounts to cover expensive care out of pocket. If care isn’t needed, optioned policy values can be transferred tax free to their heirs or recouped upon contract cancellation. For people with little or no retirement savings; long term care becomes a crucial planning tool.

 

Kurt Rusch, CLU,ChFC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planning for Safety, Security & Sanity with Senior Parents

Thursday, May 5th, 2011

 

Brian Tracy, veteran motivational and business guru, writes often about the 80/20 Rule which provides that 20% of virtually all of our activities provides 80% of our results. (Make that link a must read if you haven’t seen it before.) Recently I read a post about the 40/70 Rule which provides: if you’re an adult child age 40 or if your parent is 70, it’s definitely time to have “the conversation”.

The article provided a quick overview of the challenges we face as adult children when our parents begin to fail – hence, ‘the conversation’ – and how difficult it is for so many of us to think about these things, let alone start a conversation about them. (Check out this free guide for tips on how to approach the subject.) There were several other help sites linked in the article, one in particular struck a major personal chord: caregiverstress.com.

 

 

Last April, everything changed for my wife’s parents due to a fall. They were residing in an “independent living” building; daily help for my mother-in-law, who was failing physically and mentally, had been added to ease the strain on my father-in-law. We were holding it together with Band-Aids to keep them independent.

 

Safety

 

Falls had become matter of fact ending up in numerous visits to the ER and several hospital stays over a course of several years leading up to this point. My wife had been told well over a year prior that her Mother needed to be at a higher care level – try having that conversation with your parents. Naturally they resisted, and looking back we now see the two of them were also in cahoots about the matter. My mother-in-law, still cognizant enough to sustain the marital power she had over my father-in-law, knew if she kicked up a stink he’d give in to appease her because for him, that’s the only thing he thought he could/should do. We also found out they hid numerous mishaps from us along the way keeping secrets about lost valuables, additional falls and other things in kind. Add to that their natural resistance to giving into the foibles of old age, and you have a recipe for disaster.

 

The fateful fall occurred on our daughter’s 10th birthday. We received a call at 7 in the morning from their caregiver telling us she arrived at their apartment to find my wife’s father on the floor, unable to get up and her mother hanging over the side of the bed incapable of helping him; they had been there all night. What ensued over the following weeks? Duel visits to the ER, interviewing and hiring a 24/7 caregiver, buying furniture to set up a second bedroom for the caregiver and unexpected back surgery for my father-in-law. This was the proverbial turning point; the live in caregiver started on a Monday, my wife’s father was admitted to the hospital two days later complaining of pain, and the caregiver gave notice on Thursday.

 

To say that we were unprepared and ill-equipped to handle a five alarm medical-care-giving-estate-management fire at a moment’s notice is an understatement. One saving grace was that my in-laws had executed medical and property power of attorney to my wife which empowered her to hire two 12 hour shifts to watch her mother while riding shot gun over her father’s morphine induced antagonistic pre and post surgery hospital stay.

 

The ultimate blow was delivered post-op week in rehab at a nursing facility; her father was diagnosed with vascular dementia. 36 days had now passed since the fateful fall and major changes had to be made; my wife was forced to do what no child wants any part of – place their parents permanently into nursing care – at the same time. As if that emotional struggle wasn’t tough enough, the next 7 months became a whirlwind of sorting through and giving away their independent belongings, finding space to store things we kept, managing their facility care and creating a strategic plan for expenses and long term needs.

 

Security

 

In addition to the power of attorneys, my in-laws had executed wills, DNR statements and held a deed for cemetery plots. At first glance, we thought we were okay having heard stories from so many other people who loomed in kind but were unarmed with the tools necessary to step in when needed. It was a good start; but not an adequate one.

 

Right out of the gates, $17,000 had already been paid out to round the clock care-giving for my mother-in-law before she joined my father-in-law in nursing care and $8,900 went to the Elder Care Attorney for estate planning. This is one of the top things that troubled my wife the most; being responsible for spending her parents’ money. In my experience, the perception of money in hand and future need is a tough nut to accept and plan for which only magnifies with the effects of aging.

 

The most important takeaway piece of advice I can offer to all parents and adult children is this: unless your family is abundantly wealthy, it is imperative to plan ahead for “spend down. Hundreds of thousands of dollars will fly out the window the moment you step into higher level care needs; whether help is brought into the home or paid to facility care. In death, arrangements must be made, there is no choice; with health directed living, there are choices upon choices to consider, shop for and execute.

 

Timing is the key; how much money will your parents need to exist? Over one year? Over two years? Or longer? What will happen if your parents outlive their money? The average nursing home stay is several years; my wife’s paternal grandmother lived the last 15 years of her life in a nursing home. I say this not to invoke fear but to lay emphasis on the crucial need for pre-crisis financial and estate planning.

 

In our case, ‘spend down’ began when home care was added. My wife liquidated small assets at first; a CD here and there and small mutual funds. A total liquidation of all assets ensued for estate and Medicaid planning. Some people were surprised to hear we were planning for Medicaid; my wife’s family wasn’t wealthy, but certainly not indigent. Herein lies the second most valuable piece of advice: apply for Medicaid before your parents’ funds runs dry to insure they’ll be taken care of.


 

Extended living options have grown leaps and bounds over the last decade. There are facilities which offer multi-level care opportunities from single family homes to nursing care accommodations all within the same campus area. These are the type of plans that typically require handing over the total value of one’s estate up front. Alternatively, whether your parents are still in their own home, living in independent senior housing or in assisted living, there is no extended living luxury; if/when their money runs out, they will ultimately have to evacuate. That is the fear factor; who/where/how will your parents be taken care of then?

 

Equally important is the fact that nursing homes want residents to enter on a “private pay” basis for a prerequisite time period before they are forced to accept lesser rates paid by Medicaid. Some homes we researched required as much as three years’ private pay for new residents. This makes seeking pre-approved Medicaid status extremely time sensitive, especially if you are already in spend down mode. Every piece of financial and health related documentation from your parents’ desk drawers, storage closets, safe deposit boxes, and via microfiche request if need be (it was) for a period of 3-5 years is required for Medicaid review. This process can turn around in as quick as 90 days and take as long as 18 months; it was a six month endeavor for us.

 

If you are thinking to yourself about now that ‘no way in hell will my parents ever leave their home’, there is one alternative option: long term care insurance. Yes, it’s not cheap, but in comparison to medical living expenses it is the only way to ensure staying at home.

 

Ten years ago, my father-in-law wanted to get long term care; my mother-in-law freaked at the $5,000 annual premium rejecting the idea. The difference between what would have cost $5,000 a year for the last ten years vs. the $13,000 a month they spent living independently with day time care giving, which now goes to nursing home expense, is astronomical. Without long term care, the costs to stay at home as opposed to facility living are more lateral than you would think.

 

When you do get to the point of crunching numbers, please enlist the help of financial and legal advisors. The plethora of medical and money issues will be overwhelming without the help of  seasoned professionals to aid in tax, estate, medical and daily expense planning. There is also a wealth of established senior referral and help centers available to assist families with finding reputable care givers and living accommodations; most of which are freely offered.

 

Sanity

 

A recent survey provides that a third of Boomers say they’ve never been able to grow beyond the role of child with their senior parents to begin with. For these adult children, talking about and planning for their parents’ long term needs is even more challenging. Conversely, while many Seniors are routinely vocal about not wanting to be a “burden on their kids”, they retreat when it comes to pencil pushing the subject.

 

My wife and I wouldn’t wish our experience on anyone – a little lead time would have saved our sanity – but we are very thankful we had enough time to secure my in-laws’ living needs. Would we have been able to move things along quicker/easier had we been more Sherlock Holmes like with my in-laws at the first signs of failing independence? Possibly, yes; probably, we’ll never know for sure.

 

In retrospect, the birds and bees talk is way easier to deal with than the conversation. Please share our story with your siblings and your parents; sometimes it’s easier to example others first to get the ball rolling.

 

Kurt Rusch, CLU, ChFC