Reverse Mortgages and Private Insurance Expected to Play a Bigger Role
By Bob O'Toole, President
Informed Eldercare Decisions, Inc.
On February 8, 2006 the President signed the Deficit Reduction Act of 2005 (DRA) into law. According to the Congressional Budget Office (CBO) the Act is expected to reduce federal Medicaid spending by $11.5 billion over the five-year period and by $43.2 billion over the next ten years. Currently Medicaid pays the nursing home bills of 12 million elderly and disabled people.
The law drastically and suddenly changes the way that long-term care, especially nursing home care will be paid for many families. The National Academy of Elder Law Attorneys issued a statement saying that the DRA creates “A health care crisis of unprecedented magnitude for our most vulnerable citizens.”
According NAELA Attorney Jeffrey A. Marshall CELA* elders will have to cope with provisions that attempt to shift more of the financial burden of nursing home care onto families and nursing facilities. "Few seniors have insurance that covers long term care and most nursing home residents rely on Medicaid to cover part of the cost of their care. The new law will make it more difficult for these residents to obtain this financial aid, Marshall said.
Under prior law, an individual making a gift could be ineligible for Medicaid-paid nursing home care for up to three years from the date of making the gift. The DRA changes the start of the penalty period for transferred assets from the date of the transfer to the date of Medicaid application. This means that the penalty period will not start to run until the individual is in a nursing home and is out of other funds to use to pay for care. The law also extends the look-back period to five years.
According to attorney Marshall and several other published comments of elder law attorneys, "The grandparent who helped pay for a grandchild’s education, the parent who helps a child with medical bills, and even the family farmer who passes on the farm will all be caught by this law if they get sick within five years of making the gift. Gifts as small as $501 will trigger a period of ineligibility."
Because the Medicaid ineligibility period will no longer begin to run until the nursing home resident is out of funds, there will be a period of time during which neither the nursing home resident nor Medicaid can pay for needed care. The CBO estimates that this change will affect about 15% of individuals who are admitted to nursing homes each year.
The nursing home industry, strongly opposed the bill. Many of its members are already facing serious budget constraints. The American Health Care Association, a group representing nearly 11,000 long-term care providers, said the change" leaves the nursing facility (not the state) to collect from individuals who have no funds to pay privately and are not Medicaid eligible during their penalty phase." As a result, some are referring to the start date change as the “The Nursing Home Bankruptcy Act of 2005.”
Hyman Darling, a NAELA attorney from Massachusetts agrees with that assessment. Darling, an estate-planning specialist with the Springfield-based law firm Bacon & Wilson asks, “Who’s going to pay those bills? A lot of times, they simply won’t be paid, and the nursing homes will really suffer.”
Bruce Devlin, an estate planning specialist with the Springfield, A firm Robinson Donovan says there are many losers with this new legislation. Devlin believes, middle-income couples will be hurt and will find themselves with far less flexibility and freedom when it comes to their assets.
Long-term Care Insurance Is Expected to Become a More Popular Option.
Sandy Grant, a long-term care insurance specialist with the Novak Charter Oak Financial Group, says long-term care insurance could provide individuals with measures of flexibility and security that the DRA will remove from the equation.
“I definitely see sales of the product growing,” she explained, adding that there has been a steady increase in interest over the past several years and an accompanying decrease in the age of those seeking the insurance. “It can be an important component in the funding of a continuum of care for an individual.”
Under the new law, estate-planning specialists say individuals will have to pay much more attention to planning, and begin the process decades before they will likely need nursing home care.
Attorney Darling agrees. “I think we’re gong to see a real boom for that product,” he said, adding quickly that is and will continue to be beyond the reach of some individuals. “In some cases, people won’t have any real choice but to buy it.”
“That’s what people need to realize,” added attorney Devlin. “They really have to think about things and think early in the game — much earlier than many thought. This new law really changes things.”
Opinions differ widely on the new legislation however. An editorial in the New Jersey Star Ledger stated:
"With the Deficit Reduction Act in place, things will never be the same in the world of Medicaid and Long-Term Care (LTC). Those close to these fields have long been expecting significant change. It was only a matter of time because systems in place have long been too overburdened to sustain themselves.
Combining an overtaxed and abused government-subsidized Medicaid system with the potential stampede of aging baby boomers who might need nursing homes or home care is becoming a nightmare."
The editorial pointed out that the new law also provides incentives for people to use long-term care insurance as a "Medicaid Planning" tool
"Up until now, only four states offer what is called LTC partnerships. This means that for their residents who carry LTC insurance, the state will not require them to spend down most or all of their assets before Medicaid kicks in. For example, someone with $200,000 of LTC insurance could hold $200,000 worth of assets and still be eligible for Medicaid benefits in that state. The opportunity for initiating these LTC partnerships is now expanded and open to any state. This is a wonderful thing... (but will require) reciprocity among states, which will make life easier for those who move to another state.
Nancy Morith, president of Princeton, N.J.-based NP Morith Inc., specializes in long-term care planning, and consulting.
According to Morith, "In years past, we recommended that our clients get LTC insurance in their early 60s. Now, we have lowered that recommended age to the 50s on up. It is important to remember that premium costs for LTC insurance are lower the younger you are.
Law is Toughest on Middle Class
As he talked about the DRA and its impact, attorney Devlin drew a sharp distinction between those who merely want Medicaid to pay for their nursing home care so they can pass their assets on to their children, and those who are likely to endure financial hardship because of the measures.
“The biggest victims in all this are middle-class to lower-middle-class elderly people,” he explained. “It’s hard to say that people like you and me should be paying taxes so someone else can get an inheritance. But when it comes to someone being able to realistically survive on the money they’ve spent their whole lives building up — meaning the healthy spouse — that’s when you start to feel bad for the person. And those are the ones who are the real victims here.”
A free information kit "Avoiding The Nursing Home: Financial Alternatives to Pay for Care at Home" is available for consumers and professional advisors by sending your postal address to info@elderlifeplanning.com,or calling Bob O'Toole toll free at 1-800-375-0595.
The information includes answers to common questions about alternatives such as reverse mortgages, long-term care insurance, and using life insurance policies to pay for care, and how to determine if this these options are suitable for your situation. Also included are the publications: "When A Parent Needs Help:
How to Put Together an Elder Care Plan That Makes Sense for
You and Your Family" and "Eldercare in an age of scarcity: Long-term Care Planning With and Without Long-term Care Insurance", along with other helpful information for caregivers.
Author Bio:
Robert E. O'Toole, LICSW, is President of, Informed Eldercare Decisions Inc., Dedham, MA, private company specializing in elder life planning for clients throughout New England. A founding member of a national network of social work and health care professionals known as the National Association of Professional Geriatric Care Managers, he is a former editor of the Geriatric Care Management Journal. He is currently the editor of this blog.
Bob has contributed chapters to two books on elder care and geriatric care management issues, and has written numerous articles on the delivery of elder care in the private marketplace. His articles have appeared in Geriatric Care Management Journal, Compensation and Benefits Management, EAP Digest, Workspan, Health Insurance Underwriter and Inside Case Management.
Bob can be reached by e-mail Bob@elderlifeplanning.com
Thursday, August 2, 2007
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