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There are five ways to pay for long-term care in Illinois. This article discusses all five and brings you up-to-date on the most recent developments in the ever-shifting Medicaid and Veterans' Administration rules governing long-term care.
There are 13 words you'll never hear from your clients: "I'm really looking forward to the day I move to a nursing home!" Aging, disability, and resulting care options are topics most of our clients would like to avoid. But research shows that about 70 percent of people age 65 or older will need long-term care assistance during their lifetime.1
As more and more baby boomers reach retirement age, the need for long-term care options will grow. Every attorney that works with seniors and those who love them must be aware of the financial challenges that a long-term care crisis can pose and the options available for securing quality care.
There are essentially five ways to pay for long-term care in Illinois. This article is an overview of all five and brings you up to date on the most recent developments in Medicaid and Veterans' Administration long-term-care rules.
1. Private pay - prepare for sticker shock
The median cost for a private room in an Illinois nursing home is $190 a day, or $69,350/year.2 It doesn't take a math whiz to calculate how long a senior's life savings will last at those rates.
Factors such as geography and the care needs of the senior can greatly skew the median. For example, the highest daily rate reported in Genworth's 2012 Illinois survey was $375, or $136,875/year.3 Most Illinois seniors live on a modest fixed income from social security and maybe a pension, which falls well short of the private pay rates. If the senior faces an extended stay in the nursing home, he or she must consider alternative funding sources.
2. Long-term care (LTC) insurance
LTC insurance, unlike Medicare and most health insurance plans, pays for the cost of care when the senior needs help with activities of daily living (bathing, dressing, eating, etc.). Depending on the LTC policy, it could cover nursing home care, personal care at home, a stay in assisted living facilities, and adult day care. While Medicare and supplemental health plans may pay for a limited number of days in a nursing home or short-term health care services at home, they have no extended or long-term benefits.
A good LTC policy can help ensure that the senior receives the care at a time when costs are at their highest. LTC insurance is a good idea for those who have a nest egg but might not be able to fund private nursing home care costs for an extended time. Premiums are based on health, age, and type of policy. Most financial planners recommend that LTC insurance be purchased well before age 60, when the applicant's health is good and the cost is affordable. However, it's never too late to assess a senior's options, since LTC insurance companies have developed new products in recent years to meet the needs of our aging (and procrastinating) society.
LTC insurance plans vary as to when and how much they will pay for long-term care expenses.
When do the policies begin paying for care? Policies have standards that must be met to trigger payments. Most will begin covering expenses when the senior is unable to perform a set number of activities of daily living or if cognitive impairment requires substantial supervision.4 Whatever standard is used to initiate the benefits, there is typically an "elimination" period during which care is medically required but the policy will not pay benefits. Depending on the policy, this could last anywhere from 30 days to more than a year.
How much will the policy pay? Each policy is different. Policies have a daily or monthly benefit limit that provides a predetermined payment for each day or each month. Policies typically have a maximum dollar amount of coverage: for example, the policy pays $100/day for a maximum of $150,000. Some policies have unlimited pay benefits, but they are rare.
Things to look for in an LTC policy. A good LTC policy includes the following:
1. Benefits for at-home as well as nursing home care;
2. Benefits that start if the senior is not able to perform at least two of six activities of daily living, usually including bathing, dressing, eating, continence, using the toilet, or getting in and out of bed (transferring);
3. Premium payments that stop while you are receiving benefits; and
4. Optional inflation protection.
Since many seniors do not have long-term care insurance and lack resources to pay private rates of $5,500+ per month for an extended nursing home stay, government programs are available to help bridge the gap.
3. Medicare's limited benefit
In general, Medicare provides medical and hospital insurance to people age 65 or older and to certain disabled individuals. While Medicare is not intended to serve as long-term care insurance, it provides a limited benefit for care provided at skilled nursing facilities. The coverage spans a maximum of 100 days.5
Medicare covers seniors in nursing homes if they have had a three-day hospital stay followed by the need for skilled care (typically therapy-based care intended to rehabilitate them and help them return to independent living).6 Medicare will pay 100% of the cost of the nursing home stay in a Medicare bed for the first 20 days. Then, for days 21-100, Medicare pays subject to a co-payment.7 Many seniors have Medicare supplement insurance that will help cover the co-payment.
In the best-case scenario, the senior has 100 days of coverage. If he or she does not continue to improve with the rehabilitative therapy regimen, the funding is terminated. Then the question becomes how to pay for continued care if the senior is not well enough to return home. If he or she has no LTC insurance coverage and insufficient assets to privately pay, other government resources must be investigated. Medicaid is a common funding source for long-term care to those who are eligible.
4. Medicaid - big changes in 2012
The Illinois Medicaid rules have changed significantly in 2012. While the federal Deficit Reduction Act ("DRA") became the law of the land on February 8, 2006, it was not implemented in Illinois until January 1, 2012.8
The DRA made significant changes in the eligibility rules for Aged and Blind Disabled ("AABD") Medicaid long-term care coverage. Most attorneys have heard of the major changes brought about by the DRA: increasing the look-back period to five years; stricter asset transfer penalties, restrictions on annuities, and the homestead equity cap.
For a detailed summary of the Illinois DRA provisions, see the January 2012 issue of the Illinois Bar Journal.9 It is important to note, however, that additional changes to Illinois' long-term care Medicaid rules were made in July 2012. Illinois enacted the "SMART Act" in an effort to cut $1.6 billion from various medical assistance programs.10 The SMART Act further restricts Medicaid eligibility and even altered some of the DRA provisions that were to be effective January 1, 2012.11
Set forth below is an overview of the basic Medicaid eligibility rules, including the most significant changes brought about by the SMART Act.
Basic Medicaid eligibility criteria. To be eligible for long-term care Medicaid assistance, these basic criteria must be met:
1. Residency and Citizenship - the applicant must be an Illinois resident and be a U.S. citizen or have proper immigration status.12
2. Age/Disability - the applicant must be age 65 or older, or blind, or disabled.13
3. Income Limitations - the applicant's income (from all sources) must be less than the cost of care at the private pay rate.14
4. Asset Limitations (Exempt vs. Available) - Medicaid divides assets into two categories: Exempt and Available. Exempt assets are specifically designated under the rules, and ownership of an exempt asset by the applicant will not result in a denial of benefits. If an asset is not specifically exempted it is "available," meaning that it would need to be liquidated and applied toward the costs of nursing home care before the applicant could receive Medicaid benefits.
a. Exempt Assets for a single applicant15 include:
i. $2,000 or less in cash/non-exempt assets;16
ii. Personal effects and household goods to the extent excluded under 20 C.F.R. section 416.1216;17
iii. Homestead (generally limited to $525,000 in 2012 with annual increases thereafter based on the percentage increase in the Consumer Price Index);18
iv. A motor vehicle - absent certain exceptions, exempt up to $4,500 in value;19
v. Life insurance with total face value of $1,500 or less and term or other life policies with no cash value;20
vi. Burial spaces and irrevocable pre-paid burial contracts subject to a $5,874 limit for goods and services, not including burial spaces (formerly $10,000 limit under DRA).21
Significant changes to eligibility rules in 2012. The changes in the Medicaid eligibility rules brought about by the DRA and the SMART Act are the most significant in decades. While many of the intricacies are beyond the scope of this article, every attorney must be aware of the following changes to the Medicaid rules ushered in by the SMART Act.
Homestead held in trust is not a homestead. A homestead held in trust is not exempt unless the applicant's spouse, minor child, or disabled adult child resides there.22
Community spouse resource allowance reduced. Effective July 1, 2012, the value of assets a community spouse can retain for self-support without disqualifying the nursing home spouse from eligibility is $109,560.23 This is a reduction from the amount previously effective January 1, 2012.
Amount of income community spouse may retain reduced. The amount of monthly income the community spouse may retain for self-support has been reduced to $2,739. Income in excess of that is available to pay the nursing home spouse's care costs.24
Spouse's refusal to disclose assets results in denial. Eligibility for long-term care assistance will be denied if the community spouse or institutionalized spouse refuses to disclose assets during the application process.25 Prior to this change, a community spouse with separately owned assets held for at least five years could decline to have those assets considered in the application process for the institutionalized spouse.
This scenario commonly arose in second marriage situations where the spouses did not comingle assets brought to the marriage; rather they kept premarital assets as "his" and "hers" pursuant to a prenuptial agreement or even an informal agreement. If one spouse later needed nursing home care and depleted his/her assets to a Medicaid eligible amount, the other spouse could decline to disclose those separate assets on the Medicaid application so that only the nursing home spouse's assets would be considered. With the new change, the community spouse may be required to divorce the nursing home spouse and "enforce" the prenuptial agreement to preserve his/her separate assets from the nursing home spouse's care costs.
Income producing farmland and farm equipment no longer exempt. In the January 2012 version of the DRA, income producing farmland and equipment were exempt assets (subject to the state's lien rights) that would not disqualify an applicant from eligibility if all other income/asset requirements were satisfied. The theory of the exemption was that allowing the applicant to retain the income from the farm rather than liquidating the asset would permit the applicant to pay more toward their own care costs, thus reducing the monthly expenditure by the state. The state retained its lien rights on the farm value so that it could recoup any Medicaid payments made during the applicant's life.
The SMART Act removes that exemption and caps the equity value for income producing property at $6,000.26 This cap essentially revokes the farmland exemption.
Self-settled disability trust subject to transfer penalty. An irrevocable trust containing the assets of a disabled applicant were typically exempt if the trust was established and managed by a qualifying non-profit association and amounts remaining in the trust upon death of the disabled individual would be used to reimburse the state for Medicaid payments expended. Effective July 1, 2012, transfers to this type of irrevocable trust by a person age 65 or over will be treated as transfers for less than fair market value, resulting in a period of ineligibility unless the disabled person is a ward of the state or county public guardian.27
Other nuances of the SMART Act are beyond the scope of this article. Practitioners with clients facing long-term-care issues should carefully review the new rules and the related Policy Manual and Workers Action Guide.28
5. Veterans' benefits available for long-term care
It is important not to overlook veterans' benefits when your client faces a long-term-care crisis. Many WWII, Korean War and even Vietnam era veterans and their spouses need assistance with long-term care. Federal and state benefits are available to qualifying veterans.
Veterans Administration pension. Veterans and even the surviving spouse of a veteran can qualify for a non-service-connected pension. This once little known benefit has gained a high profile as our veterans grow older.
The benefit is substantial and in 2012 can provide more than $24,000 per year for married veterans, over $20,000 for a single veterans, and more than $13,000 for the surviving spouses of veterans to help pay for their shortfall in care costs.29 To qualify for this benefit a veteran must:
1. Have a discharge that is "other than dishonorable;"30
2. Have served 90 days of active duty, one day of which was during an official wartime period;31 and
3. Be 65 or older or determined to be permanently and totally disabled.32
Veterans must also meet critical income and net worth requirements to qualify. First, the veteran or surviving spouse must show that his or her income for Veterans Administration purposes is less than the maximum annual pension rate.33
For VA purposes, income is defined as gross annual income minus annual unreimbursed medical expenses.34 Therefore if a veteran is making $25,000 per year from Social Security but pays an in-home caregiver $30,000 per year for care, the veteran's income for Veterans Administration purposes is a negative $5,000. An eligible veteran will qualify for the full pension amounts listed above if their income is negative. If income is positive, the applicant will still qualify for a benefit as long as their annual income is below the maximum annual pension rate.35
To receive the pension, applicants must also meet a net worth standard.36 The former rule of thumb was that a married veteran could have no more than $80,000 of assets to qualify, while a single veteran or a surviving spouse could have no more than $50,000. However, the VA now requires proof that the applicant will run out of their remaining assets over their VA life expectancy.37
For example, if your client is 85 years old, his or her life expectancy is 71 months.38 This veteran will have to show that his or her care costs will deplete their remaining assets to $0 over the next 71 months to qualify.
At the time this article went to press, changes to the VA pension eligibility rules were being proposed in Washington. Most notably, Senate Bill 3270 proposed a "look-back period" for VA pension similar to that for Medicaid applicants.39 Prior to SB 3270, there was no defined "look-back period" or asset transfer penalties under the VA rules. While tightening of eligibility for the VA pension is likely, the benefit can be of great help in covering both at-home care and assisted-living expenses.
Illinois veterans' homes. There are four veterans' homes in Illinois.40 Nursing and healthcare services are available for Illinois veterans with service of one day or more during WWI, WWII, the Korean, Vietnam or Persian Gulf conflicts, or during any time recognized by the U.S. Department of Veterans Affairs as a period of war.41
To be admitted, veterans must have either entered service from Illinois or have been a resident of Illinois for one year before applying to the home.42 Peace-time veterans with one year of honorable military service may also be eligible after the waiting list of eligible veterans is exhausted.43 It is also possible for a spouse to qualify for admission to the Quincy and Anna homes, but restrictions apply.
Veterans' home residents pay a monthly maintenance fee based on income, not assets. The ability-to-pay-plan has a maximum charge of $1,429 per month and covers room, board, medication, all levels of medical care, and any special therapy or treatment prescribed by the attending physician.44 Some costs of care are not covered. These include eyeglasses, hearing aids, dentures, and certain wheelchairs or mechanical devices.
Admission to an Illinois veterans' home for an eligible veteran is based upon the following factors:
1. The ability of the home to provide adequate and appropriate care and services based on the veteran's medical diagnosis and assessed needs;
2. A bed being available in the category required by the veteran's medical conditions and assessed needs.
Veterans whose applications are accepted but who cannot be immediately admitted to the facility are placed on a facility waiting list and admitted on a "first come-first served" basis.45
While you'll never hear your clients say, "I'm really looking forward to the day I move to a nursing home," many of them will need nursing-home care at some point. It is critical that we, as their trusted advisors, understand and convey the available options to pay for the care they need.
William Siebers <firstname.lastname@example.org> is a husband, father of three, and elder law attorney from Quincy, where he is a partner in Scholz, Loos, Palmer, Siebers & Duesterhaus, LLP. Zach Hesselbaum <Zach@lawelderlaw.com> is an associate with Law ElderLaw, LLP in Aurora, where he focuses his practice in elder law, estate planning, and veterans benefits.