Another Major Insurer To Stop Issuing Long-Term Care Policies

Following on the heels of MetLife's announcement last November that it was going out of the Long-Term Care Insurance business, Berkshire Life -- the subsidiary of Guardian Life that writes LTC policies -- has announced that it too will stop issuing LTC policies by the end of 2011.

As noted in this article, the LTC insurers have been plagued by a common problem:  too few policyholders have dropped the policies after issuance, and too many people (at least from the insurers' standpoint) are filing claims. Essentially, the actuaries improperly evaluated these policies, leaving them under priced and underfunded.

So, what does this mean to the consumer?  LTC policies will be harder to come by, and will surely be more expensive at any age range.

This unwelcome development makes proactive Elder Law planning, guided by an experienced Elder Law attorney, all the more important. Under current law, a well-drafted and appropriately funded Medicaid Asset Protection Trust is the premier long-term care planning tool in the Elder Law attorney's tool box.  A Medicaid Asset Protection Trust will render assets funded into the Trust as "exempt" for Medicaid spend-down purposes five years after the assets are funded into the trust.  The "Trustmaker" may retain all income derived from the trust assets, while they will not have access to the principal assets.  Principal assets, however, may be distributed to the Trustmaker's children or other designated beneficiaries during the Trustmaker's lifetime and after his or her death.

A primary residence is often an ideal asset for funding into a Medicaid Asset Protection Trust.  The Trustmaker may retain (a) lifetime occupancy rights, (b) property tax exemptions under New York State law (and likely in many other jurisdictions) and (c) the capital gains tax exemption (currently $250,000 for an individual and $500,000 for a married couple) if the residence is sold during the Trustmaker's lifetime.  While our clients often elect to fund liquid assets into a Medicaid Asset Protection Trust, it is especially helpful to fund real estate and other illiquid assets into these trusts, as it is much more difficult to engage in "crisis" Medicaid planning with illiquid assets than with liquid assets.

Types of Gifts that Don't Result in a Medicaid "Penalty"

Under the Medicaid “look back” rules, gifts made by a nursing home resident within the five-year period preceding a Medicaid application are scrutinized by the Department of Social Services to determine the impact of those gifts on the applicant’s Medicaid eligibility.  Contrary to common perception, however, not all asset transfers made during the look back period will result in the imposition of a period of Medicaid ineligibility.  Rather, there exist a number of transfers that are “exempt” from the imposition of a Medicaid “penalty.” 

The most common exempt transfer is a gift of assets from one spouse to another.  Such spouse-to-spouse gifts – regardless of the amounts transferred – are completely exempt from the imposition of any period of Medicaid ineligibility.  I typically recommend the transfer of virtually all assets into the name of the “well” spouse to enable the “ill” spouse to become immediately eligible for nursing home Medicaid coverage.  The only requirement in spousal cases is that the spouse residing in the nursing home cannot retain assets in excess of $13,800. Often the only asset that will remain in the name of the nursing home resident is the bank account into which his or her Social Security and pension checks are deposited.

In addition to the exempt spousal transfers, there are a number of exempt transfers that apply to the family home.  A home can be transferred without Medicaid penalty to any of the following:

• A spouse
• A child under the age of 21
• A blind or disabled child of any age
• A sibling who has an “equity interest” in the home (which can include payment for taxes and household expenses) and who has lived in the home for at least a year prior to the filing of the Medicaid application
• A “caretaker” child who has lived in the parent’s home for at least two years prior to the filing of the Medicaid application

 Besides transferring a home to a spouse, the most common exempt transfer of a residence is to the “caretaker” child.  To qualify for the exemption, the child does not need to have any credentials as a health-care provider. Rather, the child who has lived with a parent for at least the two-year period must establish to the Department of Social Service’s satisfaction that the child has provided needed assistance to the parent.  Such assistance will usually include: cooking; dispensing medication; shopping for the parent; assistance with dressing, bathing, and similar daily tasks. 

Another exempt transfer is the funding of a Medicaid applicant’s assets into a Supplemental Needs Trust for the sole benefit of disabled family member, provided that such disabled person is under the age of 65 at the time the transfer is made.  This exemption is permitted under the law on public policy grounds.  The federal government recognizes that absent the use of assets from a parent or grandparent to help support the disabled child or grandchild, the disabled person will likely need to rely on governmental programs to provide for their daily needs.  Allowing an elderly parent’s or grandparent’s assets to fund a Supplemental Needs Trust for a younger disabled child or grandchild can help reduce that person’s reliance on public assistance.  Note that upon the disabled beneficiary’s death, any assets remaining in this type of Supplemental Needs Trust must vest in the disabled beneficiary’s estate, and are therefore subject to recovery by the state to recoup the cost of public benefits paid to or for the disabled beneficiary during his or her lifetime.

Class Action Lawsuit Challenges Medicare's "Improvement Standard"

Last fall I posted this entry discussing Medicare's misapplication of a "improvement standard" in determining a whether a person using Medicare days in a nursing home should continue to receive Medicare coverage for the duration of the 100-day maximum Medicare period for each "spell of illness."

On January 18, a number of advocacy groups joined forces and filed a class action lawsuit against the U.S. Department of Health and Human Services alleging that HHS has improperly applied the improvement standard to deny Medicare participants care to which they were entitled.   The lawsuit, Jimmo v. Sebelius, was filed in the United States District Court for the District of Vermont.

A copy of the complaint can be read here.