How to Help Clients in Crisis Plan for Long-Term Care

During my 15+ years in the financial services industry, I have received many calls from clients or referrals who are experiencing a problem but have failed to plan ahead for it. The calls typically sound something like this: “I have been concerned about this specific issue for a while, but I haven’t had a chance to take care of it. Now that the problem has gotten worse, what can I do?”

For instance, the issue might be related to moving money out of the market while its up, but now it has gone down. Or the individual may be looking to get life insurance but now found out they have a serious medical condition. No matter the issue, I’m sure you’ve had at least a call or two like this in your career. And it can be frustrating to encounter situations like this where there is little or nothing that can be done to produce a decent outcome for the client.

The Long-Term Care Conversation

Unfortunately, I have had these types of calls many times regarding long-term care. If you offer Long-Term Care Insurance or are familiar with the long-term care planning process, you probably know that once an individual requires care, their planning options become very limited. Many of the strategies you might recommend are no longer viable.

Through the years, I have heard a few ideas for helping clients in this situation. One common strategy is to have the client spend down their assets by paying for care until they meet the financial qualifications for Medicaid. Other common strategies, specifically for married couples, are to have the couple divorce so the healthy spouse can retain more assets, or to have the healthy spouse provide care to the ill spouse at home along with the help of their children or other loved ones. While these options may provide some benefit to the client, they can cause additional issues or other hardships, especially if the individual is not receiving the care they need.

Addressing Medicaid Misconceptions

Are there better options out there? Yes.

Before we dig into those options, let’s address a few misconceptions about Medicaid. First, many individuals believe Medicaid recipients who require long-term care will receive low-quality care. On the contrary, Medicaid has implemented care quality standards for individuals benefiting from the Medicaid program. Perhaps this assumption is related to the fact that Medicaid only covers a semi-private room, which some may equate with lower-quality care. (For individuals who are concerned with residing in a semi-private room, Medicaid allows the recipient’s family or other loved ones to pay the difference in cost for a private room.) In the end, Medicaid recipients are receiving the same level of care as residents who are privately paying for their care.

Another misconception many individuals believe is that Medicaid is only for those who are currently destitute and have no assets. While it’s true that Medicaid has strict eligibility requirements applicants must meet, Medicaid also allows the opportunity for individuals to restructure their financial situation in order to achieve eligibility. Many people do not realize that Medicaid pays for 60% of nursing home care costs in the U.S., making it the largest payor of long-term care costs. In 2019, Medicaid paid out $627 billion. Of that amount, 20% of it was for long-term care services, representing just over $125 billion.

Now that we’ve addressed these misconceptions, let’s move on to the options available for seniors who currently own assets exceeding Medicaid’s eligibility requirements. Even those who have a significant amount of assets are able to qualify and be covered by Medicaid.

How to Accelerate Eligibility for Medicaid Benefits

Individuals or couple with excess countable assets can utilize a product called a Medicaid Compliant Annuity (MCA) to accelerate their eligibility for Medicaid. An MCA is a single premium immediate annuity that provides income to the contract owner and contains zero cash value. It must meet specific requirements in order to be compliant, including naming the state Medicaid agency as primary beneficiary in most cases. MCA strategies differ depending on the individual’s marital status. For single individuals, a proper plan design can protect about 50-60% of their current assets. For married couples, the protected amount is typically much higher, around 90-100%. All planning techniques and strategies are designed to fit within Medicaid’s guidelines.

Example: Planning for a Single Individual

To give you a better idea of how an MCA works, here is an example of planning for a single individual.

Sally is 78 and single. She has a home worth $275,000, $150,000 in cash assets and a car worth $12,000. For income, Sally has $1,500 of social security and $500 in pension. Due to Sally’s deteriorating health, she needs to enter a nursing home.

The state Sally lives in allows her to have only $2,000 in countable assets. She is able to retain exempt assets, including her vehicle and her home, as long as she intends to return home after her stay in the nursing home. That leaves $150,000 in assets for Sally to spend down before she is eligible. If she gifts the entire amount to her loved ones, she will incur a penalty period of ineligibility wherein she would not qualify for benefits and would have no money to cover care costs. Instead, she gifts a little over half of her money to her two children for a total of $80,000. She then funds the remaining $70,000 into a Medicaid Compliant Annuity with a term that is congruent with the penalty period she incurred by the $80,000 gift. This allows her to begin care now using the income from the MCA to cover her costs during the penalty period, which is about 10 months. Sally is then conditionally approved by Medicaid, and she will begin receiving benefits after the penalty period.

This example outlines basic Medicaid planning strategies, but it’s important to use the right mathematical equations to determine the gift amount, the MCA amount, and the other important figures. If you’d like assistance with a specific case, reach out to our team at The Krause Agency.

Contact The Krause Agency to Learn More

The Krause Agency specializes in helping advisors throughout the Medicaid planning process through exclusive training and educational resources. Our team of Benefits Planners are well-versed in Medicaid’s rules and strategies for using MCAs, and they can provide custom quotes and case analysis. When dealing with Medicaid, especially MCAs, we always recommend working with an elder law attorney since they can provide legal advice and documentation. They also have a strong understanding of the Medicaid rules and application process. If you are currently working with an elder law or estate planning attorney who wants to know more about Medicaid, we have resources to help attorneys become proficient in the Medicaid space as well.

Whether you want to learn more about MCAs or you have questions about a specific case, please reach out to us by calling 800-255-1932 or visiting thekrauseagency.com.