Common Misconceptions About Long Term Care
I. OVERVIEW OF CARE OPTIONS
For the past several years, Maine legislation and regulatory activity have been focused on keeping elderly residents in the community and providing them with the least restrictive (as well as least expensive) care as is necessary and appropriate. With this emphasis, there appear to be a myriad of options available for Maine residents, including home care, assisted living, and nursing home care. Unfortunately, many of these options are only available to those who can afford them and some of the options do not have a public subsidy for support.
A. Home Care
Almost all persons share the goal to stay at home as long as possible. Sources of payment for home care include Medicare (generally a maximum of 4 hours per day if the patient needs tasks done and meets home bound and skilled care criteria), private pay, long term care insurance, MaineCare, Maine Home Based Care, Alzheimer's Respite Care and other in-home programs, including the MaineCare Waiver program, and Alpha-One, which have financial criteria similar to nursing home MaineCare (but different in significant respects).
Extensive home care is more expensive than nursing home care. Agency rates for basic level personal care attendants average at least $20 per hour and higher rates apply for evenings, nights and weekends. Home health aides and other types of care providers increase the cost. It costs approximately $200,000 per year to keep someone home with 24 hour basic level care from an agency. If you privately contract with a care provider, then you can bring that cost down, but private contracts run substantial risks for exploitation or neglect of a vulnerable person, as well as problems in regard to lapses of coverage due to illness and coordination of care.
B. Facility Care other than Nursing Homes
The variety of placement settings that are less than nursing home level are many and it is difficult to generalize about these options. There are, however, some general guidelines that are based in large part on our experience. Most importantly, in regard to residential care and assisted living facilities, there may be a difference in the quality of care between the private pay facilities and facilities that take MaineCare (formerly called Medicaid) as well as private pay. Generally speaking, there is a long waiting list for MaineCare reimbursable assisted living facilities and a person can reduce his wait, as well as select one of the better quality facilities, if he privately pays for some period of time.
II. MAINECARE PLANNING FOR LONG TERM CARE
A. Reviewing the Program Basics
a. MaineCare Benefits
In Maine, private pay nursing home rates range from $8,000 - $9,500 per month. Medicare only pays for approximately two percent of skilled nursing care in the United States. Private insurance pays for even less. Long-term care insurance, while increasing in popularity, remains a minority payer at this time. The result is that most people pay out of their own pockets until they become eligible for MaineCare, which is administered by the Maine Department of Health and Human Services (DHHS). While Medicare is an entitlement program, MaineCare is a form of welfare. MaineCare provides long-term care benefits only to persons who are age 65 or older or are disabled, and who qualify both medically and financially (in terms of assets and income). To be eligible, a person has to become "impoverished" under the program's guidelines. The MaineCare Waiver program provides limited in-home services (generally up to 39 hours per week) to applicants who meet the medical criteria for nursing home care. MaineCare financial and medical eligibility requirements have changed over the years to make eligibility more difficult. For nursing home level care, an applicant must meet financial and medical eligibility requirements. Medical eligibility requirements are very important as an applicant will not be covered under MaineCare for nursing home services unless he/she meets the medical eligibility requirements.
b. MaineCare Medical Eligibility for Nursing Home Level Care
Strict medical eligibility criteria for MaineCare covered nursing home level care was first introduced in Maine in 1994. The medical screening tool has been modified since then. Generally speaking, medical eligibility for nursing home level of care can be established in several ways, including: (1) a daily nursing need or therapy need; (2) extensive assistance in performing 3 or more activities of daily living; (3) a combination of a less frequent nursing service and limited assistance in an activity of daily living; or (4) a combination of impaired cognition screen, problem behavior screen, nursing service, and/or assistance with activities of daily living. Activities of daily living include bed mobility, transfer, locomotion, eating, and toilet use.
Goold Health Systems is the State 's agent that assesses individuals with the screening tool. An assessment is required for any patient entering a nursing home, regardless of the source of payment for the nursing home. An assessor meets with the patient and reviews the most recent plan of care and medical records for the last seven days.
c. MaineCare Medical Eligibility for Residential Care Facilities
Maine has implemented rules for medical criteria for residential care facilities as required by the federal agency for oversight of the MaineCare program. Goold Health Systems is also the State 's agent for the residential care assessment, which is significantly less stringent than the tool for nursing home care.
B. MaineCare Financial Qualification Requirements.
a. Income Limits
To qualify for MaineCare coverage for nursing home services, the covered individual's income must be less than the private pay rate of the particular institution where the covered individual will be residing. As most nursing homes in Maine charge private pay rates in the range of $8,000 - $9,500 per month, an individual can have a fairly high level of income and remain eligible for nursing home coverage. For MaineCare eligibility, only the applicant's income is counted, not the income of any spouse.
When an applicant becomes eligible for MaineCare coverage for nursing home care, all of his or her income, less certain deductions, must go to the nursing home. The deductions include a $40-per-month personal needs allowance, any medical insurance premiums he or she is paying, and any allowance he or she must pay to a community spouse who continues to live at home. For those in an assisted living facility, the personal needs allowance is $70-per-month, and there generally is no ability to provide a minimum monthly needs allowance for the community spouse.
For those in nursing homes, while the community's spouse income is not considered for the determination of MaineCare eligibility, the income of the community spouse is very important. There are regulations in place to make sure that the community spouse has an "adequate" income to meet his or her living expenses. At the time of application, the Department of Health and Human Services (DHHS) determines a "minimum monthly income allowance" for the community spouse. For year 2011, the community spouse is permitted to keep at least $1,822.00 per month. This amount can be increased up to a maximum of $2,739 by a formula that includes housing and utility costs. If the community spouse's monthly income does not meet the minimum monthly income allowance, then the income may be supplemented by first obtaining additional income from the nursing home spouse's monthly income and, if not sufficient, then retaining a larger amount of assets by increasing the amount of the community spouse resource allowance to generate more interest income. To determine the amount of additional assets that a community spouse can retain, the DHHS uses an annuity formula.
b. Asset Limits
One of the basic rules of MaineCare eligibility is that an applicant may have only $2,000 in "countable" assets. Since January 2002, the applicant may also have an additional $8,000, provided it is in some type of interest bearing investment or a checking account.
Under MaineCare coverage, if an applicant is married, the applicant's spouse is also permitted to retain countable assets up to a cap of $109,560 (as of 1/1/11). This amount is called the "community spouse resource allowance," and is supposed to be adjusted each year for inflation, but this allotment has not been updated since 2009. Thus, generally speaking, a married applicant and the applicant's spouse are permitted to keep countable assets in an amount up to $119,560, in addition to the primary residence, which is generally an excluded asset.
The determination of the level of the couple's assets is made in the month of the application for MaineCare. After eligibility is determined, the community spouse is permitted to have an unlimited amount of assets.
For assisted living level of care, there is no limit on the amount of assets that can be owned by the community spouse; so long as the institutionalized spouse is under the $10,000 threshold, that spouse can become eligible for MaineCare.
c. Common Excluded Assets
There are a number of important assets that are excluded from the determination of "countable" assets under the MaineCare regulations. The more commonly excluded assets are as follows:
i. Primary Residence — under new laws, home equity is counted to extent it exceeds $750,000 unless a spouse, minor, blind or disabled child is residing in home.
ii. Real Property For Sale at Fair Market Value.
iii. Rental Property — provided that after it has been rented for 3 years it meets an annual rate of return set by DHHS (currently, 4.04%).
iv. Motor Vehicle — Excluded in certain circumstances.
v. Annuitized Annuities — the federal laws and state rules are quite complicated but this may be a last minute option to preserve assets in some circumstances.
vi. Pre-paid Burial Contracts — new rules effective March 1, 2006 provide that, if the prepaid contract exceeds $12,000, it must name the Estate of the MaineCare recipient to recover any refund amounts not actually spent on the funeral.
vii. Household Goods and Personal Property.
viii. Term Life Insurance
d. Trusts
Trusts, once a useful MaineCare planning tool to shelter assets, have lost much of their attractiveness as a planning tool since 1993. Trusts that still are helpful include trusts for disabled children or persons under the age of 65, and trusts established in a will for the benefit of a surviving spouse. In addition, irrevocable trusts funded five years before a long term care need that provide no benefit to the grantor or provide income only to the grantor are options for long term care planning.
e. Asset Transfer Rules
One of the major rules of MaineCare eligibility for nursing home (but no longer for assisted living care) is the penalty for transferring assets for less than fair market value. Transfers between spouses are not penalized. For MaineCare nursing home coverage eligibility, this rule is only of limited assistance because the assets of the community spouse are counted under the asset limits.
Because of the complexity of the rules governing MaineCare eligibility, and because many people wish to conserve their assets from having to go towards long term care costs at the expense of the financial security of a community spouse or the children 's inheritance, long term care planning involves a detailed review of income and assets to determine how best to meet the costs of long term care while also meeting an individual 's or couple 's goals with regard to saving assets. Achieving these goals requires not only an understanding of the MaineCare rules relating to income and assets, but also a thorough understanding of the transfer penalty rules. These rules were substantially changed in 2006.
In broad terms, the new requirement is that when a person applies for MaineCare to cover long term care costs, the applicable look-back period is five years. What this means is that the applicant will have to provide five years ' worth of financial records which DHHS will review to determine if any transfers of assets have been made during that time. If transfers have been made, DHHS will determine a "penalty" — meaning a period of ineligibility for MaineCare — that results from the transfer. If either spouse has transferred assets for less than fair market value in a particular month, the applicant will be ineligible for MaineCare for a period of time.
The actual number of months of ineligibility is determined by dividing the amount transferred by $7,258 (2009-2011 divisor, although it is supposed to be adjusted annually), which is the designated average cost of nursing home care per month in Maine. During the applicable penalty period, the applicant cannot be eligible for MaineCare even if he or she qualifies financially and medically. The purpose of the transfer penalty is obviously to prevent people from giving away their assets in order to become eligible for MaineCare. In practice, however, the penalty provisions often result in harsh consequences for individuals who did not truly intend to give away assets, but just did not have an understanding of how the rules would treat a particular transaction.
The federal Deficit Reduction Act (DRA), enacted in 2006, made major revisions to how asset transfers are treated under the MaineCare program. DHHS adopted rule revisions to implement DRA requirements on April 1, 2007. The key changes are summarized below.
(i) Increase in Look-Back Period to 5 Years
First, the "look-back period" during which asset transfers are reviewed was expanded from three years to five years. Specifically, DRA provides that the look-back period runs 60 months back from the date when the individual is institutionalized and has applied for Medicaid benefits, or, for non-institutionalized individuals (e.g., those on MedWaiver), the date when the individual applies for medical assistance or (if later) the date of the transfer. Thus, DHHS reviews the financial history of the applicant and spouse for five years prior to the time the individual is residing in long term care and has filed a MaineCare application.
In 2009, MaineCare revised its requirements and now applies transfer penalty periods only for nursing home care, and no longer applies these penalties for those in assisted living facilities. Therefore, the issues that need to be resolved can be quite different depending upon the care needs and health status of the individual needing placement. If the applicant is seeking MaineCare for assisted living expenses, there is no look-back period and no transfer penalties so a person could transfer their assets to their children and get eligible immediately. Importantly, however, if that same applicant needs to convert to nursing home care within 5 years of any transfer, the penalties will be applied at that time. Furthermore, the Governor has proposed to require DHHS to pass rules re-instituting penalties for transfers made within the 5 years prior to an application for MaineCare to cover assisted living expenses, so we anticipate that these rules will be changed in the near future.
(ii) Delayed Penalty Start Date
Second, DRA required that the penalty period for any transfer will begin on the first day of the month in which the individual is "eligible for" medical assistance and would otherwise be receiving institutional level of care based on an approved application but for the application of a penalty. For multiple month transfers of fractional interests in an asset, DRA allows the States to treat the entire transfer as a single gift of the entire amount gifted, and to begin the transfer penalty on the earliest date which would apply.
In order to begin the running of any penalty, DHHS 's rules require a prospective MaineCare recipient to actually file an application demonstrating his/her eligibility but for the transfer, at which time DHHS will determine the number of months of ineligibility. Applicants will not be allowed to demonstrate their prior eligibility by simply providing historic records.
Applying this rule, if an individual transfers $20,000 in June of 2009, the 2.76 months penalty resulting from the transfer will not begin to run until he/she meets the criteria for nursing home level of care and has less than $10,000 in countable assets remaining. At that time, even though the person has less than $10,000 remaining in his or her name, she will not be eligible for MaineCare until after the penalty has run. For persons who have made substantial gifts of a home or liquid assets, the application of this rule will be extremely harsh, as the individual will be ineligible for MaineCare and may have no remaining assets with which to privately pay for care.
To soften the impact of these major changes in the law, DRA also required States to adopt a hardship waiver process for situations where application of the transfer penalty would result in deprivation of medical care that would endanger the applicant 's health, life, or result in deprivation of food, clothing, shelter, or other necessities of life. Facilities in which the applicant is residing are authorized to apply for such hardship waivers. In our experience, however, hardship waivers have rarely been granted.
Another very important concept relating to transfers is that MaineCare (and the federal Medicaid program generally) have in the past only sought to penalize transfers that are done for the purpose of obtaining eligibility. With the new DRA requirements, we are seeing a harsher and stricter application of the penalties for past gifts even if there was no intention to make the gift for long term care planning reasons (e.g., payments for a grandchild 's education made a part of a consistent prior pattern of giving, wedding presents, etc.).
There are several exemptions to the transfer penalty provisions that can be used to assist in qualifying an individual for MaineCare. The most often-used is the exemption for transfers between spouses. Transfers to disabled children, or to a trust for a disabled individual, are also exempt. These exemptions are vital to long term care planning and ensuring the financial security of a community spouse or disabled child.
C. Estate Recovery
Maine has a statute that gives the State the right to recover its expenses for the care of a MaineCare recipient from the MaineCare recipient's estate, if the recipient was 55 years of age or older when he received MaineCare assistance. Estate is broadly defined to include probate property and other assets in which the MaineCare recipient has any legal interest at the time of death, to the extent of that legal interest. These claims can apply to assets conveyed through life estate, tenancy in common, living trust, joint tenancy or other arrangement. A claim against the probate estate must be filed during the creditor 's claims period and a claim against other assets can be filed in any court of competent jurisdiction. For example, if a house is the only asset in the MaineCare recipient's probate estate, then the State will have a claim to the extent the State has spent money for his or her care, and that claim will have to be satisfied before the intended beneficiary of the house may inherit the home.
Claims are not permitted to be brought by the State if the recipient has a living spouse or a child under the age of 21 or a child who is blind or permanently and totally disabled under the SSI criteria. The Maine Legislature clarified the law in 2009 to exclude joint tenancy in real estate from estate recovery.
D. MaineCare Planning - Transfer Techniques
The general purpose of MaineCare planning is to permit a person to meet the MaineCare asset and income regulations while retaining as many assets as possible for the person, his spouse and/or family. MaineCare planning depends on several important variables, including whether the person is single or married, the foreseeability and immediacy of nursing home placement, whether the person owns a home, the amount of savings owned by the person and spouse, and personal preferences. Before any transfers are made, it is very important to make sure that the person has more than an adequate amount of savings for any future desires and needs.
We always emphasize to our clients that there are often advantages to paying privately for nursing home care. In particular, for Maine residents, because of the strict medical eligibility, it is important to have adequate assets to pay for good quality residential care or home care if that may be needed before nursing home becomes an issue. The decision of whether to make transfers, as well as the amount of any transfer, is really a decision that rests on balancing the risk of needing nursing home care in the future against the disadvantages of losing assets or control of the assets now. With these variables in mind, some of the more common options can be looked at for planning purposes.
a. How to Preserve Assets
i. Remove Nursing Home Spouse's Name from all assets and Create New Will for Community Spouse. For a married couple, the nursing home spouse's name should be removed from all assets (with the possible exception of the $10,000 in nursing home resident's name), including the deed for the home. There is a requirement that the community spouse 's share of countable assets be removed from the nursing home spouse 's name within 12 months. However, to avoid the potential for estate recovery against the surviving spouse 's estate, the transfer should also be made for non-countable assets, and we generally recommend that the transfer occurs before the nursing home spouse applies for MaineCare. Absent such a transfer, in the event the community spouse dies before the nursing home spouse and the house was titled in both names, and if there are no dependents living in the home at the time the nursing home spouse dies, the State could seek recovery of any amounts paid under MaineCare from the probate estate of the nursing home spouse as well as from his estate outside of probate. In addition, any assets with income streams should be transferred because the community spouse's income will not have to be contributed toward the nursing home care of the institutionalized spouse. A transfer from one spouse to another is not penalized so transferring the name on all assets to only the name of the community spouse is recommended.
One of the important planning tools for married couples, when one spouse is suffering from a long-term illness and facing substantial long-term care costs, is to establish a trust in the healthy spouse 's Will in the event the healthy spouse dies before the unhealthy spouse. Under current MaineCare laws, the money in this trust can be available to enhance the surviving nursing home spouse 's life, but is mostly protected from covered MaineCare expenses. When the nursing home spouse dies, the trust can then be left to children or other family members without having to first go to pay back MaineCare under the estate recovery provisions. New developments in this area include recent rule changes and case law on spouses being required to claim a portion of their deceased spouse 's estate under the Probate Code 's elective share provisions, but testamentary trusts remain an important planning tool to consider.
ii. Purchase Exempt Assets. For married couples or a single applicant, the purchase of exempt assets is not considered a transfer and can assist in preservation of assets. Examples of possible exempt assets include a motor vehicle and income producing property such as rental property (as long as rental income meets criteria). Rental property is not considered an available asset but the income in the name of the nursing home resident will be used to pay nursing home costs and real property owned by the nursing home resident at death will be subject to estate recovery. Thus, a married couple should place the rental property in the community spouse's sole name.
iii. Purchase an Annuity. For a couple, purchasing an annuity in the community spouse 's name, or, for a single person, making a gift to children from the single MaineCare recipient while in nursing home and purchasing an annuity to pay nursing home costs during the resulting penalty period, may be options to examine. Only annuities that meet very specific criteria are permitted under MaineCare. These sophisticated and complicated annuity options require careful planning and an awareness of the most current rules and interpretations by DHHS.
b. Reducing Assets to Eligibility Limits
The spend-down approach is a general approach used to spend excess assets that would otherwise be exhausted for nursing home care because an applicant has too many assets to shelter away. Using liquid assets to repair and improve the house, purchase furniture, take a vacation, set up prepaid burial contracts, prepay real estate taxes, homeowner's insurance and other debts may be helpful depending upon the situation.
c. Sophisticated Transfer Techniques
i. 50-50 Reverse Strategy for Imminent Long Term Care Need. This last minute technique may work under the rules and there are a number of variations that depend on the specific assets, circumstances and goals of the client.
ii. Make Transfers Five Years Before Long Term Care Need Arises.
d. Financial Powers of Attorney Critical
One very important issue to review long before long term care becomes an issue is to ensure that each person has a broad financial power of attorney that permits gifting consistent with the person's wishes. Without a durable financial power of attorney, a court proceeding is likely necessary and gifting may not be permitted.
III. LONG TERM CARE INSURANCE
For many, long-term care insurance is an option worth serious consideration. While payment by MaineCare does not affect the quality of care for nursing home care, there very well may be differences in the quality of care for residential care or assisted living. In addition, the laws are frequently changing, and the one thing that appears certain is that MaineCare, as well as other public benefits programs, will be getting tighter and tighter. In short, generally speaking, long-term care insurance is an excellent option for those who can afford it and are insurable. A word of caution, however, is that this is considered a booming area in the insurance industry. There have been a number of cases involving the inappropriate sale of insurance.
According to statistics by the Maine Bureau of Insurance, two out of five persons 65 years of age or older will require nursing home care at some time. More than 50% will stay in a nursing home less than 90 days and their care will be predominantly covered by Medicare, whereas approximately 40% will stay an average of 2+ years. Based on these statistics, there is a less than 20% chance that a person age 65 or older will stay in a nursing home longer than Medicare pays for it. The Bureau of Insurance encourages people to consider purchasing a long-term care policy, and DHHS has now adopted the Long Term Care Partnership Program (discussed below) which will allow those who purchase and use long term care insurance to protect additional assets in the event they later need to rely on MaineCare.
Although long-term care policies vary widely in types of benefits, eligibility requirements, and costs, long-term care insurance is regulated and each policy issued in Maine must contain certain minimum benefits. The Maine Bureau of Insurance sets forth the general requirements.
The Long Term Care Partnership Program, part of the recent changes to Maine law and federal law, permits purchasers of "approved" long term care insurance policies to protect from Medicaid an amount of assets equal to the amount of the long term care insurance if the purchaser relies on Medicaid after exhaustion of the long term care insurance. This provision was recently adopted in Maine. The program 's purpose is to reward persons who purchase approved long term care insurance policies by permitting them to protect assets equal to the amount of long term care insurance they have purchased and used.
IV. CONCLUSION
Laws and rules related to long term care are based on federal and state law and are very state specific. The rules are very complicated. It is important to obtain current advice from a qualified elder law attorney to determine what estate and long term care planning options may work best to meet any given person 's particular health and financial situation, and their goals.
THIS GENERAL OVERVIEW IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. EACH SITUATION IS DIFFERENT. MAINECARE RULES ARE COMPLEX AND CHANGE ON A REGULAR BASIS.