Useful Information About Health Savings Accounts

1. HSAs are not use-it-or-lose it. Unlike flexible-spending accounts, you don’t have to spend the money in an HSA by the end of the year. You can use the money tax-free for medical expenses anytime, even after retirement. In fact, you’ll get a bigger benefit from an HSA if you can use other cash to pay for current out-of-pocket medical bills and leave the money growing in the account for the long term.

2. HSAs can provide more tax breaks than 401(k)s. An HSA offers a triple tax break: Your contributions are tax-deductible (or pretax if made through payroll deduction), the money grows tax-deferred, and withdrawals used to pay medical expenses are tax-free. With a 401(k), you’ll get a tax break for your contributions but then have to pay income taxes on withdrawals.

Some people value the tax benefits of an HSA so much that they make funding the account a top priority. They first contribute enough to their 401(k) to get their employer match – after all, that’s free money – and then put in the maximum amount allowed in the HSA.

You can contribute up to $3,400 to an HSA for 2017 if you have single health insurance coverage, or $6,750 for family coverage, plus an extra $1,000 if you’re 55 or older anytime during the year.

3. You can invest the HSA money in mutual funds. You’re not limited to a money market or other cash account in an HSA. Some people keep enough money to cover the current year’s deductible in a money market account – if they don’t have other cash for that — and then invest the rest in mutual funds to grow over the long term. Many banks, brokerage firms, and other HSA administrators offer a choice of mutual funds. See HSAsearch.com for a list.

4. Your boss may give you extra money to participate. Many employers try to steer workers into high-deductible health plans with HSAs, hoping it will encourage them to become better health care shoppers. Some employers even contribute to workers’ accounts or match employee contributions as an incentive. The average employer contribution was $868 in 2016, according to Devenir, an HSA consulting firm. And your boss may contribute even more money if you participate in a wellness program.

5. You can open an HSA even if it isn’t offered by your employer. You’re allowed to contribute to an HSA as long as you have an HSA-eligible health insurance policy with a deductible of at least $1,300 for single coverage or $2,600 for family coverage in 2017 – whether you get your insurance from your employer or on your own. By staying with your employer’s plan, you may get some extra perks, such as an employer match, payroll deduction and access to certain HSA administrators. But if your employer doesn’t offer an HSA or if its plan has high fees and few investing choices, you can open an account with any administrator. See HSASearch.com for a list of plans, features, and costs.

6. HSA money can be used for even more expenses after retirement. Once you sign up for Medicare, you’re no longer allowed to contribute to a health savings account. But you can still use the tax-free money for a wide range of medical bills, including deductibles, co-pays and other medical expenses that aren’t covered by insurance, such as vision and dental care. HSA dollars can pay a portion of long-term-care insurance premiums based on your age – up to $1,350 in 2017 if you’re age 51 to 60, up to $4,090 if you’re 61 to 70, and as much as $5,110 if you’re older than 70. The money can be used to pay premiums for Medicare Part B and Part D prescription-drug coverage, or a Medicare Advantage plan (but not for Medigap premiums). And after age 65, you can pull money out for nonmedical expenses without having to pay a 20% penalty, although you’ll have to pay income taxes on the withdrawals.

7. You may be able to continue contributing to an HSA beyond age 65. Some people who are still working at age 65 choose to delay signing up for Medicare Part A and Part B so they can continue making HSA contributions, especially if they get an employer match. However, you may not be able to delay Medicare enrollment if you work for an employer with fewer than 20 employees or if you sign up for Social Security and are automatically enrolled in Medicare. See When To Sign Up for Medicare and When To Delay for more information.

8. You can use the HSA money for family members’ medical expenses, even if they aren’t on your health plan. Whether you have a self-only or a family health insurance policy, HSA money may also be used for medical expenses for your spouse and current tax dependents.

9. You may be able to have both an HSA and an FSA. You generally can’t salt away money in an HSA and a flexible spending account in the same year, but more employers are starting to offer limited-purpose FSAs that cover only certain expenses, such as dental and vision costs. The FSA must be specifically designated as an “HSA-compatible FSA.” The money is tax-free only for dental and vision expenses until you reach your health insurance plan’s deductible. After that, you can transfer the money to a regular FSA, which can be used tax-free for any out-of-pocket medical expenses. See Can I Contribute to Both an HSA and an FSA for more information.

10. You have an unlimited amount of time after you pay for eligible medical expenses to reimburse yourself. If you’re paying current medical expenses with cash rather than tapping the account, hold onto the receipts and withdraw the money for those expenses tax-free at any time – even years in the future. Your insurer may even have an expense tracker that lets you upload your medical receipts and mark whether you paid the bill from your HSA or other sources, which you can use as evidence of payment later.

Are we in denial when it comes to care support services?

Ben Hanowell – Home Care Magazine

Many Americans are in denial about their future caregiving needs.

According to PBS NewsHour and the SCAN Foundation, 70 percent of Americans older than 65 will need some form of long-term care—yet very few do enough, if anything at all, to have a caregiving plan in place should you, a family member, or loved one need home or care center services. Do you want your family to personally be involved with your care giving or do you want to have a reserve fund in place so your family remains your family to supervise your care?

How to Keep Up With the Rising Cost of Care

Assisted living costs are rising faster than the pace of inflation, and the annual rate of increase has accelerated from near-zero in 2012 to 2.4 percent in 2015. The most recent quarterly report from the National Investment Center for Seniors Housing and Care shows rent growth in 2016 was at its highest level since before the 2008 housing market crash. For those choosing to move into private-pay assisted living communities, the median cost of rent and care in the United States is approximately $50,000 a year, and the costs rise to more than $60,000 per year for consumers who need specialized dementia care.

1. Assess What You Have, Find Ways to Maximize Assets

Consider the value of your assets, such as your home, and the cash you have saved. Then, figure out your anticipated senior care costs, including:

  • Costs of living, taking inflation into account
  • Medical expenses associated with the illnesses you have or are likely to have—sometimes you can use genetic indicators and family history to help make predictions
  • The costs of the different care options anticipated, such as memory care, homecare, nursing care, assisted living and long-term care communities
  • Asking yourself whether your family would be able to help care for you, or assist with the costs of your senior care, should the need arise—and finding out who is willing or able to help
  • The possibility that you could be caring for other people, such as your parents or your children, during your senior years

“People who are currently in the retirement phase with living parents should allocate money to help pay for their parents’ care costs,” Furman advises. “It’s expensive, so you will want to have funds to help your parents should their money run out.”

2. Consider Other Factors Related to Senior Care

Helpful strategies include:

  • A financial plan—How will you stretch and manage your finances?
  • Legal planning—Do you have a will, powers of attorney, a living trust or other legal structures in place to protect yourself and your family?
  • Emotional planning—This includes meeting your emotional needs such as leaving a legacy for your family or managing family dynamics.

3. Do the Research

Unfortunately, there is a lot of misinformation available when it comes to senior care, especially on the internet. Insurance policies, living wills versus living trusts, the types of senior care available, state-specific programs—there is a lot of information to digest and keep straight.

“There is a misconception that lawyers simply draft a document, but the document is really evidence of the legal service that is represented in that document. The time, effort and advice that goes into the document are not in preparing it but in taking the individual’s unique circumstances into consideration,” Furman said.

4. Understand How Professionals Can Provide Support

When it comes to senior care, you’ll likely need to rely on the advice of a number of professionals, including your:

  • Family doctor—it’s fair to ask questions about your family history and the likelihood that you should plan for any hereditary illnesses in your senior years
  • Financial advisor—to help you choose the right investment strategies to extend your money further into your retirement
  • Insurance agent or broker—to provide information about the different types of insurance policies available to you, such as long-term care insurance, and the intricacies involved with each
  • Lawyer—an elder lawyer or estate lawyer, who is not generally equipped to offer investment advice, can help review your financial plan to help you stretch and manage your money, determine the best legal structure for your estate and help you set the stage to address your emotional planning

5. Share Plans With Family

It is important to communicate your plans with your family. Having these tough conversations will help ensure that your wishes are understood, not to mention help alleviate the concerns that your children or other family members may have regarding your care.

According to Furman, having long-term care plan discussions early on can help mollify the major areas of aging that seniors are most often concerned about, including:

  • Outliving their money
  • Being a burden on their family
  • Leaving a legacy for their family
  • Losing their independence
  • Family dynamics—leaving one child with more or less than another or agreeing with their spouse about how to distribute funds amongst family

Many people are dealing with financial and legal planning on behalf of their parents, especially when they begin noticing subtle changes in their parents, Furman notes.

“The parents themselves aren’t often aware of these changes in themselves, and this is a trigger for children to seek out legal advice without the parent to start, especially with long-term care plans or medical directives where the adult children are usually the instigator.” On the other hand, “With living trusts, the parents usually are the first ones to initiate the planning process.”

Whether you are looking out for yourself or your parents, planning and expert advice are critical elements to helping ensure you can afford the costs associated with senior care.

When will you have the conversation with your family about your caregiving and exit strategy?

Tax-free exchanges to pay for extended care benefits

Norman Grill – Westfair Internet 

Long-term care insurance can be an effective way to protect your nest egg, cash flow, and lifestyle commitments. Here is where your life insurance policy will be of value. A tax-free exchange using your life insurance policy can be a cost-efficient strategy for funding long-term care premiums. It is repositioning a small percentage of our assets to provide a reserve fund in case care giving services are needed. 

PARTIAL OR FULL EXCHANGES ALLOWED

The IRS permitted taxpayers to exchange certain policy types without a tax cost: one life insurance policy for another, one annuity contract for another or a life insurance policy for an annuity contract. Notably, the exchange of an annuity contract for a life insurance policy wasn’t granted favorable tax status.

The rule later was expanded to allow partial tax-free exchanges and, more recently, long-term care contracts were added to the permissible list. So, it’s now possible to make a total or partial tax-free exchange of a life insurance policy or annuity contract for a long-term care policy, as well as one long-term care policy for another. But there are restrictions.

To avoid negative tax consequences after making a partial exchange of an annuity contract for a long-term care policy, you must wait at least 180 days before taking any distributions from the annuity.

TAX BENEFITS ARE SIGNIFICANT

A tax-free exchange provides a source of funds for long-term care coverage offers significant tax benefits. If the value of a life insurance policy or annuity contract exceeds your cost basis, lifetime distributions include a combination of taxable gain and a nontaxable return from your cost basis. A tax-free exchange allows you to defer taxable gain so that the gain is absorbed by long-term care insurance premiums, eliminate the growth of your life insurance cash flow or value of your annuity permanently.

Consider this example: Joan, age 72, is concerned about possible LTC expenses and plans to buy an LTC insurance policy with a premium of $10,000 per year. She owns a nonqualified annuity (that is, an annuity that’s not part of a qualified retirement plan) with a value of $250,000 and a basis of $150,000, and Joan wishes to use a portion of the annuity funds to pay the LTC premiums. Under the annuity tax rules, withdrawals are treated as “income first.” In other words, the first $100,000 she withdraws will be fully taxable and then any additional withdrawals will be treated as a nontaxable return of basis.

To avoid a taxable gain, Joan uses partial tax-free exchanges to fund the $10,000 annual premium payments. In an exchange, each distribution includes taxable gain and basis in the same proportions as the annuity. In this case, the gain is ($100,000/$250,000) × $10,000 = $4,000. Thus, each partial exchange used to pay long-term care premiums permanently eliminates $4,000 in taxable gain.

Partial tax-free exchanges can work well for standalone long-term care policies, which generally require annual premium payments and prohibit prepayment. Another option is a policy that combines the benefits of long-term care coverage with the benefits of a life insurance policy or an annuity.

Planning for possible care giving is not a place, it is an event which will affect your family, your lifestyle, your commitments now and in the future, to people whom you have asked into your life.

When will you have the conversation about your caregiving and your exit strategy?

Having the conversation about Care Giving

Patrick Foley – Brokers World

The biggest hurdle to helping people plan for their future needs is to start talking about it. 

That’s never truer than planning for possible caregiving. Financial professionals are no stranger to difficult conversations—about death, family, businesses—but long term care can be an especially tough topic. But with the average cost for a one-year stay in a private nursing home room estimated to be $83,580 per year,1 the bigger conversation about planning for the future isn’t complete until long-term care is considered.

For many clients, the risks of needing long-term care are easy to ignore. People are generally aware that the possibility of needing long-term care at some point exists, but are unwilling to acknowledge they might need protection for that possibility. And the risk isn’t limited to the retirement years—40 percent of those needing care are between the ages of 40 and 64.2

“People tell themselves about bad things, ‘I know it could happen, but it’s probably not going to happen to me,’” says Dean Harder of The OYRI Group in Zionsville, IN. “About good things, we tell ourselves, ‘I know it could happen, and it probably will happen to me.’”

The Truth of Consequences
With long-term care, the conversation is best focused on consequences rather than probability—what happens to the people someone has promised to protect if there’s an unexpected need for long-term care? By the time a client needs long-term care it’s usually too late to make plans, either because they are mentally unable or because the need came on too quickly to make plans ahead of time. In these cases, long-term care insurance may be unavailable or prohibitively expensive. 

Often, for those without long term care plans in place, care falls to family members who are forced to make decisions about their parents. If a spouse or child becomes the caregiver, their own physical and mental health is imperiled. In addition, these discussions and the resulting plans can cause friction in the best of families. 

Clients already rely on their financial professionals for retirement guidance, so long term care can be part of that discussion. They’ve planned carefully to have enough income to live their desired lifestyle in retirement and possibly leave a legacy for the next generation or a charity. Talking about the effect of an unexpected long term care need on that income points out the need to protect that income.

“What disability insurance is to a working person, extended care insurance is to a retired person,” as Harder says. “People don’t want to lose their income while they’re working if they get sick or hurt. That same mindset comes into play with long-term care during retirement.” 

Once people realize the need to protect their retirement income and the legacy they plan to leave, the discussion about long-term care protection can begin. For each client, needs are different. 

LTC to protect assets 
Every case where wealth transfer, asset protection and supporting a family or charity is an issue presents an opportunity for a conversation about long term care. The ability to self-fund doesn’t necessarily mean that’s the best option in the context of a client’s overall plan. 

The liquidation of assets to pay for care can begin a cycle of increased taxation, exposure to market volatility and loss of ability to spend on discretionary items—and many times valued discretionary activities are really non-discretionary spending. 

The true liquidity of assets should also be considered. If assets are tied to the market, such as mutual funds, stocks, and other securities, they can experience the double hit of loss in worth when a down period in the market occurs at the same time as increased taxation. The loss of principal also means reduced income from that principal in the future. 

Tax consequences should be considered. Qualifying long-term care benefits offer significant advantages in this area. For retirees, there are only four tax neutral investment withdrawal activities: HSA withdrawal for qualifying medical expenses; LTCI payment for qualifying long-term care expenses; qualified Roth IRA distributions; and cash value life insurance surrenders switching to loans at cost basis. The income from or the liquidation of any other asset in a gain position increases provisional income and adjusted gross income. This increased income creates potential exposure to taxation of Social Security benefits, alternative minimum tax, phase-out of personal exemptions, loss of itemized deductions and increased premiums for Medicare Parts B and D.  The result is far harsher tax consequences and a much less efficient spending pattern than most retirees anticipate.

In the small business setting, often the lifestyles of the family matriarch and patriarch are inextricably woven into the fabric of the family. Would family property, otherwise intended to be left as a legacy, have to be sold to cover long-term care expenses?

Other business owners may need to consider the effect a long term care event would have on the business partner and on the business itself. Long-term care protection could permit cash to remain in the business that could be used to bring on additional resources to the business if needed. 

Often, supporting a treasured cause is a central component of legacy planning–these causes might not be considered discretionary. Every dollar used to pay for care is a dollar less that a charity receives, and every dollar used to pay for care deprives the individual of a charitable deduction.

Medicaid planning vs. legacy planning
Those clients not focused on legacy planning may be candidates for Medicaid planning but, with the many variables offered by long term care products and premium options, protection shouldn’t be automatically ruled out. 

As I mentioned in my last article, Medicaid carries strict guidelines and eligibility requirements—my statements on this may have caused confusion as rules vary widely by state. The resource test for Medicaid looks at the assets of both spouses when one of them is applying for Medicaid. Certain assets aren’t counted against the applicant’s eligibility in this situation. For instance, a home isn’t counted if a spouse or dependent child is living in the home. When the Medicaid recipient dies, states vary on whether a lien to recover benefits paid is attached to a previously not counted property.  

As a financial professional it’s important to be familiar with these rules, but given the complexity of the regulations, it’s in your clients’ interest to talk about considering other options. Some couples and families who may think they’ll pursue the Medicaid option may be better poised to talk about legacy planning than they know. 

Whatever a client’s situation and eventual caregiving plan, the most important resource financial professionals can provide is the opportunity to have that conversation and stress the importance of long-term care planning before the event occurs.

How to protect workers’ retirement with LTC benefits

Despite its ability to protect employees’ livelihood and provide a substantial tax deduction to companies, long-term care insurance is the most overlooked benefit product on the market. Long-term care is a niche product which few consultants offer, which creates a blind spot that leaves Americans open to huge financial and medical risks.

Long-term care insurance is the most effective solution to fill the gaps in most retirement plans, as well as protect young Americans’ future lifestyles against the financial strain. It’s also an accessible option, as smart employers can offer it at no cost as a benefit to their employees and healthy individuals can qualify independently at a low cost.

The company pays for the policy in its entirety and it usually provides a tax deduction benefit, depending on corporate structure. Policies are a non-taxable benefit for the employee; neither the premium nor policy payout are reported as taxable income.

This product can be set up to offer a variety of benefit structures dependent upon each individual employee’s experience level and tenure. Some clients prefer to offer junior staff a basic coverage package, with the option to purchase more at an additional cost and provide a premium, “Cadillac” policy to key executives. Company owners and key executives are typically at, or near the age of retirement and are particularly concerned about impending care costs. Employees can carry the plan into their next chapter after they leave the company.

An added benefit of employer-sponsored plans that insure a large group of people is they are typically considered a guaranteed issue. They are more inclusive and generous than what individuals would secure on their own. Guaranteed issue plans will pay out for physical, mental or other health issues related to long-term care without question, and extend coverage to all employees regardless of health status and need.

Vital for retirement security 
Seventy percent of Americans over the retirement age will require long-term care services, a statistic that is unlikely to diminish over time. Chronic issues and injury are the result of years of damage to the body during day-to-day life and catch up to you with age. On average, the cost for one year of long-term care services ranges from $50,000-$80,000, according to Genworth, and can cost even more depending on the skill level and services required and the geographic region.

Comprehensive plans must account for every possible financial commitment the retiree will face guaranteeing a successful retirement. Only 20% of Americans have either short-term or long-term disability insurance, according to a recent survey from the Million Dollar Round Table. Of those with insurance, less than 39% believe it would be enough to cover both long-term care and medical expenses in the event of an accident, according to MDRT. The unanticipated need for long-term care can cripple the fixed income and deplete retirees’ financial assets. Due to finite resources, chronic issues and disability put their entire livelihood on the line.

A client with $1 million in an IRA account might feel covered in terms of medical care and does not purchase long-term care insurance. If this client needs long-term care, the cost will be deducted from their investment account in addition to minimum distributions paid out for living expenses. Because this additional money is subject to additional taxes, they will also withdraw additional funds to cover taxes and any fees. In as little as four to five years, the added $50,000-$80,000 per person per year would completely drain their $1 million investment account.

The potential risk could not only ruin a lifetime of retirement savings but can also squander away children’s inheritance and financial legacy. A long-term care policy is no different than a mortgage; clients pass off financial risk to a company for pennies on the dollar and are able to secure assets — from homes to security.

Despite perceptions that only senior citizens require long-term care services, Millennials comprise the second largest user age group. Of the 35% of patients in nursing homes below age 65, the heaviest user group is age 18-35, according to the Department of Health and Human Services. Often without coverage or assets, they rely on family members for care and finances and typically remain on welfare long-term. Investing in long-term care insurance at a young age is not only a key element of a retirement plan, but is an investment for clients’ future lifestyle and wellbeing.

Young people are in the best position to qualify and purchase high quality, inexpensive long-term care policies that will carry throughout their entire lives. Although some try to calculate the time frame when they’ll need the coverage and delay purchase, this doesn’t account for accidents or unknown diseases. The likelihood they will use the coverage is greater than 70%, according to Genworth; it makes sense to buy it at the cheapest possible price in advance. At a later age, prices skyrocket. Those in their 60s and 70s can spend up to $10,000 per year to cover the premium.

Safety Tips For Elderly Pedestrians

Are seniors at a high risk for pedestrian-auto accidents? Due to a number of issues, elderly pedestrians often walk along busy streets and cross paths with cars frequently as they go around their neighborhood. Unfortunately, seniors are twice as likely to be involved in a pedestrian-auto accident as younger adults, according to Loyola University Health System. As a family caregiver, you can discuss some important safety tips with your elderly loved one so they will reduce their risk of harm when they are out.

If your loved one enjoys walking around, whether to get some fresh air or get to the nearby market, they should be encouraged to keep it up. Not only is it good exercise, but it keeps the elderly feeling independent and connected to the community. However, walking around as an elderly person brings with it some risks to their health and well-being. Here are some safety tips that you and other family caregivers can help your aging loved one to incorporate into their walks that will prevent them from accidents.

• Plan their walking route so they cross the street at a stoplight because that will give them enough time to get to the other side.
• Remind your loved one to take their time judging traffic and crossing the street because if they hurry, they are more likely to make a mistake.
• Encourage them to take extra care if their vision and hearing are diminished because that could give them a false sense of what cars are doing.
• Make sure there are adequate sidewalks along the route they want to go and that the sidewalks are in good repair to avoid trips, slips, and falls.
• Avoid walking when the light is poor or the weather is bad because that reduces the visibility of both the elderly pedestrian and drivers.
• If possible, encourage your aging loved one to cross the street with other pedestrians because drivers are more likely to notice a larger group.
• Provide light colored clothes or reflective patches for loved ones who enjoy walking in the early morning, at dusk or later at night.
• Remind elderly loved ones to try to make eye contact with drivers before and while crossing so they are sure they are seen.
• Together, evaluate whether your elderly loved one is mobile enough to continue making these walks and their balance is still good.

If your loved one is getting to the point where they are struggling with balance or physical conditions and walking around town simply isn’t working for them anymore, you have several options. Many communities offer transportation services for seniors, and there are also home care agencies that you can hire to have assistants drive your loved one to their appointments, shopping and to activities.

Keeping Seniors Fed Well Is Not Just About the Food

As people become older, it’s normal for them to experience some loss of appetite. This is a natural response to the body slowing down. When people are less active, they need less food for energy. However, sometimes a loss of appetite or a general disinterest in eating can become a more serious matter that can even be life-threatening. In addition to the natural decline in appetite, sometimes there are other factors that affect a person’s desire to eat. For example, food may lose some of its flavors due to changes in the taste buds that occur when a person ages. Certain medications can also affect the appetite or cause stomach upset, making seniors not want to eat. But, in some cases, the act of eating has become unappealing because of psychological factors.

Social Aspect of a Meal
Think about the last time you ate a meal alone. Was it as enjoyable as eating with your spouse or a friend? Probably not. Now imagine being a senior who lives alone, and therefore eats the majority of their meals alone. Health professionals comment that spending too much time alone will be detrimental to cognitive function in seniors. Studies show that seniors who have a higher rate of social activity also have the lowest levels of mental decline.

Of course, eating with family and friends might be the most enjoyable option for your parent, but that isn’t always possible. Hiring a home care provider to visit your parent during at least one meal time per day will make eating more enjoyable again. Your parent may begin looking forward to eating lunch while chatting with the home care provider. As an added benefit, the home care provider can also prepare the meal if your parent has difficulty doing so.

The Visual Art of a Meal
Observe the meals you or your parent’s home care provider makes from your parent’s perspective. If they don’t have much of an appetite, a huge plate of food would be annoying. Offer smaller food portions. Pay attention to the presentation of the meal. Watch any cooking show and the professional chefs will tell you that the way a meal is presented is just as important as the taste. If the food doesn’t look good, there’s little incentive to eat it. Also, think about where your parent eats. Instead of eating from a TV tray in the living room, ask your parent’s home care provider to set the table and encourage your parent to eat at a table. A pleasant atmosphere that’s conducive to eating could spark your parent’s interest.

Making eating a socially and visually appealing activity provides encouragement to make eating pleasurable. Hiring a home care provider can make eating meals enjoyable again. A home care provider gives your parent a friendly face to look forward to, someone to talk to, and someone who can prepare visually appealing meals.

The Big Medicaid Spend On The 65+ Population

Status

Athena Mandros – Open Minds

An interesting discovery in the discussion of the various health care reform proposals is that many consumers don’t realize that a significant portion of Medicaid funds goes to the 65+ population. Medicare provides health care coveage for the 65+ population – hospitalizations, emergency rooms, pharmaceuticals, etc. – it is Medicaid that pays for long-term care for this population. That includes services for individuals with functional limitations needing assistance performing routine daily activities – as well as residential services including nursing homes, assisted living programs, and continuing retirement communities. I think this distinction is being lost in the current public debate.

Spending on long-term care is the U.S. in 2015 topped $282.9 billion. Medicaid is the primary payer for long-term services and supports (LTSS), at $158 billion, 56% of the total LTSS spending. Out-of-pocket spending by consumers accounts for the next largest proportion of spending at 17% or $48.9 billion, followed by Medicare at 12%, and private health insurance at 8%. For LTSS for the 65+ population, Medicaid spends an estimated $64 billion per year – 11.7% of total Medicaid spending.

Medicaid is the primary payer because Medicare does not cover these services. In fact, Medicare rules specifically prohibit payments for institutional care and for home-based services (although Medicare provides some limited therapeutic home health services). And, most insurance, Medicare supplemental plans, and employer-sponsored insurance do not cover LTSS as part of their benefits package.

In 2012, Medicaid expenditures for the 2.1 million enrollees over age 65 receiving institutional services or HCBS was $57 billion, averaging out to about $27,000 per user. Medicaid programs nationally spent $41 billion per year for persons using institutional LTSS, such as nursing homes ($37,239 per user), $6 billion for another state plan LTSS ($10,970 per user), and $10 billion for persons receiving waiver HCBS ($17,296 per user).

There is long-term care insurance (LTCI) available, but for a price. In 2014, the total number of individuals with LTCI coverage was 7.2 million with annual premiums of $2,772 (see The State of Long-Term Care Insurance: The Market, Challenges, and Future Innovations). In 2016, the national median annual cost of a home health aide was $46,332, an assisted living facility $43,539, and a semi-private room at a nursing home was $82,125 (see Compare Long Term Care Costs Across the United States).

As legislators and policymakers plan the future of Medicaid, it is important to consider that 28.9% of the Medicaid budget pays for long-term care  and that 10.4% of Medicaid spending is for LTSS for consumers age 65+ and above. Because the Medicare and Medicaid funding streams are linked for the 65+ population, reductions in Medicaid LTSS spending would result in increased Medicare costs as more 65+ consumers are hospitalized due to lack of suitable home-based support services (see AHCA Would Affect Medicare, Too). Those effects of the availability of supported housing and social supports on health care costs are well-documented.

 

What Is a Miller Trust (aka Qualified Income Trust)?

Patrick C. Smith, Jr.Board Certified Elder Law Attorney

To qualify for Medicaid, the applicant’s income must fall below a certain level. Most states allow individuals to spend down any income above this level on their care until they reach the state’s income standard. But in some states (called “income cap” states), Medicaid applicants who have excess income can qualify for Medicaid only if they put the excess in a special trust, called a “Miller” trust or a “Qualified Income Trust.”

The Miller trust can pay the Medicaid recipient a small personal needs allowance, and the trust can also be used to pay the recipient’s spouse a monthly allowance. Any additional money is used to pay the recipient’s share of his or her cost of care. If there is any money left in the trust when the recipient dies, Medicaid has a right to the money to recover the cost of care.

5 Questions to Ask Before Making Gifts for Medicaid or Tax Planning

Patrick C. Smith, Jr. – Board Certified Elder Law Attorney

Many seniors consider transferring assets for estate and long-term care planning purposes, or just to help out children and grandchildren. Gifts and transfers to a trust often make a lot of sense. They can save money in taxes and long-term care expenditures, and they can help out family members in need and serve as expressions of love and caring.

But some gifts can cause problems, for both the generous donor and the recipient. Following are a few questions to ask yourself before writing the check:

  1. Why are you making the gift? Is it simply an expression of love on a birthday or big events, such as a graduation or wedding? Or is it for tax planning or long-term care planning purposes? If the latter, make sure that there’s really a benefit to the transfer. If the value of your assets totals less than the estate tax threshold in your state, your estate will pay no tax in any case. For federal purposes, the threshold is $5.49 million (in 2017). Gifts can also cause up to five years of ineligibility for Medicaid, which you may need to help pay long-term care costs.
  2. Are you keeping enough money? If you’re making small gifts, you might not need to worry about this question. But before making any large gifts, it makes sense to do some budgeting to make sure that you will not run short of funds for your basic needs, activities you enjoy — whether that’s traveling, taking courses or going out to eat — and emergencies such as the need for care for yourself or to assist someone in financial trouble.
  3. Is it really a gift (part one)? Are you expecting the money to be paid back or for the recipient to perform some task for you? In either case, make sure that the beneficiary of your generosity is on the same page as you. The best way to do this is in writing, with a promissory note in the case of a loan or an agreement if you have an expectation that certain tasks will be performed.
  4. Is it really a gift (part two)? Another way a gift may not really be a gift is if you expect the recipient to hold the funds for you (or for someone else, such as a disabled child) or to let you live in or use a house that you have transferred. These are gifts with strings attached, at least in theory. But if you don’t use a trust or, in the case of real estate, a life estate, legally there are no strings attached. Your expectations may not pan out if the recipient doesn’t do what you want or runs into circumstances — bankruptcy, a lawsuit, divorce, illness — that no one anticipated. If the idea is to make the gifts with strings attached, it’s best to attach those strings legally through a trust or life estate.
  5. Is the gift good for the recipient? If the recipient has special needs, the funds could make her ineligible for various public benefits, such as Medicaid, Supplemental Security Income or subsidized housing. If you make many gifts to the same person, you may help create a dependency that interferes with the recipient learning to stand on his own two feet. If the recipient has issues with drugs or alcohol, he may use the gifted funds to further the habit. You may need to permit the individual to hit bottom in order to learn to live on his own (i.e., don’t be an “enabler”).