CRISIS MEDICAID PLANNING FOR A Married Couple
Updated: Aug 16, 2019
—One spouse in a Nursing Home and One Spouse Remains in the Community—
Case Facts: Robert recently entered a nursing home charging $7,000 per month for his care. Betty is healthy and able to remain at home. Robert and Betty are 84 and 79 years of age, respectively. Together, they have total countable resources of $325,000. Robert’s monthly income is $2,000 while Betty’s monthly income is $1,000.
OPTION ONE: DO NOTHING
With Robert having a monthly income shortfall of $5,000 per month, their countable resources will last only 65 months.
OPTION TWO: IMMEDIATE MEDICAID ELIGIBILITY/LONGEST MEDICAID SPIA PERIOD CERTAIN
The couple resides in a state which allows Betty, the community spouse, to retain $126,420 of countable resources while Robert may retain $2,000. As such, the couple is able to retain $128,420 — protected resources. In order to obtain immediate Medicaid eligibility for Robert, Betty may purchase a Single Premium Immediate Annuity (“SPIA”) containing Medicaid qualifying language — i.e. irrevocable, non-assignable, equal payments, actuarially sound, State as beneficiary to the extent benefits are paid in order to convert the excess countable resources of $196,580 into an income stream for Betty.
With Betty being 79-years of age, her remaining Medicaid life expectancy is 10.24 years / 122.88 months. As such, in order for Betty’s SPIA to be deemed “actuarially sound”, her SPIA may not be structured with a period certain/term longer than 122 months. By placing the $196,580 into a Medicaid SPIA structured over 122 months, the SPIA would pay her approximately $1,700 per month.
Immediately following the SPIA purchase, Robert submits a Medicaid application and is deemed immediately eligible for Medicaid because their excess resources of $196,580 has been properly spent-down.
By adding Betty’s SPIA income of $1,700 to her social security income of $1,000, her total monthly income equals $2,700. In almost all states, the community spouse — Betty may have unlimited monthly income. However, if the community spouse’s income exceeds the Monthly Maintenance Needs Allowance (“MMNA”) (ranging between $2,058 and $3,160), the community spouse is not entitled to receive a portion of the institutionalized spouse’s monthly income.
In order to protect a community spouse from being impoverished by paying for the institutionalized spouse’s monthly care costs, Medicaid allows the community spouse a minimum amount of income – MMNA. If the community spouse does not have sufficient monthly income to meet his/her needs, he/she will be able to keep a portion of the institutionalized spouse’s monthly income. With Betty having monthly income of $2,700, and with her MMNA being $3,160, she has a monthly income shortfall of $460. Therefore, this amount will be shifted from Robert’s monthly income of $2,000 before determining his monthly co-pay to the nursing home. Robert’s monthly co-pay to the nursing home will equal his monthly income of $2,000 less $460 shifted to Betty less his personal needs allowance of $50 equaling $1,490. As such, we were able to reduce Robert’s co-pay to the nursing home from $7,000 to $1,490. The couple immediately experiences a monthly savings of $5,510!
OPTION THREE: SHORTENING THE MEDICAID SPIA TERM
As you may know, in almost all states, transactions/activities initiated by the community spouse after the institutionalized spouse is deemed eligible for Medicaid, no longer effect the institutionalized spouse’s Medicaid eligibility. Therefore, immediately following the institutionalized spouse securing Medicaid eligibility, the community spouse could win the lottery, make gifts to his/her intended beneficiaries (may be restrictions in some states), and his/her assets may exceed the $126,420 without effecting the institutionalized spouse’s eligibility.
Assuming Betty had a greater income need than the Medicaid SPIA structured over her Medicaid life expectancy of 122 months provided to her, she may choose to shorten the SPIA period certain to a term less than her life expectancy. Or, if Betty was not confident she would outlive the annuity term and wanted to decrease the likelihood that the State would have a right to recover against the SPIA, she may decrease the term to a shorter time-frame. Below are examples of monthly SPIA pay-outs based on the single premium of $196,580.
By reviewing the aforementioned chart you’ll notice that as the Medicaid SPIA period certain/term increases, the monthly payment decreases. You may be asking yourself the question:
“If a community may have unlimited monthly income, why wouldn’t EVERY community spouse choose to purchase a 3-month annuity to obtain their money back ASAP?"
The answer is two-fold: high processing fees and raising red flags with the local Medicaid office.
The processing fee paid by the community spouse on a single premium of $196,580 would be in excess of $3,400! Additionally, the community spouse would receive three monthly payments of $65,559.39! Do you want to be the attorney going into your local Medicaid office to obtain government benefits for an institutionalized spouse whose community spouse has monthly income in excess of $65,559.39? Probably not.
So, what other options exist to avoid creating very short-term SPIAs while also protecting the community spouse?
SUPPLEMENTAL OPTIONS: ANNUAL PAYMENTS VS. MONTHLY
All states require that payments from a Medicaid SPIA must be equal; however, only eleven states require that the payments be made on a monthly basis. In states that only require that the annuity payments be equal (and not monthly), an additional planning opportunity exists. The community spouse could structure the annuity with quarterly, semi-annual, or annual payments. The first annuity payment can be made as quickly as 10 or 30 days after purchasing the annuity.
For example, if the annuity was purchased in March of 2019 with a 2-year annual benefit period, the first annual payment of approximately $98,500 could be made as early as April of 2019. The next annual payment would be made one year later in April of 2020. As a result, a 2-year annual pay SPIA with the first payment being 30 days after the annuity is purchased essentially returns the money back to the client within 13-months!
SUPPLEMENTAL OPTION: USING THE MEDICAID SPIA INCOME TO PURCHASE LTC.
Many times, caring for a loved one who is ill and who is forced into a Medicaid spend-down situation is a traumatic experience for family and friends. These types of experiences will trigger the well (community) spouse to initiate a LTC plan for herself. In our example of Robert and Betty, Betty is 79-years of age, active, and healthy. Betty doesn’t want to have to rely on Medicaid nor does she want to be forced into a skilled nursing facility. Instead, we would use the Medicaid SPIA payments that are returned to her on a monthly or annual basis to purchase an asset-based LTC policy for Betty. For example, if Betty were to receive the annual SPIA payment of approximately $98,500 shortly after Medicaid qualification was granted for Robert and use the annual payment to purchase a life insurance policy with a LTC rider, we could create a lifetime of LTC coverage for Betty with a monthly benefit of $5,300! Assuming Betty will receive Robert’s social security income of $2,000 after he passes, she would have monthly income of approximately $7,300 to pay for long-term care expenses. The policy will cover expenses related to home healthcare, assisted living, and skilled nursing costs. Betty is like most people in that if she needs LTC in her lifetime, she wants to remain at home as long as possible. With $7,300 a month to pay for home care or an assisted living facility, she will be able to remain at home for a very long time.
Finally, unlike a traditional LTC insurance policy that is a “use it or lose it” type of policy, the asset-based LTC policy we recommend to Betty has an enhanced death benefit. Therefore, if Betty is fortunate enough to never need LTC, her intended beneficiaries would receive the death benefit of $132,500.