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Long Term Care in 2020 Protect Against Catastrophic Loss if Possible

| January 09, 2020

Executive Summary: Key Points to Think About and Gather Facts

  1. Understand your own situation.
  2. How will needed Long Term Care be paid for?
  3. Is your home practical? (First floor bathroom. First floor bedroom?)
  4. Is LTC insurance a possibility? Medical Conditions. Expense.
  5. Rearrange finances? How will the healthy spouse / partner pay for living expenses if the incapacitated partner owns the great majority of resources?

Long-term care simplified

How often is it covered?

"Long-term care is a range of services and support for your personal care needs. Most long-term care isn't medical care, but rather help with basic personal tasks of everyday life, sometimes called activities of daily living.

Medicare doesn’t cover long-term care (also called custodial care), if that's the only care you need. Most nursing home care is custodial care."


Bruce's "Rule of Thumb"

Long-Term Care costs are different in different parts of the country, just like other costs of living. If you (and spouse if married) have enough resources to cover 100% of these annual costs without depleting capital, then you might be OK without much further planning.  Ironically, clients and others I know in this situation have frequently done quite a bit of planning


Plan Early - You Might Have More Choices - Care Choices as well as Financial Choices

Overview: Medicare vs. Medicaid

Medicaid Rules and Their Enforcement Continue to Change and Evolve - Including Differences Between States

Medicare is the primary health "insurance" for many people in the United States age 65+. Eligibility is usually determined by age. Medicare broadly and over-generalized covers hospital care as well as care by doctors and other providers when you are not hospitalized. Medicare does not generally cover Long-Term Care, also known as Custodial Care.  

Medicaid Overview

Medicaid has a much broader group of potential benefits.  Eligibility is broadly determined by financial circumstances.  Also ... critical for this topic ... Medicaid provides Long Term Care Services not generally provided by Medicare. Medicaid provides health coverage to millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults and people with disabilities. Medicaid is administered by states, according to federal requirements.  The program is funded jointly by states and the federal government.  69 Million people covered as of July 2017 per site linked below.

Medicaid Long Term Care Overview

"Millions of Americans, including children, adults, and seniors, need long-term care services as a result of disabling conditions and chronic illnesses. Medicaid is the primary payer across the nation for long-term care services. Medicaid allows for the coverage of these services through several vehicles and over a continuum of settings, ranging from institutional care to community based long-term services and supports. 

CMS is working in partnership with states, consumers and advocates, providers and other stakeholders to create a sustainable, person-driven long-term support system in which people with disabilities and chronic conditions have choice, control and access to a full array of quality services that assure optimal outcomes, such as independence, health and quality of life."    SOURCE:

Single Person Over-simplified Example #1: Retired MD

Certain retirement programs have in the past or continue to be independent of Social Security.  Here's an over-simplified example for possible clarity.  Suppose an MD worked for the Federal Government and retired after 35 years of service with an annual CSRS pension of $125,000.  Never married.  No children. No one else depending on her for retirement.  If she needs LTC - Long Term Care - let's say in this example her Long Term Care costs $75,000 per year.  Let's also assume she owns her own home outright.  Even after paying typical income and other taxes, let's say she is good.  Her pension pays for her LTC.  At her death her heirs-at-law inherit what they inherit.  She won't ever, in my example, use Medicaid.

Single Person Over-simplified Example #2: Retired Postal Worker

In this example, let's just say the PO Worker's total retirement income from pension and / or Social Security is $40,000. Owns the home.  No children. No other assets.  If his LTC again costs $75,000, his retirement income will pay $40,000 of it and in this hypothetical example, Medicaid might pay the rest.

Question I Don't Know - Recovery During Lifetime:  If the Postal Worker makes a complete recovery and moves back into his own home, can he now keep his $40,000 pension for the rest of his life.  Or will Medicaid try to get him to "pay back" some of what Medicaid paid for his care?

Question I Might Know - Estate Recovery After Death: Let's make the example apply more widely and now assume he has one or more children. Let's also assume the above answer is, "No, Medicaid did not try to recover any money from his pension and / or Social Security while he was alive."  Now that he has died, will the (all adult, able-bodied) children inherit his house free and clear?  Answer is unclear.  But if you read this in its entirety and look at the links, it appears that Medicaid could require the house to be sold and collect whatever "debt" Medicaid is "owed."

Long-Term Care insurance - LTCi - Disadvantages

  1. Traditional: You might be out-of-pocket the premium and may never use it. Your Net Worth might go down at least by the cost of the premium.

  2. Traditional: Your premiums might not be guaranteed and so might go up after the policy is issued. Corollary, or your benefits might be reduced for paying identical premium (sometimes that might be a choice with some carriers.)

  3. Traditional & "Hybrid:" There is very frequently a waiting period before you will receive any LTCi benefit payments. (e.g. 90 days - can vary by policy and carrier.)

  4. Traditional & Hybrid: You might have a potential "opportunity loss" of potentially not capturing investment gains on premium dollars that could have otherwise been invested.

  5. Traditional & Hybrid: The insurance benefit probably will not cover 100% of your costs of care.

  6. Traditional & Hybrid: (one carrier might be an exception) Lifetime coverage is rare.  So you could exhaust your benefits and still have to pay for care yourself (or family.)

  7. Traditional & Hybrid (one exception I'm aware of) Benefit is "reimbursement," not "indemnity."  So you need to keep track of your costs and have them confirmed.

  8. Traditional & Hybrid: You might need a Plan of Care established between the carrier and the person needing care and perhaps a TPA - Third Party Administrator

  9. Traditional & Hybrid: To typically qualify medically for benefits, you must be unable to perform "Two of Six" Activities of Daily Living (ADLs) without help from another person. (Or dementia might qualify by itself.) (Many people have varying kinds of physical / health challenges but they can actually perform 5 of 6 - i.e. they are unable to do just one without help.  Won't qualify typically.)

  10. Traditional & Hybrid: Medical and Financial Underwriting. Confidential.  But intrusive. You can be declined.

  11. Hybrid: Insurance "multiplier" might not be that large - e.g. maybe 2X - or 3X - depending on age and health when policy is issued

Long-Term Care insurance - LTCi - Advantages

  1. Traditional & Hybrid: Avoid financial catastrophe and / or major financial disruption.

  2. Traditional might end up paying you much more in benefits than you ever paid into it

  3. Traditional & Hybrid: LTCi benefit might offer you additional care choices - in-home and / or -in facility - not available to you if you don't have LTCi and end up getting care provided by Medicaid.

  4. Traditional & Hybrid: Many carriers might not actually accept any money with application.

  5. Traditional & Hybrid: "Free Look:" After your policy first premium is paid and your policy is issued, your state might have a "Free Look" law requiring carrier to refund 100% of what you paid if you change your mind and do not accept the policy during the "Free Look" period.

  6. Hybrid: Premium / Benefits are frequently guaranteed once policy is issued.

  7. Hybrid: Typically might have a death benefit so your children / grandchildren / heirs / estate might recoup some - maybe much - of what you paid if you died without needing any LTCi benefit.

  8. Hybrid: Some might offer a Return of Premium guarantee

  9. Hybrid: Some might offer guaranteed cash value

Estate Recovery

"State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.

Under certain conditions, money remaining in a trust after a Medicaid enrollee has passed away may be used to reimburse Medicaid. States may not recover from the estate of a deceased Medicaid enrollee who is survived by a spouse, child under age 21, or blind or disabled child of any age. States are also required to establish procedures for waiving estate recovery when recovery would cause an undue hardship.

States may impose liens for Medicaid benefits incorrectly paid pursuant to a court judgment. States may also impose liens on real property during the lifetime of a Medicaid enrollee who is permanently institutionalized, except when one of the following individuals resides in the home: the spouse, child under age 21, blind or disabled child of any age, or sibling who has an equity interest in the home. The states must remove the lien when the Medicaid enrollee is discharged from the facility and returns home."


A very long time ago I was taught that people often make decisions emotionally and justify them rationally. Frequently true.  Probably in both of these cases below. Both examples have something in common.  By taking an action -- either way, depending on individual circumstances, - an individual gains some benefit they wouldn't otherwise have.

In the case of getting married, as the quote both above and below show (the same quote, repeated,) Medicaid will not attempt to recover (e.g. place a lien on real estate) from the estate of a Medicaid recipient when a spouse is living in the home.  So if you own the home yourself.  And you want the other person living in the home to retain it after you go on Medicaid and, ultimately ... die.  Then, always consult professionals but getting married would enable that other person to keep the home as Medicaid is currently run.  Also see below.

In the case of getting divorced, if, just for example, a husband and wife have $2.0 million, the wife (in the example) might not be able to keep "her" $1.0 million and let the other $1.0 million be paid for husband's care before Medicaid starts paying. According to the "Spousal Impoverishment" standards (see link below,) in 2017 the non-incapacitated spouse can keep $120,900 .  The rest would have to be "spent down"  So as the quote below shows, the healthy spouse will be able to keep significantly more money for herself if she divorces. 

"States may also impose liens on real property during the lifetime of a Medicaid enrollee who is permanently institutionalized, except when one of the following individuals resides in the home: the spouse, ... "

"Q: If I divorce my husband, will his assets be lowered, so that he can qualify for Medicaid so he can get the long-term care he desperately needs?

A. Sometimes couples are willing to take the big step of obtaining a divorce in order to protect their assets, so that the ill spouse can qualify for Medicaid without impoverishing the well spouse. Under the federal Medicaid laws, a married couple can only protect up to $115,640 between the two of them (2012 figure). All countable assets over that amount must be "spent down," converted into non-countable assets, or otherwise disposed of in a way that does not cause a penalty period. Once a couple is divorced, of course, then the assets of the ill former spouse are counted but those of the other now-ex-spouse are not counted." 

Rearranging and / or restructuring resources, annuities and gifts.

This is potentially a very complex topic that should be discussed with professionals and might be the topic of another blog. Also see my previous post:

There are multiple discussions about annuities on   Also please see links below plus that site is searchable.  In the "Should I Get Divorced" example above, it might be possible for the healthy spouse to take "her" $1.0 million and buy an Immediate annuity (SPIA) on herself.  Based on her age and health ((Mirror image of life insurance -- less healthy might mean larger annuity payments ...) perhaps she will receive $65,000 annually guaranteed for her lifetime.  Some would "make that trade" for $1.0 million in a heartbeat.  Others would never do it.  But you would do it quickly if you were otherwise going to lose the $1.0 million!

Less clear would be what might happen if there were also an identical SPIA on the husband - purchased while he was still healthy.  It is clear that the $65,000 would go to Medicaid while husband is alive.  What happens after he dies?  It is less clear.  If the SPIA were ... e.g. ... "Life with 15 years certain" and husband lived only 5 years, conceptually and theoretically, wife could receive the payments for the 10 year balance


Oversimplified for the purpose of this discussion, gifts between spouses - both U.S. citizens - fall under the Unlimited Marital Deduction. So no limit and no gift tax.

But, as discussed above, Medicaid has different rules than Federal Estate Tax law for what married couples can or can't do for one of them to financially qualify for Medicaid. So gifting might be a strategy, or a group of strategies, more for preserving some resources for non-spouses ... e.g. children and grandchildren.  Get good advice.  "Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday."  If you are looking to qualify financially for Medicaid, it's probably good to expect that Medicaid will "look back" at your finances -- especially possible gifts --- for 5 years.  If they discover gifts they won't allow, you will potentially face a penalty period of time where Medicaid won't pay for your care.

"Filial Responsibility Laws"

No Medicaid Primer should be complete without a brief mention. 

"Currently, thirty states (Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia) have passed filial (due from son or daughter) responsibility laws.  In a nutshell, these laws require adult children to financially support their parents if they are not able to take care of themselves."

Note that enforcement varies and judges seem to have a lot of discretion!

Perhaps with some exceptions I don't understand ...

We are not a Third World Country.  You will get care.  The question is ... Who pays?

  1. If you have no money, the answer is ... Medicaid.
  2. If you do have money, the answer is ... You do ... not Medicare ... except for maybe small amounts... at most.

Long-term care

How often is it covered?

"Long-term care is a range of services and support for your personal care needs. Most long-term care isn't medical care, but rather help with basic personal tasks of everyday life, sometimes called activities of daily living.

Medicare doesn’t cover long-term care (also called custodial care), if that's the only care you need. Most nursing home care is custodial care."


Related Links

Related Links