Planned Retirement Education

Durable Power of Attorney for Health Care (DPAHC)/Health-Care Proxy

Advantages

• Is flexible–allows your representative to act on your behalf and make medical decisions based on current circumstances
• Generally, your representative can make any decision you would be allowed to make
• Generally can be used any time you become incompetent

Disadvantages

• Not practical in an emergency–your representative must be present to act on your behalf
• Not permitted in some states

Living Will 

Advantages

• Allows you to convey decisions regarding your medical care without relying on any one person to carry out your wishes

Disadvantages

• Generally can be used only if you are terminally injured or ill, or in a persistent vegetative state
• Generally used only to make decisions regarding life-sustaining treatments
• Emergency medical personnel generally cannot withhold emergency care based on a living will
• Not permitted in some states

Do Not Resuscitate (DNR) Order 

Advantages

• Allows you to decline CPR if your heart or breathing fails
• Effective in an emergency–your doctor should note an in-hospital DNR order on your chart. Out-of-hospital DNR orders take various forms, depending on the laws of your state. ID bracelets, MedicAlert® necklaces, and wallet cards are some methods of noting DNR status.

Disadvantages

• Some states allow DNR orders only for hospitalized patients–others do not restrict eligibility
• Only used to decline CPR in case of cardiac or respiratory arrest
• Not permitted in some states

Durable Power of Attorney (DPOA)

Advantages

• You control who acts and what they can do with your property
• Low cost to implement
• Avoids court intervention

Disadvantages

• Some states do not permit a “springing” DPOA (i.e., a DPOA that is effective only after you have become incapacitated)

What is it?

One of the nicest gifts you can leave your heirs when you die is an estate that’s in good order, planned according to your wishes, with a guardian designated to represent any minor children, and with provisions to cover estate taxes. You can accomplish all this by leaving a will, yet close to 40 percent of Americans die without one.

If you die without a will, that is if you die intestate, you leave it to the courts to resolve your estate, which may or may not pass according to your wishes. The court will appoint an administrator for your estate and a guardian for your minor children. These may be people who don’t have your best interests at heart and whom you would not have chosen to represent you. You lose the opportunity to minimize estate taxes and to avoid the potentially costly intestacy process, both of which can greatly diminish the value of your estate. You owe it to yourself and your loved ones to ensure that your estate is distributed as you wish. Don’t leave it to the state and the courts to make these critical decisions for you. You can ensure that your estate is planned according to your wishes by drawing up a will, selecting an executor, and nominating a guardian for your minor children. If you care about your loved ones, don’t die intestate.

Wills

A will is a legal document that allows you to determine how your estate is distributed after your death. In addition to saying who gets what, it allows you to name an executor for your estate and to designate a guardian for your minor children. A will also provides an opportunity to minimize estate taxes and probate costs. One of the most important advantages of a will is that it allows you to avoid intestacy. If you die without a will, the intestacy laws of your  state of domicile determine how your estate is distributed. Intestacy can be a costly process for your estate. Without a will, the courts will also select an administrator for your estate and appoint a guardian for your minor children. These may not be the people you would have chosen to represent you. You can control the distribution of your estate and avoid these other potential difficulties by drawing up a will. For more information, see the discussion on Wills.

Selecting an executor

An executor represents you after your death in settling your estate. You want your executor to be someone you trust who has the necessary knowledge and experience to oversee your affairs. You can designate an executor in your will. If you don’t, the court appoints one for you. He or she is called an administrator. With a court-appointed administrator, you have no say in who manages your final affairs. Also, an executor or administrator is entitled to a fee from your estate for the services he or she provides. Close family members often waive the fee. A court-appointed administrator, however, can take a sizable cut, greatly diminishing the value of your estate. For more information, see the discussion on Selecting an Executor.

Nominating a guardian/conservator for minor children

If your children are still minors when you die, and your spouse does not survive you, you’ll need someone to raise your children. If you haven’t nominated a guardian in your will, the court will appoint someone. If your spouse dies before you or if you and your spouse die together, the court may appoint an aging grandparent who lacks the health or financial resources to care for the children until they come of age. Or, the court may appoint a sibling with whose lifestyle you disagree. If no one else comes forward, the court may name a relative who volunteers, regardless of that person’s suitability.

Guardians should be your trusted representatives. You can nominate guardians in advance through your will and other legal directives. For more information, see the discussion on Nominating a Guardian/Conservator.

Intestacy

If you die without a valid will, the intestacy laws of your state of domicile govern how your estate is distributed. In an effort to provide for the uniform succession of property not covered by a will, your state legislature has essentially created a one-size-fits-all will through its intestacy laws. If you die intestate, your state legislature and not you determines who gets what. Intestacy laws vary by state, but there is a general pattern to them. They determine who your heirs are regardless of whether you had good or bad relationships with them–the order of succession, the percentage of your estate each receives, and in what form they receive it. There’s no flexibility to provide for a devoted friend, an unrelated caretaker, or a favorite charity, or to provide a greater share for a less well-off child or relative. Intestacy can also be a more costly process than probating a will, and it doesn’t allow you the opportunity to minimize estate taxes.

What is long-term care?

In general, long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this ongoing care arises when you have a chronic disability or when physical/mental impairments prevent you from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. For details about these activities of daily living, see Long-Term Care Insurance (LTCI).

What are the three levels of long-term care?

Because some long-term care insurance policies will subsidize only certain forms of long-term care, it is important to understand the accepted terminology. Long-term care may be divided into three levels:

• Skilled Care: Continuous “around-the-clock” care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is established.
• Intermediate Care: Intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under the supervision of a physician.
• Custodial Care: Care designed to assist one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills but is supervised by a physician.

Tip: Note that the above terms may be defined differently by Medicare. For more information, see Medicare.

Where is long-term care provided?

Although long-term care can be provided in a number of places, long-term care insurance policies sometimes limit the facilities where you can choose to receive long-term care. Most long-term care is provided in the following venues:

Nursing homes

Although some homes for the aged provide custodial care primarily, many nursing homes can provide skilled care, intermediate care, and custodial care. When a patient no longer needs skilled care, for instance, he or she can be transferred to an intermediate or custodial section within the same facility. Nursing homes provide 24-hour care and can usually offer a great range of care, including intravenous therapy and physical therapy. For information about evaluating nursing homes, see Choosing a Nursing Home. 

Home health care

Home health care makes particular sense when you’re recovering from an injury or illness and don’t need 24-hour care. It also makes sense when the type of care you require is custodial. Home health care is most often provided by a visiting nurse, a therapist, or a home health aide. Often, several visits to your home are made each week to provide you with the appropriate care. This care ranges widely and can include respiratory therapy, cleaning and bandaging of wounds, monitoring health, and assistance with bathing and dressing. 

Adult day care

Adult day-care centers provide care in a group setting for aged or disabled people who live at home. Such people may need help with the basic activities of daily living or perhaps have a slight mental impairment. Often, these people live with a relative who works and cannot take care of them during the day. Adult day-care centers usually provide an elderly person with social interaction, therapeutic activities, preventive health services, and nutritional meals.

Hospice care

A hospice is a place that provides comfort and care for terminally ill patients. This type of care may be provided in a special facility or perhaps at home.

Respite care

Respite care provides some time off for the caregiver (usually a relative) who regularly provides care for an elderly or disabled person. It can be offered in a nursing home (by way of a temporary confinement of the elderly person) or at home through the services of a home health aide.

What is long-term care insurance? 

Long-term care insurance (LTCI) pays a certain dollar amount per day, for a set period, for skilled, intermediate, or custodial care in nursing homes and, sometimes, in alternative care settings, such as home health care. Because Medicare and other forms of health insurance do not pay for custodial care, many nursing home residents have only three alternatives for paying their nursing home bill: cash, Medicaid, and LTCI. In general, long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this care arises when physical or mental impairments prevent one from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. These are normally called the activities of daily living (ADLs). Long-term care may be divided into three levels: 

• Skilled care is “around-the-clock” care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is drawn up, and it is usually believed that the patient will recover at some point.
• Intermediate care refers to intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under the supervision of a physician.
• Custodial care is designed to help one perform the activities of daily living (such as bathing, eating, dressing, etc.). It can be provided by someone without professional medical skills but is supervised by a physician.  

How is LTCI useful as a Medicaid planning tool? 

To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state).  In determining your eligibility for Medicaid, a state may count only the income and resources that are legally available to you for paying your medical costs. Consequently, a number of tools have been developed to shelter assets, including irrevocable trusts, life estates, and gifts. Each of these options, however, involves relinquishing your control over the assets (to some extent). Purchasing an LTCI policy when you are healthy helps you maintain control over your assets until such time as you actually require care. Therefore, there is no need for you to divest yourself of assets years ahead of time. Indeed, even if you transfer away certain assets soon after you enter a nursing home and apply for Medicaid, your LTCI policy may cover your nursing home bills during the ineligibility period caused by the transfer. 

Example(s):  Assume Marge is a 75-year-old widow who purchased a 60-month LTCI policy a few years ago. Marge enters a nursing home. At the same time, she transfers all of her assets into an irrevocable trust in order to qualify for Medicaid when the insurance benefits run out. Transferring “countable” assets into an irrevocable trust within 60 months of applying for Medicaid creates a waiting period or period of ineligibility for Medicaid, based on a formula set by the state. Without the LTCI policy, Marge would have no way to pay her nursing home bills for a period of time and would have to borrow the money or perhaps live at home with her children. However, Marge’s LTCI policy covers her nursing home bills during the ineligibility period. When her insurance benefits run out, she will qualify for Medicaid. 

Note that in some states, if you purchased an older “qualified” long-term care insurance policy (i.e., one purchased prior to OBRA ‘93) your house will be protected from the imposition of a Medicaid lien upon eligibility for Medicaid benefits. Some people were able to purchase the minimum coverage necessary to obtain this protection against a Medicaid lien. However, the benefits payable under these policies typically represent only a small fraction of the expected cost of nursing home care. 

Tip:  The Deficit Reduction Act of 2005 gave all states the option of enacting long-term care partnership programs that combine private LTCI with Medicaid coverage. Partnership programs enable individuals to pay for long-term care and preserve some of their wealth. Although state programs vary, individuals who purchase partnership-approved LTCI policies, then exhaust policy benefits on long-term care services, will generally qualify for Medicaid without having to first spend down all or part of their assets (assuming they meet income and other eligibility requirements). Although partnership programs are currently available in just a few states, it’s likely that many more states will offer them in the future.  

When do benefits begin? 

Most policies provide that benefits will be “triggered” by certain physical and/or mental impairments. The most common method for determining when benefits are payable is based upon your inability to perform ADLs. The most common ADLs are eating, bathing, dressing, continence, toileting, and transferring (getting from bed to chair, etc.). Typically, benefits are payable when you’re unable to perform a certain number of the ADLs, such as two out of the six or three out of the six. Some policies, on the other hand, will commence benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for “cognitive incapacity” or mental incapacity, demonstrated by your inability to pass certain mental tests. 

Caution:  Since many policies contain a waiting period or deductible period, your benefits may not begin the first day you enter a nursing home. These deductibles can range from a zero-day deductible up to a 365-day deductible, and naturally, a longer deductible means a lower premium. It also means you’ll have to pay nursing home bills out of your own pocket for a longer period of time. So, if a nursing home in your area charges $200 per day, a policy with a 30-day deductible period will require you to pay $6,000 of your own money before the insurance will kick in. 

When you purchase an LTCI policy, however, you will be able to select the plan design that you desire (within the constraints of your budget). Thus, you’ll be able to choose the waiting period (if any), the benefit amount, and the benefit period.  

What do LTCI policies cost? 

Your yearly premium for an LTCI policy depends on a number of factors, including your age when you purchase the policy, the length of the coverage period (for instance, three years, five years, or lifetime benefits), the amount of the daily benefit provided, the range of care provided, and whether you purchase inflation protection or other optional coverages. When buying an LTCI policy, you must consider not only whether you can afford to pay the premium now, but also whether you’ll be able to continue paying premiums in the future, when your income may be substantially decreased.  

What should you look for in an LTCI policy? 

Duration of benefits 

When purchasing LTCI, you’ll be asked to select a benefit period. Benefit periods generally range from one to six years, with some policies offering a lifetime benefit. You’ll want to choose the longest benefit period you can afford. If you can’t afford a lifetime benefit, consider choosing a benefit period that coordinates with the look-back period for Medicaid (five years). For more information about ineligibility periods, seeLook-Back Period for Medicaid. 

Nursing home daily benefit 

Most policies let you choose the amount of coverage, typically running anywhere from $40 to $150 or more per day. Of course, the greater the daily benefit and the longer the benefit period, the more the policy will cost. Because the formula for determining the Medicaid ineligibility period (if any) is based on the average cost of nursing homes in your locale, you should ascertain this figure. Certainly, it wouldn’t make sense to purchase a policy with a daily benefit of $50 if the average daily cost of nursing homes in your area is $150 per day. Additionally, you should consider whether you plan to remain in your present state or whether you plan on moving to another state at some point in the future in order, for example, to be closer to your children. 

Optional inflation rider 

Although the average daily cost of nursing homes in your locale may be $200 today, it could be significantly more five years from now. Therefore, an inflation rider is very important. The younger you are when you buy an LTCI policy, the more important inflation protection will be. Unfortunately, an inflation rider may significantly increase the policy cost. 

Range of care 

Review the policy carefully to determine what expenses are covered. A very comprehensive LTCI policy will cover skilled care, intermediate care, custodial care, home care, adult day care, and even alternative care (assisted living). Most policies will cover skilled, intermediate, and custodial care. Home health care can be an important consideration, because most people prefer to live in their own homes for as long as possible. Home care makes sense when, for example, you’re recovering from a stroke, broken bone, or illness and don’t need lifetime care. It is also useful if you’re living with your children and require the services of a nurse or home health aide a few times a week. It’s generally a good idea to insure for at least a one- or two-year home health care benefit period. 

Pre-existing conditions 

A pre-existing condition may be defined as a medical condition for which you sought medical advice or treatment (or regarding which you experienced symptoms) within a specified period of time, such as one year or five years, before applying for the LTCI policy. Although some companies may ignore pre-existing conditions, others may refuse to pay for treatment related to those conditions. Often, however, insurance companies will impose a waiting period on you before your coverage will go into effect for treatment of pre-existing conditions. Typically, you’ll have to wait up to six months before that condition is eligible for coverage. Even though some companies will not require a medical examination before issuing your policy, it is still necessary that you truthfully disclose any pre-existing conditions. Otherwise, your company can refuse coverage for that condition or terminate your coverage altogether. 

Other exclusions 

Read the policy carefully to ascertain what isn’t covered. For instance, since Alzheimer’s disease, senility, and Parkinson’s disease are common reasons for long-term care, make sure that your policy doesn’t exclude these conditions. Also, most policies will not pay benefits for a person who has an alcohol or drug addiction, an injury caused by an act of war, or injuries that were self-inflicted or resulted from attempted suicide. 

Premium increases 

Most policies provide that your premiums will not increase unless the rates for everyone in a given class are increased. Your own premiums cannot be increased simply because of your age, health status, or claims experience. However, rates for the entire class you’re in (e.g., the class of 70-year-old retired autoworkers) may be adjusted, based on claims experience. 

Guaranteed renewability 

When LTCI was introduced, it was a conditionally renewable contract. This gave the insurance companies discretion to cancel policies and/or raise rates. Most policies now are “guaranteed renewable” as long as you pay your premiums, so do not purchase a policy that is renewable at the option of the insurer. The insurance company should guarantee that it will offer you the opportunity to renew the policy and maintain the coverage. The company cannot condition the renewal on evidence of your insurability (i.e., good health). All LTCI plans which qualify for deductibility for federal income tax purposes are guaranteed renewable. 

Waiver of premiums 

An important feature of your policy may be the waiver of premium provision. This provision allows you to stop paying premiums once you are in a nursing home and the insurance company has started to pay benefits. Although some companies will waive your premium as soon as they make the first benefit payment, others may wait up to 90 days. A good contract will waive premiums based on the use of home health care as well, but read your contract to be sure. This provision can be especially important to a potential Medicaid applicant since it is likely that you will be unable to afford extended nursing home premiums if you’ve transferred your assets away as part of an asset protection plan. 

Grace period for late payment 

A good policy should provide a one-month grace period during which the policy will remain in effect if you are late paying the premium. Absent such a grace period, your policy could be canceled immediately. 

Return of premium 

Some companies offer return of premium or nonforfeiture benefits for individuals who cancel their policies after paying premiums for a number of years. For instance, a policy might return nothing if canceled within the first five years, 15 percent of the premium after five years, and perhaps all of the premium after 35 years. However, adding a return of premium rider to your policy may significantly increase the policy cost. 

Prior hospitalization 

Beware of policies that require you to have a hospital stay of at least three days before qualifying for LTCI benefits. This requirement is very restrictive and can greatly limit your ability to receive any benefits under your policy if you require only custodial care.  

How should you compare providers? 

It’s important to check out the financial strength of the companies in which you’re interested. You can determine a sound investment by reviewing your company’s A. M. Best and Company’s rating, along with the opinions of other rating services such as Moody’s or Standard and Poor’s, at your local library. You should select a company that has received a rating of A or A+ from A. M. Best. Of course, you can also request a copy of the firm’s annual report.

What are the tax ramifications? 

Federal law generally allows you to treat all or part of the premium for a tax-qualified long-term care insurance contract as a medical expense. As a consequence, the portion of your LTCI premium treated as a medical expense should be deductible for federal income tax purposes. To claim a tax deduction, you must itemize your deductions and the total of your medical expenses (including the applicable portion of any LTCI premiums) must exceed 7.5 percent of your adjusted gross income. 

Caution:  Not all long-term care contracts are tax qualified–your policy must meet certain federal standards. For more information, see IRS Publication 502,Medical and Dental Expenses. 

Tip:  Benefits you receive from a tax-qualified LTCI policy generally are not subject to income tax; they are treated as excludable benefits received for personal injury and sickness. However, benefits received from a policy that is not tax qualified might be subject to income tax.

What health care benefits are available in retirement? 

Healthcare in retirement is available from many sources. Government programs (such as Medicaid and Medicare) offer numerous health care benefits. However, you may need to purchase supplemental health insurance or Medigap, as well. Most Americans are eligible to begin receiving Medicare benefits at age 65, but qualifying for Medicaid may require some planning on your part. In addition to these resources, you may also be entitled to military health care benefits if you are a veteran, retired service member, or the spouse or widow of a veteran or retired service member. Continuing care retirement communities and nursing homes also offer health care services for older individuals. Depending on your specific needs and circumstances, you may use any number of these resources during your retirement years.  

Medicare 

In general 

Medicare is a federal health insurance program created in 1965. Medicare primarily assists those who are 65 or older, but if you are disabled or have kidney disease, you may be eligible for Medicare coverage no matter what your age. Medicare currently consists of:

• Part A (hospital insurance),
• Part B (medical insurance),
• Part C (which allows private insurance companies to offer Medicare benefits), and
• Part D (which covers the costs of prescription drugs), with each part having its own eligibility requirements. You may qualify for one or more parts, or you may choose to accept or decline coverage if you are eligible. Many health policies limit coverage for Medicare-eligible individuals regardless of whether they have accepted Medicare coverage. 

Medicare benefits for disabled individuals 

Under certain conditions, the disabled are eligible to enroll in Medicare before age 65. If you have been receiving (or have been entitled to receive) Social Security disability benefits for at least 24 months (not necessarily consecutively), you may be eligible to enroll in Medicare. To enroll, you must be entitled to benefits in one of the following categories:  

• A disabled individual of any age receiving worker’s disability benefits
• A disabled widow or widower age 50 or older
• A disabled beneficiary who is older than age 18 and receives benefits based on a disability that occurred before age 22 

In addition, Medicare may be available at any age if you are disabled as a result of chronic kidney failure requiring dialysis or a kidney transplant.  

Qualified Medicare Beneficiary program 

If you have limited means, you may be eligible for the Qualified Medicare Beneficiary (QMB) program. Here, your state’s Medicaid program may pay for your Medicare Part B premium, Part A and Part B deductibles, and coinsurance requirements. Eligibility rules may vary from state to state, but in general, you must meet the following three criteria:

• You must be entitled to Medicare Part A
• Your income must be at or below the national poverty level
• The value of your assets must be below a certain level  

Medigap 

In general 

Medigap is supplemental insurance specifically designed to cover some of the gaps in Medicare coverage. Although the name might lead you to believe otherwise, Medigap is provided by private health insurance companies, not the government. However, Medigap is strictly regulated by the federal government. 

Every Medigap policy offers certain basic core benefits, and various additional benefits may be included as well. The basic benefits and the optional benefits can only be combined in certain ways, creating 12 standard Medigap policy types. Basic Medigap will cover most of your Medicare co-payments, while optional benefits may cover your Medicare deductibles, prescription drugs, skilled nursing facility care, preventative care, and charges that result when a provider bills more than the Medicare-approved amount for a service. 

Caution:  No new Medigap policies with drug coverage (plans H, I, and J) are currently being sold, although two new types of Medigap benefits packages are available (plans K and L).  

Medicaid 

In general 

Medicaid provides medical assistance to aged, disabled, or blind individuals, or to needy, dependent children who could not otherwise afford the necessary medical care. Medicaid pays for a number of medical costs, including hospital bills, physician services, home health care, and long-term nursing home care. Each state administers its own Medicaid programs based on broad federal guidelines and regulations. Within these guidelines, each state performs the following: (1) determines its own eligibility requirements; (2) prescribes the amount, duration, and types of services; (3) chooses the rate of reimbursement for services; and (4) oversees its own program. 

Applying for benefits 

To apply for Medicaid, you must use a written application on a form prescribed by your state and signed under penalties of perjury. Give the application to your state Medicaid office. Typically, you will need to provide proof of age, marital status, residence, and citizenship, along with your Social Security number, verification of receipt of government benefits, and verification of your income and assets. A responsible individual can complete the application on behalf of an incompetent or incapacitated individual.  

Eligibility 

To qualify for Medicaid, you must meet two basic eligibility requirements. First, you must be considered categorically needy because of blindness, disability, old age, or by virtue of being the parent of a minor child. Next, you must be financially needy, which is determined by income and asset limitation tests. States have much discretion in determining which groups their Medicaid programs will cover, but as participants in Medicaid, they must provide coverage for all residents who are considered categorically needy.

Transfer of assets 

Because Medicaid eligibility is based on your income and other resources, state Medicaid authorities are interested in knowing whether you have tried to transfer assets out of your name in order to qualify for Medicaid. When you apply for Medicaid, the state has the right to examine your finances and those of your spouse as far back as 60 months before the date you applied for Medicaid. Only certain transfers are prohibited. Fair market transactions will typically be considered legitimate, but if you transfer assets for less than fair market value around the time you apply for Medicaid, the state will presume that the transfer was made solely to help you qualify for Medicaid.

Planning goals and strategies 

As mentioned earlier, the state has the right to look into your financial transactions to determine whether you have transferred assets solely to qualify for Medicaid. However, the state may count only the income and assets that are legally available to you for paying your bills. Consequently, several methods have been developed to help you shelter your assets from the state and facilitate Medicaid qualification. Proper planning can help you to qualify for Medicaid, shelter “countable” assets, preserve assets (including the family home) for loved ones, and protect the healthy spouse (if any). For more information, seePlanning Goals and Strategies. 

Medicaid qualifying trusts 

To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state). A trust helps you to qualify for Medicaid because it can shelter your income and assets, making them unavailable to you. The state Medicaid authorities cannot consider assets that are truly inaccessible to the Medicaid applicant. Therefore, anything that stays in an irrevocable trust will lie outside of your financial picture for Medicaid eligibility purposes. If you are looking for a strategy to shelter your resources, one of the following may be appropriate: (1) an irrevocable income-only trust, (2) an irrevocable trust in which the creator of the trust is not a beneficiary, (3) a Miller trust, or (4) a special needs trust.

Protection of principal residence 

In certain cases, the state may be entitled to seek reimbursement for Medicaid payments by forcing the sale of your principal residence if you are a Medicaid recipient. Medicaid planning tools have been devised to protect your home, but their effectiveness varies. Therefore, it is important to weigh the costs and benefits of each device carefully. If you are looking for a strategy to preserve your home for loved ones, one of the following four methods may be appropriate: (1) an outright transfer or gift of the home, (2) a transfer subject to life estate, (3) a transfer subject to special power of appointment, or (4) a transfer in trust.    

Medicaid and long-term care insurance 

Long-term care (LTC) insurance can be useful as part of your Medicaid planning strategy. Your LTC policy can subsidize your nursing home bills during the Medicaid ineligibility period caused by your transfer of assets to third parties. Thus, it may be possible for you to give your assets away to loved ones, have the security of paid nursing home bills during the ineligibility period, and qualify for Medicaid when the LTC policy runs out.

Medicaid liens and estate recoveries 

Federal law requires states to seek reimbursement from Medicaid recipients for Medicaid payments made on their behalf. Cost-recovery actions against the assets of Medicaid recipients may come in two forms: (1) real or personal property liens and (2) recovery from decedents’ estates. A Medicaid lien makes it impossible for you to sell or refinance your house without the state’s knowledge and ability to collect what it is owed. As for recovery from decedents’ estates, states also can seek reimbursement from your probate estate after you die. States have the option to expand the definition of estate to include all non-probate assets as well.   

Divorce and Medicaid 

From a purely financial perspective, divorce can be a practical move and may actually be used as a Medicaid planning tool. When a spouse enters a nursing home and applies for Medicaid, the couple’s assets must be pooled together and totaled to determine what portion the healthy spouse may keep. After this Spousal Resource Allowance has been determined, the Medicaid applicant must transfer assets representing the amount of the allowance to the healthy spouse. The remaining assets must be spent on the institutionalized partner’s medical care. A divorce court order can supersede the normal Spousal Resource Allowance rules prescribed under state Medicaid regulations. You should consult your legal advisor for further information.  

Military benefits 

Disability benefits, health-care benefits, and long-term care benefits are available through various military programs sponsored by the Department of Defense and the Department of Veterans Affairs (VA), formerly known as the Veterans Administration. Health care for veterans is typically available at VA hospitals and health-care facilities. In general, active service members, retirees, and veterans other than those who were dishonorably discharged are eligible for military benefits. Survivors of service members and veterans are also generally eligible for some of the same benefits. However, the rules surrounding these benefits can be complex and may change frequently. It is best to check with your military personnel office or local VA office if you have questions about any of these benefits.   

Choosing a continuing care retirement community 

Continuing care retirement communities (CCRCs) are retirement facilities that offer housing, meals, activities, and health care to their residents. These communities appeal to people who are currently in good health but who worry that they may need nursing care later on. The CCRC and the resident sign a contract guaranteeing that the CCRC will provide housing and nursing home care throughout the resident’s life and that, in return, the resident pays an entrance fee and a monthly fee. In choosing a CCRC, you should consider factors such as the entrance fee and monthly fees, insurance requirements, the financial stability of the CCRC, its facilities and activities, and the quality of medical care provided to residents.  

Choosing a nursing home 

A nursing home is a licensed facility that provides skilled nursing care, intermediate care, and custodial care. Although you may prefer in-home care, you may have to enter a nursing home if you need round-the-clock care, especially if you can’t get help from family or an in-home caregiver. When choosing a nursing home, you should consider factors such as the cost of the home, the quality of medical care provided, the appearance and the safety of the facilities, the ratio of staff to residents, and recreational opportunities. 

Paying for nursing home care 

Nursing home care can be extremely expensive, and paying for this care is a problem that weighs heavily on the minds of older Americans and their families. There are several resources you can use in planning for this expense, including self-insurance, long-term care insurance, Medicare (limited benefits), Medicaid, and military benefits.  

What does “coordination with government benefits” mean? 

In the context of long-term nursing home care, a number of governmental (and governmentally regulated) programs and tools exist to help you pay for this care. Medicare, Medicaid, Medigap, and long-term care insurance (LTCI) (combined with Medicare) can each assist you to pay for your long-term nursing-home care, assuming you meet their respective qualifications.  

What is long-term care? 

Long-term care refers to a broad range of medical and personal services designed to assist individuals who have lost their ability to function independently. The need for this care often arises when physical or mental impairments prevent you from performing certain basic activities, such as feeding, bathing, dressing, transferring, and toileting. For details about these activities of daily living, see Long-Term Care Insurance (LTCI). 

Long-term care may be divided into three levels: 

• Skilled care — continuous “around-the-clock” care designed to treat a medical condition. This care is ordered by a physician and performed by skilled medical personnel, such as registered nurses or professional therapists. A treatment plan is established, and it is usually contemplated that the patient will recover at some point.
• Intermediate care — intermittent nursing and rehabilitative care provided by registered nurses, licensed practical nurses, and nurse’s aides under the supervision of a physician.
• Custodial care — care designed to assist one perform the activities of daily living (such as bathing, eating, and dressing). It can be provided by someone without professional medical skills but is supervised by a physician.

What is Medicare and to what extent does it subsidize long-term care? 

Medicare is a federal health insurance program for people age 65 and older, certain disabled individuals under age 65, and people of any age with permanent kidney failure. Medicare is divided into two parts: Part A is a hospital insurance program, and Part B is a medical insurance program:

• Part A covers: (1) inpatient hospital care, (2) inpatient care in a skilled nursing facility (SNF), (3) home health care, and (4) hospice care
• Part B covers: (1) doctors’ services, (2) home health care services (for persons not covered by Part A), and (3) certain other outpatient medical services and supplies not covered by Part A 

For more information about Medicare, see Medicare. Medicare was not designed to address custodial and intermediate long-term care needs at institutional facilities. Although Medicare will subsidize skilled medical care in nursing facilities, it will pay for only a certain number of days per year and requires a co-payment after a period of time. In addition, numerous rules exist governing when a beneficiary will qualify for benefits. To qualify for Part A’s SNF care benefit, the patient must have been hospitalized for at least three days before entering a Medicare-approved SNF. (The patient has 30 days from his or her hospital discharge date to enter the SNF.) Furthermore, a doctor must certify that the patient needed and received skilled nursing care or skilled rehabilitation on a daily basis at the SNF.

Assuming these conditions have been met, Medicare will pay for skilled care in the following manner: 

• Medicare will pay the full cost of SNF care for the first 20 days in each benefit period (year).
• The patient must pay a daily co-payment for days 21-100. This co-payment figure increases each year and amounts to $128 per day in 2008 ($124 in 2007).
• After the 100th day of SNF care, the patient must pay all costs. 

Example(s):  Hal was eligible for Medicare, had a stroke, and was hospitalized for four days. Subsequently, he entered an SNF and remained there for the rest of the year (receiving skilled care for the first 30 days and custodial care for the rest of the year). The daily cost of care in his SNF is $150. Hal’s expenses for the year may be calculated as follows:  

Example(s):  Therefore, while Hal ended up paying $51,530 out-of-pocket for his long-term care over the course of the year, Medicare paid only $3,260. The preceding example illustrates the inadequacy of Medicare when it comes to paying for long-term care in a nursing facility. In such facilities, Medicare will pay for skilled care only–it will not pay for custodial care. Medicare is more valuable when it comes to home health care. For information about Medicare and its payment of home health care, see Medicare.  

What is Medigap insurance and to what extent does it subsidize long-term care? 

Medigap is supplemental insurance sold by private insurance companies to fill in some of Medicare’s gaps in coverage. Medigap is an individual health plan that provides benefits for all or part of the deductible and coinsurance amounts not covered by Medicare. Certain benefits not covered by Medicare, such as payment for prescription drugs, may also be covered under particular Medigap plans. For more information about Medigap, see Medigap. 

With respect to long-term care, some (but not all) Medigap plans will subsidize the $128-per-day co-payment for days 21-100 of skilled nursing home care under Medicare Part A. Thus, your first 100 days in a given year of skilled care provided in an SNF will be free of charge. However, you will still have to pay the full cost out-of-pocket for the rest of the year. And bear in mind that Medigap will not pay for intermediate and custodial care in nursing homes. 

Example(s):  Victor owned a Medigap policy that covered the SNF $128 co-payment for days 21-100. After a six-day hospitalization, Victor entered an SNF, where he received skilled medical care for 90 days and custodial care for the rest of the year. The daily cost of care in his SNF is $150. Victor’s expenses for the year may be calculated as follows:  

What is Medicaid and to what extent does it subsidize long-term care? 

Medicaid is a joint federal-state program providing medical assistance to low-income individuals who are aged, disabled, or blind (and to needy, dependent children and their parents), and who cannot otherwise afford the necessary care. Medicaid pays for a number of medical costs, including hospital bills, physician services, and long-term nursing care. 

To qualify for Medicaid’s long-term care benefits, you must be financially and medically eligible. Financial eligibility is based on the amount of your income and assets, and although many people are not financially eligible for Medicaid when they first enter a nursing home, many states allow elders to “spend down” their assets to become eligible. For more information about Medicaid qualification, see Eligibility for Medicaid. 

Typically, Medicaid beneficiaries must require some skilled medical care (e.g., intravenous feeding, treatment of dressings), but a medical condition requiring assistance with activities of daily living can also be part of the eligibility requirements. Thus, intermediate care in an institution will be subsidized in most states, as will home health care and personal care services at home. For more information about the types of Medicaid benefits available, see Medicaid. 

Medicaid is the largest single payor of nursing-home bills in America and is the last resort for people who have no other way to finance their long-term care. Unfortunately, however, because Medicaid mandates income and asset thresholds, many people are forced to exhaust their lifetime savings to become eligible for Medicaid. For information about Medicaid planning, see Planning Goals and Strategies.  

What is long-term care insurance (LTCI), and to what extent does it subsidize long-term care? 

Long-term care insurance (LTCI) pays a selected dollar amount per day for a set period for skilled, intermediate, or custodial care in nursing homes and other long-term care settings. Because Medicare and other forms of health insurance do not pay for intermediate care in a nursing facility and custodial care in general, many nursing home residents have only three alternatives for paying their nursing home bills: cash, Medicaid, and LTCI. 

Most policies will let you select the amount of coverage you want, typically running anywhere from $40 to $150 or more per day. A very comprehensive LTCI policy will cover skilled care, intermediate care, home care, adult day care, hospice care, and assisted living care. 

Example(s):  Dick and Martha are a married couple considering the purchase of an LTCI policy. Each policy pays $150 per day. Policy A offers a 20-day deductible and charges a $3,500 annual premium. Policy B offers a 90-day deductible and charges a $2,000 yearly fee. If Martha enters a nursing home after 10 years, requires 20 days of skilled care during her first year, and intermediate care for the remainder of that year, benefits may be calculated as follows: 

Policy A:  

Example(s):  Policy B:  

Example(s):  Under Policy A, Martha paid 10 years’ worth of annual premiums at the rate of $3,500, for a total of $35,000. Under Policy B, she paid 10 years’ worth of annual premiums at the rate of $2,000, for a total of $20,000. 

An element of risk is always involved in the decision-making process. Martha and Dick need to consider whether entering a nursing home is a substantial likelihood, and, if so, approximately how many years shall pass before entry is required. They must also consider how much extra cash they have to spend on premiums now, and whether they’ll be able to continue those payments well into the future. 

Most policies provide that benefits will be “triggered” by certain physical and/or mental impairments. The most common method for determining when benefits are payable is based upon your inability to perform activities of daily living (ADLs). The most common ADLs are eating, bathing, dressing, continence, toileting, and transferring. Typically, benefits are payable when you’re unable to perform a certain number of the ADLs, such as two out of the six or three out of the six.