A substantial portion of social security expenses is attributed to Medicaid, a federal program that provides funding to states for health insurance coverage of low-income individuals. While states have some autonomy in fund allocation, a significant portion is dedicated to hospice and long-term care for the elderly. In fact, long-term care (LTC) represents the largest share of Medicaid expenditure, with over 82 million low-income individuals relying on Medicaid for health and long-term care coverage. Approximately 30% of Medicaid's total spending of $728 billion is allocated to LTC, making it a significant component of the program.
While certain assets are exempt from estate recovery during the beneficiary's lifetime, none are exempt after the beneficiary's passing.
In California, the cost of long-term care is substantial and expected to increase due to inflation and a shortage of healthcare workers. According to Genworth Cost of Care, the median annual costs for long-term care services in 2021 were as follows:
In California, the California Partnership for Long-Term Care offers a valuable asset protection mechanism for individuals requiring long-term care.
Given the escalating expenses, the federal government has implemented estate recovery practices to recoup the costs associated with long-term care. While certain assets are exempt from estate recovery during the beneficiary's lifetime, none are exempt after the beneficiary's passing. It is crucial, therefore, for individuals to consider obtaining a long-term care insurance policy to safeguard their assets and preserve them for their beneficiaries.
In California, the California Partnership for Long-Term Care offers a valuable asset protection mechanism for individuals requiring long-term care. This program, a collaboration between private insurers and the California Department of HealthCare Services, grants unique benefits. When a policyholder with partnership coverage requires long-term care, the policy payout equals the amount safeguarded from estate recovery after the LTC recipient’s passing, even if the LTC recipient transitions to Medicaid after their LTC benefits are exhausted.
When determining an applicant's asset value for Medicaid eligibility, certain assets are exempt in California. These include the primary residence, home furnishings, personal belongings, one motor vehicle, burial plots, prepaid irrevocable burial plans, designated burial funds up to $1,500, whole life insurance with a face value of $1,500 or less, and term life insurance. Individuals can retain up to $2,000 in assets, while the limit extends to $3,000 for couples requiring care. Additionally, the total community spouse resource allowance (CSRA) stands at $137,400 as of 2022. It’s important to understand that none of these assets are exempt from estate recovery once the beneficiary passes if the LTC recipient had no LTC insurance.
Many life insurance policies offer long-term care insurance as a rider, where the policyholder is entitled to receive 2-3 times the policy’s death benefit for their long-term-care needs.
It is important to clarify that over 90% of individuals do not require long-term care in a skilled nursing facility, which is the most expensive type of LTC care. Instead, LTC recipients greatly benefit with custodial care which also plays a significant role in maintaining the beneficiary’s independence. Long-term care benefits are triggered when a beneficiary is unable to do 2 of the 7 activities of daily living. The ADLs include bathing, dressing, eating, continence, transferring, toileting, and ambulating (moving around).
Given the prevalent need for LTC insurance, many life insurance policies offer long-term care insurance as a rider, where the policyholder is entitled to receive 2-3 times the policy’s death benefit for their long-term-care needs. Some policies even offer to pay for long-term-care for as long as the beneficiary is alive, even after the long-term care benefits expire. However, in such cases, the beneficiary of the death benefit in the life insurance policy may not receive any proceeds from the policy's death benefit when the long-term-care recipient, the owner of the policy, passes away.
Many individuals mistakenly believe that Medicare is an appropriate solution for long-term-care. However, it's important to understand that Medicare is not a viable option for long-term-care coverage. While Medicare covers the full cost of skilled nursing care for the first 20 days, it does so after three days of a hospital stay. Additionally, from days 21-100, beneficiaries are responsible for a copay. After day 100, Medicare does not provide coverage for long-term care services, leaving individuals responsible for the full cost.
Regarding estate recovery, there are specific circumstances that limit the application of this process. Estate recovery may be waived in situations where it would create an undue hardship on surviving family members. To secure a hardship waiver, an application must be submitted within either six months of the Medicaid beneficiary's date of death or 30 days of receiving notice of the state's claim against the estate.
Transfers made for less than fair market value during the look-back period do not incur penalties if they are made to a spouse, a third party for the benefit of a spouse, a disabled child, or a child over 21 who resided with the applicant for two years before the applicant's entry into a nursing home and provided care that delayed the applicant's institutionalization.
In light of the substantial costs associated with long-term care and the estate recovery practices implemented by the federal government, securing a long-term care insurance policy is paramount. For California residents, the California Partnership for Long-Term Care offers an effective means of asset protection. By planning ahead and considering long-term care insurance, individuals can safeguard their assets, maintain their independence, and alleviate the heavy financial burden of needing long-term care.
