Fong Law Group

Who Should Purchase Long-Term Care Insurance?

Buying long-term care insurance is one way to protect against the high cost of long-term care. However, this type of insurance may not be for everyone, so consider all your options.

Long-term care – care in a nursing home or at home -- may be paid for in four main ways: 

• Out-of-pocket. If you have sufficient resources, you can pay for your long-term care needs with money you have saved. 
• Medicare. Medicare covers short-term nursing home stays after an illness or injury that requires hospitalization. Medicare covers up to 100 days of "skilled nursing care" per illness. 
• Medicaid. If you have limited resources, Medicaid will pay for nursing home care. In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in "countable" assets (it may be higher in some states). 
• Long-term care insurance. With long-term care insurance, you pay monthly premiums to buy a policy that pays your long-term care costs if you are admitted to a nursing home or need home care (depending on the policy). 

Determining whether you need long-term care insurance depends, in part, on your financial situation. The cost of a long-term care insurance policy varies considerably, depending on your age when you purchase the policy, the benefit period, and the level of benefits, among other things, but the premiums can be expensive. Therefore, if you have the resources to self-insure your long-term care and still have money left over, you likely don’t need to buy a long-term care policy. On the other hand, if you cannot afford to pay monthly long-term care premiums, you will likely be able to qualify for Medicaid. 

Another factor to consider is your family’s health history. Most nursing home stays are short-term and paid for by Medicare. A common reason for needing extended long-term care is dementia. If you know you have a family history of Alzheimer’s disease, for example, it may make more sense to buy insurance. 

Of course, we never really know what the future may bring. Long-term care insurance is like any insurance policy: we don’t know if we will ever need it. In general, long-term care insurance is something to consider if:

• you have the resources to pay the premiums, even in retirement,
• you want to preserve your estate for your heirs, and
• you don’t have enough money to self-insure.

The Attorney's Role in Medicaid Planning

Do you need an attorney for even "simple" Medicaid planning? This depends on your situation, but in most cases, the prudent answer would be "yes."

The social worker at your mother's nursing home assigned to assist in preparing a Medicaid application for your mother knows a lot about the program, but maybe not the particular rule that applies in your case or the newest changes in the law. In addition, by the time you're applying for Medicaid, you may have missed out on significant planning opportunities.

The best bet is to consult with a qualified professional who can advise you on the entire situation. At the very least, the price of the consultation should purchase some peace of mind. And what you learn can mean significant financial savings or better care for you or your loved one. This may involve the use of trusts, transfers of assets, purchase of annuities or increased income and resource allowances for the healthy spouse.

If you are going to consult with a qualified professional, the sooner the better. If you wait, it may be too late to take some steps available to preserve your assets.

Can You Visit Nursing Home Residents After They are Vaccinated?

COVID vaccines are starting to roll out to nursing homes across the country, signaling the beginning of the end of the pandemic. Once your loved one has had both doses of the vaccine, you may be able to visit, but precautions are still necessary. 

The federal government entered into a partnership with CVS and Walgreens to deliver the vaccines to nursing home residents, who have high priority for being vaccinated, according to the Centers for Disease Control and Prevention (CDC) guidelines. The pharmacy companies began administering vaccines in 12 states in mid-December and will expand to 36 states before year’s end. Both the Pfizer the Moderna vaccines require two shots three or four weeks apart. 

Restrictions on nursing home visitors vary from state to state, with some states limiting them and others allowing more visitation. Currently, the CDC recommends that nursing homes allow indoor visitors if the facility has had no COVID cases for 14 days. Once vaccines have been distributed, restrictions may ease further. 

According to the New York Times, experts recommend that to be safe, you should wait until two weeks after your loved one gets the second dose of the vaccine before visiting. The safest time to visit would be after all the residents and staff have been vaccinated and you receive the vaccine as well. Even if you and your loved one are vaccinated, you should still wear a mask when visiting. As long as COVID is spreading in the community, mask wearing is still recommended. 

Noting that the vast majority of older adults with chronic conditions live at home, long-term care consultant Howard Gleckman asserts that these vulnerable adults along with their caregivers should also be vaccinated as soon as possible.  As states ration their limited initial supplies of the vaccines, Gleckman says, "they should remember the millions of people who are at high risk of severe illness or death from the virus, but who are living at home."

For more information about the vaccine rollout to nursing homes, click here and here.

What to Look for When Choosing a Medicare Advantage Plan

As Medicare premiums rise, a Medicare Advantage plan can seem like an attractive option. But if you are considering switching from Original Medicare to a Medicare Advantage plan, you need to know what to look for. 

Medicare Advantage plans are run by private insurers, unlike Original Medicare, which the federal government operates, although the medical providers are private. The government pays Medicare Advantage plans a fixed monthly fee to provide services to each Medicare beneficiary under their care. The plans often look attractive because they offer the same basic coverage as original Medicare plus some additional benefits and services that Original Medicare doesn't offer. 

To compare Advantage plans, go to the Medicare Plan Finder at Medicare.gov. When deciding whether a Medicare Advantage plan is right for you, the following are the main factors to consider: 

• Cost. Since Medicare Advantage plans are offered by private insurers, the cost of the plan varies depending on where you live. While Medicare Advantage plans usually have lower premiums than paying for Original Medicare plus a Medigap plan, they can have higher deductibles and co-pays in certain circumstances, so you need to take those into account when calculating the cost of each plan. Medicare Advantage plans do have a cap on out-of-pocket costs, while Original Medicare does not. Check the annual maximum out-of-pocket costs for the plan. If you have a high level of health costs, a low out-of-pocket maximum may be the best option. 
• Coverage. What coverage does the plan offer? Medicare Advantage plans must cover everything that Original Medicare covers, but some plans offer additional benefits, such as dental, hearing, and vision. Plans may require your doctor to get approval for certain procedures. If the plan administrators disagree with your physician that a procedure is medically necessary, the plan may refuse to pay for it.You will want to find out how the plan is about approving treatments, referring patients to specialists or allowing patients to remain in the hospital if they are not ready to leave. You may want to check with your doctor to find out their experience with the plan and whether the plan frequently overrules the doctor.
• Doctors. Original Medicare does not have any restrictions on which doctor you use, but Medicare Advantage plans are HMOs and PPOs, meaning that not every doctor accepts the insurance. With an HMO, if you visit a doctor outside of the network, you will likely have to pay out of pocket (except in an emergency). With a PPO, you can usually see any doctor you want, but you will pay less for an in-network doctor. You will want to check if your doctor and hospital are part of the plan’s network. The best way to do this is to call your doctor’s office to confirm. 
• Prescription drugs. Most Medicare Advantage plans include prescription drug coverage, so you should check to make sure the plan covers all the medications you take. You should also check if you need any special authorizations for any of your medications or if there any limits on the amount you can get. Other questions include whether your pharmacy is a preferred provider and whether you can get prescriptions by mail. 

Quality of care. The Medicare Plan Finder includes a rating system that measures how well the plan manages health screenings and chronic conditions as well as how many customer complaints it receives, among other things. The ratings aren’t perfect, but they can give you an idea of plan’s quality.

Ability to Withdraw Money Early from Retirement Plan Without Penalty Expires at the End of the Year

If you are experiencing financial hardship due to the coronavirus pandemic, you may want to consider withdrawing money from your retirement account while you still can. The special exemption allowing early withdrawals without a penalty ends soon. 

Passed in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows individuals adversely affected by the pandemic to make hardship withdrawals of up to $100,000 from retirement plans this year without paying the 10 percent penalty that individuals under age 59 ½ are usually required to pay. This exemption is only for withdrawals made by December 30, 2020.

If you decide to withdraw money from your retirement account, you will still have to pay income taxes on the withdrawals, although the tax burden can be spread out over three years. If you repay some or all of the funds within three years, you can file amended tax returns to get back the taxes that you paid. 

To qualify for the exemption, you must meet one of the following criteria:

• You or a spouse or dependent have been diagnosed with COVID-19
• You or your spouse have suffered financial hardship due to the pandemic, such as a lost job, a job offer rescinded, reduced pay, business closed, or inability to work due to lack of childcare. 

This step should not be taken lightly. Withdrawing money now means your retirement funds will be reduced and limits the retirement plan’s ability to grow. But for some people, it may be the best option to pay bills and avoid running up high-interest credit card debt. 

For information from the Consumer Financial Protection Bureau on how the withdrawal exemption works, click here.

Medicare Premiums to Increase Slightly in 2021

Medicare premiums are set to rise a modest amount next year, but still cut into any Social Security gains. The basic monthly premium will increase $3.90, from $144.60 a month to $148.50.

The Centers for Medicare and Medicaid Services (CMS) announced the premium and other Medicare cost increases on November 6, 2020. The hike could have been much worse due to rising costs during the coronavirus pandemic, but the bipartisan budget bill passed in October capped the increase. While the majority of beneficiaries will pay the added amount, a "hold harmless" rule prevents Medicare recipients' premiums from increasing more than Social Security benefits, which are going up only 1.3 percent in 2021. This “hold harmless” provision does not apply to Medicare beneficiaries who are enrolled in Medicare but who are not yet receiving Social Security, new Medicare beneficiaries, seniors earning more than $88,000 a year, and "dual eligibles" who get both Medicare and Medicaid benefits.

Meanwhile, the Part B deductible will rise from $198 to $203 in 2021, while the Part A deductible will go up by $76, to $1,484. For beneficiaries receiving skilled care in a nursing home, Medicare's coinsurance for days 21-100 will increase from $176 to $185.50. Medicare coverage ends after day 100.  

Here are all the new Medicare payment figures:
•    Part B premium: $148.50 (was $144.60)
•    Part B deductible: $203 (was $198)
•    Part A deductible: $1,484 (was $1,408)
•    Co-payment for hospital stay days 61-90: $371/day (was $352)
•    Co-payment for hospital stay days 91 and beyond: $742/day (was $704)
•    Skilled nursing facility co-payment, days 21-100: $185.50/day (was $176)

So-called "Medigap" policies can cover some of these costs. 

Premiums for higher-income beneficiaries ($88,000 and above) are as follows: 

• Individuals with annual incomes between $88,000 and $111,000 and married couples with annual incomes between $176,000 and $222,000 will pay a monthly premium of $207.90.
• Individuals with annual incomes between $111,000 and $138,000 and married couples with annual incomes between $222,000 and $276,000 will pay a monthly premium of $297.
• Individuals with annual incomes between $138,000 and $165,000 and married couples with annual incomes between $276,000 and $330,000 will pay a monthly premium of $386.10.
• Individuals with annual incomes above $165,000 and less than $500,000 and married couples with annual incomes above $330,000 and less than $750,000 will pay a monthly premium of $475.20.
• Individuals with annual incomes above $500,000 and married couples with annual incomes above $750,000 will pay a monthly premium of $504.90.

Rates differ for beneficiaries who are married but file a separate tax return from their spouse. Those with incomes greater than $88,000 and less than $412,000 will pay a monthly premium of $475.20. Those with incomes greater than $412,000 will pay a monthly premium of $504.90.

The Social Security Administration uses the income reported two years ago to determine a Part B beneficiary's premium. So the income reported on a beneficiary's 2019 tax return is used to determine whether the beneficiary must pay a higher monthly Part B premium in 2021. Income is calculated by taking a beneficiary's adjusted gross income and adding back in some normally excluded income, such as tax-exempt interest, U.S. savings bond interest used to pay tuition, and certain income from foreign sources. This is called modified adjusted gross income (MAGI). If a beneficiary's MAGI decreased significantly in the past two years, she may request that information from more recent years be used to calculate the premium. You can also request to reverse a surcharge if your income changes.

Those who enroll in Medicare Advantage plans may have different cost-sharing arrangements. CMS estimates that the Medicare Advantage average monthly premium will decrease by 11 percent in 2021, from an average of $23.63 in 2020 to $21 in 2021.

For Medicare’s press release announcing the new premium, co-payment and deductible amounts, click here.

Annuities and Medicaid Planning

In some circumstances, immediate annuities can be ideal Medicaid planning tools for spouses of nursing home residents. Careful planning is needed to make sure an annuity will work for you or your spouse. 

An immediate annuity, in its simplest form, is a contract with an insurance company under which the consumer pays a certain amount of money to the company and the company sends the consumer a monthly check for the rest of his or her life.

In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the community spouse, it's not a problem.

In order for the annuity purchase not to be considered a transfer, it must meet the following basic requirements:

1. It must be irrevocable--you cannot have the right to take the funds out of the annuity except through the monthly payments.
2. You must receive back at least what you paid into the annuity during your actuarial life expectancy. For instance, if you have an actuarial life expectancy of 10 years, and you pay $60,000 for an annuity, you must receive annuity payments of at least $500 a month ($500 x 12 x 10 = $60,000).
3. If you purchase an annuity with a term certain (see below), it must be shorter than your actuarial life expectancy.
4. The state must be named the remainder beneficiary up to the amount of Medicaid paid on the annuitant's behalf.

Example: Mrs. Jones, the community spouse, lives in a state where the most money she can keep for herself and still have Mr. Jones, who is in a nursing home, qualify for Medicaid (her maximum resource allowance) is $128,640 (in 2020). However, Mrs. Jones has $238,640 in countable assets. She can take the difference of $110,000 and purchase an annuity, making her husband in the nursing home immediately eligible for Medicaid. She would continue to receive the annuity check each month for the rest of her life.

In most instances, the purchase of an annuity should wait until the unhealthy spouse moves to a nursing home. In addition, if the annuity has a term certain -- a guaranteed number of payments no matter the lifespan of the annuitant -- the term must be shorter than the life expectancy of the healthy spouse. Further, if the community spouse does die with guaranteed payments remaining on the annuity, they must be payable to the state for reimbursement up to the amount of the Medicaid paid for either spouse.

All annuities must be disclosed by an applicant for Medicaid regardless of whether the annuity is irrevocable or treated as a countable asset. If an individual, spouse, or representative refuses to disclose sufficient information related to any annuity, the state must either deny or terminate coverage for long-term care services or else deny or terminate Medicaid eligibility.

Annuities are of less benefit for a single individual in a nursing home because he or she would have to pay the monthly income from the annuity to the nursing home. However, in some states immediate annuities may have a place for single individuals who are considering transferring assets. Income from an annuity can be used to help pay for long-term care during the Medicaid penalty period that results from the transfer. In such cases, the annuity is usually short-term, just long enough to cover the penalty period.

In short, immediate annuities are a very powerful tool in the right circumstances. They must also be distinguished from deferred annuities, which have no Medicaid planning purpose. The use of immediate annuities as a Medicaid planning tool is under attack in some states, so be sure to consult with a your attorney before pursuing the strategy described above.

Husbands Usually Don’t Consider Their Wives’ Future When Deciding When to Take Social Security Benefits

The amount of Social Security benefits a surviving spouse receives depends, in part, on when their deceased spouse began claiming benefits. However, husbands usually don’t take survivor’s benefits into account when claiming benefits, according to a recent study, meaning that many widows will needlessly experience a significant drop in income. 

Because women typically live longer than men and men are often the higher earners, most married women will be widowed and will have their income drop below what they need to maintain their accustomed standard of living. Spouses of a worker who has died are entitled to the worker's full retirement benefits once they reach their full retirement age. If the worker delayed retirement, the survivor's benefit will be higher. Husbands have the option of increasing their surviving spouse’s income by delaying Social Security benefits, but according to a study by the Center for Retirement Research at Boston College, most husbands do not take their wives’ future needs into consideration. 

The study looked at whether greater awareness of Social Security Survivor’s benefits would affect claiming decisions. The study found that husbands tend to take more immediate concerns into consideration, such as their health and whether they have another pension, rather than their wives’ Survivor’s Benefits. Giving the husbands information about how they could improve their wives’ financial well-being by claiming benefits later did not change their claiming decisions. 

The study concludes that in order to protect widows, the government should consider providing Survivor’s Benefits in a way that doesn’t tie the surviving spouse’s benefits to the decision of when to claim benefits. As things stands now, however, if you are the higher earner and are nearing retirement, you may want to take into account how your decision on when to claim benefits will affect your spouse if he or she survives you. 

To come up with a plan that will best protect you and your spouse, contact your attorney. 

To read the study, click here. 

Receiving an Inheritance While on Medicaid

For most people, receiving an inheritance is something good, but for a nursing home resident on Medicaid, an inheritance may not be such welcome news. Medicaid has strict income and resource limits, so an inheritance can make a Medicaid recipient ineligible for Medicaid. Careful planning is necessary to make sure the inheritance doesn't have a negative impact.

An inheritance will be counted as income in the month it is received.  You or whoever is representing you will have to inform the state Medicaid agency, and Medicaid coverage will then end until you have again spent down your assets to the countable limit, which is $2,000 in most states. If you receive an inheritance and the amount puts you over the income limits for your state, you will not be eligible for Medicaid for at least that month. If you can properly spend down the money in the same month it is received, however, you will be eligible for Medicaid again the following month. The first thing to do is pay the nursing home for the current month (at the Medicaid rate).

If you have money left after paying the nursing home, your elder law attorney can advise you on the proper way to spend down the money. You may be able to give it to a spouse, a child with special needs, or the child's special needs trust. You may also pre-pay an irrevocable funeral contract or buy burial items for a close relative.  It could also be spent on travel, dining out, clothes, television, DVD player, and paying off any debts you may have. In most cases, you cannot make gifts with the money, but there are some exceptions to this rule and in some states good planning techniques that may permit some gifting. To be sure, you will need to consult with your elder law attorney.

If the inheritance is too large to spend in one month, your attorney may be able to use other techniques to protect a portion of it.  

How to Fix a Required Minimum Distribution Mistake

The rules around required minimum distributions from retirement accounts are confusing, and it’s easy to slip up. Fortunately, if you do make a mistake, there are steps you can take to fix the error and possibly avoid a stiff penalty.  

If you have a tax-deferred retirement plan such as a traditional IRA or 401(k), you are required to begin taking distributions once you reach a certain age, with the withdrawn money taxed at your then-current tax rate. If you were age 70 1/2 before the end of 2019, you had to begin taking required minimum distributions (RMDs) in April of the year after you turned 70. But if you were not yet 70 1/2 by the end of 2019, you can wait to take RMDs until age 72. If you miss a withdrawal or take less than you were required to, you must pay a 50 percent excise tax on the amount that should have been distributed but was not.

It can be easy to miss a distribution or not withdraw the correct amount. If you make a mistake, the first step is to quickly correct the mistake and take the correct distribution. If you missed more than one distribution – either from multiple years or because you withdrew from several different accounts in the same year -- it is better to take each distribution separately and for exactly the amount of the shortfall. 

The next step is to file IRS form 5329. If you have more than one missed distribution, you can include them on one form as long as they all occurred in the same year. If you missed distributions in multiple years, you need to file a separate form for each year. And married couples who both miss a distribution need to each file their own forms. The form can be tricky, so follow the instructions closely to make sure you correctly fill it out. 

In addition to completing form 5329, you should submit a letter, explaining why you missed the distribution and informing the IRS that you have now made the correct distributions. There is no clear definition of what the IRS will consider a reasonable explanation for missing a distribution. If the IRS does not waive the penalty, it will send you a notice.

For more detailed information on how to correct an RMD mistake, click here.