The Single Most Dangerous Mistake When Applying for VA Benefits (Part 2)
August 29, 2011
Last week we were talking about Melissa’s call to our office. Her parents had been receiving VA benefits for 2 years while living in an assisted living facility and everything had been great. The reason she called us, however, is that Dad now needs nursing home care. Her parents have $70,000 in assets so she figured she would have to spend down half for Dad’s care and then she could apply for Medicaid. Except for one thing. Remember the assets transferred out of their name to qualify for VA? That caused a potential Medicaid penalty of up to 5 years. Now she had a real problem.
I explained to Melissa what I call the Medicaid “time bomb”. She was totally unprepared for it. The advisor who helped her with the VA application never told her about it and she said she never really thought about what she would do if either of her parents needed nursing home care. I told her not to worry. We’d have to transfer back assets to her parents and spend down some of that money before we apply for Medicaid.
That’s when she told me about the annuities she purchased. The stream of income they provided was a great help to pay for the assisted living care but now that Dad needed $10,000 of care each month the VA pension plus the annuity wasn’t nearly enough to meet the monthly nut. I told Melissa that she would need to cash in the annuity, transfer it back and then spend down at least part of it. “One small problem”, she said. They have surrender charges if she liquidates them now. The penalty is about 7% of the total value.
“But the advisor never prepared me for this”, Melissa exclaimed. That’s because he didn’t understand how Medicaid works – really doesn’t work – in conjunction with the VA benefits. Melissa started to regret her decision to pursue the VA benefit. I quickly corrected her. It wasn’t a mistake. It’s just that getting the VA pension was only a small part of what her parents needed. They should have also, at that time, prepared for the next stop in their elder care journey – before they reached it. Locking up their money with early withdrawal penalties severely restricted their flexibility, something they absolutely need when their health is declining.
It wasn’t wrong to restructure their assets to get the VA pension. It can help them stretch their money out and hopefully have enough to provide for both Mom and Dad’s care needs. The problem is that they were completely unaware of how it affected their Medicaid eligibility. The advisor couldn’t provide Melissa with any help at all. His response was to contact an elder law attorney.
Great advice, only he should have given it to her 2 years ago.
The Single Most Dangerous Mistake When Applying for VA Benefits (Part 1)
August 22, 2011
Melissa called to explain her parents’ situation. Mom was 80 and Dad 85. For a number of years they had been receiving care at home from a home health aide. 2 years ago, Melissa attended a seminar offered by a financial advisor at a local assisted living facility about a VA program called the Aid and Attendance program. The advisor explained how her parents could qualify for a pension of $1949 per month. Here’s how it works in a nutshell.
The VA program is a needs based one, meaning that there is an income limit and an asset limit, similar to Medicaid, but also with some significant differences. The asset limit is about $80,000 for a married couple. $40,000 for a single applicant. Melissa’s parents had $200,000. The advisor explained that transferring the excess assets out of their names would work because the VA doesn’t have a look back or a penalty period like Medicaid. Mom and Dad could qualify for VA benefits the very next month.
Then the advisor explained the income rules, what I call the “critical calculation”. The VA takes gross income and subtracts recurring unreimbursed medical expenses to arrive at income for VA purposes (IVAP). This number is then subtracted from the maximum pension rate for the category applied for to determine the pension received. If unreimbursed medical expenses exceed gross income then the applicant gets the maximum pension. In Melissa’s parents’ case, that would be $1949 per month. The advisor next explained that unreimbursed medical expenses include the cost of home aides.
Melissa told me she gave the advisor the income numbers. Mom and Dad had combined income from Social Security and pension of $4000 per month. Living at home the cost of the aides was $2000 per month but Dad needed more care than what he was getting. She just couldn’t convince her parents to hire more because of their concern that they couldn’t afford it. Melissa wanted to move her parents into the assisted living facility but that expense was even greater, at $8500 per month.
The advisor then explained that the money they transfer out of their names could buy an annuity. This would be a stream of income for Melissa’s parents that would helpe them pay for the assisted living facility. Combined with the VA benefit they could make ends meet. It all sounded great and Melissa and her parents went ahead with the plan. Mom and Dad moved into the facility and applied for and received VA benefits. Everything worked according to plan – that is until Melissa called us. That’s because of what we call the Medicaid time bomb. We’ll talk more about that next week.
How We Pulled Charlie from a Black Hole of Long Term Care
August 15, 2011
A few months back I wrote about a situation that is not all that uncommon, a nursing home resident with long term care insurance benefits but no other assets. If the insurance payment goes directly to the resident it counts as income, resulting in too much income to qualify for Medicaid. Changing the payment to go to the nursing home could solve the problem but what if that isn’t possible.
We had a recent situation in which our client, Charlie had long term care insurance and Social Security and pension income that, combined, exceeds the Medicaid reimbursement rate, the amount which Medicaid pays the nursing home. Charlie’s income plus insurance benefits totaled $7500, while the Medicaid reimbursement rate for the particular nursing home is $6000 per month. The home charges $10,000 per month to its private pay patients so Charlie was in a bind. He had too much income to get Medicaid but not enough to pay privately. It would seem that Charlie had fallen through the cracks.
We spoke with Charlie’s family about a possible solution. Charlie was a World War II veteran, having been honorably discharged. The nursing home bill counts as an unreimbursed medical expense, which easily reduced his income to zero for VA qualification purposes. He, therefore, was eligible for a VA Aid and Attendance pension of nearly $1650 per month, the maximum amount allowed for his category. That would bring his income up to $9150.
We then approached the nursing facility to see if they would take Charlie as a resident. It seemed to be a win/win. The facility, while not getting quite the amount they usually charge private pay, still would receive more than the Medicaid reimbursement rate and Charlie’s family would have the peace of mind of knowing that Charlie would have a place to stay. They could rest assured that he would fall into what I call a black hole of long term care.
Don’t Put Long Term Care Planning on the Backburner
August 8, 2011
Laura called us in a panic because her husband, George, was in a nursing home, about to have his Medicare coverage terminated. George had no long term care insurance and Laura was totally unprepared for how Medicaid works and how much she would have to spend down. I explained that we could help her preserve more than what Medicaid said she could keep, but we needed to work quickly. She was onboard and we rolled up our sleeves and got working on it. Then George died.
In Laura’s mind, the crisis for which she hired us had now subsided. She could put long term care issues on the backburner. She had other things to deal with, among them the psychological, emotional and financial toll of the loss of her longtime spouse and what changes to her lifestyle that would cause. I can certainly understand her thinking, but that is absolutely the wrong response.
You see, when a married couple becomes our client in what we call “crisis mode”, the family is focused on one problem only. In Laura’s case it is how to afford George’s long term care without losing everything. While that is my primary focus too, I am also looking at the care needs of the healthy spouse, Laura. How can we best protect Laura so that, down the road, she doesn’t find herself in the same situation as George.
Laura is healthy. Now is the time to take action so that if and when she is faced with the spector of long term car – and that might be 3, 5 or 10 years from now – we won’t be trying to put out fires, so to speak. We will have a plan in place and the ability to tap into all available sources of payment. That will make it so much easier for Laura’s children to manage their mom’s care without worries that she will run out of money and it will decrease the chance that Laura will need to enter a nursing home.
This is critical to Laura, but also to her children. While Laura devoted the last several years to caring for George, it won’t be so easy for her children to do the same for her. While they want to be there for their mom, they have young children and careers too. They can’t simply drop everything on a moment’s notice.
When I explained this to Laura she understood. It took her a little time to adjust to the loss of her life companion, George but we also didn’t need to work quite as quickly. Over the next several months we put the pieces of a plan in place. Laura and her family have the peace of mind of knowing that they’ll be much better prepared if a long term care crisis hits a second time.
“But the Lady Said Medicaid is Gonna Take My House!!”
August 1, 2011
It’s an issue we deal with often, especially in our married couple crisis planning cases. We explain to clients how Medicaid works and engineer a plan to get the sick spouse Medicaid without putting the healthy spouse in the poor house. The healthy spouse will keep the home. This is reassuring to our clients. But, we also tell them that when they walk out of our office they may talk to someone, a friend, family member, neighbor, health care professional etc. who may tell them something that will be the opposite of what we tell them. That causes the panicked call. Why?
Because Medicaid is so maddeningly confusing. Because the Medicaid rules vary from state to state. Because well meaning people hear a snippet of information and pass it on as if it is fact or take what happened in one case they know of and assume the same thing will apply in the next. All very dangerous and usually wrong.
Let’s look at the house issue. First of all, the State has no desire to literally “take your house”, meaning take over ownership. The State is not in the business of managing real estate. In certain circumstances, under what is known as estate recovery, the State will place a lien on a Medicaid recipient’s home. A lien is like a mortgage, a secured interest in your home.
However, what most people don’t realize is that this doesn’t happen until after the Medicaid spouse and the healthy spouse both die. As long as the healthy spouse is alive the State cannot place that lien on the home. The spouse can sell it and keep the money but does not have to pay the State back at that time. In fact, the State, under certain circumstances, might never get that money.
We try to prepare our clients for the inevitable well intentioned free advice. “Don’t panic”, we tell them. “Just give us a call and we’ll reassure you that the path you’ve chosen is the right one. It’s tough to travel down the elder care journey on your own. Getting the proper guide makes all the difference in the world.
