Medicare is a health care program funded and operated by the federal government. Medicare is an entitlement program, not a means-based one. The program currently insures approximately 39 million Americans at a cost of $213 billion annually.
Medicare functions in many ways like conventional health insurance programs. It is available to anyone over the age of 65 (provided only that the individual would be entitled to receive Social Security benefits if he or she chose to retire) and anyone under the age of 65 who has been receiving Social Security Disability Insurance (“SSDI”) for at least two years.
Recipients of Medicare often must contribute to their coverage costs by paying co-insurance or deductibles. Moreover, Medicare does not cover all services. Primarily, Medicare pays only for “acute care” – not care which Medicare views as preventive or needed for chronic health issues. (Accordingly, Medicare does not pay for “custodial care,” such as that provided by long-term home health care, adult day care, assisted living and long-term nursing home care.) In order to minimize the resulting out-of-pocket costs, Medicare recipients often purchase “Medigap” policies – supplemental policies the help cover the gaps in Medicare coverage. As with any insurance policy, when picking a Medigap policy, make sure you understand what the policy covers and what its terms are.
Medicare eligibility may obviate one’s need for additional asset planning. However, without substantial or income, one may find it difficult to pay either for prescription drugs (which traditionally has not been covered by Medicare, though the program began partial drug coverage in 2004) or for long-term care (which is largely outside Medicare’s coverage). Accordingly, some Medicare-eligible people may find it important to use asset-planning as an alternative.
The services available under Medicare differ depending on the specific “Medicare Part” one is enrolled in. Part A covers hospital stays; Part B covers doctors’ fees; Part C provides for recipients to receive their care from third parties; and Part D provides prescription drug coverage. Each “Part” is discussed in detail, below:
Medicare Part A: Medicare Part A provides hospital insurance and covers the costs associated with in-patient hospital care, skilled nursing facilities, hospice and home health care. Most Medicare Part A recipients do not pay a Part A Premium because either they or their spouses paid Medicare taxes while working. A person who is not eligible to receive Part A free of charge may be entitled to pay for it.
Part A Coverage Gaps: Medicare does not provide for all hospital-related costs. Medicare will pay for a recipient’s hospital stay for up to 90 days for each “spell of illness,” with no cap on the number of illness spells. Medicare beneficiaries also have an additional lifetime reserve of 60 days of hospital stays that Medicare will cover. However, before Medicare will begin coverage, the recipient must first meet a deductible. The deductible, which changes annually, is $1,156 in 2012. Medicare will not pay for experimental or medically unproven treatments.
Here are the 2012 co-insurance costs for Medicare Part A:
Co-Insurance for Hospital Stays:
- Yearly Deductible – $1,156
- Days 61-90 – $289 per day
- Days 91-150 – $578 per day (taps into 60-day lifetime reserve)
- Days 151 and above – all costs
Co-Insurance for Skilled Nursing Facilities:
- Days 21-100 – $144.50 per day
- Days 101 and above – all costs
Medicare Part B: Medicare Part B basically covers out-patient care, including visits to medical specialists, diagnostic tests, preventive services, out-patient therapies and ambulance transportation. Part B also covers home health services so long as the beneficiary is not enrolled in Part A. In 2011, new enrollees in Medicare Part B who have less than $85,000 in annual income ($170,000 for couples) pay a monthly premium of $115.40. Enrollees in higher income brackets pay increased premiums.
Gaps in Part B Coverage: Part B recipients pay 20 percent of Medicare’s approved rates for physicians’ services, outpatient hospital treatment, medical supplies and durable medical equipment.
Medicare Part C: Otherwise known as a “Medicare Advantage Plan,” Medicare Part C is a popular alternative for people wishing to avoid the coverage gaps in Medicare Parts A and B. Plans under Medicare Part C essentially function like a traditional HMO or PPO policy. The plan provider is responsible for covering the insured’s care, for which Medicare pays the provider a fixed monthly amount. Although Part C plans are governed by Medicare’s rules, they may differ from each other with regards to co-payments, annual deductibles and referrals.
Medicare Advantage plans often offer perks such as free gym memberships as an incentive to attract new members. When choosing a Medicare Advantage plan, be careful not to base your choice on these added and unnecessary fringe benefits at the expense of the more critical item, healthcare coverage. Rather, make sure that your doctors are in the plan’s physician network, and try to learn about other people’s experiences with the plan. Keep in mind that once a Part C plan is picked, there are limitations on how and when it can be switched.
Part C plans can be restrictive. Ultimately, using Medicare Parts A and B along with a supplemental policy will generally provide a greater pool of doctors and services to choose from than those found in a Medicare Advantage Plan.
Medicare Part D: Medicare Part D provides subsidizes prescription drug costs through private health insurers who contract with Medicare to market drug plans. Part D is available, for a cost, to anyone enrolled in Medicare Part A or Medicare Part B. Elderly or disabled Medicare recipients who elect for drug benefit coverage will pay an average monthly premium of $30 in 2012, depending on the specific provider being used.
Part D recipients must first meet a deductible ($310 in 2011) before coverage kicks in. After the deductible is met, Medicare will pay 75 percent, or $1,890, of prescription drug cost up to $2,520 (in 2011), with the recipient paying the other 25 percent, or $630. Coverage then stops completely until the recipient’s out-of-pocket costs reach $4,550 (in 2011), after which Medicare will cover approximately 95 percent of additional costs through its “catastrophic coverage” program. The $4,550 in out-of-pocket costs is comprised of the $310 annual deductible, the $630 (25 percent of costs up to $2,520) and an additional $3,610 the recipient must pay alone. This $2,660 gap is what is known as the “doughnut hole” – Medicare Part D recipients must cover this amount themselves.
The best way to avoid the “doughnut hole” is to pick a Part D plan with low drug prices. This is because it is drug costs – not premiums, co-payments or deductibles – that contribute to the first $1,890, bringing the gap closer. Importantly, only drugs that are actually covered by the plan contribute towards out-of-pocket expenses for purposes of the Part D threshold. You can use this calculator to determine the potential drug benefit savings you will have under Medicare Part D.
Beginning in 2011, those in the “doughnut hole” will receive coverage from their plan for at least 7% of the cost of generic drugs, as well as a 50 percent discount, paid by the manufacturer, for brand-name drugs. An interesting benefit of this is that, although the Part D recipient’s out-of-pocket expense while in the “doughnut hole” for brand-name drugs is only 50 percent of their actual price, Medicare treats it, for purposes of getting out of the coverage gap, as if the full price was paid. Over the coming years, Medicare will phase in additional discounts for both brand-name and generic drugs and it is anticipated that by 2020, there will be only a flat 25 percent co-payment for either.
Low-Income Subsidization: Low-income New Yorkers may be eligible to receive prescription drug coverage from New York State’s Elderly Pharmaceutical Insurance Coverage (“EPIC”) program or additional subsidization of Medicare Part D from the Social Security Administration in a program called “Extra Help.” These programs help bridge the coverage gap left by ordinary Part D plans and can also reduce or eliminate deductibles and co-payments. Those who qualify for full Extra Help do no pay a monthly Part D premium so long as their Part D plan’s premium is at or below Medicare’s “regional benchmark.”
As previously mentioned, Medicare does not pay for long-term care. This is because Medicare views itself as a provider of medical care, not care for assistance with basic activities of daily living (“ADLs”) such as dressing, toileting, bathing and meal preparation. Such assistance, or “custodial care,” includes long-term home health care, adult day care, assisted living and long-term nursing home care. The two primary providers of custodial care are Medicaid and long-term care insurance carriers.
Medicaid is a government-run program. Unlike Medicare, which is both funded and operated by the federal government, Medicaid is run and implemented by state governments (though it is partially subsidized by federal funds). Therefore, Medicaid’s eligibility rules and its available services vary from state to state. The information that follows pertains only to New York State’s Medicaid program.
Medicaid also differs from Medicare in two other important ways: 1) the eligibility requirements are based on financial criteria instead of age; and 2) it covers all necessary medical care, including long-term care.
Medicaid’s coverage of long-term care becomes centrally important to many people with disabilities, given that Medicare itself only covers a very small portion of the costs associated with long-term care. Moreover, because Medicaid is a “means-tested” program (that is, based on financial criteria), its continued availability is often dependent on special needs trust administration and asset-protection devices.
New York State administers three different types of Medicaid: 1) Community Medicaid; 2) Community Medicaid with Long-Term Care; and 3) Nursing Home Medicaid.
1) Community Medicaid: Community Medicaid is essentially standard health insurance, providing the types of services associated with conventional health insurance policies, such as paying for doctor visits, hospital visits and prescription drugs.
2) Community Medicaid with Long-Term Care: This program provides the same benefits as those found in Community Medicaid, with the addition of community-based long-term care services such as home health care, adult care and assisted living.
3) Nursing Home Medicaid: This program provides everything covered in the first two levels of Medicaid with the addition of nursing home care.
Medicaid is a means-tested program designed for people with low income and limited resources. The costs of long-term care can be staggering, often far-exceeding $100,000 a year. As a result, many people who would otherwise never seek public assistance find themselves looking for ways to qualify for Medicaid, which is a means-tested program, in order to secure long-term care. Some of Medicaid’s important qualification guidelines are outlined over the following paragraphs:
COMMUNITY MEDICAID WITH LONG-TERM CARE: In determining an applicant’s eligibility, Medicaid looks at both the income and the resources of the applicant. Income is money that the applicant receives on a timely basis, such as Social Security, a pension or an IRA that is in the distribution stage. Resources are the assets the applicant has, such as savings, stocks or bonds.
Income: The current income limit for Medicaid with Long-Term Care is $787 per month for an individual or $1,137 per month for a couple. However, even if one’s income is above these limits, there are still a number of ways to qualify for Medicaid:
First, Medicaid exempts both health insurance premiums from one’s income. Thus, any money paid towards health insurance premiums is disregarded and not included in the Medicaid’s income calculation for purposes of qualification for Medicaid. Similarly, Holocaust reparation payments are exempt and not included in Medicaid’s income calculation.
Pay-in – Second, even if the applicant’s income is above the Medicaid eligibility limit, the applicant can “pay in” to Medicaid the excess (the difference between the limit and the income) in order to become eligible. This can be a good option for someone whose income is only slightly above the income limit.
Pooled-Income Trusts – Sheltering excess income in a pooled-income trust is one of the most popular planning tools used by people whose income is above the eligibility limits to qualify for Medicaid. New York State allows individuals of any age who suffer from a disability to place excess income in a pooled-trust (its name is derived from the way the trust is structured). Money held in a pooled-income trust is
Spousal Refusal – A community spouse can refuse to contribute his or her income or resources toward the cost of care for the spouse applying for Medicaid, and is referred to “spousal refusal” or “just say no.” An applicant for New York Medicaid whose spouse has refused contributions will be considered an individual in the State’s calculation of the applicant’s income. Note, however, that after awarding Medicaid benefits to the institutionalized spouse, the agency has the option of bringing a lawsuit to force the refusing spouse to provide support. If the agency chooses not to sue the community spouse for support, it may file a claim for reimbursement against the community spouse’s estate following his or her death.
Resources: The current resource limit for Community Medicaid with Long-Term Care is $13,800 for an individual and $20,100 for a couple. This is a hard cap. Applicants with resources above these limits will be rejected.
No Look Back for Community Medicaid – Community Medicaid with Long-Term Care has no “look back” period. This means that, theoretically, a person otherwise eligible for Community Medicaid (with or without Long-Term Care) who transfers $5 million, bringing his or her resources under the cap, would be eligible for Medicaid the next month. That said, transferring assets is a serious matter and it can have drastic repercussions that are difficult to foresee. It is vital to seek competent counsel before deciding to transfer one’s assets.
Homestead – Medicaid generally includes the value of the applicant’s real estate in calculating resources. However, an applicant’s primary residence is exempt, so long as the applicant’s equity in the home is under $758,000. Nonetheless, Medicaid reserves the right to file a claim against the estate after the applicant’s death to recover for expenditures from the applicant’s equity in the in the residence. To navigate around this potential pitfall, applicants often chose to transfer their residences to a family member or a trust. Once again, transferring assets should not be taken lights and competent counsel should always be sought before such an undertaking.
Spousal Refusal – As with regards to income, a community spouse can refuse to contribute resources towards the incapacitated spouse’s costs of care, though Medicaid can sue the community spouse’s estate to recover the expenditures.
Holocaust Reparations – As with income, Medicaid exempts the payments applicants received in Holocaust reparations from resources for purposes of determining eligibility. Thus, interestingly, if an applicant has been receiving restitution over a forty year period and can document the total amount of money received, that entire sum can be kept and does not impact the determination of Medicaid eligibility!
NURSING HOME MEDICAID: Nursing Home Medicaid has its own eligibility limits for income and resources. Income is limited to a $50 monthly allowance – all other monthly income must be given to the nursing home. The community spouse is allowed income up to $2,739 per month. The resource limit in New York State for nursing home residents is $13,800. The community spouse is allowed resources ranging between $74,820 and $109,560, plus a $1,500 burial account.
As with Community Medicaid with Long-Term Care, premiums paid for health insurance and Holocaust reparations payments are exempt and do not combine with income or resources for purposes of Medicaid eligibility requirements.
A nursing home resident cannot shelter excess income in a pooled-income trust.
Five Year Look-Back Period – Nursing Home Medicaid utilizes a five-year look-back period for uncompensated and undercompensated transfers. If such transfers are discovered, Medicaid penalized the applicant by withholding nursing home coverage for roughly the value that was transferred, and due to Medicaid’s method of calculating the penalty, the cost usually somewhat exceeds the actual value of the transfer(s).
Community Spouse – When one spouse enters a nursing home and the other spouse remains in his or her community, the community spouse is allotted an income and resource allowance. The community spouse’s income allowance is up to $2,739 of the couple’s total income, whil the resource allowance is either $74,820 or one-half of the couple’s total resources up to $109,560. Note that health insurance premiums and Holocaust reparations payments are exempt and do not contribute against the community spouse’s allowances.
Spousal Refusal – As before, the community spouse may refuse to make his or her income and resources available for the other spouse’s care. This may be a viable option in circumstances where the couple’s income and/or resources exceed Medicaid’s allowances. Again, competent counsel should be sought before using this approach.
Homestead – The applicant’s primary residence is exempt, so long as the applicant’s equity in the home is under $758,000 and the applicant intends on returning home. In this regards, it is the subjective intent of the nursing home resident that rules. Nonetheless, Medicaid reserves the right to file a claim against the estate after the applicant’s death to recover for expenditures from the applicant’s equity in the in the residence. Moreover, the state may place a lien on the property even during the life of the resident if the resident is permanently absent and is not reasonably expected to be discharged. No such lien can be placed, however, if the resident’s spouse resides in the residence.
3) VA Benefits
Veterans of the U.S. armed forces and their families may be eligible to receive a broad range of programs and services provided by the U.S. Department of Veterans Affairs (“VA”). Comprehensive information about all of the benefits available from the VA can be found on the VA’s website, in the “Federal Benefits for Veterans, Dependants and Survivors” booklet.
An overview of the benefits available and the eligibility requirements is outlined in the following paragraphs:
Benefits Generally: VA benefits available to those qualified may include disability or unemployability compensation, pensions, home loans, vocational rehabilitation, training, education and life insurance.
Medical Care: The VA’s health care program covers a number of services, including diagnostic work, treatments, preventative initiatives and hospital care. VA benefits may also cover nursing home and other long-term care.
Long-Term Care: Certain long-term care benefits, including home care, are available to all enrolled veterans. However, nursing home care and domiciliary care have additional eligibility requirements.
Eligibility: Veterans who were dishonorably discharged from service are not eligible for these VA programs. Veterans must generally be enrolled in the VA health system in order to receive benefits. Beyond that, a number of factors impact an applicant’s eligibility, including length of service, income level, resources available to the VA and whether the applicant’s disabilities are service-related.
Costs: Certain veterans, including low-income veterans, incur no costs for VA benefits. All others are required to make co-payments to subsidize the cost of the benefits. Unlike in Medicaid, there is no penalty for transferring assets before applying for VA benefits. However, keep in mind that the transfer of assets may affect Medicaid eligibility.
4) Long-Term Care
Long-term care insurance (“LTCI”) provides for many elder care services, including nursing home stays, and others that are not covered by Medicare, Medicaid or traditional health insurance policies. LTCI policies generally pay a daily benefit for long-term care services up to a pre-determined dollar cap and for a certain amount of time.
About 60 percent of the population over the age of 65 will require at least some form of long-term care in their lifetimes. The cost of nursing home care can be astronomical – the national average for such care is approximately $90,000, and in some locales, can exceed $200,000 per year. As a result, even a carefully planned estate can be depleted should the need for long-term care arise. LTCI is an under-utilized tool that can prove tremendously helpful for the long-term care prospects of many. Currently, very few Americans are insured by LTCI policies.
LTCI can be a superior option for many, for at least several reasons. First, not everyone is eligible for Medicaid. Second, even if one can qualify for Medicaid, one must first “spend down” his or her assets in order to qualify. Third, Medicaid recipients are limited to the services (and facilities) which participate in the Medicaid program. Finally, there may be other benefits associated with LTCI policies, such as possible tax benefits for premiums paid.
One of the biggest problems with LTCI policies is that insurance companies do not presently lock their rates, so that an insured may face increased premiums later on. Another big problem is that, often, by the time a person wishes to purchase an LTCI policy, he or she is uninsurable due to health-related problems. This problem can be avoided, of course, by purchasing an LTCI policy when one is still relatively young and healthy.
Services: There are many different types of policies available from a variety of carriers. Some policies only cover nursing home care, while others include home health and assisted living care. To qualify for coverage, policies require a “triggering event,” such as cognitive impairment or the need for assistance in two basic activities of daily living, such as dressing, eating and bathing. Moreover, virtually all LTCI policies have an “elimination period,” which is the amount of time the policy holder must wait before coverage begins. Elimination periods range between zero and 90 days, or longer. During the elimination period, the insured incurs the out-of-pocket costs incurred for services. Although most policies issued today cover care regardless of where it is provided, some older policies restrict coverage in this regard.
Choosing an LTCI Policy: Careful discretion is necessary when choosing an LTCI policy. Obviously, the types of services covered, the length of the “elimination period” and the carrier’s definition of a “triggering event” must be taken into consideration. One must also pay careful attention to the specific carrier’s claim record – the speed and manner in which companies honor claims made by their policy holders. It is vital to get as much information about the insurance carrier and the particulars of a given policy before going forward.
Eligibility and Costs: Each LTCI carrier has different underwriting criteria which govern an applicant’s eligibility for any one policy. Costs also differ between carriers and between different policy types. It is a good idea to compare prices between different providers in order to achieve the most optimal rate. Similarly, in the event that you are denied eligibility by one carrier, be certain to apply to others, as you may be eligible in their different underwriting guidelines.
Of course, one can privately pay for long-term care. The main advantage of paying privately is that those that do so have many more care facilities to choose from and can receive services that are not covered by Medicaid or long-term care insurance.
However, given the cost of long-term care, many – if not most – people simply cannot afford to pay out-of-pocket, even for a short period. To be certain, except for the wealthiest of individuals, paying privately for an extended nursing home stay can easily deplete one’s entire life savings.
“I needed help with my Medicaid application, I am so happy I found HPSNY. They walked me through every step and even arranged home care while my application was pending. Thanks again, I don’t know what I would have done without you”. – Margie S. Brooklyn