It is estimated that 70% of adults aged 65 years and older will require long-term care at some point in their lives. Long-term care includes a variety of services designed to meet an individual’s health or personal care needs, allowing them to live as independently and safely as possible when they can no longer perform daily activities on their own.

The cost of long-term care has increased dramatically over the past few years and shows no signs of slowing down or decreasing. According to the Genworth Cost of Care survey results for 2023, the average home health aide earns $33 per hour, the average assisted living costs $5,350 per month, and the average nursing home costs $9,733. Notably, these are national averages and well below the rates for long-term care in New York. The New York State Department of Health estimates that the average rates for a nursing home range from $12,196 to $14,668 per month, and these estimated averages are lower than what is seen in everyday practice.

With the rising costs of long-term care, planning for the payment of such care has become more important than ever. When it comes to planning for long-term care, there are generally three different proverbial pots of resources that can be used to pay for a person’s care needs:  private pay,  long-term care insurance, and  government benefits.

Private Pay

Private pay is the most straightforward way of paying for long-term care, in that an individual uses their income and assets to pay for care. Income can be either earned or unearned. Assets can include savings, retirement accounts, annuities, brokerage accounts, and more. Additionally, assets can include tapping into the equity of one’s assets such as their home via a mortgage, reverse mortgage, or home equity line of credit.

For individuals that choose to private pay for their care, they must plan both  how to stretch the income/assets for as long as possible to pay for their care, and  how to pay for their care once their income/assets are depleted. With the average cost of nursing home care between $12,196 and $14,668 per month in New York, this equates to an annual cost of $146,352 to $176,016 per year. It is not unheard of for individuals in New York to pay more than $200,000 per year for their long-term care, be it in a nursing home or even if they remain at home and pay for home health care professionals. It must be noted that individuals can deduct for medical expenses made in excess of 7.5% of the taxpayers adjusted gross income, assuming they are not taking the standard deduction.

For the average person, who is not a multi-millionaire, working with one’s financial advisor, accountant, and attorney is important to ensure that their assets are held in such a way to maximize and leverage their portfolio to be able to pay for long-term care in the future.

Long-Term Care Insurance

Long-term care insurance is a type of insurance that helps pay for long-term care services. These policies may be a stand-alone policy or a hybrid policy which is essentially a life insurance policy with a long-term care rider. Unlike stand-alone long-term care insurance policies, the hybrid policies provide for a life insurance benefit if the long-term care rider is not used.

Some issues that need to be considered with long-term care polices include:

• The ever-increasing premiums. As the cost of care increases, so do the premiums for long-term care insurance policies. One must look at their income/assets to determine if the ever-increasing premiums are worth paying for the benefits received from the policy.
  
• The elimination period. This is the amount of time that a policy holder must wait before receiving benefits from their long-term care insurance provider. Most policies have a 30-, 60-, or 90-day elimination period.
  
• The daily benefit rate. This is important because it sets the maximum amount of money that the long-term care insurance provider will pay per day for the long-term care services. If an individual’s policy pays $300 per day, but their cost of care is $500 per day, they need to develop a plan to make up the difference.  Sometimes this gap is paid from income/assets, and other times it may be covered by government benefits such as Medicaid.
  
• The maximum benefit. This is the total dollar amount or period of time that the insurer will pay for an individual’s care. While the daily benefit rate details how much an individual is entitled to per day, the maximum benefit amount sets the limit for the overall expenditure by the insurer before the policy is exhausted.
  
• The inflation rider. This is a rider to the long-term care insurance policy that provides for the daily benefit rate and the maximum benefit rate to rise with inflation.
  
• New York State Partnership Policy (“NYSPP”). For individuals that have existing long-term care policies, they need to determine whether or not their current policy is a NYSPP. As of January 1, 2021, there are no insurance companies offering this type of insurance policy in the State of New York. However, policies purchased prior to 2021 still exist. NYSPPs are long-term care insurance policies that were purchased in accordance with a program that combines private long-term care insurance with Medicaid extended coverage. One of the main benefits of NYSPP policies are that they have an asset protection feature which allows a person to have excess assets above the Medicaid resource limits and still qualify for Medicaid benefits once the policy is exhausted. NYSPP policies may have a set amount such as $300,000 or $500,000 of asset protection, which would allow an individual to have assets that exceed the maximum resource limits by $300,000 or $500,000 and still qualify for Medicaid. Additionally, there are still unlimited asset protection policies in existence, which allows an individual to have assets of an unlimited value and still qualify for Medicaid benefits once the policy is exhausted. A review of the individual’s current long-term care insurance policy is needed to determine the overall asset protection.

Similar to the concerns raised with privately paying for an individual's long-term care, when dealing with long-term care insurance policy planning, the individual must take into consideration how they will pay for their care when the policy does not cover the full cost of care or how they will pay for their care once the policy is exhausted.

Government Benefits

Medicaid is the primary government benefits program that pays for long-term care. While the Veterans Administration does offer VA benefits for individuals in need of long-term care, those benefits are limited to a small class of individuals consisting of veterans and their surviving spouses. It is also worth noting that Medicaid typically covers up to one hundred days of skilled nursing care, with co-pay requirements after day twenty; however, Medicare coverage of skilled nursing care is insufficient for individuals that need long-term care beyond one hundred days.

Medicaid on the other hand provides benefits for U.S. Citizens and in New York some non-citizens as well. Medicaid is a federal program run by the states, with each state having its own set of Medicaid rules.  In New York, Medicaid is run by the local county Department of Social Services or Human Resources Administration in New York City.

For purposes of long-term care, there are essentially two Medicaid programs: community Medicaid provides benefits for individuals receiving long-term care at home, or in an independent or assisted living facility; and  institutional Medicaid provides long-term care for individuals in nursing homes. Medicaid is a means-based program that requires the applicant to meet the asset and income limits to qualify for benefits. Where an applicant does not meet the asset and income limits, planning must be done to help the applicant qualify for benefits.

Community Medicaid

To qualify for community Medicaid in New York state, an individual may have available resources of no more than $31,175 (2024 rate) and income of $1,732 per month plus an additional $20 unearned income credit, totaling $1,752 per month (2024 rate). It must be noted, that in addition to the $1,752 of income that a community Medicaid applicant is allowed, they are also allowed to pay their health insurance premiums (i.e., Medicare, Medicare Advantage, and Supplemental Insurance).

Exempt resources which do not count against the $31,175 resource limit include:

• A primary residence with an equity limit of $1,071,000 (2024 rate) unless a spouse, minor child, or disabled child reside in the home then the equity limit does not apply
• One motor vehicle of any value
• Essential personal property such as clothes, furniture, jewelry, and similar items
• Qualified retirement accounts in payout status
• Irrevocable pre-paid burial contract, burial plot, life insurance with a cash value of $1,500 or less, and a bank account earmarked for burial expenses of $1,500 or less 

Quite often individuals in New York have income exceeding $1,752 per month plus health insurance premiums. Two options exist for individuals with excess income to qualify for community Medicaid.  One option is the individual pays their excess income toward their medical care and/or medical bills, and then Medicaid will pay the remaining cost of care each month once they have spent down their excess income. The other option includes depositing the individual’s excess income into a pooled trust.

The use of a pooled trust is the most common planning technique for individuals with excess income applying for community Medicaid. A pooled trust is a type of supplemental needs trust that allows an individual to deposit their monthly excess income and then use the excess income to pay for items for their benefit. One caveat is that the pooled trust will not allow funds deposited into the pooled trust account to pay for care which is already provided by government benefits such as Medicaid.

Institutional Medicaid

In New York state, institutional Medicaid has the same resource limits as community Medicaid. Where an individual is allowed to own a primary residence with an equity limit of $1,071,000, in the nursing home setting, however, if the Medicaid recipient does not have a spouse, minor child, or disabled child residing in the home, Medicaid can place a lien on the home if the individual has been admitted to the nursing home for more than six months.

Individuals are allowed to keep only $50 per month, plus pay their health insurance premiums. All other excess income must be paid to the nursing home, unless they have a community spouse earning less than $3,853.50 per month (known as the minimum monthly maintenance needs allowance). In that case, Medicaid recipient can direct some or all of their excess income to their spouse up to an amount that would bring the spouse’s income to a total of $3,853.50 per month. Unlike community Medicaid, an individual cannot use a pooled trust for their excess income when applying for institutional Medicaid.

With institutional Medicaid, the applicant must submit all of their financial records (and their spouse’s financial records) for the past five years. The Department of Social Services will review the financial records and critique all transfers coming into and out of the accounts. The Medicaid rules have a rebuttable presumption that all assets going out of the accounts were made for purposes of qualifying for Medicaid, and thus will impart a penalty period for the total amount of transfers going out of the accounts. Most of the time transfers are made for legitimate purposes, such as paying bills, purchasing food and tangible items, paying for professional services, travel, and similar expenses. Thus the individual can rebut the presumption and prove that the transfers were not made to qualify for Medicaid benefits. For the transfers that cannot be explained (known as uncompensated transfers), the individual will incur a penalty where Medicaid will not pay for their care for a period of months/years, forcing the individual to private pay until the penalty period has expired.

To derive the penalty period, the Department of Social Services adds up the total number of uncompensated transfers and then divides this number by the regional nursing home rate which ranges from $12,196 to $14,668 per month depending on which New York county the Medicaid applicant lives in. For example, assuming an average regional rate of $14,000 per month – for every $14,000 of uncompensated transfers, that would result in one month where Medicaid would not pay for the individual’s care.

Asset Protection Planning

As an elder law attorney, I often meet with clients to discuss planning and applying for Medicaid. Elder law attorneys have a variety of asset protection techniques. Determining which techniques will serve a client the best depends on capturing the full scope of the client’s situation.

Asset protection trusts are often used in community Medicaid and proactive institutional Medicaid planning. These trusts are used to shelter assets with the hopes that the individual (or their spouse) does not need to apply for institutional Medicaid within the next five years because the funding of such trust would be considered an uncompensated transfer and incur a penalty period for institutional Medicaid. An asset protection trust is an irrevocable trust that will hold assets and then distribute same to the listed beneficiaries upon the individual’s death. The individual may be entitled to receive the income generated by the trust, but will not have access to the principal, other than if a home is transferred to the trust, the individual would be permitted to reside in the home so long as they pay the taxes, utilities, insurance, maintenance, and upkeep on the home. Careful tax planning must also be considered when using this type of trust.

Another planning technique is to convert an individual’s available assets into exempt resources. The planning may involve purchasing resources such as a home, car, prepaid burial contract(s),  or a burial plot.  These are exempt assets for Medicaid purposes but continue to benefit the Medicaid applicant. An individual may even use their excess resources to create a stream of income for their spouse who needs the extra income to bring them up to the minimum monthly maintenance needs allowance.

Exempt gifting is another planning technique that is used when possible. This allows  individuals to make transfers to their spouses and/or disabled children, or a trust for the sole benefit of a disabled person under the age of 65, without incurring a penalty period. Often, exempt gifting to a spouse is combined with preparing and filing a spousal refusal. A spousal refusal is a planning technique allowed in New York, where the non-Medicaid spouse signs a form that they refuse to provide for the Medicaid applicant spouse, and thus the Department of Social Services looks at the Medicaid applicant spouse as an individual and with proper planning will be able to qualify for Medicaid benefits. There are nuances and negatives to using spousal refusal planning that need to be addressed on a case-by-case basis, but more often than not the pros outweigh the cons in proceeding with spousal refusal.

In situations where an individual is entering a nursing home and has not done any proactive planning, they may be able to use a gift-note plan to preserve some of their assets. A gift-note plan is tailored to the individual, and essentially allows  Medicaid applicants to gift approximately 40%-50% of their assets which will be considered an uncompensated transfer and create a penalty period. The Medicaid applicant then makes a loan known as a promissory note (usually to a loved one) of the remaining 50%-60% of the remaining assets. The promissory note is calculated to pay back a set amount each month, and when combined with the individual’s income will cover the cost of the nursing home care during the penalty period. The promissory note is calculated to be paid off at the same time that the penalty period is exhausted. Thus, even if an individual has not engaged in proactive planning, we are often able to protect a portion of their assets for their loved ones. This type of gift-note planning requires the individual to have capacity to engage in such planning or a financial power of attorney with full gifting powers.

There are a handful of other planning techniques available to people applying for community Medicaid or institutional Medicaid; however, every plan must be tailored to the individual. There is no one-size-fits-all when it comes to asset protection planning.

Planning for and paying for long-term care can be quite complicated and is specific to the individual. Not only is the care specific to the individual, but the asset and income planning is specific to the individual as well. This is why it is essential to work with experienced financial advisors, CPAs, and elder law attorneys to ensure the best results. [i]