Medicaid Planning Issues with Long Term Care Insurance Examined: A Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen
Attorney Pippen:
All right. We have attorney John Frazier on the line. John is our Medicaid planning attorney, and he calls in with a Medicaid tip of the week almost every week. And John, good morning.
Attorney Frazier:
Hey Joe, how are you doing today?
Attorney Pippen:
Very good. So what are we talking about today as far as Medicaid and Medicaid planning goes?
Attorney Frazier:
Today, I’m going to talk about Medicaid planning issues with long term care insurance. This is an issue that I see on almost a weekly basis. Long-term care insurance, probably most people have some sort of idea of what that is, but it’s a private type of health insurance that a person has to qualify for that will pay a certain dollar amount each month in order to qualify for it. It depends on your health, your age, other considerations, and whether or not you’d even be able to qualify for it is an issue.
Attorney Frazier:
As far as Medicaid is concerned, the reason why it’s an important consideration is there’s two types of long-term care insurance. We have something called an indemnity policy and something called a reimbursement policy. An indemnity policy is a policy that just pays a set dollar amount each month. For example, a hundred dollars a day. A reimbursement policy is a policy that will pay up to a certain dollar amount of, for example, up to $100 a day.
Attorney Frazier:
The reason why this is an important consideration in the Medicaid planning context is that the state of Florida has an income limit for Medicaid, an income cap. And that cap is $2,382 a month. And if you have an indemnity policy, the state of Florida treats that hundred dollar a day payment as income. So if it pays $100 a day, that’s $3,000 a month. And that by itself would put the person over the income cap and we would have to set up what is called a qualified income trust. And under Florida law, only an attorney can prepare that type of trust. So just having that type of insurance may create the need for Medicaid planning.
Attorney Frazier:
And also, the average cost of care in a skilled nursing facility is currently a $9,485 a month. Some of the skilled nursing facilities in our area are charging up to $15,000 per month and even more in some cases. So that’s on average $300 a day. And if you have a long-term care insurance policy that’s only paying a hundred dollars a day and it cost $300 a day to stay there. You would have to apply for Medicaid in order to cover the entire cost of the person’s care. So, unfortunately, we have many, many clients who have these types of policies and they’ve paid in for that insurance, they still end up having to hire us to apply for Medicaid. So that’s a basic overview of long-term care insurance in Florida Medicaid.
Attorney Pippen:
So John, suppose somebody is in a nursing home. They have a long-term care policy and the policy covers a hundred dollars a day, which is kind of a normal older policy anyway. So they have $3,000 a month that would be paid to the nursing home from the long-term care policy, but their bill is $8,000 a month. So, can you go on Medicaid to get the difference?
Attorney Frazier:
Oh, absolutely. And unfortunately, most of my clients have to apply for Medicaid, especially if their policies only paying a hundred dollars a day. I see between $75 a day and up to $200 a day. So right there with those numbers, it’s just not going to cover the cost of the person’s care if they’re in a skilled nursing facility.
Attorney Frazier:
So the way that it works is let’s say that you have an individual with a thousand dollars a month in social security and a hundred dollars a day indemnity long-term care insurance policy. So that’s going to be $4,000 a month in income. We would need to set up the qualified income trust, which we do literally on a weekly basis at our office. And then the Florida Medicaid program of the Medicaid applicant would have to pay the monthly portion, the $4,000. The person would be allowed to keep $130 a month called the personal needs allowance. That’s an amount that Medicaid recipients can keep to pay for, get their hair cut, incidental things and extra food, things like that.
Attorney Frazier:
The person can also keep whatever they pay for private health insurance. So let’s say that the Medicaid applicant in this case pays $200 a month for private health insurance. So they can keep $330 a month. They’d have to pay about $3,700 a month for their care at the nursing facility, but the Florida Medicaid program would pay for the entire cost of the person’s care, no matter how much the private pay amount is. So if the facility is charging $17,000 a month, in that example, the person’s monthly income, about $3,700 a month, would pay for the entire cost of the person’s care. So you can see, on a yearly basis we’re talking about saving tens of thousands of dollars by applying for Medicaid. So it’s very, very important to know these rules in Medicaid planning issues with long term care insurance. If you have a family member, especially in a nursing facility because of the cost of the care in a nursing facility.
Attorney Pippen:
All right. So John, a question came up you and I talked about just briefly. So suppose a person is fairly wealthy, let’s say, and their family wants to take care of them in their home, but be paid for it. Do those payments to a family member now, and not really talking about a personal service contract.
Attorney Frazier:
Yeah.
Attorney Pippen:
I’m talking about just a care contract. Would those payments to a family member who’s spending time and a lot of time in taking care of an elderly parent be paid for it? And does that in any way count against them as far as the Medicaid planning?
Attorney Frazier:
Well I think the answer is, it probably depends. I think the general assumption by the state of Florida, the Florida Department of Children and Families under their rules, is that there’s a presumption that any payment or transfer of assets to a non-spouse, like a child, is going to be treated as a gift. And under a Florida law, we have a five-year look back on transfers. So arguably, it depends on how it’s set up. If you do have a properly drafted personal services contract, then there’s no doubt that would not be a problem for Medicaid planning. If you just have a situation where the person’s being paid, I think you could make an argument if the person’s reporting that to the IRS, as they should be, on their income tax return, you could just document that the person has been paying income taxes on it. And I think that would be a strong argument to make that it’s not a gift. So I think the answer is, it depends.
Attorney Pippen:
All right, well, that’s a famous legal answer.
Attorney Pippen:
John, why don’t you give everyone your contact information? John’s our Medicaid VA. If you have VA questions or Medicaid questions, John would be glad to answer those for you and provide a good service. He’s had thousands of successful Medicaid cases, just moving assets around, protecting them. John, give us your contact information.
Attorney Frazier:
The office number is (727) 586-3306, extension 104. My cell phone number is (727) 748-5374. And my email address is john@attypip.com.
Attorney Pippen:
All right. John, you have a great Sunday and if you have questions for John and didn’t get all that, you can certainly contact me. I’ll give my information out during the show. And John, you have a great Sunday.
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You could also look into why you should hire Attorney Frazier to help you with your Medicaid planning over other options available.