Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
Note: This blog was written prior to the publication of the Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits rule by the Veterans Affairs Department effective October 18, 2018. As such, any strategies outlined in this blog post may no longer be advisable. For more information, read our blog post on the subject, or read the full Federal Register document text here.
Which is Best for My Single Client?
It is sometimes difficult to determine the best course of action to take for clients facing the financial burden of long-term care. While Medicaid potentially provides for greater financial assistance, VA benefits potentially provide greater flexibility for the client in that there is currently no lookback period. Choosing the right path for your client depends on the level of care required, the countable assets and income, and the financial goals of the client and his or her family.
As many are aware, the VA Aid & Attendance benefit is a tax-free monthly pension available to qualified veterans and surviving spouses who have low income and nominal assets. Medicaid is a joint federal and state means-tested program that assists with paying healthcare costs. Medicaid is administered at the state level, therefore specific rules and regulations may vary from state to state. In order to better understand which benefit, or if the coordination of benefits is the appropriate choice for a single client, consider the following scenarios and how each individual’s eligibility can be accelerated through the use of an annuity.
VA is appropriate if the client…
- meets the VA Aid & Attendance eligibility standards;
- currently receives care at home and intends on remaining at home; or
- is not residing in a Medicaid-approved facility
John is a single 75-year old Vietnam War veteran and suffers from Parkinson’s disease. John and his children decide it best that John move into an assisted living facility. Medicaid in John’s state does not offer a waiver program that will pay for John’s cost of care at this facility.
- John’s total monthly medical expenses: $4,000.00
- John’s total monthly income: $1,200.00
- Total countable assets: $175,000.00
- Based on the figures above, John has a monthly income shortfall of $2,800.00
- For VA purposes, John’s IVAP is $2,800.00, therefore John is eligible for the full Aid & Attendance benefit of $1,794.00
Even though John’s unreimbursed medical expenses (UMEs) outweigh his income, in order to qualify for VA benefits, John must also have “nominal assets.” Though there is no explicit asset limit, it is recommended that John retains no more than $25,000.00 of countable assets. In that John currently has assets of $175,000.00, the excess amount of $150,000.00 will be placed into an annuity that will payout over John’s life expectancy (11.03 years/132.36 months). John will receive $1,175.00 per month for the next 132 months, bringing his total income to $2,375.00, and his IVAP to ($1,625.00). As John’s IVAP is still less than zero, he is still entitled to the full Aid & Attendance benefit of $1,794.00 to help pay for his monthly medical expenses.
Medicaid is appropriate if the client…
- is in a Medicaid-approved facility;
- is seeking financial assistance to cover the entire cost of care; or
- is not a veteran or is not the surviving spouse of a veteran
Karen is an 85-years old widow and suffers from dementia. Karen and her children decide it best that Karen enter a skilled nursing facility. Neither Karen nor her late husband ever served in the military.
- Karen’s total monthly medical expenses: $8,000.00
- Karen’s total monthly income: $1,000.00
- Total countable assets: $62,000.00
- Based on the figures above, Karen has a monthly income shortfall of $7,000.00
- Medicaid will cover Karen’s entire cost of care at the facility
Because Karen is a single individual, the gifting/annuity plan is most appropriate to accelerate her Medicaid eligibility. Karen is allowed to retain $2,000.00 in countable assets. As such, her spend-down amount equals $60,000.00. After conducting the calculations associated with this type of planning, Karen will gift $33,128.00 to her children, resulting in a penalty period of 4 months. Karen will put the remaining assets of $26,872.00 into an annuity to help pay for her care during the penalty period. Over the next 4 months, Karen will receive payments from the annuity in the amount of $6,720.00 per month to help pay for her care. After the penalty period has ended, Karen will be eligible for Medicaid.
Both VA and Medicaid are appropriate if the client…
- meets the VA Aid & Attendance eligibility standards;
- is in a Medicaid-approved facility, including assisted living facilities or at-home programs covered by a state Medicaid waiver program; and
- is seeking to maximize his or her anticipated financial assistance and any potential wealth transfer to family members
Charlie is a single 87-year old Korean War veteran and suffers from progressively-worsening COPD. Charlie and his children decide it best that Charlie enter an assisted living facility. Charlie’s state offers a Medicaid waiver program that will cover the monthly cost of care at the assisted living facility.
- Charlie’s total monthly medical expenses: $5,000.00
- Charlie’s total monthly income: $1,500.00
- Total countable assets: $107,000.00
- Based on the figures above, Charlie has a monthly income shortfall of $3,500.00
- For VA purposes, Charlie’s IVAP is ($3,500.00), therefore Charlie is eligible for the full Aid & Attendance benefit of $1,794.00
Because Charlie is a single individual, the gifting/annuity plan is most appropriate to accelerate his Medicaid eligibility. Charlie is allowed to retain $2,000.00 in countable assets. As such, his spend-down amount equals $105,000.00. Anticipating the full VA benefit, Charlie’s total income will equal $3,294.00, and he only has a monthly income shortfall of $1,706.00. After conducting the calculations associated with this type of planning, Charlie will gift $85,265.00 to his children, resulting in a penalty period of 12 months. Charlie will put the remaining assets of $19,735.00 into an annuity to help pay for his care during the penalty period. Over the next 12 months, Charlie will receive payments from the annuity in the amount of $1,650.00 per month to help pay for his care. After the penalty period has ended, Charlie will be eligible for Medicaid, which will pay for his full cost of care at the facility. Additionally, his VA benefit will reduce to $90.00 per month.
This scenario works for Charlie because the gift and the purchase of the MCA reduce his assets to the allowable limit under his state’s Medicaid program, which will also lower his countable assets to the “nominal” requirement for VA purposes. Because Charlie has is now “otherwise eligible” to receive Medicaid benefits, his penalty period can begin. At the same time, because Charlie’s UMEs still exceed his income, he is entitled to the maximum VA benefit during the Medicaid penalty period. Thus, Charlie was able to accelerate his eligibility for both programs using the method described above.
Choosing the best path for your client is dependent upon many factors. The Krause Agency is the expert in accelerating benefits to assist your clients in paying for longterm care, and we are here to assist you in determining the most beneficial plan for your client.
Contact TKA today to learn more about how an annuity can help accelerate the VA Aid & Attendance benefit, Medicaid, or the two combined,