TAXES AND LONG TERM CARE INSURANCE
MEDICAID JUST ISN'T WHAT IT USED TO BE

By Lawrence Thaul, CLU, ChFC, CLTC

The Deficit Reduction Act (DRA) of 2005 and Your LTC Plan

 Included in the all-new federal Deficit Reduction Act of 2005 (DRA ’05), soon to become enabled in NY State back to an effective date of 2/8/06, are measures making it much more difficult to have Medicaid pay for your nursing home and other LTC services. With a “Lookback Period” of 5 years measured beginning on the date of the application to Medicaid, NY is among the states clamping down on their hemorrhaging budgets with a new major restriction yet to be determined. Many individuals will not collect at all and many will be delayed in obtaining benefits under this new law.  Note that about three quarters of all nursing home costs in NY State are borne by Medicaid (source: NYS Partnership).

DRA ’05 has an added restriction which hits home for NY Metro area home owners: home values above $500,000 will become a Medicaid “countable asset” in determining how much must be “spent down”  before Medicaid eligibility.  (Note: states are permitted to set that level at $750,000 by legislation). 

Silver Lining: Partnership Policies Expected to Grow across the U.S.

The LTC insurance policies called Partnership, which exist in NY, CT, IN and CA are vehicles created over a decade ago which can help people obtain Medicaid benefits sooner. Originally the brainchild of a federal/state government-insurance industry think tank with the purpose of staving off the governmental LTC cost explosion, the partner-ing  of LTC expenses between government and individuals is a strategies which will see a boon across the U.S. under DRA ’05.  Generally speaking, there are two types of Partnership policies in NYS:

1. Medicaid’s asset test (currently $4,150 in NYS) will not be applied at all once Partnership policy benefits are claimed and used up; and

2. Assets up  to the amount of policy benefits paid out (e.g. Daily Benefit of $190 x 365 x 3years= $208,050) will not be Medicaid countable upon one’s application for Medicaid LTC benefits.

The paradigm shift the country is experiencing stems from the huge dollar drain LTC services places on government. In Metro NY expenses for housing and services is upwards of $100,000 per year. Insurers have seen this age wave approaching for years. Some have turned their surpluses into developing policies designed to pay benefits at just the time they are needed. That is, when either mental or physical infirmity requires human assistance in the performance of largely custodial care to carry on activities of daily living. What remains to be seen is whether these policies have been priced right to be profitable and thus sustainable.

DRA ’05 is only one piece of the restricting puzzle. The NY State Assembly and Senate are currently considering further restrictions on eligibility of individuals for Medicaid home care.

There is no doubt that there are limited dollars. The public debate is over where and how deep to make the cuts.

Never has advance planning been as important as it is today.

About the Author:

Larry Thaul is an independent Chartered Financial Consultant and co-founding partner of Millenium Financial in Rye Brook, NY. He is Certified in Long-Term Care and is an Officer of the National Association of Insurance and Financial Advisors-Westchester, as well as a member of The Estate Planning Council of Westchester, Inc.  Mr. Thaul is a continuing education instructor at various Westchester County Adult Schools as well as to the CPA Society and the insurance industry. He resides in Larchmont and can be reached for consultation at (914) 934-9700, ext. 252.