Medicaid Eligibility Questions (Warning, ANNUITIES inside)

[ooeei]

Greetings all, I have a somewhat unusual (at least for me) scenario I'm dealing with, and although it's not really mustache related I'm hoping someone here has some experience with it.

My girlfriend's dad is currently very ill and will likely be in a nursing home for the rest of his life.  This could be 3 months, or 5 years, it's not really cut and dry.  Because this will be long term care and he's over 65, as far as I know Medicaid is really the only sensible option  They have around $230k, most of which is in the mom's 401k at work.  For simplicity's sake we'll just discuss that money.

We were referred to a financial solutions company that specializes in asset protection when qualifying for Medicaid.  Basically how I understand it is all of their assets are split down the middle, and half goes to each spouse as far as Medicaid is concerned.  The dad has to have <$2000 in assets to qualify for Medicaid (income is not an issue as he is below the limit).  According to them, because most of the money is in the mom's retirement accounts, they can "shield" his half by putting it in an annuity that pays out to the mom.  That removes the money as an asset, and turns it into income for her which isn't looked at by Medicaid.  They also prepare a new will, work on retitling the house in her name only, and have lawyers on staff to draw up any necessary legal documents.

The fee for this service is $10k and then $20/month.  The annuities company they use is Jackson National, but they said if we want to use someone else we can.  We need to clear the annuity with them beforehand to make sure it works with this strategy, but they said they have no problem with that.  After he gets approved for Medicaid, she can go back to investing in her 401k as usual, so the annuity is a one time chunk of money, not something she'll continue paying in to.

Initially all of my "THIS IS A SCAM" alerts went off, but after talking with them the strategy seems sound.  $10k is a good chunk of change, but I'm not sure I want to take on the liability of handling it all myself, so I'm going to have them go with the company for management.  Where I'm hoping to save them some money is on the annuity selection.  I see Vanguard has some annuities, so I'm going to follow up with the company to see which ones qualify.

Does anyone have any advice or insight into this sort of situation?  Have you dealt with something like this before?  I'd appreciate any input you can give me.

[ooeei]

I have no experience with this. I am sorry to hear about what your GF's family is going through.

I did some googling on the subject using terms like: "medicaid 401k community spouse" and it looks like there are other people confronting this problem.

It looks like the rules are state specific, and there seems to be a distinction as to whether the 401k is in payout status or not.  You might benefit from sitting down with an elder law attorney (not one employed by said company) to get an objective opinion about all your options.

If you do go the route of getting an annuity for this instance, I would suggest shopping around. 

Best of luck.

Yes the rules are state specific, forgot to mention that part.  According to them we live in TX, where "qualified" assets (those within retirement accounts) can be shielded in this way.  If they were in non retirement accounts, the situation is a bit different, and not as advantageous (most of the articles I read assume this situation).  If the 401k won't let her roll over to an IRA and she gets that in writing, they said it will no longer count as part of their "shared money" and the calculations change.  I've been doing a lot of online research, but most of the articles are from 4+ years ago.  These rules are very specific for different situations, and occasionally change without nearly the amount of press a 401k or IRA rule change gets. 

Talking with a 3rd party lawyer is probably not a bad idea, although this place is a law office.  The fact that they'll let us get an annuity wherever we want and have a separate fee structure for themselves leads me to believe they don't have much of a conflict of interest or reason to lie.  If they really push the Jackson annuities I might change my mind. I'll do a search around and see how easy talking with another lawyer would be to do.  I'm kind of concerned we'll just run into the same issue with another lawyer though.

One other contributing factor is we really want to get him qualified before May 1, as Medicaid goes on a monthly basis.  If he's not qualified, they're paying ~$6000 monthly out of pocket for his facility until he can be qualified on June 1.  I've basically resigned myself in this situation to optimizing where I can, but keeping their situation in mind.  If they have to spend an extra $15k to help shield their $100k from Medicaid spend down, and make things more convenient, I think it's a good option even if it's not the absolute cheapest way to go.  Sort of like how getting someone to invest with Edward Jones is better than them buying a new Mercedes.  It's not perfect, but it's better than nothing.

[ooeei]

I believe the strategy outlined here is what they're proposing: 

While it is possible that other courts will follow Keip rather than Pierce (in which there was one justice dissenting on the basis of Keip), there are other alternatives to protecting spousal retirement accounts that would have a much greater likelihood of success than litigating the issue.  In light of all the recent cases concerning the requirement that annuities in payment status be treated as income rather than resources, see, e.g., Geston v. Anderson, 729 F.3d 1077 (8th Cir. 2013), retirement accounts of community spouses could be annuitized.  Then there no longer would be excess resources, just a stream of income, which Medicaid could not count pursuant to 42 U.S.C. § 1396r-5(b)(1), although the State might be able to bring a support claim against the community spouse (but the claim should be based on the Medicaid rate which generally is much lower than the private pay rate).  See Poindexter v. State, 229 Ill. 194, 890 N.E.2d 410 (2008).

https://www.eldercounsel.com/iras-as-countable-assets-for-a-community-spouse/

[ooeei]

Although I'm not getting much feedback, I'll keep posting here with what happens as this may be a good resource if someone in the future is searching for info on a similar situation, or in case someone stumbles in who's dealt with this before.  Personally I'm enjoying learning about how all of this works, and think it might be helpful for some time in the (hopefully far) future.  This way I can plan ahead for this sort of thing so someday I'm not scrambling at the last minute paying someone $10k + fees to get it done.

We found out her 401k can only roll over $31,000 to an IRA, as she still works at her job, this means ~$200,000 is still locked up there, which exceeds the limit of money they can have and qualify for Medicaid.  The law office said we can get in writing from the 401k provider that the money is inaccessible, and that can be presented to the Medicaid office to exclude that money from the calculations.  They're going to review the specifics of the rules to figure out what exactly we need to have the letter say, but that's the gist of it.

Once that money is excluded the calculations start over, and we have to divide what's left outside of the 401k in half and focus on trying to protect that.  I suspect there's not much outside the 401k, and so we may be able to protect all of it.  As I understand it the $31k if we need to can be rolled over and annuitized in an IRA to offset some of it if needed. 

[ooeei]

This is also eye opening in that a relatively small RE nest egg is a somewhat risky option in a way I hadn't considered.  If you have say $750k and wind up needing long term care, it's going to cost more than $30k/year (4%) to put you up in a decent nursing home.  Insurance likely won't cover it long term, so you'll have to either pay cash or spend down enough assets to qualify for Medicaid (all except $2000 if you're single, all except ~$120k if you're married).  There's a pretty risky zone in between having $120,000 and about $1.5 million where your savings isn't very helpful.  Basically if you can pay for the care yourself ($60k/year in this case), you just do that, and if you're broke Medicaid covers it.  If you're in between, you're going to have to basically spend down your money paying for care until you're broke and then Medicaid takes over.

Granted there are mitigating factors.  I think it's unlikely you'd need to pay for this level of care for more than a few years, as it means you're in a pretty critical condition, but it can happen.  You can also withdraw >4% from your portfolio and still have a decent chance of it surviving a long time if the market does well for you.  I believe the rules change if you have kids at home, so that might protect you in that case, but I'm not sure.

Anyway, something worth keeping in mind.  In our particular situation having money in retirement accounts as opposed to taxable is helping significantly with shielding the money from Medicaid.

There are also things I hadn't thought of where now they basically have to write the dad out of all of their wills, as if he inherits any money he'll be disqualified from Medicaid until the money is spent and he's poor again.  The same goes for the title of the house, and any accounts where he's listed as a beneficiary.  If the mom dies and the house passes on to him, the government will sell the house and collect all of what they've paid for his care from the proceeds, the rest goes to his heirs.  Essentially the government gets first dibs on his estate.

[the_fixer]

We just went through this last year with my wife's mother.

I went to the elder lawyer with my father in law, he charged by the hour and it was an enlightening experience as to how you basically have to spend down everything to pretty much nothing before they will start to pay.

Each state is different but as far as i can remember his options here in Colorado were

1. put it into an annuity
2. he could keep his primary residence
3. they were allowed to own one car

So he could have purchased a really expensive car, a primary residence or put it in annuities or any combination.

Really sad and I can see how people get taken advantage as this is the last thing they want to worry about at a time like that. I had to pretty much beg / prod my FIL to talk to someone as he just did not care at that point but we did not want him to be 70 and have nothing.

I am not a lawyer and this is not legal advice.
 

 

[ooeei]

We just went through this last year with my wife's mother.

I went to the elder lawyer with my father in law, he charged by the hour and it was an enlightening experience as to how you basically have to spend down everything to pretty much nothing before they will start to pay.

Each state is different but as far as i can remember his options here in Colorado were

1. put it into an annuity
2. he could keep his primary residence
3. they were allowed to own one car

So he could have purchased a really expensive car, a primary residence or put it in annuities or any combination.

Really sad and I can see how people get taken advantage as this is the last thing they want to worry about at a time like that. I had to pretty much beg / prod my FIL to talk to someone as he just did not care at that point but we did not want him to be 70 and have nothing.

I am not a lawyer and this is not legal advice.

Thanks for sharing. 

I think I've got it figured out now, and really they're in about as good of a position as they can be for all of this.  Her 401k is inaccessible, she thought she could get $31,000 but that would have been for a loan, so it's basically going to be excluded from calculations.  The remainder of their countable assets (minus the car and house like you said) is approximately $40k, of which about $20k is inside an IRA and can easily be transferred into an annuity.  They shouldn't have to do any spend down.  Now we're just racing against the clock to get everything done before May 1. 

Now that we're down to only $20k going into the annuity, I'm not quite as worried about fees as I was before.  I highly doubt the fees will be over $6k, which is what they'll have to pay if we're not ready by May 1, so I'm just going to go with a quick and easy one instead of really shopping around hard.

[the_fixer]

Best wishes to everyone it is a hard thing to deal with and I am sure it is a stress relief that things are getting settled and they have a path forward.

[ooeei]

Best wishes to everyone it is a hard thing to deal with and I am sure it is a stress relief that things are getting settled and they have a path forward.

Yeah it'll definitely relieve part of the stress, thank you for the kind words. 

I can also see how someone could scam people going through this VERY easily.  She read one pamphlet and was ready to drop $10k and transfer everything (including her 401k) to an annuity with no further research.  Luckily they had me to help decode everything, and while this company turned out to be legit, I doubt that's always the case.

[Car Jack]

Aside from the pure financial part, have you looked at facilities who accept Medicaid?  What are they like in your area?  Is there a 5 year waiting list?  Are there facilities who have a # of years of private pay and then revert to accepting social security, medicaid and such?

Spending the money for a far better facility that later accepts whatever payments are coming may be better than some crap hole of a place, that is chosen just because it's essentially free.

In looking at facilities that will do private and then accept the ss and medicaid, be sure that there's the ability to stay there if the level of care increases.  Getting into a "rest home" with low skilled care needed only to become disqualified because a higher level of skilled care is needed isn't good in the long run.

I'm not a fan of paying someone $10k so my loved one can end up in a free crap hole.

[ooeei]

Aside from the pure financial part, have you looked at facilities who accept Medicaid?  What are they like in your area?  Is there a 5 year waiting list?  Are there facilities who have a # of years of private pay and then revert to accepting social security, medicaid and such?

Spending the money for a far better facility that later accepts whatever payments are coming may be better than some crap hole of a place, that is chosen just because it's essentially free.

In looking at facilities that will do private and then accept the ss and medicaid, be sure that there's the ability to stay there if the level of care increases.  Getting into a "rest home" with low skilled care needed only to become disqualified because a higher level of skilled care is needed isn't good in the long run.

I'm not a fan of paying someone $10k so my loved one can end up in a free crap hole.

This is good advice, although not really applicable to the situation.  Definitely something to think about in case I encounter a similar situation in the future.

He already requires a high level of care, and is in a facility the family chose for rehab (they went and looked at probably 10).  He won't have to move to a new location, they'll just discontinue the rehab and continue on with taking care of him.

[marion10]

Generally (my mother is a nursing home administrator and I went through this with my mother in law)- the better facilities take patients in on a cash basis and once assets are exhausted , they stay using Medicaid beds. Most facilities have a certain number of Medicaid beds and for the best ones, those beds never open up to the outside.