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Financing Long-Term Care in New Jersey – Begley Report

by: Begley Law Group

By: Thomas D. Begley, Jr., Esquire, CELA

Statistics show that approximately

70% of the population age 65 or over will require some form of long-term care.  Long-term care can be received at home, in an assisted living facility, or in a nursing home.  A statistic widely quoted is that the average stay in a long-term care facility is 2.9 years.  This statistic is somewhat misleading because persons receiving rehabilitation following a hospitalization for surgery or an accident are often discharged in one month or less. In contrast, individuals suffering from Parkinson’s, Alzheimer’s disease or other forms of dementia may stay in a long-term care facility for many years.

Unfortunately, as the population ages, the cost of health care is increasing, and government entitlement programs are being cut back. The cost of a nursing home in New Jersey today is approximately $150,000 – $215,000 per year.  The cost of assisted living ranges from $100,000 to $150,000 per year.  The cost of home care will depend largely on the number of hours needed, but for 16 hours per day of coverage, the expense could range between $165,000 and $205,000 per year.

There are five sources for payment of long-term care expenses: private pay, long-term care insurance, Medicare Part A, the Veterans Administration; and Medicaid.

PRIVATE PAY

Private pay refers to utilizing one’s personal savings and income to pay for care.  While no one likes this option, keep in mind that most assisted living facilities require their residents to privately pay for a length of time, typically 24 months, before they will accept Medicaid as a payment source.

LONG-TERM CARE INSURANCE

Long-term care insurance can be helpful to clients who are healthy and affluent enough to afford it.  While expensive, the annual premiums for long-term care insurance pale in comparison to the monthly cost of a nursing home.  As Elder Law attorneys, we must be aware that Medicaid and other public assistance programs may not continue to exist in the future as we know them today.  Accordingly, clients who can afford long-term care insurance and who may be insurable should be urged to consider purchasing coverage.

Key features which affect the premium cost and which the client can select are the maximum amount of daily coverage, the benefit length, the type of care covered, the elimination period, and the inflation rider. Two factors which greatly affect the premium are outside of the client’s control.  They are the client’s age at application and health history.  Many people wait too long to consider long-term care insurance.  Many experts consider the best time to buy a policy is when individuals are in their fifties.

Many clients do not like the “use it or lose it” nature of traditional long-term care insurance policies.  The insurance industry has responded with hybrid life insurance products that include  some  long-term  care  coverage.  Federal  and  State governments provide certain benefits for purchasers of long-term care insurance, including tax deductions for the payment of insurance premiums.  New Jersey created the New Jersey Partnership for Long-Term Care which provides the purchaser of certain qualified long-term care policies with the right to apply for Medicaid under modified eligibility rules. Because long-term care insurance provides a source of payment for a period of time, the owner of such a policy may be able to take other steps to preserve assets from spend-down on care.

MEDICARE PART A [1]

Medicare Part A will pay for limited long-term care services, but only under strict circumstances.  Nationwide, Medicare only pays for approximately 5% of all long-term care expenses.  Covered expenses may include skilled nursing facility care (full-time), home health care (intermittent), rehabilitative services, hospice care, and durable medical equipment.

In order for Medicare to cover services received in a skilled nursing facility, the care must follow the individual having been admitted to a hospital for at least three days.

COVERAGE

Medicare will pay for up to 100 days.  However, there is co-insurance from the 21st to 100th day.  For 2024, the co-insurance rate is $204 per day,[2] which must be paid by either the patient or a Medi-gap policy.  The 100 days of coverage are not guaranteed.  This is a maximum, not a minimum.  If the patient is receiving rehabilitation and hits a plateau, Medicare coverage will stop.

VETERANS BENEFITS

FEDERAL

The federal government has two long-term care programs for an eligible Veteran and their surviving spouse.  One is called Aid and Attendance, and the other is Homebound Pension.  Eligibility depends on both medical and financial tests and certain service requirements.

STATE

♦ General.  The New Jersey Veterans Administration operates three Old Soldiers’ Homes for New Jersey Veterans and their families.  They are located in Paramus, Edison, and Vineland.  Veterans, spouses of Veterans and certain parents may be eligible for admission to these facilities.[3]

MEDICAID

ADMINISTRATION

This is a program administered by the states and funded by both federal and state governments.  Rules vary from state to state.  In New Jersey, Medicaid is administered by the County Boards of Social Services.  The Medicaid program which pays for long-term care provided in nursing homes, assisted living facilities and in the home is called Medicaid Managed Long-Term Services and Supports (MLTSS).

ELIGIBILITY

♦ Citizenship and Residency.  Must be a U.S. Citizen or resident alien and a resident of New Jersey.[4]

♦ Categorical.  Must be 65 years of age or older unless blind or disabled. [5]  “Blindness” means visual acuity of 20/200 or less in the better eye with use of a correcting lens.[6]

“Disability” is defined as the inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment, which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months.[7]

♦ Clinical Eligibility.  Must be eligible from a medical standpoint for nursing home level of care which means the individual needs assistance with at least three activities of daily living or if cognitive impairment requires them to receive assistance in doing so.  New Jersey regulations dictate the Pre-Admission Screening (PAS) process which differs depending upon whether the Medicaid applicant resides in a nursing home, assisted living facility or at home.[8]

♦ Income

  • New Jersey is an income cap state.  This means that if an individual’s income exceeds $2,829 for 2024[9] (300% of the SSI individual benefit), the individual is not eligible for Medicaid. Individuals with higher income, however, can still qualify for benefits if they establish a Qualified Income Trust (QIT). The applicant must deposit and use the funds for only specific expenses, including the cost of long-term-care. There are specific requirements concerning the funding and administration of a QIT. Failure to satisfy these requirements may disqualify an individual from receiving Medicaid benefits.
  • All types of income are counted including wages, social security, pensions and annuities, alimony, interest, and dividends.[10]
  • Name on Instrument Rule. The name on instrument rule applies in determining to whom income belongs.  If there is a joint “and” account, income is deemed to belong one-half to each.  If it is a joint “or” account, Medicaid takes the position that income on the entire account belongs to the applicant.[11]

RESOURCES

♦ Cap.  Countable Resources cannot exceed $2,000.[12]

♦ Excluded Resources

  • Home. The primary residence and lot are excluded if occupied by the institutionalized person or his or her spouse. Absence of more than six months creates a presumption that the home no longer serves as the principal residence.[13]  However, states may establish a cap on the equity of the home.  The minimum cap is $713,000 and the maximum cap is $1,071,000.[14]  New Jersey has adopted the maximum cap. There is no maximum cap on equity in a home for a married couple.
  • Automobile. One automobile is exempt.[15]
  • Personal Effects and Household Goods[16]
  • Wedding Ring and Engagement Ring[17]
  • Medical Equipment. Needed by an institutionalized person or a member of his or her household.[18]
  • Burial Fund. A prepaid funeral is permitted provided the funeral director places the payment in an irrevocable trust for this purpose or, provided that a life insurance policy is irrevocably assigned to the funeral director.[19]
  • Inaccessible Resources. Resources which cannot be liquidated are considered inaccessible resources.[20]
  • Term Life Insurance. Term life insurance is not countable since it has no cash value.[21]
  • Whole Life Insurance with a Total Maximum Face Value of $1,500[22]

SPOUSAL PROTECTIONS

Congress has passed laws which contain protections to prevent impoverishment of the spouse of an individual who needs Medicaid benefits.  In Medicaid parlance, the Medicaid applicant or beneficiary is referred to as the Institutionalized Spouse and the healthy spouse is referred to as the Community Spouse.  These laws provide for a minimum monthly maintenance needs allowance and the Community Spouse Resource Allowance

MINIMUM MONTHLY MAINTENANCE NEEDS ALLOWANCE

The Minimum Monthly Maintenance Needs Allowance (MMMNA) allows the Institutionalized to transfer a portion, or in some cases, all of their monthly income to the Community Spouse.  The current MMMNA is $2,465 per month adjusted annually on July 1 of each calendar year, plus the community spouse’s expenses for rent, mortgage, taxes, insurance and certain utilities in excess of $739.50 per month.  These figures are for the period July 1, 2023 through June 30, 2024.[23]  The maximum MMMNA is currently $3,853.50.[24]

POOLING

Resources owned individually by the institutionalized spouse and the community spouse or owned jointly by the institutionalized spouse and the community spouse are pooled together to determine Medicaid eligibility.  In New Jersey, retirement assets of both spouses are considered countable resources.

COMMUNITY SPOUSE RESOURCE ALLOWANCE

The provision of a Community Spouse Resource Allowance (CSRA) guarantees the community spouse a minimum amount of resources without affecting the institutionalized spouse’s Medicaid eligibility.  For 2024, this is the greater of $30,828 or one-half of the couple’s non-exempt resources not to exceed $154,140.[25]  These figures are adjusted on January 1 of each calendar year.

SNAPSHOT

The calculation of the CSRA is made on what is referred to as the snapshot date.  For nursing home applicants, the snapshot is the first day of the month the individual enters the nursing home or at the time of the Medicaid application, whichever first occurs.  The snapshot date for Medicaid applicants who receive care in an assisted living facility or at home is the date of the PAS establishing clinical eligibility or the date of application whichever occurs first.  Thus, assisted living residents under a private pay obligation should request a PAS as soon as possible before the couple’s assets are reduced by monthly payments to the assisted living facility.

TRANSFER OF RESOURCES

♦ Look-Back Rule.  There is a 5-year look-back for transfers of assets.[26]  This means that the disposal of resources for less than fair market value in the 5-year period prior to the month of application must be reported at the time of the Medicaid application.  Transfers made beyond the look-back period are not penalized.  Transfers within the look-back period are penalized.     Transfers of assets between spouses and transfers of assets to children who are disabled, as defined by the Social Security Administration, are permitted without penalty.

♦ Penalty

  • Transfer Penalty. To calculate the penalty, divide the total amount of transfers during the lookback period by the average daily cost of nursing home care in New Jersey, $384.57, as of April 1, 2023.[27] Under the Deficit Reduction Act, the penalty is calculated in partial months.[28]  The penalty is the period for which the institutionalized spouse would be ineligible for Medicaid.  Under federal law, the penalty is unlimited.[29]
  • Beginning Date. The penalty begins on date the individual is found eligible for Medicaid benefits but for the application of the penalty period or the date of the transfer, whichever is later and which does not occur during any other period of ineligibility.[30] Therefore, the penalty begins when a person is actually receiving care, has reduced his or her resources to $2,000, and has no other penalty outstanding.
  • Transfers by Community Spouse. Transfers by the community spouse to third persons are also subject to the same penalty as transfers by the institutionalized individual.

CONCLUSION

The staggering cost of long-term care in New Jersey means that few people can (or wish to) pay the expense out of their savings and income. While Long-Term Care Insurance, Medicare and Veteran’s benefits may provide a source of payment for these expenses, Medicaid, the “payor of last resort”, is the government program most relied upon to help pay for long-term care.  Medicaid rules are complex and change often.  Medicaid case workers often feel they have an obligation to protect the public purse, rather than to assist the applicant by suggesting various strategies to protect additional assets.  Planning for Medicaid financing of long-term care offers an excellent opportunity for elder law attorneys to be of assistance to their clients. We will discuss several available asset protection strategies in another issue of the Begley Report.

[1] 42 U.S.C. 1395 through 1395xx; 42 C.F.R. Pts. 405 through 489.

[2] 88 F.R. 71551 (Oct. 17, 2023).

[3] N.J.A.C. 5A:5.1 et seq.

[4] N.J.A.C. 10:71-3.2 – 3.4.

[5] N.J.A.C. 10:71-3.9.

[6] N.J.A.C. 10:71-3.12(c).

[7] N.J.A.C. 10:71-3.12(a).

[8] N.J.A.C. 8:85-1.8

[9] CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[10] N.J.A.C. 10:71-5.1.

[11] N.J.A.C. 10:71-4.1(d)2.

[12] N.J.A.C. 10:71-4.5(c).

[13] N.J.A.C. 10:71-4.4(b)1i.

[14] 42 U.S.C. §1396p(f); CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[15] N.J.A.C. 10:71-4.4.

[16] N.J.A.C. 10:71-4.4(3).

[17] N.J.A.C. 10:71-4.4(b)3ii.

[18] N.J.A.C. 10:71-4.4(b)3iii.

[19] N.J.A.C. 10:71-4.4(9).

[20] N.J.A.C. 10:71-4.4(b)6.

[21] N.J.A.C. 10:71-4.4(b)4.

[22] N.J.A.C. 10:71-4.4(b)4.

[23] N.J.A.C. 10:71-5.7(c); 2023 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[24] CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[25] CMCS Information Bulletin, 2024 SSI and Spousal Impoverishment and Medicaid Savings Programs Resource Standards, November 14, 2023.

[26] 42 U.S.C. §1396p(c)(1).

[27] N.J.A.C. 10:71-4.10(m)1; Medicaid Communication No.23-04 (March 28, 2023).

[28] N.J.A.C. 10:71-4.10(m)1; Medicaid Communication No.12-16 (Dec. 10, 2012).

[29] HCFA Transmittal No. 64 §3258.4.

[30] 42 U.S.C. §1396p(c)(1)(D).

[1] 42 U.S.C. 1395 through 1395xx; 42 C.F.R. Pts. 405 through 489.

[2] 87 F.R. 59094 (Sept. 29, 2022).

[3] N.J.A.C. 5A:5.1 et seq.

[4] N.J.A.C. 10:71-3.2 – 3.4.

[5] N.J.A.C. 10:71-3.9.

[6] N.J.A.C. 10:71-3.12(c).

[7] N.J.A.C. 10:71-3.12(a).

[8] N.J.A.C. 8:85-1.8

[9] 2023 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[10] N.J.A.C. 10:71-5.1.

[11] N.J.A.C. 10:71-4.1(d)2.

[12] N.J.A.C. 10:71-4.5(c).

[13] N.J.A.C. 10:71-4.4(b)1i.

[14] 42 U.S.C. §1396p(f); 2023 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[15] N.J.A.C. 10:71-4.4.

[16] N.J.A.C. 10:71-4.4(3).

[17] N.J.A.C. 10:71-4.4(b)3ii.

[18] N.J.A.C. 10:71-4.4(b)3iii.

[19] N.J.A.C. 10:71-4.4(9).

[20] N.J.A.C. 10:71-4.4(b)6.

[21] N.J.A.C. 10:71-4.4(b)4.

[22] N.J.A.C. 10:71-4.4(b)4.

[23] N.J.A.C. 10:71-5.7(c); 2022 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[24] 2023 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[25] 2023 SSI and Spousal Impoverishment Standards, www.medicaid.gov.

[26] 42 U.S.C. §1396p(c)(1).

[27] N.J.A.C. 10:71-4.10(m)1; Medicaid Communication No.23-04 (March 28, 2023).

[28] N.J.A.C. 10:71-4.10(m)1; Medicaid Communication No.12-16 (Dec. 10, 2012).

[29] HCFA Transmittal No. 64 §3258.4.

[30] 42 U.S.C. §1396p(c)(1)(D).