RETIREMENT SECRETS: Your Safety Net in a Health Care Crisis

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karl kimBy KARL KIM

It happens in an instant. Your 88-year-old father falls in the backyard and is injured. The ambulance comes and takes him to the hospital. After a three-day stay, he is released to a Medicare-certified nursing home for rehabilitative care.

After 100 days, your father is still unable to return home. The status of his care now changes from short-term to long-term care. This is important because now the method of payment to the facility changes from government/insurance reimbursement to payment directly from the patient (private pay).

The 2013 Genworth Cost of Care Survey pegs the average monthly cost for a semi-private room in Los Angeles County at $6,500, or $78,000 a year. This is just for room and board. Other charges such as medicine and transportation are billed as extra charges.

A private room in Los Angeles County averages $8,000 a month or $96,000 per year in the same survey by Genworth.

Faced with daunting nursing home costs and making sure that your father gets the proper care, what are the options available to pay the monthly bills?

First, you can pay out of current income and savings. The concern is how long would your parent’s savings last? According to a June 2012 study by the Employee Benefit Research Institute, for those that had been in a nursing home for six months or more, median household wealth was only $5,518. Median housing wealth falls to zero within six years.

If income and assets are used to pay for your father’s care, how is your mother going to maintain her standard of living? And, if she needs help, will there be any assets left to pay for her care?

The second option is to have long-term care insurance help pay for the nursing home costs. Unfortunately, only 14% of people have long-term care insurance, according to the Employee Benefit Research Institute’s June 2012 brief.

The last option is Long-Term Care Medi-Cal (LTC Medi-Cal). This program is the safety net for Californians in a health care crisis. It not only helps to pay for the monthly nursing home bill, but also allows for the preservation of assets if you know the rules.

Much of the confusion about LTC Medi-Cal is because California regulations are different from the rest of the country. This often leads to misinformation from credible sources such as CPAs, attorneys, social workers, the media and financial advisors who are not knowledgeable of the differences.

In addition, the implementation of the Affordable Care Act in California has created even more of a difference in qualification criteria between general Medi-Cal and LTC Medi-Cal.

LTC Medi-Cal can help to reduce or even eliminate monthly nursing home costs. For example, a single person, age 70, receives $1,000 per month from Social Security. After keeping $35 as a personal needs allowance, their monthly payment to the nursing home is $965 (share of cost). Medi-Cal pays the rest.

In the case of a married couple, the share of cost (SOC) calculation is a little more complicated because the at-home spouse is allowed a minimum monthly maintenance needs allowance (MMMNA) of $2,898.

Your father, age 88, is in the nursing home. He receives $2,000 from Social Security and $1,000 from his IRA rollover for a total monthly income of $3,000. Your mother’s only income is $500 per month from Social Security.

Your mother is entitled to keep $2,898 (MMMNA) minus $500 or $2,398 of your father’s income.

Your father’s SOC calculation is $3,000 (total monthly income) minus $2,398 (allowance to mother) minus $35 (personal needs allowance). His monthly payment to the nursing home is only $567.

Your mother saves $5,933 a month in nursing home costs ($6,500 – $567) or over $71,000 a year! Your father is getting the care he needs, your mother is able to maintain her standard of living, and their life savings have been saved from financial devastation.

Contrary to public belief, you do not have to be broke in order to qualify for LTC Medi-Cal. Some assets count — these are called countable assets — and some assets don’t — these are called unavailable or exempt assets. Your eligibility is based only on countable assets.

Examples of countable assets include checking, savings, money markets, CDs, mutual funds, annuities, life insurance cash value, vacant land, second vehicles, time shares, retirement accounts, and real property other than the home; in other words, any asset that can be converted to cash.

Unavailable assets (non-countable) include retirement accounts such as IRAs from which a periodic income is being taken. An example is a required minimum distribution. At-home spouse’s retirement accounts are not counted at all. A periodic income does not have to be taken.

Exempt assets include the family home and an irrevocable pre-need mortuary account (not a trust). Currently, California exempts the family home regardless of value. Your home could be a boat in the marina, a mobile home, a tract home or a mansion; as long as that is where you lived, it is your home. Your home cannot be your adult child’s home if that is not where you lived.

A single person is allowed to have up to $2,000 in countable assets. A married couple is allowed to have up to $117,920 in countable assets. For approval, any account in either spouse’s name or joint is considered.

The discrepancy between asset limits for a single person and a couple is explained this way. If a single person is on Medi-Cal and in a nursing home, why would they need assets if everything was being paid for?

In the case of a married couple, the at-home spouse needs assets in order to maintain his/her standard of living.

If you are Japanese American and received a redress payment of $20,000 for internment during World War II, you are entitled to exempt an additional $20,000 of countable assets if you can prove receipt. Proof is the letter from the Department of Justice, Civil Rights Division, not the letter that came with the check. Even if you have spent the $20,000, it doesn’t matter.

With the redress exemption, a single person is allowed up to $22,000 in countable assets. If both husband and wife received redress, they are allowed up to $157,920 in countable assets.

As can be seen, one does not have to be broke to qualify for LTC Medi-Cal, just informed. For many people their home and retirement accounts are their largest assets but are not included in countable assets.

If faced with a nursing home stay for your spouse or family member this winter season, do not rule out LTC Medi-Cal. You may be surprised.

Karl Kim, CFP, CLTC is the president of Retirement Planning Advisors, Inc. and a Medi-Cal specialist. His office is located in La Mirada. He can be reached at (714) 994-0599 or at www.RetirementCrisisPlanning.com. He has submitted over 1,000 Medi-Cal applications over the past 20 years with a 99.9% success rate. This is meant to be an educational article. Do not make any decisions solely on the information in this article. Consult your tax advisor, financial advisor or attorney before taking any action. We are not responsible for any inaccuracies or misinformation.

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