Value of Assets That Spouses of Medicaid Recipients May Keep Rises for 2015

Medicaid law provides special protections for the spouse of a Medicaid applicant to ensure the spouse has the minimum support needed to continue to live in the community while the the Medicaid recipient receives long-term care benefits, usually in a nursing home.

One of the most important protections is the "community spouse resource allowance" or CSRA. In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in assets (the amount may be somewhat higher in some states). In general, the community spouse may keep one-half of the couple's total "countable"assets up to a maximum that changes each year. This is the “maximum CSRA,” the most that a state may allow a community spouse to retain without a hearing or a court order. The least that a state may allow a community spouse to retain is called the “minimum CSRA.”

The federal government just announced the new spousal impoverishment figures for 2015, which include the minimum and maximum CSRA:

• Minimum Community Spouse Resource Allowance: $23,844
• Maximum Community Spouse Resource Allowance: $119,220

Here's an example of how the CSRA might work:

If a couple has $100,000 in countable assets on the date the applicant enters a nursing home, he or she will be eligible for Medicaid once the couple's assets have been reduced to a combined figure of $52,000 -- $2,000 for the applicant and $50,000 for the community spouse.

Some states, however, are more generous toward the community spouse. In these states, the community spouse may keep up to $119,220 (in 2015), regardless of whether or not this represents half the couple's assets. For example, if the couple had $100,000 in countable assets, the community spouse could keep the entire amount, instead of being limited to half.

For more about the CSRA, click here.

For more about Medicaid's protections for the healthy spouse, click here.

For more about Medicaid's treatment of assets, including what is "non-countable," click here.

Ohio Forced to Embrace Compliant Annuities in Medicaid Planning

Medicaid compliant annuities are useful tools in long-term care planning for many married clients.  A married couple typically purchases a Medicaid compliant annuity if the two spouses are in unequal health positions to ensure that the healthy spouse—known as the “community” spouse—has sufficient income, while allowing the second, less healthy spouse to qualify for Medicaid assistance in paying for long-term care expenses, typically within a nursing home.  

Because a Medicaid compliant annuity is often the only means by which a healthy client is able to secure a stable income stream once his or her spouse requires state-sponsored Medicaid assistance, state-imposed restrictions in this area can force a Medicaid-reliant client into poverty.  Nonetheless, in recent years, restrictive state and local policies have often prevented clients from fully taking advantage of these federally regulated products.  Historically, Ohio has been peculiarly aggressive, sometimes bending the federal and state rules to erect substantial roadblocks to these planning alternatives.  

Federal law would appear to protect the use of Medicaid compliant annuities.  Rather than treating the purchase of the annuity as an impermissible asset transfer effected in order to meet Medicaid’s means-tested eligibility requirements, if certain requirements are satisfied, the federal Deficit Reduction Act (DRA) treats the purchase as a permissible exempt investment, and the annuity payout stream is shielded as the community spouse’s income.  

In order to qualify as a Medicaid compliant annuity under the DRA, the terms of the annuity contract must satisfy certain criteria. The income from the annuity contract must be payable to the community spouse, the contract must be irrevocable and the payment term must be based on the life expectancy of the community spouse.  Further, the state must be named as the remainder beneficiary on the contract, allowing it to receive up to the amount that it has paid for the institutionalized spouse’s long-term care.
The speed with which Ohio complied with the injunction and reversed the denied applications isa step in the right direction for Medicaid-reliant clients.

Notwithstanding the federal rules, in three separate instances, a community spouse in Ohio had purchased a Medicaid compliant annuity so that his spouse, a nursing home resident, could qualify for Medicaid. Several Ohio counties, however, decided to treat Medicaid compliant annuities as impermissible asset transfers even if those annuities satisfied the strict federally mandated criteria.  he Medicaid applications were denied.

The immediate annuities purchased in the Ohio case satisfied federal criteria, but, because Ohio found that they did not satisfy state standards, the state found that the healthy spouses were required to use those funds to pay for the unhealthy spouses’ nursing home care, despite the fact that the funds were now invested in irrevocable annuities.

A federal court, however, recently stepped in to issue an injunction against Ohio.  The federal judge disagreed with Ohio's interpretation of the rules, and, because the institutionalized spouses were at risk of eviction from the nursing home, issued an injunction ordering the state to reverse its decision and treat the annuities as permissible, or risk disqualifying Ohio from the federal Medicaid program entirely.

The state quickly complied.  

In Ohio, a community spouse is entitled to retain half of the couple’s assets, up to a maximum dollar amount of around $ 119,220 (eff. 1/1/2015). The unhealthy spouse is required to spend down the remainder of the couple’s assets until only $1,500 remains. In order to accomplish this, the couple is permitted to buy certain types of immediate annuities without jeopardizing Medicaid eligibility.

There are Many Life Insurance Options in Estate and Financial Planning

Estate planning will always involve consideration of life insurance.  Life insurance can, among other objectives, create liquidity to pay estate taxes and settlement expenses, replace lost income for spouses and dependents, and protect an estate against loss. There are two main types of insurance: term and permanent. These two main alternatives differ on how long there is coverage and whether or not the policy includes a cash value.

Term Life Insurance

Term life insurance is the simplest, and probably the most common type of insurance. The purchase of insurance is for a set number of years, and the policy owner has coverage only for those years. In general, premiums remain level for the term. If the insured dies during the term, the beneficiaries receive a death benefit. Once the term ends, however, coverage ends. Some policies are "guaranteed renewable,"  meaning the owner can renew the policy for another term without having another medical exam, but premiums typically  increase. Some term policies also allow you to convert a term policy into permanent insurance.

Term insurance is usually purchased to cover a short- to medium-term need, such as a mortgage or a dependent's education costs.  Level term insurance keeps the premiums and death benefit the same over the policy term,  but there are other options. If the need for insurance will decrease over time, deceasing term insurance offers a reducing death benefit  over the term. Most consumers encounter these when buying a home or car, to ensure payment of the debt at death.  Conversely, if your need for insurance will increase over time, you can purchase increasing term insurance in which your premiums and death benefit rise over the term.

Permanent Life Insurance 

There are many different types of permanent life insurance (also called cash value insurance), but the four main types are whole life, universal life, variable life, and universal variable life. All permanent life insurance policies provide coverage for life (or for as long as you pay premiums). The other feature of permanent insurance is that in addition to paying a death benefit, the policy builds a cash value, which can be used as collateral for a loan or withdrawn from the account. A portion of the premium payments goes into a separate cash account that grows over time. Loans or withdrawals reduce the death benefit, but offer liquidity option in estate and financial planning. Many of these policies offer the option to add the cash value to the death benefit upon the death of the insuredfor an additional cost.  Each types of permanent life insurance has its own specific features and variations:

• Whole life insurance. With whole life insurance, the owner pays a set premium and receive a set death benefit. In addition, the cash value is guaranteed. Whole life insurance is a good option if an owner  is seeking stable premium payments, cash value, and a death benefit.

• Universal life insurance. Universal life insurance offers flexible premiums, cash value, and death benefit. The main feature of universal life insurance is the ability to use accumulated cash value to pay premiums. A policy may lapse, however, if the cash value does not grow sufficiently to support premium payments. Universal life also offers the option to change the death benefit, although, depending upon the policy, the insured may have to go through the underwriting process again. Universal life insurance is a good option if an owner is worried about the ability to pay premiums in the future and wants the ability to change premiums and  death benefit amounts as circumstances change.

• Variable life insurance. Variable life insurance offers the ability to invest cash value. The premium payments are usually  level, but an owner can direct the cash value payments into subaccounts that are similar to mutual funds. The cash value and  death benefit will vary depending on the performance of the accounts, although some policies may contain a guaranteed minimum for each. Variable life insurance is appropriate if an owner is using the policy as an investment and wants to control investment options. Variable life is better for younger buyers who can afford to take more risks.

• Variable universal life insurance. As the name suggests, variable universal life insurance combines the flexible premiums of universal life insurance with the investment choices of variable life insurance. There is no guaranteed minimum cash value, but most policies have a minimum guaranteed death benefit provided the premiums are paid for a set number of years. Like universal life insurance, the owner may be able to change the death benefit, but again the insured might have to go through the underwriting process again. Variable universal life insurance is a good option for young purchasers who want an investment option and flexibility with premium payments.