- Medicare generally doesn't cover long-term care.
- The median monthly cost of a private room at a nursing home is more than $8,800.
- Medicaid steps in to help with that expense for people with limited assets and income.
- For couples who face depleting their own assets, using a Medicaid-compliant annuity could be a way to preserve assets and still qualify for Medicaid.
It's not uncommon for older couples to reach a point when nursing home care is needed for one spouse — and the cost isn't something they were prepared for.
Generally speaking, Medicare doesn't cover such long-term care. While Medicaid steps in when a person's financial resources are minimal, some couples face the possibility of depleting their own assets to pay for nursing home care — which is roughly $8,821 monthly, or nearly $106,000 a year — and leaving the healthy spouse in a precarious financial situation.
"They realize they're in a tough position because they have extra cash that will prevent them from qualifying for Medicaid initially," said certified financial planner and CPA Jeffrey Levine, chief planning officer at Buckingham Wealth Partners in Garden City, New York.
"So the question is what can they do to preserve the value of those assets," Levine said.
While some couples "spend down" their assets — paying off debt or making purchases that won't inhibit their Medicaid eligibility — in order to qualify, another option may be purchasing what's called a Medicaid annuity.
This strategy basically allows you to convert countable assets (for Medicaid eligibility purposes) into an income stream for the healthy spouse — and not have it factor into the calculation.
However, there are lots of details to know before running out to purchase an annuity for this purpose. And, its usefulness may be limited to a situation with no better alternatives.
"A lot of times these are used as crisis planning tools," Levine said. "It's not a great option, but may be the best of a series of bad options."
When you apply to have Medicaid cover the cost of institutional care, the program takes a snapshot of your assets to determine eligibility.
"Assets are generally viewed jointly, even if they are in your spouse's name, not yours," Levine said.
The specific limits on those assets (including cash, investments, bank accounts and the like) depend on the state, yet can be as low as $2,000 for an individual.
For married couples, though, many states allow the healthy spouse to maintain up to $137,400 in assets (i.e., cash, investments, bank accounts) that don't count toward the eligibility calculation (some states have lower limits). Anything above that threshold generally is considered available to pay for the other spouse's care.
Medicaid also has a five-year "look-back" period in most states, which means the program reviews the previous five years to ensure assets weren't simply transferred to family members solely so the person can qualify for Medicaid.
An individual's income matters as well. Many states have a $2,523 limit, although some are lower. On the other hand, the healthy spouse's income generally is not counted.
That's where a Medicaid annuity comes into play. Say a couple has $100,000 above their state's asset cap. They would purchase an annuity with it that's payable to the healthy spouse, based on their own life expectancy.
The annuity must meet some requirements to be compliant, including: the state generally must be named as the remainder beneficiary for at least the amount that Medicaid paid for the ill spouse's nursing home care. It also must be an immediate annuity (it begins paying the income stream right away instead of being deferred) and be irrevocable.
If there's a chance a Medicaid annuity could be useful in your situation, it's wise to get guidance from a local attorney who specializes in elder law and knows your state's laws regarding this strategy — there may be states where it won't work.
And, Levine said, be sure to look into other options, as well.
"There could be programs in your state that are better," he said. "In some states, you can just say you're not using your assets to pay for your spouse's care ... or you can petition the state for a larger [asset] limit."