Much long-term care is paid for from personal resources:
- Out-of-Pocket: Expenses paid from personal savings and investments.
- Reverse Mortgage: Certain homeowners may qualify for a reverse mortgage, allowing them to tap the equity in the home while retaining ownership.
- Accelerated Death Benefit: Certain life insurance policies provide for “accelerated death benefits” (also known as a living benefit) if the insured becomes terminally or chronically ill.
- Private Health Insurance: Some private health insurance policies cover a limited period of at-home or nursing home care, usually related to a covered illness or injury.
- Long-Term Care Insurance: Private insurance designed to pay for long-term care services, at home or in an institution, either skilled or unskilled. Benefits will vary from policy to policy.
Long-term care that is paid for by government comes from two primary sources:
Medicare: Medicare is a health insurance program operated by the federal government. Benefits are available to qualifying individuals age 65 and older, certain disabled individuals under age 65, and those suffering from end-stage renal disease. A limited amount of nursing home care is available under Medicare Part A, Hospital Insurance. An unlimited amount of home health care is also available, if made under a physician’s treatment plan.
Medicaid: Medicaid is a welfare program funded by both federal and state governments, designed to provide health care for truly impoverished. Eligibility for benefits under Medicaid is typically based on an individual’s income and assets; eligibility rules vary by state.
In the past, some individuals have attempted to artificially qualify themselves for Medicaid by gifting or otherwise disposing of assets for less than fair market value. Sometimes known as “Medicaid spend-down”, this strategy has been the subject of legislation such ad Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). Among other restrictions, OBRA ’93 provided that gifs of assets within 36 months (60 months for certain trust) before applying for Medicaid could delay benefit eligibility.
The Deficit Reduction Act of 2005 (DRA) further tightened the requirements to qualify for Medicaid by extending the “look-back” period for all gifts from 36 to 60 months. Under this law, the beginning of the ineligibility (or penalty) period was generally changed to the later of (1) the date of the gift, or (2) the date the individual would otherwise have qualified to receive Medicaid benefits. This legislation also clarified certain “spousal impoverishment” rules as well making it more difficult to use certain types of annuities as a means of transferring assets for less than fair market value.