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2001-05-01 10:25:00

He can’t... I can... but...?

Question:  My husband is 71, I am 69.  He was diagnosed with Parkinson's 5 years ago but thus far it hasn't presented that much of a problem or expense.  I am in pretty good shape.  We have 4 children, all married and doing okay.  We own our home, the 10 acres of pastureland it sits on, two vehicles, a duplex, and about $160,000 in savings.  Our income is from social security and rental income.  Combined it is around $2,400 per month.  We do not take any income from our savings.  We know one or both of us will most probably need long-term care some time in the future.  It is expensive now and will be even more so later.  My husband cannot qualify for long-term care insurance.  I probably can.  What do we do?

Answer:  Your situation is not that uncommon.  There is a way to reduce and manage this risk, but before explaining it and what it involves… it might be good to look at the only other thing you might do… and that is to do nothing.  If you do nothing, what will happen when and if one or both of you need this type of care?Let's assume it is your husband that will need this type of care first.  Let's also assume the cost of this care will be $4,000 per month.  The first thing you would do is to make application for Medicaid (SRS) to pay the bill.  Prior to them paying, you will go through a 'spousal division of assets' program.  The maximum community spouse resource allowance this year is $87,000, not counting your home and one vehicle (exempt assets).  This means that in the division of non-exempt assets between your and your husband, you would put $87,000 in the name of each spouse.  All amounts over $174,000 (2 x $87,000) would have to be spent down on the cost of care prior to this division of assets.  It would be wise to put the most liquid of these assets in the name of your husband.  He would then have to spend his portion down to $2,000 on the cost of care, which would take approximately 19 months, before he would be eligible for Medicaid.  The exempt income allowance this year is $1,452 per month  This would mean that $948 of your income each month would have to be paid for the cost of his care ($1,452 exempt + $948 = $2,400).  Medicaid would then pay the balance of the cost of the care ($3,052 per month) for your husband for the rest of his life.  SRS would however file a first class claim on your exempt assets for what they pay.  This first class claim goes ahead of all other claims to assets other than those for final expenses.  This first class claim would not be settled as long as the well spouse (you) lived in the home.  If you should need care in the future, you would have to spend your assets down to $2,000 just like your husband.  At that point you would also qualify for Medicaid.  Once both spouses were not residing in the home and/or neither had an intent to return, SRS would satisfy their first claim from the sale of the proceeds of the exempt assets.There are varying views about Medicaid from its recipients and their families.  The proponents of Medicaid say it should be looked upon as one of the best government programs there is because it guarantees each person that he or she will receive the type of care they need if they cannot pay for it.  The opponents say the program requires that the recipient and ultimately the recipient's spouse be at poverty in order to qualify; and that care received at many places when one is on Medicaid is substandard to care received when one is using his or her own assets/income to pay the bill.Now, let’s investigate another possible solution… that of getting a Long-Term Care policy on yourself.  Assuming you could qualify (all policies are underwritten based upon health), you may be able to avoid the 'spend down' and ultimately losing your other assets, including your home, in an eventual first class claim settlement.  It would also maintain you and your husband’s independence and peace of mind. In cases such as this, I like to start with an assumption.  The assumption I will make is that your husband will be okay as long as you are okay.  This means if manifestations occur from Parkinson's (or something else) that require assistance with daily living activities, you and other family members should be able to provide this assistance for some time to come.  The real problem comes in later years, or if something should happen to you.  Since he cannot qualify for a policy, an 'indemnity' policy on yourself might be a solution.  An indemnity policy is one that pays the daily benefit stated in the policy schedule regardless of the cost of the care.  Suppose you had a $150 per day daily benefit, comprehensive (so it would pay anywhere... nursing home, assisted living, adult day care, home care) lifetime policy, with a zero-day elimination period, and a compound inflation rider.  By the time you are 84 (your husband would be 85), it would be paying a guaranteed amount of benefits of nearly $327 per day, or about $10,000 per month (the daily benefit increases each year 5% compounded annually, forever).  It is even possible to get this indemnity benefit while receiving the care you need in your own home with a couple of companies’ policies.  If the cost of your care is less than this, you keep the difference.  Because it is an indemnity benefit, the extra cash benefits you receive could pay for all of, most of, or a good portion of the cost of the care for your husband at the time you would no longer be able to take care of him.  Would this type of policy be affordable in your situation?  It should.For example purposes only… I will use one of the two companies that has this type of policy.  It is 'A' rated, and specializes almost totally in Long-Term Care insurance.  The premium for the above described policy at age 69 would be approximately $385 per month.  You did not say whether or not you had money left at the end of each month from your $2,400 per month income.  If you do, this would be a great place for it.  If you do not have enough left over to pay all or most of this premium, you could fund the balance with income from your savings.  It is good to remember, everyone likes income from savings, even if most people don’t take it (they re-invest).  This income would buy very little long-term care if you or your husband were to need the same.  It would however pay for a lot of coverage on a risk that you have yet to manage.  The chance of this loss occurring is anywhere from 50 to 90% for the average person (depending upon  age), and of course much higher for someone with an illness, affliction, or an injury that ultimately requires long-term care.Another idea for funding this type of policy would be to analyze the return you are receiving on your savings.  Many passbook savings accounts are now earning less than 2% interest.  CDs are not earning much more.  It might be worth looking into buying an annuity from an 'A' rated insurance company, where the surrender period matches the guarantee period, where there is no surrender charge at death, and where the interest rate is as much as double or more than that of interest paid on CDs.  Believe it or not, there are annuities like this available.  What's more, whatever interest you elect not to take out of the annuity grows tax-deferred until you do.  With most single premium deferred annuities, you can pull 10% out each year with no surrender charge.  Some even allow you to pull out the entire amount in the event of a critical illness.  At the time of need, both you and your husband will want options.  This strategy can provide those... and lots of other benefits as well.