Planning for Long-Term Medical Care
Hibschweiler, Arlene M., Hopson, James F., Bankosh, John J., Jr., The CPA Journal
The Need for Planning
Traditionally, estate planning has been conceptualized by most accountants and their clients as a means to minimize estate taxes arising upon a client's death. With the introduction of the unified credit against federal estate and gift tax liability, permitting transfer of up to $600,000 in assets without estate or gift taxation, the importance of traditional estate planning has diminished for many clients.
However, because of trends in both life expectancies and health care costs, a new thinking is now required. This new thinking focuses on the likelihood that the client will need long-term health care for some period prior to death.
Recent statistics indicate that the risk of requiring nursing home care after attaining the age of 65 is approximately 35% to 40%. The cost of nursing home confinement varies substantially, but present estimates for a year of care range from $30,000 to $60,000. Presumably because of these overwhelming costs, 70% of all unmarried persons admitted to a nursing home become impoverished within three months; for married persons, the statistics show that 50% will exhaust their assets within six months of admission.
There are planning options available to address the probable need for long-term care with which financial planners should be familiar. The phrase "long-term care, is being used to refer to care of an ongoing nature which is required by persons suffering from a chronic or long-term physical or mental condition. It is care that tends toward maintenance, not rehabilitation, and typically is not covered by standard health insurance policies. This article analyzes Medicare, Medicaid, and private insurance options, as well as a discussion of some alternate financing methods. Also, an analysis of some of the tax implications of long-term care planning are included.
As a preliminary matter, it is important to recognize the difficult personal and ethical issues which planning for long-term care raises. Although there are various options by which nursing home and other care can be obtained, some of these options are neither available nor acceptable to a particular individual. As will be discussed, Medicaid does provide long-term care, but generally such benefits are available only to impoverished individuals. It may be possible to transfer assets anticipation of future need for long-term care in order to qualify an individual for Medicaid assistance. A discussion of the rules and regulations, with planning ideas, surrounding those transactions is presented in the feature article "Protecting the Assets of Elderly Clients," by Ezra Huber, appearing in the May 1991 issue of The CPA Journal. When an individual is comfortable with this type of planning, it may help to compare it to the structure of a business transaction in a manner designed to minimize income tax liability. Moreover, an individual may be uncomfortable with long-term health care planning. Persons assisting in the long-term care planning process, either as professional advisors or as friends and relatives offering to help, must be sensitive to these concerns.
Medicare is a federally financed program designed to provide health insurance for persons aged 65 and older and for certain disabled individuals. Long-term care benefits provided under Medicare are generally of a very limited nature. Under Part A, which is the Medicare hospital insurance program, benefits may be received where confinement in a skilled nursing facility is required, but only if the following five conditions are met:
* The person has been hospitalized for at least three consecutive days, not counting the day of discharge, prior to transfer to the facility;
* The patient is transferred to the facility because care is required for a condition that was treated at the hospital;
* Admission to the facility is within a "short time" (generally 30 days) of discharge from the hospital;
* A physician certifies that the patient needs and receives skilled nursing or skilled rehabilitation services on a daily basis; and
* Confinement at the facility is not disapproved (by a utilization review committee or other intermediary body). …