How The Replacement to the Affordable Care Act Will Hurt the Elderly

How The Replacement to the Affordable Care Act Will Hurt the Elderly

Dems-Republicans-scour-Capitol-Hill-in-search-of-elusive-ACA-replacement-billThe House Republican leadership has now introduced the long awaited repeal and replacement of the Affordable Care Act. As it turns out, the plan is actually not to repeal the ACA, but just to pass budget reconciliation bills replacing many of the key provisions. There is a lot to unpack in the bills, but let’s focus on the issues that may impact many of the elderly we serve (A copy of the Energy & Commerce Committee bill is available here if you’d like to read the actual text.)

Essentially, the bills seek to strike at the Medicaid expansion undertaken in many states under the Affordable Care Act. The bills seek to limit the continued expansion of Medicaid which pays for among myriad other things, subsidized coverage for the elderly living in certain assisted living facilities and nursing homes. The bills will drastically alter the current Medicaid landscape and limit coverage for many seniors in the future, putting them at risk of financial ruin and limiting their access to safe living conditions and appropriate medical care.

Let’s examine three key provisions.

Elimination of Retroactive Coverage

Right now, if you’re a senior citizen and you need care in a nursing home, you can move into the facility, get settled in and your family members can secure retroactive coverage for three months after they apply for Medicaid on your behalf. Let’s pretend you need to move into a nursing home on March 29. If you need Medicaid to help pay for your stay there (which most people do because the cost exceeds $10,000 per month), you need to submit a complete Medicaid application, 5 complete years of all your financial records and bank statements with check copies, 5 complete years of income tax returns with attachments and a bunch of other documentation. This can take weeks or month to pull together, even if you’re working with an attorney.

Under the current rules, if you move in and need Medicaid coverage March 29, you can submit a complete Medicaid application as late as June 30, and still seek coverage retroactive to March 29. This is imperative because it gives the family and their advocates time to get a complete application together and to assemble all the ancillary documents.

Under the proposed rules, if you move in and need Medicaid coverage March 29, you will need to submit a complete Medicaid application no later than March 31, a mere two days later.

Even under the best circumstances when someone moves into a nursing home in the beginning of the month, say March 7, it would be nearly impossible to compile all of the records to submit them before the end of the month. The net result is going to be gaps in coverage for seniors going into nursing homes that is going to cost in excess of $10,000 to the family for every month they are unable to file the Medicaid application.

Semi-annual Re-certifications

Under the current system, once you are approved for Medicaid, a process that can take months or even an entire year, you have to re-certify your eligibility by documenting your income and resources to the Medicaid agency on an annual basis. The proposal in the ACA replacement bills calls for re-certifications to happen twice annually. Besides creating some very, very unpleasant Medicaid caseworkers, this will cause families and seniors additional financial strain, as they scramble to pay attorneys and advocates for continued assistance navigating this system.

Reduction in Home Equity Limits

Every time I speak with potential clients there is always a fear that Medicaid would make them sell their house in order to get nursing home coverage. In fact, under the Medicaid laws in the State of New York, presently you can have in excess of $800,000 in home equity and not be forced to sell your home to qualify for Medicaid. This rule is of little solace to many whose property values come nowhere near this threshold, and it does nothing to protect your property from a Medicaid lien after you die.

However, in parts of this State, this exemption is pivotal to families maintaining their residences. Part of the new ACA replacement bills seek to severely reduce the home equity threshold and restore a limit of $500,000 in home equity. This is still a healthy exemption for many in Upstate New York where property values do not reach these levels. Consider, however, the 88 year old widow who lives in a brownstone on the Upper East Side which is appraised at $700,000. Now, she doesn’t have $700,000 in the bank, it just so happens she’s owned her home for over 60 years and its value has appreciated significantly. Under these new rules, if she has not done any advance planning, she’ll be forced to sell her home to finance her nursing home stay simply based on her property value.

While we may be in the early days of discussing the ACA replacement bills, it does seem Congress is on a fast-track to pass this legislation. Without any studies done by the Congressional Budget Office, it is difficult to predict just how much these three provisions will save the Federal government, but what is clear is that they could cost senior citizens everything they hold dear.

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Revocable Trust vs. Irrevocable Trust: What’s the Difference Between Us?

Revocable Trust vs. Irrevocable Trust: What’s the Difference Between Us?

Maybe one of the most common questions I am asked by clients is about the differences between revocable trusts and irrevocable trusts. I usually begin to answer the question the same way I will here, revocable trusts are designed as a substitute for your Last Will and Testament. If you want protection for your assets from your long-term health care expenses, a revocable trust will not work at all. Let me repeat: revocable trusts DO NOT protect your assets from nursing home and other long-term health care expenses. With that in mind, let’s consider both types of trusts and how they work.

Revocable Trusts: The Will Substitute

As mentioned above, a revocable trust is primarily a substitute document for your Last Will and Testament. What does that mean? In New York, if you have a revocable trust that owns, for example, your home and all your bank accounts, your revocable trust dictates to whom those assets will be distributed when you pass away, not your Last Will and Testament.

For example, Daniel Smith has the Daniel Smith Revocable Trust that owns his residence, his bank accounts, and his investment portfolio. Every one of those assets has been re-titled to the “Daniel Smith Revocable Trust”. The Daniel Smith Revocable Trust says that when he passes away all of his assets go to his church. Daniel’s Last Will and Testament says that when he passes away all of his assets go to his nieces and nephews. So, as things stand, when Daniel passes away, his residence, his bank accounts and his investment portfolio will all be distributed to his church, according to the terms of the Daniel Smith Revocable Trust.

On the other hand, Daniel had some savings bonds and a few Certificates of Deposit at his bank, and none of these were titled to the Daniel Smith Revocable Trust, meaning he owned them all in his name alone. In this situation, Daniel’s Last Will and Testament will direct to whom these assets are distributed. Now, if the Will has a clause that directs these assets be distributed to the Daniel Smith Revocable Trust (a so-called “pour-over” clause), this could all end well. However, if Daniel’s Will was signed at a different time than his Revocable Trust and does not have a clause directing his assets be distributed according to the terms of the Daniel Smith Revocable Trust, the savings bonds and Certificates of Deposit will be distributed to his nieces and nephews. This could be fine, assuming it is what Daniel Smith intended. In my experience, that is not the case, and that is the pitfall with using trusts in New York. Unless you are diligent and carefully re-title all of your assets either to your Revocable Trust, or using a beneficiary designation, you could have multiple distribution schemes for your assets, which can lead to confusion, increased costs in administering your estate, and your assets not necessarily being distributed as you intended.

The revocable trust can work really well if the primary goal is to avoid probate. To me, avoiding probate is not a big deal. Many lawyers will aggressively market probate avoidance to prospective clients and talk up how much the probate process will cost their estate in legal fees. The bottom line is that with a reputable estate attorney, the costs to probating your Will after you die should not be exorbitant. In any case, the revocable trust only totally avoids probate if you are diligent in re-titling all of your assets. Miss re-titling one asset or open a new account later in just your name, and your Will would have to be probated anyway for that one account.

Here’s a quick rundown of the pros and cons of the revocable trust:

Pros

  • Can be used to avoid probate
  • Harder to challenge in a Court than a Last Will and Testament
  • Works well if you are trying to minimize potential challenges after your death

Cons

  • Requires precise re-titling of assets in order to avoid probate
  • More expensive than a Last Will and Testament
  • Does not protect your assets from nursing home expenses

Now, let’s turn our attention to irrevocable trusts and highlight some of the differences with revocable trusts.

Irrevocable Trusts: Asset Protection and Probate Avoidance

As discussed above, the major difference between revocable trusts and irrevocable trusts in my world is that irrevocable trusts can provide the ability to protect assets from the costs of nursing home, assisted living and other long-term health care expenses. We know that at least 70% of seniors 65 and older will require some sort of long-term health care during their lives (LongTermCare.gov) and that the average cost of this care is growing rapidly, with some nursing homes exceeding $13,000 per month.

With that in mind, long-term health care expenses are now the greatest financial threat seniors will face in retirement. Minimizing the financial outlay to pay for these long-term care expenses is often seen as a desirable outcome by many of my prospective clients. In that respect, using an irrevocable trust, often called a Medicaid Qualifying Trust, gives us the ability to re-title assets (just as with the revocable trust) with the goal of insulating them from long-term health care expenses.

Let’s use Daniel Smith’s example from above to see how the Medicaid Qualifying Trust works. We have the Daniel Smith Irrevocable Trust and it owns Daniel’s residence, bank accounts and investment account. If he has created the Daniel Smith Irrevocable Trust and funded it with these assets 5 years before he requires long-term health care in an assisted living facility or nursing home, these assets will be insulated and not required to be used to pay for these long-term health care expenses. In our example, Daniel’s savings bonds and Certificates of Deposit could still be used to pay for his long-term health care costs, because he owns them in his name alone, not in the Daniel Smith Irrevocable Trust.

The Irrevocable Trust works very much like a safe where you are the only person with the combination. You re-title assets to the Trust (place them in the safe), don’t touch the principal (locking the safe), and after five years from the time you’ve put them in the safe, the principal value of those assets is protected from your long-term health care costs.

Here are some pros and cons for the irrevocable trust:

Pros

  • Can provide protection from creditors, including nursing homes and assisted living facilities
  • Like the revocable trust, you can avoid probate for assets titled to the trust
  • Keeps you in control of your assets during your lifetime without needing to give them away

Cons

  • Give up the right to directly access principal from the trust
  • Needs to be done five years prior to needing care to work
  • Cost of irrevocable trust is higher than a Last Will and Testament

There is much more that can be said about both of these types of trusts. I previously wrote about how many people get swindled into purchasing revocable trusts here. I also wrote about irrevocable trusts and Medicaid here and here. Be sure to check them out and let me know of any questions by email anthony@themarronelawfirm.com

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