If you're retired from the military, there is a pretty good chance your parents are getting on in years. There is also a pretty good chance (around 70%) one of them will need some sort of long-term care. And if that care is custodial, it is going to be expensive. According to Genworth, the national average is around $93,000 per year for a semi-private room. In Northern Virginia where we're based it's closer to $140,000 per year. Now hopefully, Mom and/or Dad have prepared for this potential future and they'll be able to cover the care with insurance or their assets. Because, Tricare and Medicare aren't going to be much help. But what if they haven't prepared. Most likely they'll need Medicaid.
Medicaid and Long-Term Care
As mentioned above, Medicare and Tricare for LIfe (TFL) won't help much. Medicare will provide for 100 days of care after a qualified stay in a hospital. It's not really long-term care, but rehab. And it's not cheap either. Co-pays are in excess of $100 per day so Mom or Dad may be looking at a $9,000 bill (first 10 days are "free") depending on whether they have a Medicare supplement or not.
As we've seen, if long-term care is needed and Mom or Dad can't afford it, Medicare and TFL aren't the answer. They may need to look at Medicaid and that can be not all that pretty. When you get right down to it, Medicaid is welfare and people with assets and income don't get welfare. In order to qualify for Medicaid, the assets and income are going to have to be spent down or given to the state. Each state is different, but a single person is typically only allowed to keep $2,000 in assets. Income must be below a certain level as well. Typically, that amount is $2,382 per month and the majority must be used on the long-term care (in some states all but about $40 per month must be used on care). In some states (about 30) they have the concept of Medically Needy Income Limits. What happens in these states is the income is looked at after paying for medical care and if the net is below a certain limit (could be as low as $100) then the individual can qualify for Medicaid.
For married couples the calculations are a little different. Normally their assets are combined, regardless of how they are titled to determine how much the spouse who doesn't need care (the well spouse) gets to keep. The couple will be able to keep the $2,000 for the ill spouse and the well spouse will be able to keep around $130,000. The equity in their primary residence may be excluded in this calculation. But a portion of assets may need to be spent down prior to qualifying for Medicaid. Conversely, in most cases the well spouse's income does not enter into the calculation for Medicaid eligibility. This is a key point and leads us to the Medicaid Annuity.
The Medicaid Annuity
A Medicaid annuity is an annuity that meet certain requirements (including being payable only to the well spouse) and allows the couple to use their assets above the threshold to purchase an annuity without being penalized and having Medicaid eligibility delayed. Since the annuity produces income and the well spouse's income isn't counted when applying for Medicaid, this effectively allows earlier qualification for Medicaid.
To qualify as a Medicaid Annuity the product itself will have to meet several criteria. You'll want to work with an insurance broker that is licensed in the state where your Mom or Dad is applying for Medicaid and he or she will need to know this product well. The one thing you need to understand is that to qualify as a Medicaid annuity the state must be listed as the beneficiary. In other words, if the well spouse dies and there is any money left in the annuity it goes to the state to repay some of the Medicaid benefits. This is still probably a better option than spending down the assets to qualify for Medicaid. And to be frank for most families they won't have planned far enough in advance (more than 5 years) to use a gifting strategy to reduce countable assets.
The Medicaid annuity isn't perfect and once the decision to use one is implemented it can't be changed even if the laws that allowed are changed and now the income counts.
Military Finances are Different
While the Medicare annuity option is available to practically all Americans it may not be necessary for a military veteran. Long-term care may be available from the VA or certain VA benefits may be available (while admittedly most retired Senior Military Officers and NCOs won't qualify for other income-based options) and the need for this strategy for yourself may not exist. That's why we think you should work with a financial planner or advisor that deals with military and veterans' benefits each and every day. If you'd like to chat about how we work with Active and Retired Senior Military Officers and NCOs, give us a call or schedule a meeting using the button at the bottom of the page.
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