By Eric Reich
Long-term care went from a mild consideration 30 years ago to one of the most pressing issues facing retirees today. Increases in longevity due to medical advances have allowed us to live much longer in retirement than previous generations. That’s the good news. The bad news is that while many are living longer, they aren’t necessarily living well longer. Longevity also takes its toll on the finances of retirees as well. Living longer but with chronic illnesses has caused an explosion in the need for long-term care services, including care at home, assisted living, and skilled nursing care. When you add in a spouse who doesn’t require care but may likely live a long time, you get a recipe for financial disaster.
In 2023, the national averages for long-term care were as follows:
In-home care ranged from $5720 per month for homemaker services to $6292 per month for a home health aide.
Assisted living ranged from $2058 for adult day care to $5350 per month for an assisted living facility.
Nursing home facilities ranged from $8669 per month for a semi-private room to $9733 for a private room. In New Jersey, those numbers jump from $11,619 to $12,699 respectively.
These are staggering numbers and a clear reason why long-term care has come to the forefront of retirees’ minds. Retirees are scrambling to find ways to pay for this care. Savings, long-term care insurance, Medicaid (not Medicare), and more recently Medicaid-qualified annuities are all ways to help pay for the cost of care.
Let’s focus solely on the Medicaid option for our purposes this week. In order to qualify for Medicaid in NJ, assets must be spent down to a limit of $2000 ($154,140 for married couples if only one spouse is applying) and an income of $2829 or less for both single and married couples for a nursing home level of care. Assuming you are a married couple, one way to get your assets (not including home, personal items, vehicle, etc.) below the $154,140 asset limit is to purchase a Medicaid qualified annuity. A Medicaid-qualified annuity allows the value to become a non-countable asset towards the Medicaid asset limit. While at first glance this might seem like a universally good idea, there are a lot of factors that need to be considered before purchasing a Medicaid-qualified annuity.
Some rules vary slightly from state to state, but generally speaking, an annuity must meet the following criteria to be Medicaid-eligible:
- It must be immediate. This means income must start right away.
- Payments must be fixed.
- It must be irrevocable. Meaning, it cannot be changed, terminated, transferred or withdrawn.
- In most states, the beneficiary must be the state in which you reside unless you are married or have a minor/disabled child.
- The payout proceeds must be completely paid back over the Medicaid applicant’s life expectancy (actuarially sound).
Any violation of these rules may violate the look-back rules for Medicaid and result in a penalty period in which you are not Medicaid-eligible.
Where Medicaid-qualified annuities work is for a married couple where a Home and Community Based Services (HCBS) Medicaid waiver applies. This waiver allows the non-applying spouse’s income to be disregarded even if the assets are counted. Using this annuity increases the non-applying spouse’s income and the full amount of the investment used to purchase the annuity is removed from the normal asset limit.
So, is a Medicaid-qualified annuity right for you? Well, it depends on several factors including asset and income levels, marital status, life expectancy, etc. There are a lot of rules surrounding the decision to purchase one or not. You will absolutely want to seek counsel from your estate planning attorney, CPA and financial advisor before buying one. Don’t just rely on a salesperson’s opinion of whether they are right for you.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
