June 2002
Couples: Medicaid Eligibility for One and Annuity Income for the Other

I have addressed in earlier columns the issues of long term care and Medicaid eligibility. I have discussed long-term care insurance and annuities as potential ways to avoid Medicaid or the limits on Medicaid eligibility. In this month's column, I will explain how an annuity can help a spouse who remains at home once the other spouse enters a long-term care facility.

Let me first set the scene. Assume a couple in their eighties: she is 84, and he is 85 years of age. They have accumulated reasonable savings for their retirement years. They are frugal, but they enjoy life. They travel frequently, play golf, enjoy visiting their children and grandchildren here in Utah and elsewhere.

One day, however, the husband begins exhibiting signs of dementia. He is then diagnosed with dementia of the Alzheimer's type. His condition is progressive and it worsens to the point where his wife can no longer provide the 24 hour per day care that he requires.

The only practical and feasible solution is for him to enter a long-term care facility which can provide care and protection for him. They have savings of $200,000. The long-term care costs are $3,600 per month. At that rate, their savings will be depleted in just 55 months, not counting interest or his income.

For this example, assume that the wife receives $500 per month from Social Security benefits. He receives $1,000 per month from Social Security. He also receives a small monthly pension in the amount of $400. So, they both live on $1,900 per month. That has been satisfactory, since they own their home without any mortgage.

At 3% per annum, they also receive about $500 per month in interest on their savings. With this interest, they have $2,400 per month. They can also dip into their savings for emergencies or just for "extras."

If the husband enters a long-term care facility, his wife's monthly expenses will remain nearly the same, except now they will have an additional monthly expense of $3,600 for the husband's care!

The wife becomes very concerned about providing for her husband's care and for her long term care living in their home. The couple's assets are too great to qualify for Medicaid, which is the only governmental program available to help with the costs of the husband's long term care.

To qualify for Medicaid, the husband must have no more than $2,000. Medicaid looks at the couple and not just the husband. Their combined assets are $200,000, plus their home. Fortunately, the home is exempt. The $200,000, however, is divided between wife husband using Medicaid's formula, regardless of whose name is actually on the accounts which hold their funds.

In this example, Medicaid would allow the wife to keep only $87,000 of the $200,000. This means that the husband would be required to "spend down" $111,000 so that he would have only $2,000 remaining. At that point, he would be eligible for Medicaid benefits.

In addition to the division of assets, the wife would be entitled to keep her income plus a part of her husband's income up to a maximum of $1,452 per month. This means that she could keep her $500 from Social Security and $952 of her husband's income. All of the husband's remaining income would be used to help pay for his care; Medicaid would supplement the balance.

So, after the husband enters the care facility, they would have to spend $111,000 for his care and then she would be left with $87,000 and $1,452 per month. An annuity is a possible alternative.

If the $111,000 "spend down" amount is used to purchase an actuarially sound annuity, she could receive $1,470 per month, assuming 3% rate of return on the annuity. Combined with her $500 Social Security income and $217 per month in interest on her $87,000 share of their estate, she would have a total income of $2,187.

Compared with the $1,452 allowed by Medicaid, the wife realizes an extra $735 per month from purchasing the annuity than without it. Her $2,187 per month is very close to the $2,400 she and her husband enjoyed prior to his entering a long-term care facility.

These matters can be tricky and sometimes complicated. More importantly, they must be done in a way that meets all of the requirements of Medicaid. Before venturing on your own, consult a professional who understands Medicaid's requirements. Contact your attorney or consult the Yellow Pages under Elder Law Attorneys or under Wills, Trusts and Estates.

YOUR QUESTIONS: Do you have a particular question that you would like answered? To better serve the readers of the Utah Spirit, please direct your questions in writing to Michael A. Jensen, Elder Law Attorney, PO Box 571708, Salt Lake City, Utah 84157-1708, or by e-mail at: mike-spirit@utahattorney.com. From time to time, I will attempt to answer some of those questions.