Common scenario for Cleveland estate planning attorneys. Estate planning client comes in distraught. They did the smart and sensible thing, they purchased a long-term care insurance policy years ago to help cover the cost of later-in-life medical costs. They recently applied for Medicaid thinking their LTC policy wouldn’t be counted for calculating their Medicaid eligibility. Unfortunately for them, they received rejection letter from the Ohio Department of Medicaid saying they didn’t meet the asset requirements. Now, the Medicaid benefits, that they were counting on and always thought were readily available no longer are. Now, their estate plan is seriously threatened, and they are scrambling to make sense of the situation and found out what went wrong.
As the old saying goes, the best-laid plans of mice and men often go awry. The relationship between long-term care insurance polices and Medicaid eligibility is not a simple one. As with anything involving government bureaucracy, what you don’t know can hurt you and an experienced guide is worth his weight in gold. Two lessons often taken to heart far too late to avoid tough decisions and missed opportunities. So, what happened to the person above? The best way to illustrate what happened is to answer the two most common questions anyone in that situation would ask.
Why did my LTC policy get rejected from Medicaid?
Only certain long-term care policies that comply with the guidelines set by the Ohio Long-Term Care Insurance Partnership program count as qualified policies and therefore aren’t countable Medicaid resources. So, what polices are “qualified?”
Per the Ohio Department of Insurance, for a LTC policy to qualify, insurance companies’ policies must meet several requirements, including:
- The policy must have been issued after Sept. 10, 2007
- The insured must be a resident of Ohio when coverage first becomes effective
- The policy must be a federally tax-qualified plan based on the Internal Revenue Service Code (qualified plans can lower federal taxes, but they have benefit triggers that are less flexible than those required by nonqualified plans)
- The policy must meet strict consumer protection standards (standard fee-look period, coverage outlines, mandatory informational disclosures, etc.)
- The policy must include certain protection against inflation (the most common inflation protection automatically increases benefits each year by 5%)
So, if you have a long-term care policy, but don’t know, or worse hope without knowing, if it is a qualified policy, you’re likely in for a rude awaking when you apply for Medicaid.
What do I do now that my LTC policy was rejected by Medicaid?
Before any definitive answer or plan can be formulated, certain information about a Medicaid applicant must be answered definitively. At the very least, the information and/or documents needed are:
- LTC policy documents – should be overt on whether it was sold/defined as a qualified LTC policy.
- Rejection notice from the department of Medicaid – reasons for reject and any explanation regarding why the submitted policy was rejected.
- How does the applicant know their LTC policy is a qualified one?
- Contacting the insurance carrier to find out the exact details of the LTC policy in dispute.
- Where and how did an applicant purchase the LTC policy.
- Did the applicant receive the required CSPA complaint disclosures and documents (if was sold non-qualified policy but received CSPA docs could an indication of potential fraud).
- The realities of applicant’s current financial situation and health needs.
This last point is really the starting point and is exactly why you retain the services of experienced estate planning attorneys. Every estate planning attorney starts with the same questions, what do you need, what do you have, and prove it. No intelligent planning or decisions can be made until you know exactly where you stand. Further, in this context, the realities of where you stand are even more important because now your options are limited and you are, in a way, at the mercy of the Ohio Department of Medicaid.
If you have been rejected by Medicaid you are essentially in the realm of Medicaid crisis planning, where important questions must be asked, and tough decisions must be made. If someone is applying for Medicaid, the need is now and a solution must be found. One such critical consideration is the current need for care and the potential penalty period. To illustrate, let’s say a rejected applicant has a $400,000 non-qualified LTC policy. As of right now, with current Medicaid penalty divisor of $6,570, 400K/6,570 = approximately 61 months of Medicaid ineligibility, a little more than 5 years.
With this five-year Medicaid ineligibility period on the horizon, options are limited. Namely you can either appeal the rejection or resort to Medicaid spenddown. Medicaid spenddown is a beast all its own, is never something anyone wants to do, and largely depends on how ineligible for Medicaid you are, based on your current income and assets. For most, however, the good news is this situation and Medicaid spenddown, if the proper Ohio estate planning attorneys are used, will never be a worry because they will have done things the right way and won’t be subject to any nasty surprises. Failure to surround yourself with the right advisors, regretfully, often leads to uncomfortable discussions and decisions that will have to be made sooner rather than later.