LTC Bullet:  The Brave New World of LTC Financing 

Thursday, February 23, 2006 

Seattle-- 

LTC Comment:  What hath Congress wrought?  The brave new world of LTC financing since the Deficit Reduction Act of 2005.  After the ***news.*** 

*** TODAY'S LTC BULLET IS SPONSORED BY . . . Phyllis Shelton, a long-time supporter of the Center for Long-Term Care Reform, is offering a $50 discount for Center members to attend the National LTCI Sales Conference April 24-27th in Nashville, TN.  Just enter the code "Center" in the promo box of the registration form at www.ltciconference.com.  Phyllis says "Phil Sullivan and I, though competitors with different styles, are working TOGETHER to provide the cutting-edge sales training producers need to increase LTCI sales in 2006.  Learn from both of us for the price of one AND experience the dynamic referral training in the "Do Not Call" environment of Bill Cates, "America's Referral Coach."  Between the excellent training and networking opportunities, with registrants from 33 states already, this is a PHENOMENAL training event not to be missed - especially when you add in lots of Nashville music!!" *** 

 

LTC BULLET:  THE BRAVE NEW WORLD OF LTC FINANCING 

LTC Comment:  If you've followed the long, tortuous trail taken by the new Deficit Reduction Act toward enactment, you know one thing for sure.  Long-term care financing will never be the same.  

The DRA of 2005 moves long-term care financing's center of gravity away from Medicaid planning abuse and toward responsible, early long-term care planning through private insurance and home equity conversion.   

That's a shot in the arm for LTCi agents and reverse mortgage lenders.  But it's a gut shot to lawyers, "Medicaid-friendly" annuity salespeople and other financial planners who have misused Medicaid for personal gain. 

But what exactly does the Deficit Reduction Act do?  That's what people have been asking us at the Center for Long-Term Care Reform.  So, we've prepared a one-hour seminar to cover the key provisions of the DRA. 

To schedule a conference-call presentation of "The Brave New World of LTC Financing" by Center president Steve Moses, contact the Center for Long-Term Care Reform at 206-283-7036 or info@centerltc.com.  You will need to provide your own call-in number, access code and audience.  All we do is provide the content. 

To schedule a full-day, on-site LTC Graduate Seminar including the "The Brave New World of LTC Financing" content, contact Steve directly at 206-283-7036 or smoses@centerltc.com.  For details on the LTC Graduate Seminar curriculum, go to http://www.centerltc.com/ltc_grad_seminar.htm.  

To give you a better idea of our new program's content, following are Steve's presentation notes for "The Brave New World of LTC Financing." 

THE BRAVE NEW WORLD OF LTC FINANCING 

MOTIVATION 

LTCi and HEC (home equity conversion) sales will never be the same. 

Jesse Slome says expect total LTCi market to double in five years.  Too conservative. 

With what you learn today, if your LTCi or HEC sales don't double in five weeks, you're letting your clients, your company, and yourself down. 

We only have time today to hit the high spots.  For the full benefit, the LTC Graduate Seminar--a full day program. 

BACKGROUND ON STEVE MOSES AND THE CLTCR 

Why believe me? 

HCFA for nine years; OIG for three years; LTC, Inc. for nine years; president of Center for Long-Term Care Reform since 1998. 

I've been working for two decades to save Medicaid as a LTC safety net for the poor by getting everyone else insured or otherwise protected financially for LTC. 

We finally have the federal statutory authorities to make that happen. 

That's what I'll explain today:  the Deficit Reduction Act of 2005.  But take heed: 

If the states don't implement it . . . 

If the feds don't enforce it . . . 

If the media don't publicize it . . . 

And if you don't sell it . . . 

Consumer behavior won't change. 

We all have our job to do.  Mine is to explain what's different and to paint the dream. 

Yours is to learn, understand, and never let another person go bare for LTCi or abandon the LTC financing potential of home equity if you can convince them, without using scare tactics, to protect themselves with LTCi and HEC. 

THE DEFICIT REDUCTION ACT OF 2005 

Status 

Glitch.  Clerical error.  Bills passed in House and Senate not identical so may not be law even though President signed. 

Lawsuit filed by a NAELA Medicaid planner in Alabama. 

Stay tuned to LTC Bullets and LTC E-Alerts for progress reports. 

In the meantime, state and federal governments are proceeding on the presumption that the DRA is now and will remain the law of the land. 

PRINCIPLES MORE IMPORTANT THAN PROVISIONS 

Principle #1:  People won't buy what they can get for free. 

Principle #2:  Medicaid and Medicare have paid for most LTC since 1965. 

Principle #3:  Refer to Principle #1. 

Very few agents, brokers, carriers or HEC lenders understand how government LTC financing crowds out LTC insurance. 

Most people don't say:  "I won't buy because I'm planning to go on welfare." 

But that doesn't mean Medicaid and Medicare don't matter. 

Because the government pays for most LTC, few Americans worry about it until it's too late and then they qualify easily for public financing. 

In other words, you don't even see 80 percent of the potential market for LTCi or HEC and half of the 20 percent you do see don't buy . . . 

Because they don't believe they are financially at risk. 

And they were right!  Until now.  

PROVISIONS OF THE DRA, IN ORDER OF IMPORTANCE 

Medicaid LTC eligibility reform; LTC Partnership changes; and HCBS under Medicaid. 

The LTC Partnerships are what excites industry people. 

But the Medicaid reforms are much more important.  Here's why . . . 

MEDICAID LTC ELIGIBILITY 

Heretofore, there were no limits on income or assets.   

Unlimited income if medical expenses, including nursing home care, are high enough. 

Unlimited assets if held in exempt form (home, business, car, term life, prepaid burials, etc.) 

Unlimited loopholes if you knew where to find them . . . and Medicaid planners knew. 

Here's what's changed in the brave new world of LTC financing 

PROVISIONS 

LOOK BACK FOR ASSET TRANSFERS EXTENDED FROM THREE TO FIVE YEARS
* Applies only to transfers for less than fair market value to qualify for Medicaid
* Does not apply to charitable donations or gifts to grandchildren for other reasons
* Effective for transfers after date of enactment (February 8, 2006) unless . . .
 

PENALTY PERIOD DATE CHANGE
* TOA penalty will begin at date of Medicaid eligibility otherwise
* Will not hurt nursing homes as claimed because . . .
* Eliminates "half-a-loaf" strategy
* Effective at enactment
 

UNDUE HARDSHIP WAIVERS
* Approved if penalty would deny medical care or food, clothing, shelter, or other necessities of life.
* State Medicaid programs required to notify recipients of hardship waiver option
* Permits LTC facilities to file undue hardship waiver applications on behalf of the their Medicaid residents. 
* Authorizes payments to LTC facilities while Medicaid eligibility is pending up to 30 days 

HOME EQUITY LIMIT
* Reduced from unlimited to $500,000 with state option up to $750,000
* Limit increases with CPI starting in 2011
* Does not apply if spouse, minor or disabled child living in home
* Reverse mortgages may be used to reduce the home equity to qualify
* Applies for Medicaid applications filed on or after January 1, 2006
 

ANNUITIES AND OTHER LARGE TRANSACTIONS
* Medicaid recipients and community spouses must disclose annuities at eligibility and recertification
* State must be named as remainder beneficiary
* State must notify annuity issuer of its status as remainder beneficiary
* States may require annuity issuer to report income or principal withdrawals
* States may deny Medicaid eligibility based on such withdrawals
* Purchase of an annuity is a penalizable TOA unless state is listed as remainder beneficiary in first position for at least total of Medicaid payments or in second position to community spouse or minor or disabled child
* Effective at enactment
 

INCOME FIRST RULE
* State Medicaid programs must apply the 'income-first' rule to community spouses who appeal for an increased resource allowance to maximize assets invested to meet their minimum income requirements.
* No more "transfer assets before income" loophole to maximize the CSRA ($99,540) by filling the MMMNA ($2488.50) from interest on assets
* Eliminates loophole that allowed hundreds of thousands of extra dollars to be diverted from private LTC financing spend down at Medicaid's expense
* Effective at enactment
 

CONTINUING CARE RETIREMENT COMMUNITIES (CCRC) AND LIFE CARE COMMUNITY ADMISSION CONTRACTS
* Allows Medicaid to require CCRC residents to spend down their entrance fees before applying for medical assistance.
* Entrance fees treated as available assets for determining Medicaid eligibility
* Eliminates a loophole used by Medicaid planners to evade spend down requirements at facilities' expense
 

PARTIAL MONTHS OF INELIGIBILITY
* States barred from 'rounding down' fractional periods of ineligibility to determine asset transfer ineligibility periods.
* Eliminates the loophole that allowed states to ignore otherwise penalizable asset transfers up to double the average monthly price of a private nursing home minus one dollar.
* States may not ignore fractional periods of ineligibility
 

MULTIPLE TRANSFERS
* Permits states to treat multiple asset transfers as a single transfer and to begin the penalty period on the earliest date that would apply to such transfers.
* States may combine multiple fractional asset transfers to make one cumulative uncompensated value for the purpose of determining the TOA penalty.
* Prevents penalties for fractional transfers from running concurrently thus reducing the effective penalty.
 

TRANSFER OF CERTAIN NOTES AND LOANS ASSETS
* Includes funds used to purchase a promissory note, loan or mortgage among countable assets unless repayment terms are actuarially sound, provide for equal payments and prohibit the cancellation of the balance upon the death of the lender.
* Makes funds used to purchase certain promissory notes, loans or mortgages vulnerable to the transfer of assets penalty.
* Stops the use of SCINs (self-canceling installment notes) and other similar loopholes to qualify for Medicaid.
 

PURCHASE OF LIFE ESTATES
* Includes as a penalizable asset transfer the purchase of a life estate interest in another individual's home unless the purchaser resides in the home for at least one year after the date of purchase.
 

EFFECTIVE DATES
* As indicated except if state legislation required then "the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after the date of the enactment of this Act."
* Medicaid planners are touting this as an opportunity to plan for Medicaid, a Medicaid planning fire sale:  "The bottom line is if you have been hesitating about seeing an attorney about long-term care planning, hesitate no longer.  If you have considered protecting some assets for your loved ones in case you later require long-term care, you should contact a qualified elder law attorney now."  (Source:  ElderLaw Answers, "Congress Passes Bill Containing Punitive New Medicaid Transfer Rules" at http://www.elderlawanswers.com/resources/article.asp?id=5221&section=4)
 

EXPANSION OF LTC PARTNERSHIPS
* Extends the long-term care partnership program option to any state.
* Removes the Waxman estate recovery obstacle to LTC Partnerships.
* Must be a Qualified LTC policy
* Must meet NAIC model regs and act as of October 2000
* Requires benefit increase provisions or option for younger insureds
* Training requirements for agents
* Reporting requirements for insurers
* No requirements imposed on Partnership policies that don't also apply to other LTCi policies in the state
* Minimum data set reporting requirements
* Portability guidelines from the Secretary by January 1, 2007:  "standards for uniform reciprocal recognition."
* Annual reports to the Congress by the Secretary
* National Clearinghouse for Long-Term Care Information for consumers; $3 million per year from 2006 to 2010
* LTCi Partnerships have much greater potential in the future because of the DRA's measures to discourage Medicaid spend-down avoidance through artificial impoverishment
 

EXPANDED HCBS
* HCBS become optional services under Medicaid state plans, not requiring a waiver.
* No longer requires recipient to need nursing home level of care
* States may limit enrollment
* State may allow consumer purchase and control of care
* Quality control
* State may elect not to comply with statewideness for HCBS only
* Effective January 1, 2007
* Makes Medicaid more attractive than ever by offering home care, assisted living and other community-based services, not just nursing home care
*Could have encouraged Medicaid planning and discouraged LTCi and HEC in the absence of the DRA's Medicaid eligibility crackdown provisions
* Critical that the Medicaid eligibility reforms be implemented, enforced, and publicized
* Otherwise, expanded HCBS will overwhelm state Medicaid budgets
 

CONCLUSION
* It's up to you now
* You finally have the tools to wake up America to the risk and cost of LTC
* You finally have the tools to protect aging Americans from the preventable tragedy of LTC
* The sky's the limit for LTCi and HEC
* The more you sell, the fewer people will need Medicaid, and the better able Medicaid will be to provide a full range of LTC services for people truly in need
* You'll be doing good by doing well in the Brave New World of LTC Financing