LTC Bullet: The VA Wants to Close Need-Based Pension Eligibility Loopholes
Friday, February 20, 2015
LTC Comment: The Department of Veterans Affairs (VA) has proposed new pension rules to cap income and assets and penalize asset transfers in ways similar to Medicaid’s LTC eligibility restrictions. We explain and comment after the ***news.***
Our clipping: 2/19/2015, “Long-Term Care Insurance: Costs Are Up but Vary Widely,” by Ann Carrns, New York Times
Quote: “Mr. Slome advises comparing rates from several insurers, as premiums vary widely. The latest analysis found the difference between the lowest- and highest-cost policies for the same coverage ranged from 34 percent to as much as 119 percent. . . . An insurance broker can help sort things out, but since some work exclusively with one insurer, you may need to talk to more than one.”
LTC Comment: Generally positive coverage in the widely read “gray lady” is as helpful as it is rare. Kudos to Jesse Slome and Michael Kitces, also quoted in the piece.
George Braddock’s comment:
[To the author] Ms. Carrns,
As a certified long-term care planner, I want to compliment you on yesterday’s NYT article. Surely your readers can not be reminded too often of the need to prepare for the likely consequences of old age.
If you’ll allow, I’d like to make some constructive criticism. It’s inaccurate to say that most states prohibit elimination periods over 90 days. We do business nationwide and I know of only 3 states that do so. And it’s not that most policies come with a 90-day elimination period. It’s what most consumers pick from a choice of 0, 30, 60, 90, 180, or with a few carriers, 365 days. In my 15 year practice I’ve never had anyone pick more than 90 days. 180 days doubles the insured’s liability for only minimal savings. So far none of my prospects were tempted by the 365 either. Not only is it costly to self-insure that long, it’s also risky. A large percentage of people die during their first year of disability. People who do so would not live long enough to collect with a super long deductible. Not to say 1-3 year deductibles don’t have their place, but that their appeal would probably be limited to some wealthy buyers who believe they can afford to pay out-of-pocket for years before the policy kicks in (and don’t mind if they have to cover six-figure losses). . . .
The answer to affordability for most people is not expanding the elimination period. 90% of buyers select 90 days, which is already cheaper than 0, 30 or 60. Long-term care specialists today typically look elsewhere to economize by:
1) adjusting the pool of money 2) adjusting the monthly benefit 3) adjusting the percentage of inflation protection. In the case of couples, when money is really tight, they might consider only insuring the one most apt to die second. That, of course, usually means the wife. If too much of the nest egg is consumed to pay for the first person to need care, the second could be left defenseless. Because married men will normally receive some care from wives, they generally have long-term care bills only half as high as widows. Women must be protected at all costs!
Again, Ms. Carrns, thanks for your effort to enlighten readers on this vital subject.
George Holmes Braddock, II, CLTC
Whether you agree or disagree with George, this is a good example of how to comment on an article covering long-term care insurance published in a national media outlet. ***
LTC BULLET: THE VA WANTS TO CLOSE NEEDS-BASED PENSION ELIGIBILITY LOOPHOLES
LTC Comment: If you’ve ever had a loved one in an assisted living facility, you’ve probably been approached by a “financial adviser” offering this unbelievable deal: get Mom and Dad’s savings for yourself and qualify one or both of them for veterans’ “aid and attendance” benefits.
“Too good to be true,” might be your initial reaction. But if you attended one of the “seminars” offered by insurance agents, accountants and lawyers promoting this approach, you quickly learned it is quite accurate. To this day, there is nothing stopping an affluent veteran from giving away all his or her assets and qualifying for substantial monthly cash payments from a program solely intended to help needy vets.
Cons and Pros
Helping heirs get early inheritances in this manner while impoverishing aging veterans has been a lucrative and growing practice for its promoters who siphon the divested funds into trusts or annuities which pay them substantial fees. It’s a seedy grey market based on legal, but arguably unethical and unprofessional practices. On the other hand, VA-planning lacks one of the most offensive characteristics of Medicaid planning. The latter practice makes artificially impoverished elders dependent on a welfare program that pays too little to ensure quality care. At least VA-planning enhances the seniors’ income making a wider range of higher quality private-pay long-term care options more feasible, assuming the beneficiaries of the asset transfer continue to support the elders’ care needs, which definitely is not always the case.
But, all that may come to an end soon. The VA has proposed regulations to impose an asset limit, look-back period and transfer penalties similar, but by no means identical, to those governing Medicaid long-term care eligibility. Find the January 23, 2015 Federal Register announcement detailing the proposed changes here. ElderLawAnswers Monthly provides a good summary here:
The proposed rules would establish a 36-month look-back period and a penalty period of up to 10 years for those who dispose of assets to qualify for a VA pension. The penalty period would be calculated based on the total assets transferred during the look-back period to the extent they would have exceeded a new net worth limit that the rules also establish. The proposed net worth limit would be equal to Medicaid's maximum community spouse resource allowance (CSRA) prevailing at the time the final rule is published and would be indexed for inflation as the CSRA is.
The amount of a claimant's net worth would be determined by adding the claimant's annual income to his or her assets. The VA would not consider a claimant's primary residence, including a residential lot area not to exceed two acres, as an asset. But if the residence is sold, proceeds from the sale would be assets unless used to purchase another residence within the calendar year of the sale. Any penalty period would begin the first day of the month that follows the last asset transfer, and the divisor would be the applicable maximum annual pension rate in effect as of the date of the pension claim.
Differences With Medicaid Rules
Sound familiar? “Been there, done that” thinks any Medicaid LTC policy wonk. The VA is obviously modeling its approach on Medicaid’s but with some key differences. The proposed look-back period is only three years instead of five years for Medicaid. The VA’s maximum asset transfer penalty would be only 10 years instead of unlimited for Medicaid. The VA puts no cap on the exemption for home equity, whereas Medicaid imposes a limit of between $552,000 and $828,000. Finally, the VA’s asset transfer penalty would begin the month after the asset transfer takes place enabling the applicant to give away half of his or her assets and spend down the rest during the resulting penalty period, a so-called “half-a-loaf” strategy Medicaid no longer allows.
Savvy Medicaid eligibility experts will recognize these key differences in proposed VA rules and existing Medicaid rules. VA is patterning its proposal on the way Medicaid LTC eligibility used to be before the transformational changes that occurred in the Deficit Reduction Act of 2005. The DRA ’05 extended Medicaid’s transfer of assets (TOA) look-back period from three years to five years; put the first cap ever on home equity; and eliminated the egregious half-a-loaf loophole that effectively cut the TOA penalty in half. The Center for Long-Term Care Reform proudly advocated those changes and we believe the VA will also conclude they’re necessary in time.
GAO Wake-Up Call
So, why is the VA finally wising up to these ways that needs-based “aid and attendance” benefits have been diverted from the needy to enrich middle-class heirs? We can thank the Government Accountability Office for that wake-up call. In a May 2012 report titled “Veterans' Pension Benefits: Improvements Needed to Ensure Only Qualified Veterans and Survivors Receive Benefits,” GAO reached these conclusions, which we’ll quote at length because they are stunning:
The Department of Veterans Affairs’ (VA) pension program design and management do not adequately ensure that only veterans with financial need receive pension benefits. While the pension program is means tested, there is no prohibition on transferring assets prior to applying for benefits. Other means-tested programs, such as Medicaid, conduct a look-back review to determine if an individual has transferred assets at less than fair market value, and if so, may deny benefits for a period of time, known as the penalty period. This control helps ensure that only those in financial need receive benefits. In contrast, VA pension claimants can transfer assets for less than fair market value immediately prior to applying and be approved for benefits. For example, GAO identified a case where a claimant transferred over a million dollars less than 3 months prior to applying and was granted benefits. . . .
GAO identified over 200 organizations that market financial and estate planning services to help pension claimants with excess assets meet financial eligibility requirements for these benefits. These organizations consist primarily of financial planners and attorneys who offer products such as annuities and trusts. GAO judgmentally selected a nongeneralizable sample of 25 organizations, and GAO investigative staff successfully contacted 19 while posing as a veteran’s son seeking information on these services. All 19 said a claimant can qualify for pension benefits by transferring assets before applying, which is permitted under the program. Two organization representatives said they helped pension claimants with substantial assets, including millionaires, obtain VA’s approval for benefits. About half of the organizations advised repositioning assets into a trust, with a family member as the trustee to direct the funds to pay for the veteran’s expenses. About half also advised placing assets into some type of annuity. Some products and services provided, such as deferred annuities, may not be suitable for the elderly because they may not have access to all their funds for their care within their expected lifetime without facing high withdrawal fees. Also, these products and services may result in ineligibility for Medicaid for a period of time. Among the 19 organizations contacted, the majority charged fees, ranging from a few hundred dollars for benefits counseling to $10,000 for establishment of a trust. [Emphasis added.]
How to Comment on the Proposed Rules
Surely any civic-minded person can see the value of ending these abuses, right? Well, no. Trust purveyors and some annuity marketers who benefit from the current system are mobilizing to oppose the proposed changes. They’re urging their clients to comment on and oppose the VA proposals. Maybe you’d like to take the opposite position. If so, here’s how:
DATES: VA must receive comments on or before March 24, 2015. ADDRESSES: Written comments may be submitted through http:// www.regulations.gov; by mail or hand delivery to: Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; or by fax to (202) 273–9026. Comments should indicate that they are submitted in response to ‘‘RIN 2900– AO73, Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits.’’ . . . In addition, during the comment period, comments may be viewed online through the Federal Docket Management System (FDMS) at http://www.regulations.gov.
The fight for responsible welfare eligibility policy is long and hard. Victories are few and far between. Yet slowly but surely we’re winning. Keep the faith and carry on.