More Choices, Less Coverage

There are some interesting conversations occurring with respect to healthcare, and I think many people don’t quite understand the parlance that is being used in those discussions. When you don’t understand the meaning of the words being used, it’s difficult to understand the speaker.

Since before its passage, Republicans have been taking about repealing the Affordable Care Act, commonly known as Obamacare.  Obamacare seeks to offer private health insurance to all Americans by pooling younger populations of insured individuals with older individuals and by supplementing poorer individuals’ health insurance through an expansion of the Medicaid program.

Because of Obamacare, approximately 20 million Americans who did not have health insurance now have health insurance.  The uninsured rate in this country is at an all-time low of approximately 9%.

Under Obamacare, insurance companies must offer policies of insurance that provide certain benefits.  The insurance policies provide comprehensive insurance coverage to all insureds.  In addition, insurance companies cannot deny you insurance because of a pre-existing condition, and children are entitled to remain on their parents’ health insurance until they attain the age of twenty-six.

Republicans have offered several solutions for when they repeal and replace Obamacare, as they have promised to do.  These proposals include health savings accounts, tax credits for premium payments paid, greater coverage options (the right policy for the insured) and the ability to obtain insurance “across state lines.”

A health savings account is an account into which an employee can place his money pre-tax.  The worker does not pay tax on the money he contributes to his health savings account.  A tax credit is a dollar-for-dollar reduction in taxes.  I like both of these solutions.  I pay income tax and I pay for my health insurance.  If the federal government wants to allow me to save more money tax free and to reduce my taxes on a dollar-for-dollar basis on the premiums I pay, I think that’s terrific.

The problem for 45% of the United States population is they don’t pay income tax.  So health savings accounts and tax credits do absolutely nothing for approximately half the population of this country.

What are “greater coverage options” or the “right policy for the right person”?  I have heard a Republican strategist ask the rhetorical question, “Why should a 25 year old man’s health insurance include coverage for a mammogram?”

Indeed, a 25 year old man probably will not need a mammogram.  While men do get breast cancer, it’s relatively rare.  Woman don’t get prostate cancer as far as I know, so I guess they shouldn’t pay for health procedures associated with the prostate.  Most younger people could probably get away with health insurance that covers very little and has higher deductibles.  And for this minimalistic coverage, they should pay very low premiums.

The problem though is two-fold.  One, when people (young or old) begin picking insurance that covers this procedure but doesn’t cover that procedure, they might as well flip a coin because none of us knows what tomorrow might bring.  None of us know what coverage we might need.  Two, if most younger people buy cheap, minimalistic insurance, then older people (who see doctors more frequently) are going to pay much more for their insurance.  And while younger people might say “that’s their problem,” the thing is, being healthy leads to getting old, so one day soon they’ll be looking for insurance when they actually need it.

“Buying insurance across state lines” means that New Jersey regulates what policies of insurance an insurance company can issue.  New Jersey might require insurance companies to offer good policies of insurance.  But, for example, Minnesota might allow insurance companies to offer very minimalistic policies of insurance.  Right now, a New Jerseyian cannot buy a policy from Minnesota, but maybe someday soon they will be able to buy a cheap, minimalist policy from a Minnesota insurance company.  The person will have insurance, but it won’t cover much.

Medicaid Advice Is Legal Advice

In the past several years, I have seen a growing number of companies that assist people in qualifying for Medicaid benefits.  Sometimes for a flat fee, sometimes on an hourly basis—these companies tell people that they can help them qualify for Medicaid benefits.

I have had a number of clients tell me that the nursing home in which their loved one lives insisted that they use one of these companies.  One former client of mine told me that the staff of the nursing home threatened to kick her loved one out of the nursing home if the client used me to assist her in qualifying her husband for Medicaid.

As a fundamental matter, I can tell you that I have heard the fees these non-attorney companies charge their customers, and the fees are either higher than or equal to the fees I would charge to assist a family in qualifying their loved one for Medicaid.  So, if the fees these companies are charging are equal to or higher than the fees I would charge, a question becomes, are the services these companies are providing equal to or better than the services I am providing?

Well, you can guess that I’m going to say their services are not equal to or better than my services, but if you’ll indulge me, I actually have some good arguments to make in support of my case.

Medicaid is a health payment plan for needy individuals. In order to qualify for Medicaid benefits, an individual must have insufficient income to pay for his care and a very limited amount of assets.

Once a person qualifies for Medicaid, the program will pay for nursing home care, care in an assisted living residence, and long-term care services at home. All of my clients who are seeking to qualify for Medicaid benefits are doing so because of long-term care costs.

Many people mistakenly believe that there are no planning opportunities available to them in order to qualify for Medicaid. They believe that their only option is to spend down their money until they are poor.  But the truth is, there are a great many planning opportunities.  I have often saved tens-of-thousands to hundreds-of-thousands of dollars for my clients.

In the past year, the Supreme Court of New Jersey has held that providing advice to a person on how to qualify for Medicaid is the practice of law. In other words, when I advise people that they can transfer their home to certain family members without jeopardizing their eligibility for Medicaid benefits, I am providing legal advice.  When I establish a Medicaid-complaint annuity for a client in order to qualify his spouse for Medicaid, I am providing legal advice.  Furthermore, when I draft a deed to a client’s home or draft a trust for a client, I am providing legal advice/services to the client.

The good news for me is, I am an attorney, so when I provide legal advice to a client, that is what is expected of me. When a non-attorney company provides this type of advice or these type of services to a customer, they are committing a crime.  The unauthorized practice of law is a criminal act.

Many of these non-attorney companies receive referrals from nursing homes. In fact, clients of mine have told me that the referral to the company was more of a strong arm tactic through which the nursing home almost insisted that the client use the non-attorney company.  Nursing homes want to make money, and there is nothing wrong with that.

I firmly believe that a nursing home should be paid for the services it provides, but when one company pushes you to use another company, you have to ask yourself why the nursing home wants you to use the third-party company to apply for Medicaid. In some instances, the company that does the billing for the nursing home is the company that is handling the Medicaid application for the resident for a fee.

The company literally works for the nursing home, yet they are charging the resident to apply for Medicaid. To whom does the company’s allegiance lie?  To the family who hires the company one time or to the nursing home that continuously refers new business to it?  Lawyers have to work for the client and only the client.

So the key differences between attorneys and non-attorneys are that lawyers can provide legal advice and lawyers work solely for the client.

How Much Money Can I Retain?

Medicaid is a health payment plan for needy individuals.  Medicaid will pay for most of the costs associated with long-term care, such as care in a nursing home or assisted living residence.  Medicaid will even pay for long-term care at home, such as a home health aide or adult day care facility.

Long-term care costs are exceptionally high.  A nursing home in our area costs between $10,000 and $13,000 per month.  An assisted living residence costs between $5,000 and $9,500, depending upon the level of care that the resident requires.  A home health aide costs about $25 per hour or about $200 per day for a live-in aide.  An adult day care center costs anywhere from $90 to $150 per day.

Few people could afford to pay these costs for an extended period of time without completely depleting their life’s savings.  Many of the people who come to me in order for me to assist them with qualifying for Medicaid have between $50,000 and $700,000 in life’s savings.  They hope to save a portion of their assets for their benefit or the benefit of their family members.

Inevitably, potential clients will tell me what they believe the Medicaid program will permit them to retain in assets in order to qualify for Medicaid.  Many people tend to believe that if they are a member of a married couple, the well-spouse (called the “community spouse” in Medicaid parlance) can retain half the couple’s assets.  Or, the potential client believes she can retain all the assets in her name and that only the assets in the ill-spouse’s name (called the “institutionalized spouse” in Medicaid parlance) must be expended on his long-term care costs.

The truth is, the community spouse can retain certain non-countable assets and a certain amount of the countable assets.  Non-countable assets are the home, a car, and personal goods (such as clothes and furnishings).  Countable assets are everything else—bank accounts, stocks, bonds, mutual funds, most annuities, IRAs, 401(k)s, etc.

It is irrelevant which member of the couple owns the assets.  The community spouse is entitled to retain up to a maximum of $120,900 in countable assets.  That is a new maximum for the year 2017.  Whether or not the community spouse can retain the maximum depends upon the value of the assets owned by the couple when the institutionalized spouse first entered the nursing home.

For instance, if the couple owned $242,000 in countable assets when the institutionalized spouse first entered a nursing home, then the community spouse can retain the maximum amount of countable assets, or $120,900.  If the couple owned $200,000 of countable assets, then the community spouse can retain $100,000 of the countable resources, or half.  If the couple owned $100,000, then the community spouse can retain $50,000 in countable assets.  If the couple owned $50,000 in countable assets, then the community spouse can retain $25,000.

And if the couple only owned $25,000 in countable assets when the institutionalized spouse first entered the nursing home, then the community spouse can retain the minimum amount of countable resources, which is $24,180.

The $120,900 figure is a maximum, so if a married couple owned $1,000,000 in countable assets, the community spouse would still only be entitled to retain $120,900.  Moreover, it is irrelevant which spouse owns the assets.  All assets are pooled for purposed of determining the institutionalized spouse’s eligibility for Medicaid.

All of the assets could be held in the community spouse’s retirement plan.  Clearly, these assets would be owned only by the community spouse.  For purposes of Medicaid, the entire amount of the retirement account would count against the institutionalized spouse’s eligibility with the exception of the $120,900 maximum amount that the community spouse could retain.

Bloodline Trusts

Last year, New Jersey adopted its version of the Uniform Trust Code (Code). The Code provides for a concise statement of the laws governing trusts in New Jersey.  Prior to the passage of the Code, most of New Jersey’s trust law came from case law.  Many of those cases were old—some were very, very old—and the holding of one case might contradict the holding of another case.

For this reason, it was often hard to discern a rule governing trusts in New Jersey. The uncertainty that existed in New Jersey trust law is one of the reasons our state passed the Code.  Since the passage of the Code, I have had the opportunity to review the new statutes and to discuss the impact of the law with some of my colleagues.

The Code solidifies the usage of a spendthrift clause in a trust. A spendthrift clause is a clause in a trust that prevents the creditors of a beneficiary from accessing the assets of the trust to pay the debts of the beneficiary as long as the assets are held in the trust.  A spendthrift trust also prevents the beneficiary from giving away or encumbering the assets of the trust for his own benefit.

For instance, assume that Mr. Smith dies and leaves his son Joe an inheritance. Mr. Smith’s Will directs that any inheritance passing to Joe will be held in trust for Joe’s benefit.  The trust in Mr. Smith’s Will for Joe’s benefit—called a testamentary trust—contains a spendthrift clause.

Assume that Joe gets sued—because he was involved in a car accident or because he owes credit card debt that he cannot pay. Or assume that Joe is getting divorced.  The spendthrift clause in Joe’s trust would prevent Joe’s creditors from accessing the inheritance Mr. Smith left to Joe to pay any debt owed to the creditor.  The spendthrift clause would prevent Joe’s soon-to-be ex-wife from accessing the money being held in the trust in the course of the divorce proceeding.

The spendthrift clause would also prevent Joe from giving away the money in the trust. Joe could not decide to simply take the money out of his trust and give it to his wife.  The spendthrift clause would prevent Joe from going to a bank and using the trust as collateral for a loan that he wants to take.

In short, a spendthrift trust is a very powerful tool. A spendthrift clause can protect Mr. Smith’s inheritance for Joe’s benefit for decades after Mr. Smith dies.

Before the passage of the Code, I was reluctant to create trusts for beneficiaries of an estate because case law appeared to require someone other than the beneficiary of the trust to serve as the trustee of the trust. For instance, Mary, Mr. Smith’s daughter, would have to serve as the trustee of Joe’s trust in order to protect the assets in Joe’s trust from Joe’s creditors or ex-wife.  Joe could not serve as sole trustee.

In my opinion, having someone else serve as trustee is a recipe for trouble. If Mary is trustee for Joe, inevitably, there will be conflict between Mary and Joe.  Joe will believe—rightly or wrongly—that Mary isn’t giving him “his money” when she should be giving him the money.  If a bank is appointed as trustee, the bank will charge fees and Joe will probably believe that the bank isn’t giving him “his money” when it should be giving him his money.

The Code makes it clear that Joe can serve as trustee of his own trust and that his serving as trustee does not weaken the spendthrift clause. To me, this is great, because now, I can draft a spendthrift trust in Mr. Smith’s Will for Joe’s benefit and have Mr. Smith name Joe as trustee of his own trust.

For safety sake, I can draft language in the trust that says if Joe is ever sued or if Joe ever gets divorced, then Mary, Joe’s sister, will serve as trustee of Joe’s trust while the lawsuit is pending. After the lawsuit is resolved, Joe can resume the role of trustee.

This language offers total protection for Joe’s inheritance for decades and decades following Mr. Smith’s death and avoids conflicts that can tear families apart.