By Richard A. McGrath, CIC, LIA
Now Massachusetts residents have an extra incentive for purchasing long-term care (LTC) insurance.
Under new state regulations, residents that purchase an approved form of LTC coverage can protect their home from being sold to cover long-term care costs. To qualify for MassHealth, while maintaining exemption from attempts to recover the cost of care, your LTC insurance must:
- Cover nursing home care for at least 730 days,
- Pay at least $125 per day for nursing home care,
- Not require a waiting period of more than 365 days before paying benefits or, in lieu of a waiting period, a deductible of more than $54,750.
New carriers have entered the market and offer LTC with this minimum required level of coverage for a competitive price. However, even individuals with insurance currently meeting these criteria could end up owing a fair amount of money to the Massachusetts Division of Medical Assistance for nursing home care.
In Massachusetts, the average cost of nursing home care is $126,290 a year, so if a policy has a one-year waiting period, the policyholder could have a six-figure bill from the Division of Medical Assistance before insurance coverage begins.
Until now, the Massachusetts Division of Medical Assistance could require residents receiving assistance through MassHealth to sell their home or it could place a lien on a house to recover what it paid out for the homeowner’s long-term care. The lien would prevent the transfer or conveyance of the residence without first reimbursing the Division of Medical Assistance for the money it paid toward the resident’s care.
The Division of Medical Assistance could also make a claim against the probated estate of the deceased applicant for reimbursement for the amount of Medicaid benefits paid, although it could not file a claim if there was a surviving spouse, an unmarried child younger than 21, or a blind or totally disabled person living in the home.
Using a Life Estate
To keep from having to sell their home, many homeowners have deeded it to family members, while retaining a life estate for themselves, giving them the right to continue living in the home for the rest of their life. Upon their death, the home would pass automatically to heirs and they would not have to pay a capital gains tax when they sold the home.
However, the life estate is subject to a five-year look-back period. If the homeowner dies within five years of setting up the life estate, MassHealth could sell or put a lien on the property.
Now, though, MassHealth will not require you to sell your home if you own LTC insurance that meets the minimum eligibility requirements or are in any of the following situations:
- You notify MassHealth that you intend to return home.
- A spouse, child under age 21, or child who is blind or permanently disabled is living in your home.
- A sibling with an ownership interest in the home has lived there for at least a year before your admission into a medical institution.
- A child of the owner has lived in the home for at least two years to provide care for the owner.
If you are exempt from recovery of nursing home and other long-term care expenses, you will still be required to repay the costs of other MassHealth services, such as hospital care, physician visits and prescriptions provided outside of your long-term care.
Other Regulatory Changes
Separate from the changes to MassHealth, the state Division of Insurance in July proposed new regulations covering LTC insurance. The draft regulations propose changes that would provide more oversight to the industry and allegedly help control costs.
The rules would include greater and more regular disclosures by insurance companies about the financial performance of their LTC policies, including the amount paid in claims, and stricter oversight of companies offering LTC coverage. They would also require special training and licensing of agents that sell long-term insurance, which would increase costs.
Some consumer groups want to place caps on annual rate increases, but Massachusetts Insurance Commissioner Joseph Murphy said his agency doesn’t have the authority to limit rates.
He also said that capping rates would remove the flexibility regulators need, such as preventing them from approving rate increases necessary to keep a company solvent and able to provide coverage.
According to Murphy, the increased oversight for these new regulations ensures that regulators can better monitor insurance companies, so they can identify financial problems before insurers need large rate increases to address them.
Increasing healthcare costs and the increasing demand caused by retiring baby boomers are likely to continue increasing the cost of long-term care. Those who have LTC insurance will be better prepared to deal with the increasing costs.
Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at firstname.lastname@example.org.
This article is written for informational purposes only and should not be construed as providing legal advice.