The High Cost of Aging

Long-term care (LTC) and how we pay for it continue to be major issues for Americans and our federal, state and local governments. Congress attempted to address these issues with the Community Living Assistance Services (CLASS) Act, which established a voluntary LTC program. But, that program was recently eliminated. As the baby boomers age, the issue of LTC will continue to attract the attention

Long-term care (LTC) and how we pay for it continue to be major issues for Americans and our federal, state and local governments. Congress attempted to address these issues with the Community Living Assistance Services (CLASS) Act, which established a voluntary LTC program. But, that program was recently eliminated. As the baby boomers age, the issue of LTC will continue to attract the attention of politicians, consumer groups and, of course, your clients. The costs are staggering. Nationwide, the average annual cost of a nursing home is approximately $90,000. In some major metropolitan areas, the cost can exceed $200,000 a year. These expenses can bankrupt most middle class families. Medicare, unfortunately, doesn't cover LTC. Medicaid, the primary payer of LTC in this country, has strict income and asset requirements and is supposed to be the payer of last resort. All of your clients should consider LTC insurance as part of their overall estate plan. However, due to underwriting requirements or financial considerations, it's not an option for many.

In 2011, we saw some changes in the LTC area. Here's a rundown of some of the recent developments.

Medicare Premiums Rise

After receiving no cost-of-living increase for two years, Social Security recipients will get a 3.6 percent cost- of-living increase this year. However, the government gives with one hand and takes with the other. Medicare premiums are going up. Although the law prevents Medicare premiums from increasing for most seniors if there's no cost-of-living increase for Social Security recipients (which has been the case for the past two years), this rule doesn't apply to seniors with more than $85,000 in annual income. So, those seniors have paid increasing Medicare premiums for the past two years. However, due to the way Medicare premiums are calculated, this group's premiums will now decrease. That's because approximately three-quarters of Medicare beneficiaries don't have annual income of more than $85,000. Over the past two years, the higher income group paid higher premiums to subsidize the lower income group, whose premiums were frozen. But now that the lower income group will be paying higher premiums, less of the Medicare burden will be borne by the higher income group. For many seniors and those with disabilities, the increase in Medicare premiums will partially offset the Social Security benefits increase. According to Kathleen Sebelius, secretary of Health and Human Services, the average Social Security recipient will have a net cost-of-living increase of $40 per month in 2012.1

Insurance Fine Print

As mentioned above, Medicare doesn't pay for LTC. Thus, many Americans should consider purchasing LTC insurance as part of their estate plan. However, it pays to read the fine print and work with a reputable agent and company. For example, in a recent Washington case, an individual purchased an LTC insurance policy in 1986. She paid premiums for more than 20 years. In 2007, she suffered a stroke and went into a nursing home. The insured's son submitted an LTC insurance claim on her behalf. The insurance company denied the claim because she hadn't been in the hospital for three days prior to the nursing home admission (the policy had a three-day prior hospitalization requirement). The trial court held in favor of the insurance company, but an appeals court reversed the decision. Soon after the individual purchased the policy in 1986, the law in Washington was changed to prohibit prior hospitalization requirements in LTC insurance policies. Regulations implementing the law applied to policies issued after Jan. 1, 1988. The court held that, although the policy was valid when issued, the subsequent renewals of the policy after the 1988 effective date of the regulations eliminated the three-day hospital requirement on the theory that a new contract is formed each time the policy is renewed.2

Fortunately, newer LTC insurance policies don't contain the prior hospitalization requirement. Nevertheless, this case demonstrates that it pays to read the fine print. If you have an older policy, make sure you address this issue before filing a claim.

Same-Sex Couples

When a married individual goes into a nursing home, the assets of each spouse are counted in determining the eligibility of the nursing home spouse for Medicaid benefits. Pursuant to federal law, the spouse living in the community (the “community spouse”) is entitled to a resource allowance ranging from $22,728 to $113,640, depending on state law. These protections were enacted as part of the Medicare Catastrophic Coverage Act of 1988 and were designed to prevent the impoverishment of both spouses when one spouse went into a nursing home. Historically, same-sex partners haven't had the same protections under federal law, although several states have afforded these protections to same-sex partners who were legally married (in some instances, even if the marriage occurred in another state). On June 10, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a letter to state Medicaid directors regarding same-sex partners and Medicaid liens, transfers of assets and estate recovery. Under Section 1917(a)(2) of the Social Security Act (SSA), states aren't permitted to impose liens on real property owned by a Medicaid recipient if certain individuals live in the home. Included among such individuals is a spouse, as defined in the Defense of Marriage Act of 1996 (DOMA). Pursuant to the recent letter, states have the option not to pursue liens when a same-sex spouse or domestic partner of the Medicaid beneficiary continues to reside in the home.

Transfers of assets between spouses aren't subject to the Medicaid look-back or penalty period provisions, since they're exempt. Under DOMA, these exemptions don't apply to same-sex partners or spouses. However, Section 1917(c)(2)(D) of the SSA permits states to exempt certain transfers from the penalty provisions if undue hardship exists and gives states considerable flexibility in making this determination. Based on this flexibility, the CMS letter concludes that states may adopt criteria, or even presumptions, that recognize that imposing transfer of asset penalties on the transfer of an ownership interest in a shared home to a same-sex spouse or domestic partner would constitute an undue hardship.

While states are required by federal law to have an estate recovery program, each state has the option of seeking recovery of Medicaid benefits paid solely from the probate estate of the deceased Medicaid recipient (as defined by state law) or seeking recovery from non-probate assets as well. Some states are more aggressive than others when it comes to estate recovery. For states that opt for enhanced estate recovery, the term “estate” may include any property in which an individual had legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust or other arrangement. Medicaid estate recovery may not be made if there's a surviving spouse (defined in DOMA). States may waive recovery if it creates an undue hardship for the deceased Medicaid recipient's heirs. States have flexibility to determine what constitutes an undue hardship. According to the CMS letter, this flexibility includes the discretion to establish reasonable protections applicable to the same-sex spouse or domestic partner of the deceased Medicaid recipient.

Of course, CMS letters don't have the same force and effect as regulations, but the CMS' broad view of the Medicaid statute is certainly welcome news. While many lesbian, gay, bisexual and transgender groups have supported these changes, careful planning is still critical. For example, under the revised community spouse resource allowance provisions, all of the assets of a domestic partner or same-sex spouse will be aggregated for purposes of determining the Medicaid eligibility of the nursing home spouse or partner. Also, while same-sex spouses or domestic partners may not transfer assets between themselves without imposition of a Medicaid penalty, they're also not subject to the asset limits. The well partner can keep all his assets and only the ill partner must spend down. This could actually result in the healthy partner keeping fewer assets than he could have kept before the CMS letter came out.

Death of the CLASS Act

The only part of the Affordable Care Act (ACA) dealing with the cost of LTC was the CLASS Act. The brainchild of the late Sen. Edward M. Kennedy (D-Mass.), it was a purely voluntary program designed to provide lifetime benefits of at least $50 per day in the event an individual faces illness or disability. The benefits were to be used to help keep individuals independent and generally pay for the cost of LTC. From the outset, critics opined that it was financially unworkable and that projected savings or budget deficit cuts were illusory.

In September 2011, the Obama administration acknowledged actuarial reality and effectively eliminated this program from the ACA. Some hail this decision to terminate the CLASS Act. Others decry the decision because, flawed as it was, the CLASS Act took some steps to address the financially devastating cost of LTC. Whatever one's position, the termination of the CLASS Act means that nothing is being done at the federal level to deal with this perennial problem.

Individuals will continue to have three fundamental choices about paying the costs of LTC and nursing home care in particular. They can:

  • Pay the cost ($6,000 to $20,000 per month) out of their own pockets as long as they're able.
  • Rely on LTC insurance, if they qualify and can afford it.
  • Qualify for the federal Medicaid program.

The demise of the CLASS Act should spur sales of LTC insurance, particularly plans that include home care coverage as well as nursing home coverage. Some argue that the promises made by CLASS Act proponents allowed many to forego private LTC insurance policies, since CLASS Act coverage would be voluntary and cheap — particularly since individuals could avoid participation (premium payments, however modest) until they identified a need. This adverse selection opportunity is, in fact, the main reason why the plan is actuarially unworkable. Now, LTC insurance is exclusively available from private companies.

Inevitably, this development will also cause more individuals to rely on the federal Medicaid program and seek out attorneys who can assist them with the labyrinthine rules that apply.

Planning note for practitioners: Learn the pros and cons of LTC insurance. Identify experienced, ethical LTC insurance professionals in your community. Learn Medicaid planning strategies or create a relationship with an attorney who can provide this type of assistance to your clients.

Increasing Cost of LTC

As individuals and as a nation, we continue to turn a semi-blind eye to the reality and cost of LTC. The increased cost of care, as reported in the Genworth 2011 Cost of Care Survey, reinforces this observation. The survey points out that almost two-thirds of individuals over age 65 will need some form of LTC during their lifetimes. Perhaps more importantly, it points out that approximately 40 percent of individuals receiving LTC services at this time are under age 65.3

For “assisted living,” where an individual lives independently but receives varying levels of personal care, the national median monthly rate is $3,261. This represents almost a 2.4 percent increase over such costs in 2010. This area of care has experienced a 6 percent annual increase in costs over the last six years.4

For semi-private nursing home care, 2011 saw a 5.7 percent increase, with a national median daily rate of $193. In many high cost communities, this can cost $300 to $400 per day or even more.5

Very few individuals purchase LTC insurance. So, the vast majority of us — regardless of wealth or circumstance — continue to plan poorly for the cost of LTC.

Self-insuring and LTC insurance will emerge as increasingly appropriate options, particularly in light of inevitably decreasing Medicaid reimbursement rates for nursing home providers. In other words, the amount of money that skilled nursing facilities will be paid to care for Medicaid recipients will inevitably decrease because of financial constraints and limits in the public benefits sector. This means that increasing numbers of facilities will abandon Medicaid and become exclusively “privately paid” facilities.

We do our clients a favor by raising these issues in the context of every estate-planning meeting.

Constitutionality of the ACA

Four circuit courts of appeal have issued opinions related to the individual mandate for minimum coverage set forth in the ACA. In Thomas More Law Center v. Obama,6 the U.S. Court of Appeals for the Sixth Circuit held that the Anti-Injunction Act (AIA) didn't bar pre-enforcement judicial review and that the individual mandate is constitutionally valid under the Commerce Clause. In Seven-Sky v. Holder, the D.C. Circuit similarly held that the AIA didn't bar suit, and the individual mandate is constitutional.7

In contrast, the Eleventh Circuit found that the individual mandate is unconstitutional, as it exceeded the boundaries of Congressional power under the Commerce Clause.8 However, the court held that the individual mandate could be severed from the remainder of the ACA. The Fourth Circuit issued two decisions that didn't reach the merits for two different reasons: the AIA applied;9 and the plaintiff (the state of Virginia), lacked standing.10 A petition for writ of certiorari was filed on Sept. 28, 2011. The U.S. Supreme Court granted certiorari on Nov. 14, 2011 on three issues: 1) whether the AIA bars the suit to challenge the individual mandate; 2) whether the individual mandate is severable from the remainder of the ACA; and 3) whether the individual mandate is unconstitutional and is non-severable from the remainder of the ACA.

The Supreme Court's decision in this matter will profoundly impact both constitutional and health care law. In the meantime, uncertainty prevails.


  1. www.medicareadvocacy.org/2011/10/breaking-good-news-for-medicare-beneficiaries/. [6]
  2. Bushnell v. Medico Insurance Company, No. 639161-I (Wash. Ct. App. Feb. 7, 2011).
  3. www.genworth.com/content/products/long_term_care/long_term_care/cost_of_care.html [7].
  4. Ibid.
  5. Ibid.
  6. Thomas More Law Center v. Obama, 651 F.3d 529 (6th Cir. 2011).
  7. Seven-Sky v. Holder, 2011 WL 5378319 (D.C. Cir. 2011).
  8. Florida v. Dept. of Health & Human Services, 648 F.3d 1235 (11th Cir. 2011).
  9. See Liberty University, Inc. v. Geithner, 2011 WL 3962915 (4th Cir. 2011).
  10. See Cuccinelli v. Sebelius, 656 F.3d 253 (4th Cir. 2011).

Bernard A. Krooks, far left, is a partner in the New York City, White Plains and Fishkill, N.Y. firm of Littman Krooks LLP. Michael Gilfix is a partner in the Palo Alto, Calif. firm of Gilfix & La Poll Associates LLP