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William Zatlin, 90, of North Babylon, N.Y., may not realize it, but his bed in a Long Island nursing home costs about $11,000 a month and wiped out his cash savings in less than a year. It's just as well that the disabled World War II veteran, who suffers from dementia, doesn't know his two daughters had to sell his home in order to pay for his care. Zatlin could have kept the house and applied for medicaid once his money was gone. But his daughters could no longer afford to pay the utility bills and property taxes on the empty home.
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The sale of Zatlin's house was completed after a new medicaid-reform law took effect in February, making it much tougher to qualify for government-paid long-term care. As a result of the new law, Zatlin's daughters have few options but to continue writing checks to the nursing home at a rate of $132,000 a year for as long as their father lives -- or until all of his money is gone.
Under rules that were in effect until February, Zatlin's family might have been able to retain nearly half his money, transferring some of it to relatives and using the remainder to pay the nursing-home bills long enough to satisfy the penalty period for transferring assets before medicaid picks up the tab. But under the new law, that fast-track, "half a loaf" strategy to qualify for government-paid nursing-home care, which could have shaved a year off the family's obligation to pay privately, is now history.
Elder-law attorneys, who have prospered by showing middle-class families how to tap medicaid without depleting all their assets, say they feel for people on the wrong side of the deadline. "It seems so unfair that by virtue of just a few weeks, this family will probably not be able to retain any money" from the house, says Felicia Pasculli, a lawyer from Bay Shore, N.Y., who is representing Zatlin and his two daughters, Barbara Leun and Kathleen McGrath.
No free lunch
Leun, 58, says her father would be devastated if he knew what had happened to his home of 50 years. A retired teacher who lives next door to her childhood home, Leun cared for her father until his admission to the nursing home last year. Although Zatlin no longer recognizes his children, Leun visits him nearly every day. "He wanted that house to be a legacy for us," she says. "Now that's not going to happen."
That's exactly as it should be, says Stephen Moses, president of the Center for Long-Term Care Reform, a Seattle advocacy group that has led the charge for tougher rules that restrict medicaid to the truly poor instead of allowing it to be used as what Moses calls inheritance insurance for baby-boomers. He says Americans can no longer ignore the stupendous costs of nursing-home care or count on a government bailout. "There is no more free lunch for long-term care," says Moses, who believes that unless things change, the future needs of today's middle-aged baby-boomers will destroy an already overburdened medicaid system.
Whether you believe families should be able to preserve assets for an inheritance or think it's only fair that they spend those assets on a family member who requires a nursing-home stay, the new medicaid-reform law alters how you should plan for long-term care and how you will have to pay for it. If you don't own a long-term-care insurance policy -- or if you rejected the idea before -- you should seriously consider getting one now (see A Fresh Look at Long-Term Care).
Also, in a major policy shift, seniors are now being encouraged to use their home equity for long-term care. Under the old law, a house was not considered an asset for medicaid purposes if the owner planned to return home or a spouse was still living there. Only if both spouses died could medicaid force the sale of the property to recover the cost of care.
Medicaid retains this right to estate recovery under the new law, but it has a new weapon in its arsenal for battling runaway costs. Medicaid can require individuals (but not married couples, if a spouse remains in the house) to tap any home equity in excess of $500,000 to pay for their own care. They can do this by selling the property, borrowing against the equity or using a reverse mortgage. Older homeowners in regions that have seen enormous appreciation in real estate values are likely to be affected by the new equity cap.
Reverse mortgages allow homeowners 62 and older to borrow a portion of the equity and receive payments in a lump sum, as monthly income or via a line of credit. No repayment is due until you move, die or sell the house. But a reverse mortgage, which involves heavy up-front fees, makes no sense if a senior has to move into a nursing home after only a few years.
To stay at home longer and make the best use of a reverse mortgage, seniors could use the money to add ramps or refit bathrooms to accommodate a wheelchair. Home equity can also pay for in-home assistance. As a result, says Peter Bell, president of the National Reverse Mortgage Lenders Association, the law may create greater demand for quality home-care services and help keep seniors out of nursing homes.
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