Melissa called to explain her parents’ situation. Mom was 80 and Dad 85. For a number of years they had been receiving care at home from a home health aide. 2 years ago, Melissa attended a seminar offered by a financial advisor at a local assisted living facility about a VA program called the Aid and Attendance program. The advisor explained how her parents could qualify for a pension of $1949 per month. Here’s how it works in a nutshell.
The VA program is a needs based one, meaning that there is an income limit and an asset limit, similar to Medicaid, but also with some significant differences. The asset limit is about $80,000 for a married couple. $40,000 for a single applicant. Melissa’s parents had $200,000. The advisor explained that transferring the excess assets out of their names would work because the VA doesn’t have a look back or a penalty period like Medicaid. Mom and Dad could qualify for VA benefits the very next month.
Then the advisor explained the income rules, what I call the “critical calculation”. The VA takes gross income and subtracts recurring unreimbursed medical expenses to arrive at income for VA purposes (IVAP). This number is then subtracted from the maximum pension rate for the category applied for to determine the pension received. If unreimbursed medical expenses exceed gross income then the applicant gets the maximum pension. In Melissa’s parents’ case, that would be $1949 per month. The advisor next explained that unreimbursed medical expenses include the cost of home aides.
Melissa told me she gave the advisor the income numbers. Mom and Dad had combined income from Social Security and pension of $4000 per month. Living at home the cost of the aides was $2000 per month but Dad needed more care than what he was getting. She just couldn’t convince her parents to hire more because of their concern that they couldn’t afford it. Melissa wanted to move her parents into the assisted living facility but that expense was even greater, at $8500 per month.
The advisor then explained that the money they transfer out of their names could buy an annuity. This would be a stream of income for Melissa’s parents that would helpe them pay for the assisted living facility. Combined with the VA benefit they could make ends meet. It all sounded great and Melissa and her parents went ahead with the plan. Mom and Dad moved into the facility and applied for and received VA benefits. Everything worked according to plan – that is until Melissa called us. That’s because of what we call the Medicaid time bomb. We’ll talk more about that next week.