The NCPC publishes periodic articles under the title "Planning for Eldercare". Each article is written to help families recognize the need for long term care planning and to help implement that planning. All elderly people, regardless of current health, should have a long term care plan. Learn More...
From its inception, the goal of the National Care Planning Council has been to educate the public on the importance of planning for long term care. With that goal in mind, we have created the largest and most comprehensive source of long term care planning material available anywhere. This material -- "Guide to Long Term Care Planning" -- is free to the public for downloading and printing on all of our web sites. Learn More...
Veterans Pension and Survivor's Pension are disability income programs available to veterans or to the single surviving spouses or dependent child(ren) of deceased veterans. Pension is often referred to as "The Aid and Attendance Benefit." This is a misnomer, but the title lives on. These programs provide tax-free income ranging from $824 a month to about $3,253 a month. For a younger, totally disabled veteran, the benefit can also include payments for dependent children.
Eligibility requirements for Veterans Pension - a living veteran - include active-duty service for at least consecutive 90 days (with at least one of those days during a period of war) AND an honorable discharge or a discharged classified as other than dishonorable. Service in combat is not required. Had the veteran discharged before 90 days of service because of a disability incurred or aggravated in service or had a service-connected disability at the time of discharge that would have justified a discharge for disability, he or she is still eligible. For veterans of the Gulf War, the service requirement is 24 months or completion of the requirement for active-duty service, whichever comes first. Eligibility for Survivors Pension requires the same wartime service for the deceased veteran.
Here is a condensed Period of War chart for Pension benefit purposes from 38 CFR 3.2:
|Period of War||Beginning and Ending Dates|
|World War 2||December 7, 1941 through December 31, 1946|
|Korean Conflict||June 27, 1950 through January 31, 1955|
|Vietnam Era||November 1, 1955 to May 7, 1975 for Veterans who served in the Republic of Vietnam during that period. August 5, 1964 through May 7, 1975; for veterans who served "in country" before August 5, 1964, February 28, 1961 through May 7, 1975|
|Gulf War||August 2, 1990 through a date to be set by law or Presidential Proclamation|
Payments for assistance with ADLs and IADLs by an in-home attendant are medical expenses so long as the attendant provides the disabled individual with health care or custodial care. Payments must be commensurate with the number of hours that the provider offers to the disabled person. This means payments must be based on hourly rates and not on arbitrary payment schedules. There are few guidelines for what those hourly rates should be. We must assume that the rates should be reasonable compared with similar rates in the community for similar services.
It is important to note that deductible medical expenses are applicable to all members of the household. If there is a healthy veteran claimant who has an unhealthy spouse who is generating medical expenses, these are deductible from the combined household gross income. If there is a healthy veteran claimant who has another dependent family member living in the household, who is generating medical expenses, these are also deductible from the combined household gross income. Likewise, a healthy surviving spouse claimant with an unhealthy dependent family member such as a dependent child or adult child who is dependent on the family income, can still deduct medical expenses for that dependent family member. REMEMBER, income is the combined household GROSS income to include a spouse and a dependent child under certain circumstances.
Payments to a health care provider for services performed within the scope of the provider's professional capacity are medical expenses. Health care in the home might include such services as skilled nursing care, physical therapy, taking of vital signs, providing injections, changing IVs, inserting catheters, treating pressure wounds or changing dressings. For health care to be deductible medical services the attendant must be a licensed health care provider. (See definition in previous section) This licensed health care provider may also provide custodial care such as assistance with ADLs or supervision because of dementia or other mental limitations.
All reasonable fees paid to the in-home attendant for personal care of the disabled person and maintenance of the disabled person's immediate environment may be allowed. This includes such services as cooking for the disabled person, housecleaning for the disabled person, and other IADLs. It is not necessary to distinguish between medical and non-medical services. However, services that are beyond the scope of personal care of the disabled person and maintenance of the disabled person's immediate environment, may not be allowed.
Home health agencies that are Medicare or Medicaid certified can offer health care services which are termed by these agencies "skilled care" and these agencies will also offer custodial care by home health aides who may or may not be licensed. Home health aides or nursing assistants working for home health agencies are supervised by licensed home health agency care providers and as such their services are considered deductible as well.
Likewise, non-medical home care companies that do not provide skilled care can offer paid custodial care services which is also deductible. In most states, these providers must be licensed and as such they would be considered health care providers and their services would be deductible. In those states where licensing is not required, VA will still allow for services paid to these providers to be deductible. This is likely because VA considers them to be health care providers as they are offering professional custodial services.
Examples of custodial care include assisting a person with ADLs and may include assisting a person with IADLs ALONE when the person has a serious mental, developmental, or cognitive disorder. This special provision allowing for IADLs is a new and more liberal rule then was previously in place.
Custodial care can also be provided by non-licensed in-home attendants such as family members, friends or non-licensed individuals hired to provide custodial care. Payments made for services to these non-licensed providers are also deductible if the disabled claimant is rated for aid and attendance or is rated for housebound.
Custodial care provided in the home means regular assistance with two or more ADLs; or supervision because an individual with a physical, mental, developmental, or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment. Custodial care may include assisting a person with IADLs ALONE when the person has a serious mental, developmental, or cognitive disorder. This special provision allowing for IADLs is a new and more liberal rule.
If the disabled individual needing custodial care is not eligible for a rating such as the unhealthy, non-veteran spouse of a veteran claimant, there is an alternative way to create a deduction for this non-eligible person as well. The alternative way to create a deduction is where a physician, physician assistant, certified nurse practitioner, or clinical nurse specialist states in writing that, due to a physical, mental, developmental, or cognitive disorder, the individual requires the health care or custodial care that the non-licensed in-home attendant provides.
It should be noted, if the non-ratable individual is generating medical deductions, the additional allowance for aid and attendance or housebound is not available. In this case, the basic MAPR either for a veteran with a dependent or a surviving spouse with a dependent is applicable. The resulting benefit is much smaller than a benefit with a rating for aid and attendance or housebound.
All reasonable fees paid to the attendant for personal care of the disabled person and maintenance of the disabled person's immediate environment may be allowed. This includes such services as cooking for the disabled person, housecleaning for the disabled person, and other IADLs. It is not necessary to distinguish between medical and non-medical services. However, services that are beyond the scope of personal care of the disabled person and maintenance of the disabled person's immediate environment, may not be allowed.
For example, suppose a veteran claimant receives an aid and attendance rating by VA. The veteran pays an attendant to administer medication and provide for his or her personal needs such as bathing and dressing. The attendant also cooks the veteran's meals and cleans house. The entire amount paid for all of these services is a deductible medical expense. The attendant does not have to be a licensed health care provider.
When the fees for an in-home attendant are an allowable expense, receipts, or other proof of payment documentation of this expense are required. Documentation could include:
The evidence submitted must include all of the following
No annual verification of in-home attendant annual fees paid is required. The claimant is only required to submit documentation of expenses when in-home attendant fees are first claimed, or when the person or company providing the service changes. Maintaining records of payments for care is extremely important in case of an audit or change in care provider.
About 70% of all people in this country, who are receiving long term care services - such as assistance with ADLs or IADLs or skilled care - are in their homes. Care is typically provided by family members, but there is a growing trend for private companies to provide this care as well. This is because family members are often employed full-time or live long distances away and cannot provide care directly. Many of those receiving homecare wish to stay in their homes rather than moving to a care facility.
The Pension benefit is particularly useful to pay private companies or family members to provide home care. But it is not always a suitable solution where household incomes are larger than $2,500 a month or the Pension benefit does not cover the full cost of care. It also works best for married couples where the claimant is the veteran because this provides the most amount of money. We will discuss below how the Pension benefit fits to allow Pension claimants to remain in their homes.
There are two types of home care companies - home health agencies and non-medical home care or personal home care companies. Home health agencies are licensed by the state and typically certified by Medicare and Medicaid to provide services under these government programs. The person receiving care at home typically does not have to pay out-of-pocket for home health agency services. It is typically covered by Medicare or Medicaid. However, these services are limited to providing rehabilitation from an injury or disease or rehabilitation from a hospital stay or nursing rehabilitation home stay. They offer both skilled care and home health aides to help with ADLs and IADLs. For individuals who have chronic conditions and require long-term custodial care, home health agencies are not the solution. In addition, government programs will only pay for this care for a limited period of time based on how well the care recipient is recovering.
Home health agencies also may provide hospice services which are paid for by Medicare. This is skilled care and custodial care for individuals who are considered terminally ill. Hospice care is usually provided in a home setting.
Non-medical or personal care home companies typically are not paid by government programs with the exception that Medicaid will sometimes provide home care services by contracting with these companies. The services of non-medical home care companies are predominantly paid out-of-pocket by the care recipient. The Pension benefit fits in with non-medical home care companies and not with home health agencies, unless home health agencies also provide non-medical home care services as a side business.
A non-medical home care company is not allowed to provide skilled care and can only provide custodial care. These companies may or may not be licensed by their state health department. Only about two thirds of the states require licensing for these companies. They typically charge by the hour with rates ranging from $15 an hour up to $40 an hour. The more hours that the care recipient utilizes per month, typically the lower the hourly rate. The services of these companies fit in with the Pension benefit.
Let's look at 3 examples to see how it works.
The combined gross household income is $4,000 a month. For purposes of this example let's suppose that the Pension benefit for this couple with the aid and attendance allowance is $2,431 a month and the 5% deductible is $80 a month. From previous sections, we know that this couple needs to pay at least $4,080 in care and health insurance expenses each month to generate the full benefit of $2,431 a month. This creates a dilemma. If this couple relies on much of their income to pay for maintenance costs such as food, lodging, utilities, loans and other costs, they are going to experience a deficit until benefits are granted - the reimbursement of $2,431 a month from VA will hopefully cover those costs.
This arrangement only works if they absolutely need the home care in the first place and have no choice but to pay for it out-of-pocket. They either must live on less money or they have to use savings to help subsidize their maintenance costs. They may also consider taking out a reverse mortgage or other loan to generate some cash to cover the home care costs especially if they were going to pay for those costs anyway were the VA benefit not to exist. If they would have been stuck with the costs without the VA benefit, the benefit is a blessing as it produces an extra $2,431 a month (tax free).
For this example, let's assume the Pension benefit with the aid and attendance allowance for a single veteran is $2,050 a month. This example works because the veteran can pay out a little over $2,000 a month for home care services and receive back from VA $2,050 a month as reimbursement for care. Hopefully, the $2,000 a month for services provides for enough care to allow the veteran to remain in his home.
For this example, let's assume the Survivor Pension benefit with the aid and attendance allowance for the surviving spouse is $1,318 a month. She would have to pay out a little over $1,641 a month for home care services and would receive back from VA a reimbursement of $1,318 a month. She will be short $323 a month to pay her bills even after the benefits start paying. Single surviving spouses, using Survivor's Pension benefit to pay for private home care services from a company that provides this care does not work perfectly. She may not receive enough Survivor's Pension money to provide for the actual care she needs on a monthly basis and the benefit may be inadequate for her to survive at home without having some extra savings.
The personal care arrangement using a member of the family, or a friend or a private live-in caregiver solves a lot of the challenges discussed in the section above. This arrangement works due to a provision in the Pension income rules that allows the paid caregiver to turn around and use the money she is receiving for her services to pay the household maintenance costs. If you remember from a section above, if someone furnishes a claimant free room and board, or pays the claimant's bills, the value of room and board or the amount paid for bills is not countable as income to the claimant. Or under another provision of that rule, regular cash contributions to the claimant are considered maintenance, and are not counted as income, if evidence shows that the donor has assumed all or part of the burden of regular maintenance of the claimant, and cash contributions are used by the claimant to pay for necessities, such as food or housing. In other words, a person can pay the claimant for maintenance costs and does not necessarily have to pay the claimant's bills as long as the claimant uses the money for that purpose.
With a personal care arrangement, a member of the family such as a child or grandchild or other relative or even a caring friend draws up an agreement with the claimant to provide custodial care based on a reasonable hourly rate. The caregiver providing the custodial services may live in the claimant's home or the claimant receiving the care may live in the household of the caregiver. Or sometimes the caregiver lives nearby and can drop in every day to provide the services.
Let's use one of the previous examples to show how a personal care arrangement works. Suppose we have a couple where the veteran needs care. The combined gross household income is $3,000 a month. For purposes of this example, let's suppose the Pension benefit for this couple with the aid and attendance allowance is $2,431 a month and the 5% deductible is $80 a month. We know this couple needs to pay at least $3,080 a month to generate the full Pension benefit of $2,431 a month. The couple sets up a personal care arrangement with their daughter. They agree to pay her $2,880 a month for custodial services based on a reasonable hourly rate. They also report $200/month in health insurance premiums on the application. This arrangement creates a benefit of $2,431 a month. The total household income with the Pension benefit is now $5,295 a month.
The daughter may use a portion of the $2,8805 she receives each month to pay her parent's maintenance costs (like groceries) and herself as the ongoing care giver. As we will discuss below, she also needs to retain enough of this money to pay for the income taxes she will incur by being paid for her services.
VA takes opportunities to audit Pension beneficiaries, especially if there is an issue of incompetency or a change in a care provider. The audit will require additional documentation to verify the actual costs and services provided beyond what is supplied in the initial claim for benefits. In the event of an audit, to protect the individuals providing care, there should be an appropriate care contract in place. In addition, members of the family or other informal caregivers being paid for care fall under the IRS domestic employee rules - the so-called "nanny tax." Taxes need to be withheld and paid and a W-2 needs to be issued. Even though a burden, this has a benefit as it will also create a paper trail to verify that money is exchanging hands on a month-to-month basis and legitimate services are being provided.
Establishing a formal paper trail has another advantage. Often, after these personal care arrangements are set up, the beneficiary fails to pay the caregiver after a few months. This failure to pay will eventually lead to a retroactive denial of benefits and a demand from VA to repay all of the benefits for those months where the beneficiary did not pay the caregiver any money. By setting up a formal arrangement with the taxes and payments tracked and accounted for, care payment will be paid each month. A formal arrangement creates the continuity of month-to-month payments that will ensure the deduction for medical care can be claimed consistently. Without a proper paper trail, it may be difficult to prove that services were ongoing and paid for in full.
If the contract also meets Medicaid rules in those states that allow personal care contracts in anticipation of Medicaid, this is an additional benefit to setting up these personal care arrangements. In fact, if the arrangement set up for receiving the Pension benefit does not meet the contract requirements under the Medicaid rules in a particular state and an application for Medicaid is made at some future date, Medicaid may declare the money paid to the children a transfer for less than value. This may create a penalty for Medicaid because Medicaid will argue the parents transferred the money to the children in a deliberate attempt to get rid of their assets to qualify for Medicaid.
This transfer for less than value problem would only present itself if excess income were being held over to future months. Money received and spent in the same month is not an asset for Medicaid purposes and the transfer for less than value rule would not apply. In the event money is being held over to the next month, it is necessary for the proper contract if there is an application for Medicaid.
If VA assigns a fiduciary for the benefit award - which is sometimes the case - the fiduciary service representative will require the caregiver to set up accounts according to the way Fiduciary Services requires it. This may be in contradiction to what we are relating here. The requirements from Fiduciary Services may also create a problem under Medicaid.
As far as a personal care attendant being a contractor and receiving a 1099 as opposed to being a domestic employee and requiring a W-2, caregivers are considered domestic employees. On the other hand, if the caregiver is indeed in the personal-care business and has other clients that the caregiver is servicing with care services, then he or she can receive a 1099 for contract services. Otherwise, if the caregiver only has the parent or relative as a client, he or she is considered a domestic employee under IRS rules and social security and unemployment taxes need to be withheld and a W-2 issued.