COVID-19, the job market, and now inflation consume us. Older Americans and those with disabilities are more drastically affected by all three, especially due to the consistent need for quality caregiving services in an unstable economy.
In January 2019, a Harvard Business School Report compelled the country to acknowledge the “caregiving shortage crisis,” which has only worsened post the pandemic. Millions of seniors and people with disabilities require long-term services and support, and most want these services at home. Home Healthcare News states that over 800,000 older Americans are on waiting lists for subsidized care because of the lack of available caregivers.
Furthermore, support professionals working with adults with intellectual and developmental disabilities have an average national turnover rate of 47%. Wisconsin has over 20,665 vacant caregiver positions, according to Wisconsin Health Care Association/Wisconsin Center for Assisted Living (WHCA/WiCAL).
On Feb. 18, 2019, Governor Tony Evers executed Executive Order #11 “Relating to the Creation of the Governor’s Task Force on Caregiving” to address the caregiving shortage in Wisconsin. The task force is tasked with developing solutions to strengthen the direct caregiving workforce and increase access to quality caregiving for Wisconsinites.
But state efforts to resolve this growing crisis will not be swift, and the federal government just cut its long-term care funding from the Infrastructure Investment and Jobs Act.
Legal practitioners can address the caregiving crisis immediately by drafting caregiver agreements as an integral part of their Medicaid and special needs planning practice to ensure clients receive quality care.
According to the National Alliance for Caregiving (NAC), more than 34 million Americans serve as informal or unpaid caregivers to an individual over 50 years of age. Often, adult children provide care for aging parents. Parent caregiving can range from minimal assistance with daily activities to more extensive care related to Alzheimer’s disease or dementia treatment. Caregivers may quit their jobs to provide full-time care for a parent, which often leaves themselves, their spouses, and their children in a state of financial hardship. Caregiver agreements ease the financial hardship by compensating the caregivers for the care provided.
What is a Caregiver Agreement?
Caregiver agreements, also called personal care agreements, elder care contracts, and/or personal services contracts, are legally enforceable agreements between a caregiver and care recipient.
A caregiver agreement essentially establishes an employer-employee relationship between the parties. While family members might hesitate to enter such a formal agreement, well drafted agreements can protect both parties and avoid family conflict.
As with any contract, practitioners must apply proper drafting techniques, use simple language that both parties understand, establish clear duties and responsibilities, and address possible conflicts, contingencies, and/or anticipated breaches. Caregiver agreements should include, at minimum, the services to be provided (i.e., personal care assistance, transportation to physician appointments, and housekeeping), frequency of services, amount and frequency of payment, length of agreement, and termination and modification provisions.
Caregiver Agreements as An Essential Medicaid Planning Tool
Caregiver agreements are particularly important if an individual may require Medicaid in the future. Payment for services without an established caregiver agreement will likely jeopardize Medicaid eligibility.
Medicaid has an asset limit of $2,000 for eligibility, and therefore individuals must spend their assets, referred to as a “spenddown,” to become Medicaid-eligible. Medicaid limits how an individual can “spenddown” these assets. One of these limitations is the timing of gifting to others, including family members. This limit on gifting is known as the Medicaid 5-year look back rule. During the 5-year “look back” period, all past asset transfers immediately preceding one’s Medicaid application date are scrutinized to ensure they were not “gifted.”
If an applicant has violated this rule, a penalty period of Medicaid ineligibility will result. If a Medicaid applicant paid a caregiver within 5 years without this formal agreement in place, Medicaid will consider these payments as gifts in violation of the look back rule.
A caregiver agreement provides evidence that money is being paid by the Medicaid applicant for receipt of care services. In other words, proof that the transfer of money is payment, not a gift.
A verbal agreement will not suffice. In addition to the contractual agreement, practitioners should advise caregivers to keep a record of the services provided, the hours worked, and the payments received. This provides further proof of the relationship between the Medicaid applicant (care recipient) and the caregiver.
Furthermore, the caregiver agreement must establish a reasonable rate of pay. The pay rate should not be higher than the market rate for that type of service in the area in which the care recipient resides. Overly high payments will be viewed as gifting.
Payments can be made periodically, such as weekly or biweekly or, in some cases, as one large lump sum payment. Lump sum payments require fair market value and life expectancy analysis and could be viewed as gifts if not calculated correctly.
A caregiver cannot be retroactively paid for services provided prior to the establishment of the contract. It is best to draft payment provisions which establish “pay-as-you go” payments rather than “pre-payments” for future services. Also, a caregiver agreement between spouses will not qualify as a “spenddown” of excess assets to meet Medicaid’s limit, because all assets of a married couple are considered jointly owned.
Caregiver Agreements in Special Needs Planning
Caregiver agreements can also be tools in special needs planning.
Caregiver agreements can be used in conjunction with Supported Decision-Making Agreements and Special Needs Trust to provide support for individuals who require assistance making caregiving decisions.
Caregiver agreements can also be a great tool for individuals on Social Security Disability Income (SSDI) who continue working. In 2022, the Social Security Administration raised the earned income limit for individuals on SSDI to $1,350.
However, Social Security policy allows for the deduction of Impairment-Related Work Expenses (IRWEs) from an SSDI recipient’s countable income when determining eligibility for disability benefits. IRWEs are costs for items or services that an individual incurs due to working with a disability.
A caregiver agreement offers evidence that the caregiver is providing services that the individual on Social Security requires to work. A well drafted caregiver agreement can both allow a person with a disability to maintain a job and have a good quality of life.
Conclusion: An Effective Planning Tool
While broader reforms are necessary to effectively address the caregiving crisis, caregiver agreements can be an effective Medicaid or Special Needs planning tool to ensure that individuals receive proper care, and their loved ones receive proper compensation. A simple agreement can be wielded as a powerful tool to combat the caregiving crisis slowly but steadily.
This article was originally published on the State Bar of Wisconsin’s Elder Law and Special Needs Blog. Visit the State Bar sections or the Elder Law and Special Needs Section webpages to learn more about the benefits of section membership.