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When a veteran secures an Aid & Attendance ("A&A") benefit as a result of having long-term care costs, the monthly A&A benefit is dictated by a simple formula - the extent that the claimant's monthly income exceeds the claimant's unreimbursed monthly medical expenses ("URME").  If the individual's monthly income is less than his or her URMEs, the individual's monthly A&A benefit would be $1,644.  In the alternative, if the claimant's monthly income exceeds his or her URMEs, for every dollar that the individual is over, he or she will lose one dollar from the potential A&A benefit.  For example, if the income surplus is $100, the claimant's monthly A&A benefit would be reduced to $1,544 (maximum available monthly A&A benefit of $1,644 less excess monthly income).

So what happens when the claimant's monthly cash flow (including social security, pension and A&A benefit) is less than his or her monthly expenses (including the URME and other personal expenses)?  The difference will have to be obtained from cash assets.  For most veterans, at the time of the A&A application, they are told to retain $30,000 of cash assets.  However, what happens when the $30,000 is used up?  Most veterans will find their only options are to (1) borrow from family members or (2) reduce their expenses.  Is there a better way to protect against such an event?  Without a doubt, the answer is "yes."

To protect a veteran from future expenses, which typically result from higher long-term care costs - the assisted living raises its per diem; the veteran should consider purchasing one or more Balloon-Style Immediate Annuities ("BSIA") prior to applying for A&A benefits.  For those of you who are not familiar with a BSIA, it is an immediate annuity contract that pays a small amount each month and a large payment in the last month.  For example, if a BSIA is structured with a single premium of $10,000 and 60 monthly payments, it would pay $17.80 in months 1-59 and $9,417.80 in month 60.  The BSIA also offers a conversion privilege to the owner, which allows the owner to equalize the remaining payments at any time.

To illustrate, assume that John, a single veteran, is paying $3,500 per month in URMEs and $375 for other expenses.  His total monthly expenses equal $3,875.  At the same time, assume that he receives $1,400 per month from social security and $775 from a pension.  With John's monthly income being $1,325 less than his URMEs, he is entitled to a $1,644 monthly A&A benefit.  Taking the A&A benefit into consideration, his total monthly cash flow is $56 less than his total monthly expenses.  Knowing that his assisted living costs are expected to rise each year, he opts to purchase three $10,00 BSIAs prior to his A&A application, each with a 60-month payout.  Taking the BSIA monthly payments into consideration, John's monthly cash flow is $3,872.40 - $2.60 less than his needs.

At the start of year two, when his URMEs increase by $250 each month, rather than reducing his $30,000 savings account, he opts to levelize one of his BSIAs, adjusting the monthly payment to $213.63 for months 13-60.  The adjustment reduced his monthly cash flow shortfall from $252.60 to $55.77.  At the start of year three, if necessary, he could do the same thing with his second BSIA.