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Nursing Home Financial Assistance in P.E.I.

Introduction and Background

Many people have questions about nursing home costs in PEI.  Are you concerned about “losing everything” if you need to go to a long-term care facility, which I will call a “nursing home” throughout this article.  Please understand that rules for long-term care and nursing homes differ from those for community care (assisted living) facilities and seniors’ apartments.  These latter facilities are for individuals who can look after themselves but perhaps would like or need some assistance with things such as meals and medication.  I discuss financial assistance for community care very briefly at the end of this article, which rules are very different from long-term care.  Nursing homes are for people who need around the clock nursing care, and is the topic of this article.

Costs to residents of nursing homes were reduced substantially by changes to the Long-Term Care Subsidization Act and related regulations that were made in 2007, with further refinements in early 2020.  Your home and your assets will no longer be taken by the PEI government to pay for nursing home costs incurred in 2007 and later under current law.  For anyone still in a nursing home from prior to 2007, any bills outstanding from those earlier years must still be paid.  Recent changes in 2020 were made related to subsidy applications made for married or common law couples.  Where one of the couple is moving to a nursing home, they may apply for a subsidy based on either their own income or the average of their combined income, as discussed below.

Admission to a long-term care facility involves two steps. The first is a needs assessment from a medical perspective. The second, and the topic of this article, is a financial assessment to determine if financial subsidies are available to you.  If you are eligible for a subsidy, the government will pay for all or part of your nursing home costs based on the amount of your income reported on your tax return.

Please note that the financial amounts and any other facts discussed in this article can change at any time and I cannot verify that they will be correct at the time you read this.  AT THE TIME OF WRITING, THE RULES ARE NEW AND ADMINISTRATIVE POLICIES ARE NOT PUBLISHED – INFORMATION HERE MAY NEED TO BE CHANGED, AND BEFORE RELYING ON IT, YOU SHOULD VERIFY IT WITH THE LONG-TERM CARE SUBSIDIZATION OFFICE (contact info below).  However, this is a complex area and I wanted to provide you with the information as I understand it to ensure you know the questions to ask and the types of information to consider.

If admitted to a nursing home, what will I need to pay for?

The only expenses that must be paid by a resident will be the costs of accommodation, including room and board. The government will pay the costs of nursing and medical care at the home. In a news release dated January 25, 2007, the government stated,

“The Department of Health will cover basic health care costs which include nursing and personal care, incontinence and infection control measures and basic supplies for hygiene and grooming. Residents will pay the accommodation costs which will cover room and board, including meal service, housekeeping, laundry and social/recreational activities. Residents will continue to be responsible for personal expenses which include, but are not limited to, eyeglasses, hearing aids, dental service, telephone service, hairdressing, dry cleaning, ambulance service and general transportation.

More information about what is covered and what is not covered is included in Health PEI’s Facts about Nursing Home Costs on their web site.

How much does a nursing home cost?  

The cost of nursing home accommodations was set as of April 1, 2019 at $92.19 per day ($33,649.35 annually), and has been continued for 2020. This is the cost of living in a government owned nursing home (long-term care facility).

Will I be eligible for financial assistance? 

You may be eligible for a subsidy if your income (or the average income for you and your spouse) falls below a specific threshold.  For residents eligible for a subsidized rate, if a person had absolutely no income, the full cost of a government nursing home would be covered, meaning that the maximum subsidy is also $92.19 per day.  Further details of how the subsidy is calculated is provided below.

This subsidy is applicable for both public manors and private long-term care residences.  For a private nursing home, you would pay costs determined by that home, with a maximum daily subsidy (if you are eligible) up to that $92.19 per day.  (Remember, the rates are periodically updated.)  Accommodations at a privately owned nursing home may cost more than the maximum subsidy.  However, if you are eligible for a subsidy, a privately licensed nursing home may reduce their daily rate, so you should investigate this option.

If a person’s income is above the $92.19 per day ($33,649 per year), they will not qualify for a subsidy.

Must I sell my assets to pay for my nursing home accommodations?

Effective for costs incurred starting January 1, 2007, your assets will no longer be considered when you apply for government assistance. It is only your income as reported on your tax return that will be used to pay nursing home expenses. Therefore, any bank accounts, investments, real estate and other property owned by a family need not be sold to help pay for such care. However, any income generated from such property is counted. Common forms of income include Canada Pension Plan, Old Age Security, pensions, rent, interest, dividends, capital gains and Registered Retirement Savings Plan (RRSP/RRIF) withdrawals.

Of course, if there is still a spouse living at home, that spouse may need to sell assets to pay for his or her ongoing  expenses if their costs are higher than the income available to him or her.

Is my family home safe or will I need to sell it?

As noted above, only your “income”, not assets such as your home, must be used to pay for your care. The government will not require the sale of your home to meet nursing home costs. However, as explained above, if your spouse is placed in a nursing home and you are remaining in the family home and cannot afford to meet your expenses, you need to look at various ways to deal with these costs. Selling the home or other assets may be options; however, this will be your choice based on personal financial planning considerations. It is not a government decision.

How is eligibility for government subsidies determined?

Overview

The application for financial assistance is separate from the application for admission to a long-term care facility. If you do not want financial assistance (or know you will not qualify), no financial information needs to be provided to the government.

Eligibility for a subsidy is based on income, as discussed above.  The most recent personal tax return will be used to determine the current year income, based on the amount reported at line 23600. An application will not be processed if the prior year tax return has not been filed and is overdue. On an annual basis, your subsidy will be reviewed based upon receipt of the most recent tax return.  

In contrast to years before 2020, net income from the tax return will no longer be increased for non-taxable income and for other adjustments to reach a more accurate evaluation of the resident’s actual cash flow.  For example, in the past, income may have been increased for tax-free payments from long-term care insurance and Registered Disability Savings Plans, and/or for a  reasonable amount for rent income if the family home is occupied by someone who is not paying rent and is not a dependant of the applicant. Conversely, taxable dividends reported on your tax return are higher than the actual payments received, and these may have been adjusted downwards.  Apparently, such adjustments will no longer be made, and tax-exempt income, such as certain military pensions, will be excluded from your income. You may wish to verify the calculation method before you apply for the first time in case the rules have changed.

Regulations for married or common-law couples

Where the person needing long-term care is married (or common-law), you have a choice on your initial application of how eligible income will be calculated.

a) You may apply jointly as a “couple”, in which case the income of both parties will be combined and then divided equally; or,

b) The application may be filed as an individual, using only the tax return of the person requiring long-term care.

This decision can have major long-term implications, so consider it carefully.  Once the application as a single or couple is made, that decision cannot be changed in a later year.

Assuming the cost of accommodations and maximum subsidy is $33,649, here are some examples of the impact of this decision:

Example 1: Individual application is better

Assume that one spouse entering the nursing home has net income of $15,000 on tax return line 23600, whereas the other spouse has an income of $60,000. Using the joint application method, these amounts would be combined and divided by two, giving $37,500. This figure exceeds the threshold for a subsidy, so the full cost of accommodations would need to be paid by the individual or their family.  On the other hand, if the individual application was used, income is only $15,000, and a subsidy of about $18,649 would be received – quite a difference. Note that if there are other dependants with income in the household, a different formula may be used (e.g. children). 

Example 2: Joint application is better 

Consider a couple with incomes of $15,000 and $30,000.  If the lower income person is moving to a nursing home, the individual calculation would yield the higher subsidy, similar to Example 1, with a subsidy of $18,649.   But if it is the higher income person moving to long-term care, the individual application method would give a subsidy of $3,349, whereas the joint method would provide $11,149.  In this particular circumstance, it would clearly be an advantage to apply as a couple.

See another important issue below as “Caution # 3 where one person remains at home and may have difficulty paying the bills.

Three significant cautions

Caution #1: You cannot change your mind later on the type of application

You cannot change your mind going forward so be sure to consider not only this year’s income, but your expectations going forward.  For example, one or both spouses may not yet be receiving Canada Pension Plan or Old Age Security, or may be entitled to receive income from a work pension or a RRSP in the future.  In particular, if no money is being taken from an RRSP, remember that withdrawals must start after age 71.  This income could have a significant impact on the calculation under the individual or the joint method, and should be considered at time of the first application.  Unfortunately, there will be no clear answers in many cases because life expectancy is usually the unknown factor.  If a person’s income will increase at some date in the future, but he or she does not live that long, such income will be irrelevant.  Still, you need to plan ahead.

Caution #2: Your tax planner or tax preparer needs to be aware of these rules

As I said above, once your choice is made, you are committed to that decision.  Your future tax returns will determine your future subsidies.  Based on the 2020 regulations update, there will be no retroactive adjustments to the prior year subsidy for changes in income. For example, the 2019 tax return will determine the subsidy for 2020/2021 until the 2020 tax return is processed. Upon review of the 2020 tax return, the new subsidy will be established for the following year.

There are certain tax planning options that may be available to you which may now be in conflict with getting your maximum subsidy.  When your financial planner or tax return preparer is making recommendations to reduce your taxes, he or she must also be aware of the long-term care subsidy implications.  Decreasing your income by $10,000 may save you $3,000 of income taxes, but could reduce your spouse’s subsidy by $10,000.   For example, your Canada Pension Plan may be shared with your spouse. Your taxpayer or financial planner may recommend that you share your pension to save taxes. The sharing will decrease one person’s income and increase their spouse’s income, resulting in a net savings of tax. If it is the lower income spouse that is moving to a nursing home, this could result in a much bigger reduction in subsidy than it provides in tax savings. Conversely, CPP sharing when it is the higher income spouse moving to a nursing home may increase a subsidy (assuming he or she is below the income threshold). See the Government of Canada web site or telephone Service Canada to learn more about CPP sharing, including how to apply or how to cancel.

A larger impact can occur where “pension splitting” is used (which is unrelated to CPP). This is an annual option where up to 50% of certain pension income (typically lifetime pensions from work, and RRIF withdrawals at age 65 or later) can be transferred from one spouse to another on their tax return. This is often automatically done by tax preparers to save taxes, so you need to ensure your tax advisers are aware of this long-term care impact. This pension splitting will have a major impact (either positive or negative) on long-term care subsidies where an individual application was filed.

For example, if one spouse has net income of, say, $75,000, and the other spouse has no income, a transfer of pension income to the second spouse of $35,000 could save approximately $6,000 of income taxes. However, the lower income spouse now has $35,000 of income and would no longer be eligible for a subsidy.  This would result in a loss of approximately $33,000 in 2020.  Your tax preparer may think he or she was doing you a favour by saving you $6,000 in taxes, but has actually cost you $27,000.  On the other hand, if the individual moving to long-term care has his or her income decreased by pension splitting, the subsidy might be increased, making it a worthwhile financial planning idea. The subsidy will be affected each year by such discretionary decisions when the tax return is prepared.  Again, you need to plan ahead.

Caution #3: Remember the impact on the spouse remaining at home

There is another aspect to be considered before automatically using an individual application because that spouse has a lower income. Where a home is maintained by a couple, the spouse remaining at home is entitled to retain a minimum income of $22,133 (2020 level). This minimum guarantee will only be available when subsidy applications are made as a couple. For example, assume one spouse (Person A) has an income of $10,000 and the other spouse (Person B) has an income of $15,000. If Person A enters a long-term care facility and applies individually, the income of $10,000 would result in a subsidy of $23,649 per year (based on 2020 rates as discussed above).  This is calculated as the full cost of $33,649 minus income of $10,000

If they applied as a couple, 50% of the combined income would be $12,500.  At first, this looks like the subsidy would be lower, because $33,649 minus $12,500 would be $21,149 instead of $23,649.  However, because the person staying at home is guaranteed at least $22,133 of retained income for a couple’s application, a second calculation would be done to increase the subsidy to $30,782. [Here are the detailed calculations  – (10,000+$15,000)/2=$12,500 average income for the couple; $22,133 minimum stay-at-home guarantee minus average income of $12,500 = $9,633 extra allowed to Person B.  Step 1 of $21,149 plus Step 2 of $9,633= $30,782.]  Again, early planning is required.

Conclusion on Subsidies

The calculation of the subsidy is now a lot easier mathematically, but much more difficult for couples because of the planning required.  Having your tax return done using options that are favourable to you for subsidy calculations will be more important than tax savings in many cases for couples.  Ensure your tax preparer is aware of these rules.  For more details about the subsidy, contact Health PEI at 1-888-365-5313.  

What if my spouse cannot afford to live in the family home after my admission to a nursing home?

With the new rules effective in 2020, if a joint application is filed and one person remains in the family home, that person will be entitled to keep $22,133 of the family income (using the 2020 figures).  For example, if family income is $30,000, the normal 50% calculation would mean that the long term care resident would pay $15,000.  However, instead of using this 50% calculation, $22,133 can be retained by the stay-at-home spouse, and only $7,867 will be taken for the nursing care accommodations.  This limit is expected to be increased annually based on Statistics Canada information related to low income threshold changes.

If you are married, and live in a large family home after your spouse has moved to a nursing home, $22,133 may be insufficient for you to maintain the home.  In such a case, you may have to sell other personal assets to maintain your own standard of living.  When you may have no other financial resources from which to draw, it is likely that you will need to move to less expensive accommodations, and/or look to social assistance for help (discussed further below).  With the new 2020 regulations, variations will no longer be made to subsidies to help out the person living in the family home.

After admission to a nursing home, how is ongoing eligibility for financial assistance assessed?

The person’s ability to pay will be reassessed annually (based on the individual or the couple’s tax returns, depending on the first application made).  Your subsidy will be reviewed upon receipt of the most recent tax return in the spring of each year.  The new subsidy rate will start at the time that the processing is completed, with no retroactive adjustments.  However, if there is a specific “request for review” made by an individual, then a retroactive adjustment to the date of the request will be considered.

In prior years, last year’s tax return was used to estimate the current year’s income.  Then, when filing this year’s tax return, if income differed from the original estimate, the subsidy was retroactively recalculated.  There will no longer be retroactive adjustments to the prior year for changes in income. For example, the 2019 tax return will determine the subsidy for 2020/2021 until the 2020 tax return is reviewed. Upon review of the 2020 tax return, the new subsidy will be established for the following year with no retroactive change to 2020.

As noted earlier, this understanding is based on my discussions with a government official, and policy is always subject to change. Therefore, the system may not function exactly as outlined here and may differ in individual circumstances.

Can I make changes prior to admission to a nursing home to increase my subsidy?

In my opinion, trying to “beat the system”, such as giving money to your family to reduce your income, is a very high risk manoeuver, especially if you will rely on family to keep the money for your own needs.  For example, if you give your investment portfolio to your children, you will no longer receive the related interest, dividends and capital gains. If you do this, your net income on your tax return will be lower. 

What if you give your investment portfolio to a child, and the child uses it because of addiction issues, goes through bankruptcy, holds it in joint name with a spouse and then divorces, or just spends it on other personal matters?  For the sake of increasing your subsidy by the amount of income from the asset, you could lose the whole asset.  In addition, when would you do this? Few of us know when we will require nursing home care, and as that time comes closer, we will more likely be in denial that the time is soon.  The earlier you transfer your money to family members, the higher the risk that it may be spent.  You would be left with insufficient money to live your normal retirement (even if you never need to move to a nursing home.

For example, Mr. and Mrs. Smyth transfer their $400,000 of retirement investments to their son, Tom, who agrees to give them whatever they need from that money whenever they need it.  Of course, Tom needs to pay tax on the $20,000 of income earned each year, but he is okay with that.  Unfortunately, Tom is at fault in a car accident, and is found liable for $2 million.  He only has $1 million of insurance, and is forced into bankruptcy.  Mr. and Mrs. Smyth have now lost their life savings – not only the annual income of $20,000, but also their principal of $400,000.  If they had kept the investments, and Mr. or Mrs. Smyth had entered a nursing home, their principal would have been safe, and perhaps most of the $20,000 (depending on the amount of other income they have from Old Age Security, Canada Pension, etc.).  Was this plan worth it?

Be sure to review any aggressive plans with a professional financial planner and/or your legal counsel.

Remember that under the current rules, your investment principal will be safe; it is the income that must be used. A question arises about what will happen if income-producing assets (e.g. investments) are sold or re-structured after you are in a nursing home, and consequently your income declines.   You would likely not be entitled to an increased subsidy if you made such changes to increase the subsidy.  However, this answer may be different if the proceeds are used for purposes permitted by government policy. I cannot advise as to what the allowable purposes may be, but repayment of liabilities, major household repairs, health costs and prepayment of funeral expenses might be acceptable.

What does the law say about this? Regulation 2(5) to the Long-Term Care Subsidization Act now states, “An application for financial assistance shall be considered to be consent by the applicant and the applicant’s spouse, if a joint applicant, for third parties to release to the Minister information required by the Minister for the purpose of (a) determining whether an applicant is a person in need; (b) planning, delivering or funding programs, allocating resources and evaluating or monitoring programs; and (c) detecting, monitoring and preventing fraud or any unauthorized receipt of financial assistance.” This differs from former Regulation 10(1), under which the government would look back two years before the date of application to see if the “applicant has transferred or reduced income, or divested himself or herself of any income-producing asset” in order to increase their subsidy. If, “in the opinion of the Director, the transfer or reduction of income, or divestment of an income-producing asset, was made for the purpose of making the applicant eligible for financial assistance”, subsidization could be refused.

Other issues

What about residents of nursing homes prior to 2007?

These residents will be eligible for the new rules as well. Debts accumulated and owing at December 31, 2006 will still be owed by the resident and his or her estate under normal circumstances.

What if a person has a life insurance policy requiring annual premium payments and income is not sufficient to pay for these?

The government will still use your income tax return to assess your need for subsidy. You may need to sell assets to pay such premiums.  We suggest that you ask your insurance beneficiaries (who are going to receive the proceeds of your insurance) to pay your premiums.  Permanent insurance policies, such as whole life, can be a great investment for your beneficiaries – for a few dollars in premiums they may receive a substantial tax-free death benefit when you die.

What happens to the monthly comfort allowance if it is not spent?

Residents are given a monthly allowance for personal use. The comfort allowance accumulates and any balance remaining at death will be paid to the resident’s estate, after any other debts owing to the government are paid.

Are any exceptions made?

The Government of PEI retains a right to make adjustments in circumstances that they deem are necessary.

Who do I contact for further information?

For information on eligibility for entrance to a nursing home, you may contact one of the five Home Care Offices. Contact telephone numbers are as follows: Charlottetown (Hillsborough Hospital) – 902-368-4790; Summerside (Wedgewood Manor) – 902-888-8440; O’Leary Community Hospital – 902-859-8730; Montague (Riverview Manor) 902-838-0786, and Souris Hospital – 902-687-7096. For information on subsidies, contact the Long-term Care Subsidization Office at 1-888-365-5313. The government web site for Health PEI, where long-term nursing care fact sheets and contact information can be obtained is www.healthpei.ca/longtermcare.

What if a person does not require nursing home care but cannot afford the costs of living in a senior’s residence?

In such a case, the Long-term Care Subsidization Act does not apply, and the rules discussed here are irrelevant. A person living in a senior’s apartment or a community care facility (also called an assisted living facility) is similar to anyone living in a home or apartment they cannot afford.  They will need to look for more affordable housing or seek financial help from family, friends or social assistance (also known as welfare)(See the Social Assistance Act and Regulations and the policies for eligibility and assistance).  These rules differ from long-term care subsidies, and your assets may need to be sold before you qualify.  For example, Social Assistance Policy 4-3 states, “Real and personal property owned by the applicant is generally to be regarded as a financial resource which the applicant, through outright sale or by using as collateral for short term credit, may draw upon to support his/her needs.” See Policy 4-2 for a discussion of the maximum liquid assets you are allowed to have to qualify for long-term financial assistance under the Social Assistance Act.

However, there are special assistance rates for licensed community care facilities versus other housing.  For housing assistance rates available to qualifying individuals at the time of writing this article, see the PEI Social Assistance Policy – Shelter Room and Board, including the special rate that applies for someone living in a licensed community care facility, which differs from other accommodations because of the person’s need for additional care.  Other policies and rates for social assistance can be found on the PEI Social Assistance Policies web site. Telephone the Department of Social Development of Housing for more information at 1-866-594-3777 or call 211 to be directed to other sources of help.  For example, another scenario that may help a low income person is an application through the Department of Social Development and Housing for the Seniors’ Housing Program (telephone 1-877-368-5770), where you may qualify depending on your income, assets, health, age and present housing for a housing unit where you rent is based on 25% of your income.

Did this article help you as a resident of PEI?

If so, please let me know by way of an email through my contact page.  If not, I would appreciate any advice on how to improve it.  Thanks for visiting my web site.

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum