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James Sullivan

Planning for future care needs can save money, worry

CPA/PFS planners should encourage their clients to convene a family meeting to discuss the care needs of their elderly parents before facing an emergency.

July 16, 2012
By James Sullivan, CPA/PFS

Before their mother suffered a series of heart attacks, her three adult children and two daughters-in-law never met to discuss what would happen if such a health emergency arose. The scenario is a classic case of failure to plan.

By asking clients if they have planned for the care of an elderly parent(s), a CPA/PFS planner can save clients and their families, time, money, and worry.

Helen’s story

Helen, an 80-year-old widow, suffered a series of heart attacks while at home. Her daughter, visiting at the time, called 911. An ambulance took Helen to the hospital.

The Medicare-approved charge for the ambulance was $172. Because Helen had not met the 2012 $140 Part B annual deductible, she will owe $140 plus 20% of $32 ($172 - $140) or $6.40 for a total of $146.40. This was Helen’s share of the cost because at the time of her heart attacks, she did not own a Medicare Supplement (Medigap) policy. Medigap plans C and F would have paid the annual deductible. While most Medigap plans would have paid the 20% co-insurance amount for the ambulance ride, K and L would pay only 50% and 75% of the coinsurance amount respectively.

Helen was admitted to the hospital as an inpatient.

Once admitted to the hospital, Helen owed the Part A hospital stay deductible for 2012 of $1,156 per benefit period. The benefit period began the day Helen was admitted to the hospital (or skilled nursing facility) and would end when she hadn’t returned to the hospital (or skilled nursing facility) for 60 days in a row. Again, without a Medigap policy, Helen would have had to pay the deductible herself. The total Medicare-approved cost of the stay at the hospital was $8,879. Medicare would pay $7,723 ($8,879 minus the deductible per benefit stay of $1,156). All Medigap policies except Plan A would pay the Part A deductible. However K and L would only pay 50% and 75% of the deductible amount respectively.

During Helen’s stay in the hospital, her physician charged $4,825. Physician charges are paid under Medicare Part B, even though incurred while in the hospital. Helen would have paid 20% of the cost or $965.

Absent Medigap coverage, the costs to Helen of her ambulance ride, her stay in the hospital, and physician charges totaled $2,267.40.

After Helen was released from the hospital, she was placed in a skilled nursing facility for rehabilitation. Because Helen’s stay in the nursing facility followed a medically necessary inpatient hospital stay of at least three days and was ordered by her doctor, Medicare paid the full cost of the stay for up to 20 days for each benefit period. But Helen paid a co-insurance amount of $144.50 per day (in 2012) for days 21 through 100.

Helen remained in the nursing facility for 36 days. Because of the length of her stay in the nursing facility, she owed $2,312 (16 days x $144.50). 

Based on her doctor’s order, Helen rented a wheelchair. A wheelchair is considered Durable Medical Equipment (DME) paid for under Medicare Part B.  Helen paid 20% of the rental cost.

Helen’s total out-of-pocket costs were now almost $5,000.

Helen’s doctor told her children that given her condition, Helen would need 24-hour-a-day care. Neither Helen nor her three adult children could afford to pay for a home caregiver. Helen needed custodial care. In other words, she would need assistance with one or more of the activities of daily living, such as eating, dressing, and bathing. This type of care does not rise to the “skilled” level of health care that Medicare pays. Helen did not own a long-term-care (LTC) insurance policy.

While Medicare did cover home-care services, the numbers of days covered were limited to only those services that needed skilled care. Custodial care and housekeeping services were not covered.

The nursing facility caring for Helen consisted of all private pay beds with the exception of Medicare patients. The cost of the facility was $8,000 per month. Helen’s only major asset was her townhouse, which was estimated to be worth $140,000 after sales expenses. This would have provided her with a stay of approximately two years once her monthly income from a pension and Social Security ($1,800) was figured in.

There were no Medicaid beds at Helen’s nursing facility. In other words, once Helen’s assets were depleted by the ongoing costs of her care, the only recourse available to pay for care would have been to apply for Medicaid and move her to a facility willing to take Medicaid patients. Medicaid, a program run jointly by the federal and individual state governments, would have paid for long-term custodial care in a nursing facility. Qualification for Medicaid requires that the individual’s income and assets fall below a certain amount.

At that point, her children did not know which way to turn for help in determining the next step.

How the CPA/PFS could have assisted Helen and her family

Had the family meet with a CPA/PFS planner before the need for care arose, he or she would have:

  • Asked Helen if she owned a Medigap policy. The planner would have suggested various alternatives of coverage and even recommended that the children split the cost if Helen could not afford a policy. The dangers of going without a policy would have been made clear. In the above example, even if Helen had purchased a Plan F high-deductible Medigap plan, she would have been well ahead. In 2012, the annual deductible is $2,070. The cost of the monthly premium is $86 or $1,032 per year (in the area where Helen lives) for a total cost of $3,102. Absent a Medigap plan, Helen owed $5,000 with more charges to come.
  • Reviewed Helen’s income and assets and discussed with the family the cost of care in the community and what to expect.
  • Asked about LTC insurance. While unlikely that a policy would be issued to Helen due to her age and health concerns at the time, the issue should be raised and possibilities examined. It is highly likely that given her income and assets, an LTC policy would not be helpful and the most likely outcome of an extended stay in a skilled nursing facility for custodial care would be Helen enrolling in Medicaid.
  • Reviewed the assistance a good elder law attorney could provide in thinking through the implications of Medicaid and how she could qualify. The CPA/PFS would have given the family several names of attorneys whom they could interview.
  • Discussed the value of hiring a geriatric care manager (GCM). Even when the need for care is not imminent, interviewing GCMs and learning about what they do can be helpful. As our story ended, the family was in a panic looking for a suitable (and less expensive) skilled nursing facility for their mother. They only had a few days to search or leave her in the facility in which she was staying. A GCM could have been evaluating alternatives as soon her doctor mentioned the need for custodial care. As it turned out, the family did hire one of the GCMs recommended by the CPA/PFS. In just a few days, the GCM found a suitable facility for $2,000 less per month that everyone felt was a better match for Helen than the higher priced facility. In addition, it did have Medicaid beds should the need arise.

In this case, thinking ahead about the cost of planning would have saved the family thousands of dollars. More important, they would have been able to spend more time overseeing their mother’s care and less time worrying and scrambling for next steps.

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James Sullivan, CPA/PFS, works with his wife, Janet, who is an elder law attorney in Naperville, Ill.

* The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder. Visit www.aicpa.org/PFP to learn more.