A common experience my clients ask me about is how to handle finances once the health status of an aging parent changes. This may come up when your parent gets a new diagnosis or has a health event leading to more care.
These kinds of transitions can be hard, but it may be time for you to get more involved with their finances. You may be wondering what will and won’t be covered through medical insurance. Or, you may be concerned about how this will impact your parents’ (or your) finances.
What Will Medicare Cover?
Medicare and any other supplemental medical insurance your parents have access to will only cover medical services and medical equipment. This includes skilled nursing, in-home or in-office physical therapy, or occupational/speech therapy on a temporary basis. However, round-the-clock in-home care for longer than a few weeks/months will not be covered.
Any insurance your parents may have will not cover custodial-type care such as help with dressing, food preparation, help getting to the bathroom, or bathing. Typically, family members or nieghbors step in to help with these tasks, as long as it’s temporary. However, you may need to hire an in-home caretaker out of pocket or consider assisted living, if your parent will need custodial services permanently.
Medical care costs while in assisted living will continue to be covered by Medicare, but the cost of room, board and custodial care will not be covered at all. This is why some families choose to have their parent(s) age in place for as long as possible.
What about Medicaid?
Medicaid programs are state-specific and are often designed to cover much of the medical and custodial care that Medicare doesn’t cover. Though, your parent may still have out of pocket costs for room and board. However, these programs are designed for individuals with very low income and/or assets.
If your parent has an income stream or any assets/savings besides social security, then they probably won’t qualify for this assistance. Many Americans struggle to afford long-term care and yet don’t qualify for Medicaid. Aging parents and their families often struggle to afford care.
Moving into Assisted Living
If your parent can no longer get around very well and needs more custodial-type care in addition to medical care, it may be time to move your parent into an assisted living facility. Many require an initial “buy-in” as well as a monthly payment, which can increase and decrease depending on the amount of care needed.
The conversation about moving a parent into assisted living usually starts with a plan to clean out and sell the house they currently live in. The purpose is to raise funds for the move and for the upcoming care that won’t be covered by Medicare or other health insurance.
I would start by contacting a few assisted living facilities, both near your parent and near you, to get a feel for what you get at different price points and options. Many of them readily put this information online. Various options exist, like senior apartments, assisted living, and skilled nursing facilities (i.e., nursing homes).
You’ll want to ask questions, such as:
- Is there an intial buy-in?
- What services are standard? What are extra? For instance, laundry, cleaning, meals, medication distribution, etc.
- Do care levels scale as more care is needed? Who decides when another level of care is needed?
- Do they offer memory care?
- What sort of transportation options are provided for residents?
Then, once you have initial research done on those sorts of things, start visiting the top of the list to get a true feel for the places.
Downsizing Houses
It’s also a good idea to consider hiring someone to liquidate belongings and clean out the house so that you’re not having to do that on top of everything else. Check out the American Society of Estate Liquidators (ASEL). They may charge an upfront fee and usually take a percentage of the proceeds from selling all the belongings and furniture. These professionals take a tremendous amount of work off your plate.
During this transition, you’ll need to spend more time with your parent to make plans and arrangements. If your parent doesn’t live close, this could mean that you incur additional travel costs for yourself during this time.
Taking Inventory of Finances
A health transition is also a good time to take a full inventory of your parents’ finances. Ask them:
- What are your income sources from social security, pension, annuity, or investments/retirement?
- What do they have in checking and savings?
- Do you have any other investment or retirement accounts?
- Do you have any debts?
- Does your parent keep cash in the house and where is it located?
Most people wait too long to organize this, but it can be beneficial for both of you to go through it and/or create a spreadsheet.
This will help you understand what sort of assisted living or other care your parent can afford on their own. It’s ideal to find the type of care and/or facility that your parent can afford on an ongoing basis.
When it comes time to sell the house, the decision on what to do with the money should be based on an analysis of needs and income sources. You may need to reserve some of the proceeds from the house to cover any monthly shortfall in assisted living costs. You will also want to reserve some/all of the proceeds if there is a buy-in. A high-yield savings or checking account is the best place to park money that will be needed within the next few years.
Lastly, depending on your options, you may need to consider whether you and your siblings need to offer any additional financial support.
Estate Planning
In addition to a financial inventory, it makes sense to complete an estate planning inventory. Does your parent have a power of attorney document, health care directive, listed beneficiaries on all accounts, and a will, at minimum? If not, these documents need to be drawn up by a local lawyer.
Here is a short list of documents your parents should have on hand.
- A power of attorney will allow a designated person to step in to manage finances and pay bills when the parent become incapacitated.
- A medical directive determines who can make medical decisions on behalf of your parent when they are incapacitated.
- A will determines how personal belongings (usually non-financial belongings) should be inherited once your parent passes away and who will be the executor of the estate. This does not mean the heirs get to avoid going to probate court — a will is what will inform the court about how to execute the estate.
- Beneficiary designations should be made on every financial account, including checking and savings accounts.
- A trust document allows property like real estate, investments, etc. to be placed in a trust so that it can be passed to heirs without having to go to court for the probate process.
Careful Review of Medical Bills
Hopefully, insurance/Medicare will cover most of the costs. But if there are out-of-pocket expenses, carefully review and negotiate all medical and care-related bills.
First, double check that the bills aren’t double charging. Double-check that the reimbursement rate matches the stated rate on the explanation of benefits.
Wait 4-6 weeks until after you receive a bill to pay in case there is lagging reimbursement from insurance. And if the bill is more than a few hundred dollars, then call the billing department and say something like this:
“I’m calling on behalf of my mother and she only has funds to pay some of her bills. We’d like to send in a payment today — are there any discounts for lump sum, cash payments?”
Medical providers often allow you to pay 50-70% of the bill while wiping out the rest. Even if you aren’t successful at first — ask to speak with a manager calmly and assertively. Getting big discounts like this is VERY typical. Put yourself in their shoes: Often it’s a choice between them getting something and getting nothing at all, so they will easily take the “something.”
The other thing to remember is: Medical bills exceeding your parent’s income and assets are not your personal financial problem. You will never be on the hook, nor will your credit score be on the hook for your parent’s medical bills — even after they passes away.
So — if it does get to a point where your parent’s medical bills are skyrocketing — DON’T pay out of your money. It would be great if the last check they write out of their accounts bounces by a lot. When dealing with acute medical care, a hospital will not withhold care from your parent if they can’t pay in full.
Additional Resources:
- Once or twice a year the Financial Planning Association hosts “financial planning days” as pro-bono outreach in local communities. They are usually in the spring or fall. CFPs® will be present and providing free one-on-one advice and seminars with nothing salesy. Having the financial inventory complete before this meeting would be beneficial. Look for an announcement in the paper, online or at the local library.
- Apprisen and Clearpoint both have free/low cost budgeting coaches that can help your parent think through their options, though neither specialize in senior finances.
- AARP local or national may have some resources.
- The Consumer Financial Protection Bureau has some very basic resources here and here.
- You may need to find and Elder Attorney — the National Academy of Elder Law Attorneys may be a good resource.
