A common experience my clients ask me about is how to handle finances once the health status of an aging parent changes. Perhaps there’s been a new diagnosis, or health event that means they need more care or it’s just time to start considering assisted living facilities.
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 how will this 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 also not cover custodial-type care such as help with dressing, food preparation, help getting to the bathroom, or bathing. So long as these services are needed on a temporary basis — typically the parent can rely on you and/or your siblings, friends and neighbors to help. However, if your parent is facing a permanent disability or illness that will require help with these custodial services, you may need to hire an in-home caretaker out of pocket or consider assisted living.
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 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, there may still be some out of pocket costs for room and board. However, these programs are designed with those individuals with very low income. 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, so figuring out how to afford care is a common challenging facing aging parents.
Moving into Assisted Living
If your parent can no longer get around very well and needs more and more of this 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 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 about whether there’s an initial buy in, what services they provide, whether they scale as more care is needed, what sort of care they specialize in (i.e. do they offer memory care?), what sort of transportation is provided, etc. Then, once you have initial research done on those sorts of things, then start visiting the top of the list to get a true feel for the places.
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, but it takes a tremendous amount of work off your plate.
During this transition you’ll need to spend a lot 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 parent’s finances. What are the income sources from social security, pension, annuity, or investments/retirement? What do they have in checking and savings? Are there any other investment or retirement accounts? Are there any debts? Does your parent keep cash in the house and where is it located? Most people wait too long to organized in this way 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 with their current income streams.
When it comes time to sell the house — the decision on what to do with the money should come down to an analysis of needs and income sources. You may need to reserve some of the proceeds from the house to make up for any monthly shortfall in monthly costs of assisted living. You will also want to reserve some/all of the proceeds if there is a buy-in. A cash 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.
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.
- 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, then I suggest carefully reviewing and negotiating all medical and care-related bills.
First, double check that the bills includes no 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?” Paying 50-70% of the bill and wiping out the rest is very typical. Even if you aren’t successful at first — ask to speak with a manager in a calm and assertive way. 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.
- 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.