One consequence of Americans living longer is that a CPA, PFS advisor is often working with clients in their 60s and even their 70s whose parent or parents are still living. Proper planning for these clients should include asking questions regarding their parent’s financial situation, especially their Medicare insurance coverage. Adult children, although they may not be legally obligated to do so, may end up paying for any gaps in their parents’ coverage. The two stories below highlight what can happen if these questions are not asked.
Patty’s mother Miriam fell causing severe bruises and cuts to her face. Because Miriam did not attempt to break her fall, doctors think the fall may have been caused by a stroke. At 83 years old, she lives in a small apartment in New Jersey. Unfortunately, Miriam, despite the pain, failed to seek assistance. For two days Miriam went without treatment. It wasn’t until a friend from her church became concerned when Miriam failed to show up for her weekly women’s Bible study that an attempt was made to contact her. When the church member showed up at the apartment, Miriam was conscious but in pain and clearly needed medical attention. An ambulance was called. Miriam was admitted to the hospital for treatment and released after five days. Patty was contacted immediately but because she lives in Chicago was unable to arrive in New Jersey until the following day.
At 90, Charlotte had been in excellent health. She lived independently in a small one bedroom apartment in Orlando, Fla. Her health has deteriorated rapidly over the past several months. Two months ago she was admitted to a hospital for eight days. After leaving the hospital she was admitted into a skilled nursing facility where she remained for 41 days. All three of Charlotte’s adult daughters live in different states. After her release from the nursing facility, she was able to go home. Her doctor believed she could resume living independently. Just to make sure, one of her adult daughters, Anna, made arrangements to stay with her for two weeks to help her get settled and keep an eye on her.
Prior to their health problems, both Miriam and Charlotte were in relatively good health. There had been no major healthcare expenses that would have exposed the gaps in their Medicare coverage. The children assumed their parent had the proper level of coverage needed and that Medicare would take care of most of the expenses. They never asked their parents for details. When emergency care was needed it was too late to ask and make any changes. As an advisor you can provide a valuable service by instructing your clients to ask their parents for details regarding their coverage.
In Miriam’s case, she had no Medicare supplemental (Medigap) coverage. A widow, she lived primarily on Social Security and a small survivor pension from her late husband’s former employer. In Charlotte’s case, she had only the most basic Medigap coverage — Plan A. Each of the women had modest savings of less than $2,000.
Medicare Parts A and B have gaps in coverage. Medigap policies, sold by private insurance companies, make up some of those gaps. The insurers can only issue standard policies each assigned letter. As of January 1, 2010, Medigap plans A through L were available. In general, as you move from Plan A through the alphabet to Plan J more of the gaps in Medicare coverage are filled by the Medigap policy. The policies also become more expensive as you move through the alphabet.
The chart below shows which of the two women’s incurred costs will have to be paid out-of-pocket absent Medigap coverage or absent the right type of Medigap coverage.
Recent Healthcare Costs Not Covered
||Medicare Part A hospital deductible $1,100
Medicare Part B annual deductible $155.
||Yes — Plan A
||Medicare Part A hospital deductible $1,100.
Medicare Part B annual deductible $15
Skilled nursing home stay days 21 through 41 co-insurance of $137.50 per day or $2,887.50.
In Miriam’s case, lack of a Medigap policy was expensive but certainly it could have been much worse. Patty never asked her mother if she owned a Medigap policy. Note that in Charlotte’s case, she purchased a Medigap policy (Plan A), but it didn’t pay for her stay in the skilled nursing facility. Had she chosen almost any other Medigap plan (except Plan B), the skilled nursing stay would have been covered. Given the risk of a woman her age being placed in a skilled nursing facility for rehabilitation, the question to her should have been — “Mom, do you have a Medigap policy and if so, which one?” In this case, Charlotte’s daughters all knew she had a Medigap policy but no one ever inquired as to which one. A better plan, for example Plan G, would have saved the family a little over $4,000.
Medicaid is an option for impoverished seniors (a Medicare participant who becomes eligible for Medicaid is referred to as a “dual eligible”). But this is not an option most children would willingly choose for their parents. More and more doctors are refusing to accept Medicaid patients because of the low reimbursement rates. This makes finding the needed care difficult. For this reason, the children may be willing to pay for care, rather than have their parent rely on Medicaid. But the need to pay these costs can be avoided with proper planning. You must encourage your clients to ask about their parents’ insurance coverage.
The Questions to Ask
You can provide a valuable service by providing your clients ’ with a script they can use to discuss Medicare coverage with their parents. They should ask:
- Do you own a Medigap policy?
- If so, what type?
If the parent owns a Medigap policy they should have a member card with the details. Armed with that information you can determine if a Medigap policy should be purchased (this may not always be possible due to pre-existing conditions) or if a policy is already owned, does it meet the needs of the parent? Is there an opportunity to switch?
One important issue is the affordability of the monthly premium for Medigap insurance. Depending on the plan selected and the age of the Medicare participant, the monthly premium can run to several hundred dollars. For many seniors this may be unaffordable. The senior is also paying a monthly premium for Medicare Part B coverage, the Part D (prescription drug coverage) premium and all the other out-of-pocket healthcare costs (e.g., vision and dental) not covered by Medicare.
For adult children, it may make sense to pay for the Medigap policy for their parents. Split among several children, the monthly cost can be relatively small but will provide protection against much larger costs in the future. Some children already do this type of cost-splitting for long-term-care insurance.
Working with your clients to ensure their parents are adequately protected in the case of large healthcare costs has the dual benefit of protecting your clients as well as their parents.
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James Sullivan, CPA, PFS, MAS, is an investment counselor at Core Capital Solutions LLC. He has almost 25 years of experience in individual tax, investing and personal financial planning. Before joining Core Capital Solutions, Sullivan spent 20 years at Arthur Andersen LLP. He is a member of the AICPA PrimePlus/ElderCare Task Force. PFP Section members, including PFS credential holders will benefit from additional Medicare resources in Forefield Advisor on the AICPA’s PFP website at aicpa.org/PersonalFinancialPlanning. Non-members can click here to join the section.