Paying for Care

The medical and care needs of the elderly and those with dementia can be extraordinary. The most important thing that you can do for your loved one is devising a plan for paying for their care, make sure you purchase and explore all programs and services that are available, really understand what the costs are and what programs and insurances you have that can pay for things, make sure there is a rainy-day fund and that there is a budget.

Educating yourself is also the first step. From social security to IRA’s to Medicaid there is a lot to learn and many of these areas are horribly complicated. Even worse, in many instances they are unforgiving where doing the wrong thing can cause penalties and interest to be paid. In other cases, there are deadlines that must be met. Simply put, when it comes to financial things, often mistakes cannot be fixed or will costs you time and money to fix. 

When you look for answers online start with official governmental websites. Remember governmental offices rarely will just call you on the phone or send you unsolicited emails. Yes, you can look to private companies’ websites – from everything like brokerage companies and banks to publications and newsletters, but always read several different ones before you are convinced what they say is true and always compare them to an official website.

With that said, also be very careful what companies and individuals you work with. I am a big believer is talking to financial advisors but realize there are all sorts of different types of advisors. Some are paid on commission and some a flat or hourly fee for service. Being a certified Financial Planner, CFA, means they meet certain training and education standards. Here, like anything else, try to get recommendations from people you know, meet the person, don’t make any large moves or investments initially with them and use your common sense.

In my mother’s case, she was already 85 when I took over things and after reviewing her supplemental Medicare plan and other coverages, I felt confident in those she had chosen and kept them in place. She had always been frugal her whole life, but I was quite disconcerted when I found out how much she had recently been spending. Although she had funds left by my father who had passed away when he was only 67, what appeared to be her longevity coupled with the amount of funds and her lifestyle gave me concern. 

It is difficult to change roles with a parent when dealing with their money. My goal was to make sure her money lasted her. The first step was to get a handle on her finances and understand what insurances she had. I then needed to learn how these things worked. Later, I needed to figure out when different sources were best used. 

Medicare and Medicaid

Medicare

Most elderly make their first step by looking at Medicare. Medicare is health insurance for people 65 or older. You can sign up for Medicare 3 months before you turn 65, but might be able to do it earlier if you have a disability, End-Stage Renal Disease or ALS.

Parts of Medicare:

Part A (Hospital Insurance): Helps cover inpatient care in hospitals, skilled nursing facility care, hospice care, and home health care.

Part B (Medical Insurance): Helps pay for: doctors and other health care providers,

outpatient care, home health care, wheelchairs, walkers, hospital beds, and other equipment,

preventive services like screenings, shots or vaccines, and yearly “wellness” visits

Part D (Drug coverage): Helps cover the cost of prescription drugs (including many recommended shots or vaccines). You join a Medicare drug plan in addition to Original Medicare, or you get it by joining a Medicare Advantage Plan with drug coverage. Plans that offer Medicare drug coverage are run by private insurance companies that follow rules set by Medicare.

Medicare Supplemental Insurance (Medigap): Extra insurance you can buy from a private company that helps pay your share of costs in Original Medicare. Policies are standardized, and in most states named by letters, like Plan G or Plan K. The benefits in each lettered plan are the same, no matter which insurance company sells it.

Original Medicare includes Parts A and B. You can get a separate plan to get part D for drugs. You can use any doctor that takes Medicare. For your out-of-pocket expenses like co-pays, you might want to get what is called Medigap coverage or get coverage from someone else, such as a former employer, union or other source.

Medicare Advantage

This is a Medicare approved plan that provides an alternative to Original Medicare. These plans usually bundle parts A, B and D. They may provide extra benefits that Medicare doesn’t, such as vision, hearing or dental and may have lower out of pocket costs. On the other hand, you may have to go solely to doctors in their network.

https://www.medicare.gov/basics/get-started-with-medicare

How about Medicaid? 

Medicare is federal health insurance for anyone age 65 and older, and some people under 65 with certain disabilities or conditions. Medicaid is a joint federal and state program that provides health coverage for some people with limited income and resources.

Specific Costs

Paying for assisted living costs. 

Most people pay these facilities out of their own pockets. They can be very expensive. We paid, on average $9000.00 a month in Northern New Jersey. Prices vary greatly depending on the facility and often where they are located.

Medicaid assistance depends on the state where the person is living because these programs are jointly federal and state. The coverages vary wildly from just certain costs to more fuller coverage, but none cover room and board in the facilities. There are eligibility requirements and often a limited number of spots available so there may be “waiting lists”. Some states have replaced the common system with having one organization deal with things, for example, such as N.J’s Medicaid Managed Long Term Services and Supports program – MLTSS.

Other programs may be available at the state or federal level. Veterans’ programs may exist. New Jersey, for example has New Jersey’s Congregate Housing Services Program (CHSP). 

If you are personally funding your loved one’s assisted living care, just make sure you read closely and understand what happens if their money runs out.

Payment for supplies and pharmaceuticals

Payment for supplies and pharmaceuticals are covered by following these links – X and y.

Other Sources of Payment for Care

Social Security. 

No area of law is probably more complicated than social security. The best place to start is by going to their website https://www.ssa.gov/ Realize that social security is taxable money. Also realize that if you have Medicare Part B, social security will automatically deduct the premium.  For an elderly person seeking social security retirement benefits for the first time, you must be at least 61 years and 9 months and have your benfits start no more than 4 months in the future. In some cases you may be eligible for a spouse’s benefit. 

Regarding retirement benefits, first start at the page https://www.ssa.gov/benefits/retirement/

Here you can learn how the benefits work and get information on when to start taking benefits.

To apply go to https://www.ssa.gov/benefits/forms/

You will need to have certain information handy to apply. Check out the web page at https://www.ssa.gov/forms/ssa-1.html for what you might need. 

Suppose your loved one already has social security benefits, how are the funds handled? As Social security notes:

A representative payee is a person or an organization. We appoint a payee to receive the Social Security or SSI benefits for anyone who can’t manage or direct the management of his or her benefits. . A payee’s main duties are to use the benefits to pay for the current and future needs of the beneficiary, and properly save any benefits not needed to meet current needs. A payee must also keep records of expenses. When we request a report, a payee must provide an accounting to us of how he or she used or saved the benefits.

NOTE - Being an authorized representative, having power of attorney, or a joint bank account with the beneficiary is not the same as being a payee. These arrangements do not give legal authority to negotiate and manage a beneficiary's Social Security and/or SSI benefits. In order to be a payee, you must apply for and be appointed by Social Security. https://www.ssa.gov/payee/faqrep.htm?tl=5

Savings and Investments.

It is very important that you inventory all of a person’s assets and go to a good financial advisor when determining what should be liquidated and when. Here the tax laws are so complicated that it is very difficult for a normal person who is not a financial advisor to properly know all the rules.

IRA’s and other retirement plans.

Realize that there are two types of IRA’s – Roth and the Traditional IRA. With an Roth IRA, the taxes are paid up front, so you have no taxes to pay when they are liquidated. With traditional IRA’s you pay tax the year the funds are liquidated. Most financial institutions will suggest, often by default, a 10% withholding for taxes, yet you can choose not to have this done. It is important if you don’t have money withheld that you make sure that you are not in for a surprise at tax time. Also realize that a person must pick beneficiaries for each IRA they have. In my mom’s case, she had different sets of beneficiaries noted on her Roth IRA’s than she did on her traditional IRAs, yet the Roth IRAs were liquidated first, leaving nothing for those beneficiaries.

Also realize that there is a required minimum distribution that must be taken each year . This law changed in December of 2019. The “Setting Every Community Up for Retirement Enhancement Act of 2019” (SECURE Act) became law on December 20, 2019. If you reached the age of 70½ in 2019 the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70 ½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72. (These laws also apply to certain other plans such as: SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans)

Real Estate. 

The tax rules regarding real property are terribly complex and vary from state to state. Be sure you understand the property tax and capital gains tax laws for the state where the property is in. If the property is a rental property, also make sure you understand if there is any taxes on rental income. Don’t forget to understand the federal income tax laws that will apply if a property is sold or rented. You do not want any surprises. Conversely, if you are keeping a property, make sure you truly understand all the costs associated with keeping it.

Savings accounts. 

One simple factor is to consider how savings accounts are set up. A joint account means that any party to the account is free to take out funds from it. When one party dies and there are two on the account, the other person automatically becomes entitled to the entire account. It is important to know your loved one’s intent with regard to these accounts – would they want this account liquidated before other sources?

Pensions and 401K accounts. 

Again, these accounts are all very different with vastly different provisions. Make sure you understand all your options for these accounts as they might affect your determination on whether and at what time they should be liquidated.

If You or other Family Members Provide funds out of your own pocket.

There are certain programs that may pay you to take care of your elderly parent on an hourly basis. The IRS tax code also provides certain benefits.

Claiming an Elderly parent as a dependent.

The IRS has a nice website on whether you can claim your elderly parent as a dependent. https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent

Child and Dependent Care Credit

See https://www.irs.gov/taxtopics/tc602

Medical Expense Deduction

If you provided more than half of your parent’s financial support during a year, you may be able to claim a deduction for medical expenses you paid related to their care such as prescription drugs, dental care, hospital stays, long-term care services, and premiums you pay for your parents’ supplemental Medicare coverage. Keep in mind that you will need to itemize your deductions to do this.

It’s possible to deduct unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. 

Other Sources of payment for care that you may have heard of

You really need to spend the time researching the internet and making phone calls to find out all that is available for your loved one. If you watch tv, you also hear about different things. While some of the ads are not the clearest, if you look into things you will see that there are real available services behind them.

Government payment for a loved one to take care of you.

I have seen ads that claim that a loved one can be paid to act as your caretaker. Sounds too good to be true, but there are such programs! In N.J. one of its Medicaid alternatives, MLTSS, provides something called Home-Based Supportive Care (HBSC). This is for things such as: shopping, housekeeping, chore services, and preparing meals. Participants can select their own providers, including family members, even spouses, who are paid at a specific hourly rate, currently approximately $15.00 an hour. Another New Jersey program provides the person with a personal assessment, then a monthly allowance to spend on personal care assistance.

Medicare Plans that pay for things like dental care and hearing aids.

Other ads talk about Medicare plans providing dental care or hearing aids. These we know are Medicare Advantage Plans, so they do exist.

Reverse Mortgages

Other ads talk about reverse mortgages. These do exist. First realize that these are complex financial transactions and that you really need to understand all the terms and read the fine print.

With a reverse mortgage, instead of paying monthly payments, you receive payments which can be in one lump sum, by way of a line of credit or periodically. They are for people 62 and older. Most are federally insured but be careful about scams where they are not. You only pay interest on the money you receive and that interest gets rolled into the loan balance. When a person moves or dies, the loan is paid off from the proceeds along with other fees when the house is sold. The proceeds are not taxable.

There are caps on how much money you can take out and remember there must be equity, usually a certain percentage of the home’s current value, in the property to be able to do this. 

These are similar to home equity loans, but with home equity loans you generally have to be working, make certain income and make monthly interest payments.

You must continue making payments on property taxes, insurance, and maintenance fees.

These might be good for people where the bulk of their money is tied up in the home where they live and they have little other funds to pay for their monthly expenses. One big problem is when people take these out too early or outlive the equity in their home. Interest and loan fees can also be costly on these loans and not make sense, especially if they are considered for a very short term. Some types of housing are not eligible such as co-ops.