Medicare CoverageWho Pays?
Medicare, Spending Down, Long-Term Care Policies, and More
Money seems to be a cold and hard topic of conversation when it comes to life and death—another sensitive and taboo subject. Yet it’s a topic most families must bring up somewhere along the care continuum because, ultimately, patients needing long-term care are faced with out-of-pocket expenses.
Long-term care is expensive—a $300 billion industry in the United States. How expensive it is for your loved one depends on the type of care needed and family circumstances. For instance, at-home hospice is typically far less expensive than a nursing home but requires that someone, whether family member, friend, or hired help, be available to tend to the patient and home when nurses, social workers, and other caregivers stop by. That cost is different for every family and includes more than money—it also includes time and energy. Is someone already at home? Does someone have to permanently give up a job or take a leave of absence? Are enough family members able to pitch in to avoid hiring a professional caregiver?
And then there’s the million-dollar question: will insurance cover any or all of the services needed?
Cost is an important factor for families when selecting a level of care. For help in understanding what Medicare covers, online resources are a good place to start:
• Contact your State Health Insurance Assistance Program (SHIP). Every state has one of these federally funded programs. Visit medicare.gov to find your state’s SHIP office. SHIPs might also be able to direct you to the many free resources available in your county.
• Visit medicare.gov and medicaid.gov. These websites are designed to answer most of your general questions. 
We Don’t Always Have You Covered
Medicare and other insurance providers have detailed guidelines about what is and is not covered. These guidelines seem to change rapidly and regularly. The interesting and unfortunate part of this is that, as health-care providers, we have limited knowledge of what happens with those benefits. I don’t blame anybody for not knowing because, in all honesty, it would nearly take a college degree in health insurance to understand all of it. We do know that families will eventually confront out-of-pocket spending. The gaps in Medicare coverage are numerous and add up quickly: premiums, copayments, deductibles, and long-term care facilities. Medicare Supplement Insurance, also called Medigap, is designed to help older adults avoid being nickeled and dimed to bankruptcy. Medigap helps cover copayments and deductibles, but it doesn’t cover special diets, medical equipment, home health care, or health care when traveling out of the country.
Many, if not most, of my patients and their families are surprised to learn what is not covered. Fear consumes them as they realize the number of losses they are facing: the health of a loved one, the possibility of having to put him or her in a facility that is affordable but not high quality, and financial stability. How much can a nursing home take from a patient or spouse? How do loved ones reconcile whether to help pay for care?
Hilda Swenson was an eighty-two-year-old widow when I met her in a skilled nursing home. Three months prior she had suffered a stroke that left her unconscious and attached to a ventilator for breathing support. She had been a teacher for four decades, and she had handled her finances very well. Her home was paid off, and she had saved a small fortune, but she was using more and more of her retirement funds to cover medications, physical therapy, and doctor’s visit copayments. Hilda didn’t have any children. Marilyn, her seventy-seven-year-old sister, and Nancy, her niece, were Hilda’s primary caregivers.
Hilda never regained consciousness, and she required the ventilator for breathing support. By the time I met Hilda, she had twenty-five days left of the Medicare coverage allowed for long-term care, a detail that the skilled nursing facility’s business office communicated to Marilyn and Nancy. The two women were shocked to learn that Medicare limits the number of days it will pay for a nursing home stay. Even worse, they learned that they—the patient and her family—were responsible for the bill beyond the one hundred days allowed by Medicare. Because Hilda had some financial resources (a home and a bank account), she was not eligible for Medicaid.
Once Medicare coverage for the skilled nursing home ended, Marilyn and Nancy tapped into Hilda’s finances to pay the daily $500-plus they had agreed to pay the facility. Forty days later, they ran out of money, so they quickly sold Hilda’s house and jewelry and used the money to pay the bills. Five months later, Hilda was “chronically stable,” evolving from one complication to another—pneumonia, urinary tract infections, and diarrhea—but nothing major. When Hilda’s money ran out, Marilyn and Nancy began to use their own. Finally, they contacted a lawyer who helped them apply for Medicaid on Hilda’s behalf. This time, she was eligible—their financial ruin qualified Hilda for government help.
Typical Out-of-Pocket Health-Care Costs at the End of Life
In 1990, the National Institute on Aging and the Social Security Administration began sponsoring the Health and Retirement Study (HRS), a longitudinal study on health, retirement, and aging. The goal was to collect data on how our changing world affects the well-being of adults aged fifty and older. This data includes information obtained from “exit interviews,” or conversations with a family member of a recently deceased survey participant. Researchers can then use this data to conduct studies. When it comes to financing end-of-life care, several studies look at Medicare expenditures. Few studies, however, look at out-of-pocket costs.
Using HRS data from the state of Michigan, researchers looked at lifetime health-care expenditures and determined that, per capita, the average cost is $316,600, nearly half of which is spent during the senior years.1 Different researchers looked at average out-of-pocket health-care expenditures for older adults, with a special focus on end-of-life expenditures. As it turns out, Medicare, as much of a blessing as it is to Americans aged 65 and older, only scratches the surface of some of the financial burden, especially during the last year of life. So who foots the bill?
End-of-Life Out-of-Pocket Health-Care Expenditures
As of this writing, in 2017, the average “nonhousing” wealth of a typical retired older adult in the United States is $25,000. Last-year-of-life care expenditures total, on average, about $12,000 for nursing home and hospital care, insurance, prescription drugs, home health care and helpers, and spending to make the home accessible. But people can—and do—spend a lot more.2 According to a MetLife survey, the average cost of a private room in a skilled nursing facility in 2012 was $248 per day, or $90,520 annually. Some people who can afford it opt to spend up to $75,000 per month. Assisted living runs about $118 per day. Home health aides charge about $21 an hour.3 Cost varies based on the type of facility and location. You might pay much more in Alaska, for instance, than in Oklahoma.
It’s hard to quantify long-term care expenses. Most of the research is based on hospital stays. And cost varies from state to state and depends on the types of services needed and for how long. But no matter how you slice it, long-term care is expensive relative to the wealth of the average person.
The Bigger Questions
How do we understand our options in this day and age when people are living longer and on limited incomes? How do we settle recurring copays and hefty deductibles? Does the size of a bank account determine how long a patient lives or the quality of care he receives? Are family members compelled to empty their coffers to care for an aging parent with no funds of his own? Are spouses expected to remortgage or sell their home and deplete retirement savings? How are they to survive? How do families manage this financial burden? These questions take on increasing importance, given that we are, as a rule, living longer.
Most of Us Will See Some Gray
Until fairly recently, few people had to think about preparing for old age. It wasn’t an issue because most people didn’t live past the age of sixty-five or seventy. Life expectancy occasionally drops in the United States, but for the most part it has steadily increased. We’re living long lives here in the United States, where the average age of death for men is 76.3 and for women it’s 81.2, which means that, with increasing regularity, many of us are living into our nineties. According to the US Census Bureau, the number of Americans eighty-five and older is expected to increase from 5.9 million in 2012 to 8.9 million by 2030—and to a staggering 18 million by 2050.4
To get a stronger picture of how these numbers compare to life expectancy for earlier generations, let’s look at how significantly these numbers have changed over the past century. In 1900, life expectancy for men was 46.3 and for women 48.3. In 1918, at the start of the United States’ entry into World War I and the worst flu pandemic in recorded history, it dropped by ten years—36.6 and 42.2. By the mid-twentieth century, life expectancy had risen, nearly doubling to 65.6 for men and 71.1 for women.5
Now that medicine has helped extend the average life expectancy by about thirty years since the beginning of the twentieth century, millions of people are living to an age when health naturally begins to deteriorate. Add to that the size of the population entering their senior years, and we have the potential for a record number of Americans relying on the health-care system for everything ranging from routine doctor visits to taking up residence in a nursing home. And not many of us are prepared for this—neither individuals, families, the government, nor the health-care system.
Rising health-care costs and limited retirement savings, combined with Social Security benefits we can’t be certain will be available in years to come as well as longer life expectancy, spell financial strain for most families. Given these facts, we can safely predict that most of the population will need to make some important and difficult financial decisions about how to care for a chronically or terminally ill relative in what is likely to be an underfunded and overcrowded health-care system for those who need long-term care. I’ve seen many families suffer devastating financial hardship in an effort to finance their own care or that of a spouse or other loved one. Medicaid is there to help, but only after most assets have been exhausted.
Spending Down
To pay for long-term care services, patients are expected to “spend down,” or use their assets to cover the costs. Most patients begin by digging into personal funds, including Social Security checks, savings, pensions, IRAs, stocks and bonds. Some people have long-term care insurance (LTCI), a more recent phenomenon. LTCI covers some long-term care expenses for people who want to protect their assets and avoid spending down. And people who have a life insurance policy with an accelerated death benefit rider might be eligible to receive a portion of the insurance paid to them under certain circumstances.
Once liquid assets are exhausted, material assets come into play. Some people take out a reverse mortgage on their home. Others sell homes, cars, and other valuables. The rules for spending down vary by state, and some assets are protected.
Financial loss puts families and patients in a great deal of turmoil. In some cases, it becomes a major distraction.
Ms. Hermosa Acosta’s Case
Hermosa loved her job as a part-time cashier in Sedano’s, a Cuban grocery store in Miami. She lived in a modest home in a Miami suburb, where she had resided for most of her life after emigrating from Cuba in 1950. She was thirteen years old when her father brought her family to Tampa on a business trip. She fell in love with Tampa and asked her dad to allow her to study in America. They stayed, and seven years later, Hermosa met her husband in Tampa. Eventually, the couple moved to Miami to work for Sedano’s. Hermosa’s husband was a manager who regularly worked overtime to enable them to purchase a house. At the age of seventy-five, her husband passed away of a heart attack. Two years later, Hermosa found herself suffering from ill health.
In her mid-seventies, Hermosa was diagnosed with uterine cancer and underwent surgery that resulted in a complication. She bled into her chest cavity and landed in the ICU hours later, where I ordered that she be intubated and attached to a breathing machine. After ten to fifteen days in the ICU, she required a tracheostomy. A longtime smoker, she had some lung issues to begin with. Although we were able to eventually remove the respirator, she suffered from many respiratory problems and remained unconscious for the duration of her stay in the ICU.
Hermosa’s only living family consisted of a distant nephew. She had planned to help the nephew when she died by leaving him her house, savings, and belongings, yet she was unaware that he had moved back to Cuba. Eventually, Hermosa was transferred to an LTAC facility, where she stayed for a couple of months, and during that time she regained consciousness. We placed a speaking valve (called a Passy-Muir valve)—a one-inch cylinder with a one-way valve connected to the tracheostomy tube that was placed surgically in her neck right below the Adam’s apple. The valve allows air to move through the vocal cords, so people with a tracheostomy can talk. She was pleased to hear her distorted, whispered voice for the first time after weeks on the ventilator. But instead of talking about how grateful she was to be alive or expressing some last wishes, her concern the whole time was about her house, her possessions inside the house, and the fact that she didn’t have her finances in order. Her house was almost paid for, but here she was in LTAC with no family to help her take care of life’s daily affairs on the outside. This troubled Hermosa to the point where she couldn’t think about anything else.
Months later, I saw Hermosa again in a skilled nursing facility. She was still conscious but by then had defaulted in the payment of her property taxes. Her savings account was depleted, and the bank was sending her notices about foreclosing on the home she had lived in for nearly thirty years. She didn’t have family or anyone who could have helped her rent or sell the house. Hermosa was deeply distraught. And she could do nothing to satisfy her nagging desire to get out of the hospital and go back home to try to put things in order. Above all, she could not contact the only living relative that she had. Hermosa was basically swallowed up by the system because she didn’t know how to defend herself or protect herself in this situation. And no one, including hospital staff, seemed to be able to help.
In just four short months after getting ill, Hermosa lost a lifetime of savings and was on the verge of losing all her possessions.
She died in the nursing home about seven months after leaving the ICU; she spent the last three months of her life impoverished.
Hermosa’s story is not unusual. Although most people have a friend or family member to help at the end of life, many people need long-term care long enough to deplete their assets, or what they thought would be their family’s inheritance.
Even those who saved well for their retirement are living long enough to deplete their assets, and many more rely on Social Security and Medicare or Medicaid to pay for doctor visits, tests, surgeries, rehabilitations, and long-term care facilities. An increasing number of older adults and chronically ill people need help that goes well beyond asking or paying someone to do light housework and run errands. These people enter a health-care system that, although technologically advanced, isn’t necessarily designed to fully finance long-term care for everyone. And as rewarding as caring for an older adult can be, it’s neither glamorous nor well paying. Many long-term facilities are overcrowded and must contend with high staff turnover, which leads to families questioning the quality of care being offered.
Most of us are at least vaguely aware of these facts. And we might know some details about Mom’s coverage—that she has Original Medicare with prescription drug coverage (Part D), for example. But it’s likely we haven’t studied the policy. Rather, we assume Medicare or Medicaid will cover the essentials. I find over and over again that most families and patients are unaware of the limits Medicare has in place. Sometimes, it’s best to turn to an expert for help.
Use Legal Resources to Create a Plan
Most families I see are so caught up in the responsibilities before them that they wing it when it comes to finances. It starts the moment a loved one ends up in the ICU. A daughter uses up all her paid time off (PTO, the term used to describe a combination of vacation, sick, and personal days) within the first week and then is at a loss when she needs to take more time off. I write letters to employers regularly, explaining that so-and-so needs time away from her job to care for her ill father. Some employers are gracious and allow employees to keep their health insurance while away from work for an extended period. Others, not so much. For most people, protecting job security is paramount. Yet they fail to make some kind of plan.
My advice to you regarding finances is similar to my advice to you for support: make it a priority. Bring the subject up early and often and get help. This might start with your job security. Communicate with employers, know what you can expect, and make a bedside vigil schedule for each family member so that no one has to lose a job because someone got ill. Ask the doctor to write a letter to your employer—it makes a difference, and doctors are used to doing it. Make sure other family members are taking the same steps. At some point in time, every family suffers a crisis. Employers are also used to this.
If it’s looking like long-term care is a possibility, your financial plan might have to go as deep as allocating which of Mom’s assets to spend down first. Whenever possible, hire a lawyer (not a financial planner) to help you get paperwork in order and understand the rules and regulations of spending down in your state. You also want to avoid making mistakes—such as transferring money from Mom’s account into yours so that Medicaid won’t find it. Medicaid will find it, and you’ll likely be required to pay it back at some point down the road.
Lawyers can also help Mom shelter as many assets as possible. For instance, if Mom has an IRA and has not designated anyone as heir, when she passes, Medicaid might be able to use that money to cover the cost of a nursing home. A home that has been paid off and does not have a quitclaim deed signing it over to the intended heirs can get caught up in probate court, which costs time and money. I’m not advocating for ways to “beat the system.” I am encouraging you to be fiscally responsible when it comes to protecting assets your loved one worked hard for so that all is not lost. Families who hire a lawyer and come up with a viable financial plan tell me it was the best thing they could have done. They don’t regret the cost. They firmly believe that they couldn’t afford not to hire a lawyer.
ACTION Rely on Word of Mouth
Talk to others you know who have parents in nursing homes or other facilities. Word-of-mouth referrals can be some of the best if you trust your sources.
Caring for You
Take a few moments and give yourself permission to feel good. Treat yourself to something special. Between visits to facilities, stop for your favorite latte or ice cream—or a healthy meal.
• Long-term care is expensive, and Medicare coverage is complicated and finite.
• Half of lifetime health-care expenditures are typically spent in the last year of life.
• Americans are living long enough to exhaust their retirement savings.
• Long-term care patients must “spend down” and liquidate assets to pay for long-term care services before qualifying for Medicaid.
• Each state has its own laws regarding “spending down.”
• Consulting a lawyer and creating a financial plan for long-term care is a priority.