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Right Idea, Wrong Conclusion

In this edition of Crisis Corner: Right Idea, Wrong Conclusion

We do a lot of consultations about Medicaid planning.  Many of them involve at least on child of the person who might need benefits.  In those consultations we will occasionally hear a child admit that they are doing the planning because they want to get something when mom and dad are gone, which is the wrong idea, but is also refreshingly honest.  More often, and usually heartfelt, we hear something along the lines of: “We don’t care about inheriting anything, it is mom’s/dad’s money and they should spend it.”  That is usually followed with calculations that range from grossly optimistic, i.e. “Mom is already 89 and has $100,000 in savings which should easily pay for her care for the rest of her life”; to “Based on the doctor’s prognosis, net income, and monthly expenditures with an expectation that care costs will increase over time, mom should have enough money to outlive her prognosis by about eighteen months.”

The problem with “letting them use their money on themselves” is that it assumes Medicaid planning is designed to save money for the sake of saving money.  It is great to reassure someone that by planning with us they will be able to leave a little something for their children or loved ones when they are gone.  Whether the kids want/need the inheritance or not, it is comforting to a parent to feel like they are helping their children.  It is the same reason that retired parents, on fixed incomes, sometimes insist on paying for meals out with their very successful, employed, children.  However, the real purpose behind Medicaid planning is to ensure the quality of life for the person receiving benefits.  It is not enough to make it to the end before you run out of money if the end comes with a low quality of life.

There are a few things that can cause a drop in quality of life when Medicaid planning is skipped in favor of spending every dime:

One of the things that we see more often than we ever imagined is a client out living the most optimistic predictions of doctors.  The most extreme case of this was a client who came to me more than 13 years after being diagnosed with four different Stage-4 cancers and given a life expectancy measured in weeks.  We have also had 94 year old clients driven to my office by their 96 year old spouse, and at least one client that came to me and got onto Medicaid just after his 101st birthday.  With the pharmaceuticals available today people are living longer and longer lives and planning your needs around the idea of dying by 90 does not work for many people.

If you outlive your life expectancy by a significant margin and you do not plan ahead to save assets or to move into a community that will eventually accept Medicaid, you could end up out of money and with no option except living in a skilled nursing facility (SNF).  Some SNFs are much nicer than others and in some situations they are the most appropriate setting from a medical stand point but, in general, living in a SNF should be the absolute last option for most people.

I started working in Medicaid planning in 2015.  At that time many adult family homes (AFHs) started in the $3,000 to $3,500 per month range and topped out around $6,000 to $7,000 per month for clients with very high care needs.  At that time there were also many AFHs and Assisted Living Facilities (ALFs) that took Medicaid with 0-12 months of private pay (the time you have to live in the community before they will accept Medicaid as a form of payment).  Today, it is hard to find an AFH that is less than $5,500-6,000 per month for low care levels and up to $9,000 or more for higher care levels.  Additionally, the most common private pay period is now 2-3 years and some communities are asking for up to 5 years.  In that same time, many of my clients have seen an increase of about $10 to $20 per month in their Social Security income.  Care communities are not the only place you will see this increase in costs.  Over the last six years I have seen the average cost of hiring in-home care rise from $10-15 per hour from an individual or $20-25 per hour for an agency to $20-25 for an individual and $30-40 for an agency.

I cannot account for the increase in charges by these communities, other than supply and demand and charging what they think the market can bear, but the lengthening private pay periods is not surprising at all.  In 2015, Medicaid would often approve $100 to $180 per day for care in a non-skilled nursing facility (nSNF) community (about $3,000 to $5,500 per month), which was lower than the private pay numbers but not significantly lower.  Today, Medicaid often approves $100 to $180 per day for care in an nSNF community.  Instead of losing 0-20% of the income they could get from private pay, they are losing up to 50% or more by accepting Medicaid. 

Increasing base costs of care, at home and in communities, are not the only unexpected costs that might spring up.  Let’s assume you find a community that has a base rate of $3,500 per month plus care costs based on need and they guarantee that the rates will not change once you move in, except with increased level of care.  Often this looks something like “Level 1 Care – $1,500; Level 2 Care – $2,000….”  Now let’s assume you are the client who very carefully calculated that mom would have 18 months of extra money left because you assumed that she would gradually move from Level 2 to Level 4 over the three years she has left.  Then six months after moving to a community she has a massive stroke that she only partially recovers from.  It does not shorten her three years but it jumps her instantly from Level 2 to Level 5, where she will remain for the next 2.5 years.  People with devastating health issues tend to develop more health issues and at a faster rate than those who are mostly healthy to start with.  I have had clients that move into a community and then have an episode that literally doubles their care cost within the first few months of living there.

Maybe the plan is for mom or dad to use their money on themselves, but as a backup they move into an ALF that will eventually take Medicaid if they run out of money.  They have a nice private room, a consistent staff of care providers that they know and get along with.  They are bathed at least every other day and have a one-on-one helper with mealtime.  Then they run out of money and apply for Medicaid.  They are approved and the ALF is now receiving $4,000 per month instead of $7,000 per month.  Mom or dad is now told that all of the ALF’s Medicaid beds are in shared rooms, so they will have to move to a new room, the same size or smaller in some cases, and share it with a total stranger.  Baths or showers may decrease to once or twice per week, and meal time might become one care provider sitting at a horseshoe table with six patients.  The staff who provide the daily care may be less experienced and or more randomly assigned, since the more experienced, long-term staff will have their pick of patients and will want to stick to the private payers.

Families can pay the ALF facility to upgrade to a private room, to provide more baths, and to have a one-on-one meal companion.  The problem is that the family has to find the money for those niceties.  With planning that protected some of the assets early on, there would be a source for those costs.  Without planning, that money is coming from the pockets of the family members or it just is not coming.

Why Plan? 

Proper planning makes it far more likely that your loved one will make it to the end of life with the highest quality of care and maybe, just maybe, a little something that they can leave for their children.  The funny thing is that most children will tell you that the quality of life is the more important piece of this and most parents will tell you that the ability to give something to their children is the most important piece.