Dairy Excel: Will hospital and nursing home bills rob you of your home and farm?

The federal estate tax bite has been reduced so there is less concern about estate taxes “taking the farm.” Estate settlement costs remain, such as Ohio estate tax, legal fees and other costs, but now these costs are more manageable than before.

Even with reduced estate taxes for many, planning is still needed. Many of us who are of retirement age have not sufficiently planned for the unfortunate but increasingly likely possibly of being incapacitated or disabled.

Hospital costs. Most farmers and workers qualify for the minimum level of Social Security when they’re 65. Thus, most qualify for Medicare benefits at age 65. Their spouses also qualify.

But Medicare benefits do not come automatically – one has to apply. Those eligible for Medicare but not enrolled should apply for Medicare benefits two to three months before their 65th birthday at the Social Security office to make sure benefits are available when they turn 65. Everyone should apply for Part A, and most should apply for Part B.

Part A Medicare covers most hospital costs, such as hospital room cost for each 60 day hospital stay, and after that the patient pays the first $776. The patient must pay nearly $200 per day through the 90th day.

Affordable. Part B, unlike part A, costs $50 per month, but covers doctor bills and other expenses with the patient paying the first $100 and Medicare paying 80 percent of the remaining Medicare approved expenses. If Medicare doesn’t allow all expenses, the patient will have to pay all of the unallowed medical expenses.

Medicare will pay most medical expenses for those over 65, but will not pay all. However, supplemental policies or medigap insurance policies that pay for medical expenses not covered by Medicare are quite affordable.

Also, the government heavily regulates those policies to allow only specific plans to be sold. An excellent “shoppers guide” for medigap insurance is available from the Ohio Department of Insurance by calling 1-800-686-1578.

Everyone needs medical insurance, but not everyone needs medigap insurance.

What to look for. Following are some tips specifically for purchasing medigap insurance:

* If you are eligible for Medicare, get it.

* More than one medigap policy is a waste of money.

* The best time to buy medigap coverage is within a half year from enrolling in Medicare part B, since you can’t be refused then for previous health problems.

* Do not pay cash to an insurance agent, always pay by check made out to the company, not an individual.

* If you have very low income and assets, are retired or employed, you may not need medigap coverage.

* You can change your mind if you decide not to buy a medigap policy if you do so within 30 days of purchase.

Nursing home costs. Regrettably, Medicare pays less than 2 percent of the total nursing home bill in this country.

In order for Medicare to pay a nursing home bill all of the following must apply: The patient must be hospitalized for at least 4 days in a row; the doctor must order daily skilled care; the patient must be admitted to a skilled nursing home within at least 30 days of leaving the hospital; the patient must be admitted to the nursing home for the ailment that required hospitalization; and the patient must show continued improvement that justifies skilled care being received.

Medicare will pay for nursing home care for the first 20 days for patients who meet the above requirements and will pay for all except $97 per day for only the next 80 days.

However, the major risk of a nursing home bill “taking the farm” is for long term stays, over and above 100 days, for which Medicare does not pay. Since Medicare pays only 2 percent of nursing home bills, most wish to plan for other ways to cover what may be very large nursing home care costs.

Let’s consider three strategies: family care, nursing home insurance and transfer farm assets.

Family care. Farm families frequently care for the elderly in their home. In fact, Medicare can be of much benefit to those cared for in the home. Medicare generally fully covers home health visits for part-time or intermittent skilled nursing services if a person is homebound for medical reasons.

Medicare will also provide 80 percent of approved equipment costs, as well as personal care and housekeeping when necessary. In addition, those certified as terminally ill are eligible for hospice benefits from Medicare.

Families with a history of senility or Alzheimer’s disease may find it too difficult to care for elderly at home with these conditions, so may not wish to plan for family care. Also, it is less likely that elderly with habits or conditions that have or may result in chronic health problems can be cared for at home.

Insurance. The first consideration for nursing home insurance is the ability and willingness to pay the premium, which typically cost $100 to $200 per month.

Another consideration is how much is one worth? Those worth very little have little to lose if an extended stay in a nursing home “takes” all their assets. Most financial advisors advise against nursing home insurance for those worth $50,000 or less while many financial advisors advise against such insurance for those worth $100,000 or less.

Statistics indicate half of us will never be in a nursing home. Another quarter will only be in a nursing home for 3 months or less. Another eighth will be in a nursing home for 3 to 12 months, with a cost less than $36,500.

That means the remaining eighth of us will be in a nursing home for more than a year. So about 9 percent of us will be in a nursing home for 1 to 5 years with an estimated cost between $36,500 to $182,500, and about 3 percent of us will be in a nursing home for 5 or more years at a cost estimated to be more than $182,500.

Transfer farm assets. For Medicaid to pay for nursing home bills, the nursing home resident must be over 65 or disabled and have essentially no income or assets.

Further, criminal penalties may be imposed on those who have transferred assets to heirs with the aim of qualifying for Medicaid while protecting the transferred assets from being claimed by Medicaid.

If significant assets have been given away within 3 years (5 years if given to a trust) prior to requesting that Medicaid pay nursing home bills, Medicaid may not pay those bills until the gifted assets are liquidated and the proceeds used to pay the nursing home expenses. Only after assets are essentially gone will Medicaid then take over the nursing home bills.

Medicaid requires nursing home residents to spend most of their income on medical and nursing home bills. In general, a nursing home resident can keep only $40 unearned ($105 earned, 2001 figures) income per month. All remaining income must be used to pay medical and nursing home expenses.

If a person in a nursing home has a spouse still at home, Medicaid may allow as much as but not more than $2,175 of the nursing home resident’s monthly income to go to the spouse at home.

Medicaid also requires nursing home residents to liquidate most of their assets and to use proceeds to pay medical and nursing home bills. As with income, the calculation of assets that are exempt from being liquidated to pay nursing home and medical bills is complicated.

Furniture and wedding rings are exempt. Automobiles are exempt if worth less than $4,500 and may be exempt if worth more than that.

It is a misconception that the value of the home is exempt from being used to pay medical and nursing home bills. The home is only exempt as long as a spouse resides there. The home is protected from being sold as long as the nursing home resident’s spouse or dependents are living there or if the resident may be capable of returning home.

However, after the nursing home resident can’t return home or the spouse or dependents no longer live there, Medicaid will recover the bills they paid by forcing sale of the home or making a claim to the assets during estate settlement.

Medicaid has special rules if a nursing home resident has a spouse still at home. That spouse can retain all exempt assets mentioned above, plus the home and all assets held as joint tenants with right of survivorship.

All other assets are then combined for both spouses. If combined assets are worth $18,900 or less, the couple keeps all those assets.

Medicaid will then require half of the combined assets worth between $19,900 and $87,000 to be “spent down” until gone to cover medical and nursing home expenses. All of combined assets worth more than $87,000 must then be spent down before Medicaid will pay medicaid and nursing home expenses.

Remember that even though the home and assets held as joint tenants with right of survivorship are “safe” from Medicaid expense recovery for the first spouse in a nursing home, they are not safe for the second spouse unless he or she remarries so the same situation applies.

None of us like to think about planning our estate or for extended hospital or nursing home stays. However, planning now for the unlikely need to pay for extended hospital or nursing home stays will not only reduce worrying and fretting about worst case scenarios, but may also allow the farm business to continue into the next generation.

(The author, an OSU Extension ag agent in Lorain County, is a member of OSU’s Dairy Excel team. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

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