Already confronted with the challenges of building their own wealth, they're also trying to figure out how to manage their parents' spiraling healthcare costs. And beyond the pure financial factors, they're grappling with a myriad of other caregiving-related issues, including powers of attorney, Medicare and Medigap and long-term care.
Squeezed on all sides
If you're a member of the sandwich generation, you're part of a growing community. According to research from the Centers for Disease Control and Prevention (CDC), 22.4% of adults between the ages of 45 and 64 are caregivers, of which 48% are caring for someone with Alzheimer's or another form of dementia.
The costs may shock you
According to the 2018 Genworth Cost of Care Survey, the national median monthly costs for different levels of care can be staggering.
Medicare and Medigap: The differences matter
Many caregivers lump all senior health insurance under the generic name of Medicare. But, in reality, there's an expansive menu of different senior healthcare options-some of which are free, some of which charge premiums, and some of which are provided by private insurers. It's important to understand the differences. Below is a very brief summary of the different Medicare options.
- Medicare Part A covers hospital, hospice, respite care and up to 100 days of skilled nursing care per illness.
- Medicare Part B covers costs for outpatient medical services, medical equipment, ambulances and preventative care.
- Medicare Part C, also called Medicare Advantage, provides additional managed care through private health insurers.
- Medicare Part D covers prescription drugs through private health insurance plans.
Even those who subscribe to multiple Medicare programs may not necessarily receive comprehensive medical coverage. To fill in the gaps, seniors can choose among ten types of Medigap plans offered by private insurers.
It's important to know which plans your parents have and how different medical situations may affect coverages. For example, Medicare Part A doesn't generally cover skilled nursing care after a hospital stay if your parent was originally admitted as an outpatient, but it does if they were an inpatient.
The legalities
Before you can become directly involved in managing your parent's care, you may need to be given the legal authority to do so. Start by meeting with your parents' attorney and review their planning documents. You'll want to be given power of attorney so you can access your parent's assets, manage their long-term care insurance and healthcare care, and work with a residential facility. It's particularly important to prepare new legal documents as soon as possible if one or both parents are losing mental capacity.
Using your parents' assets judiciously
Ideally, you'll use your parents' assets, rather than your own, to pay for their uncovered expenses. But you'll also want to avoid making decisions that could result in undesirable financial consequences.
For example, if you take large withdrawals from their Traditional IRA or 401(k) plan accounts, the additional taxable income these distributions generate could result in an income-related monthly adjustment amount surcharge (IRMAA) that might raise the costs of their Medicare Part B and D premiums. To avoid this risk, you may instead want to first make tax-free distributions from their eligible Roth IRA or Roth 401(k) accounts. An accountant or financial advisor can help you figure out the most tax-efficient way to fund these expenses.
Tapping long-term care insurance benefits
If your parents have long-term care insurance, payouts generally will depend on their limitations in daily-living activities, such as bathing and self-feeding. There will also be an elimination period that ranges from 20 days to 180 days. More importantly, you must understand the limits of the policy's benefits and whether it covers home health care in addition to facility expenses.
What about Aid and Attendance and Medicaid?
Caregivers often ask for guidance about two public resources, Medicaid and Aid and Attendance. While both programs can help defray some healthcare costs, they also have strict financial eligibility rules.
A service-connected pension from the U.S. Department of Veterans Affairs, Aid and Attendance provides a monthly stipend to wartime veterans and their surviving spouses as long as their joint net worth isn't higher than $126,420 in 2019.
Medicaid provides healthcare benefits to lower-income Americans. Eligibility requirements vary by state. A good rule of thumb is that your parents won't qualify if their annual income is significantly higher than the federal poverty level ($16,910 for a two-member household; $12,490 for a single-member household in 2019).
Resources for caregivers
Several organizations, including AARP, the Alzheimer's Association, and the Caregiver Action Network offer comprehensive support resources for family caregivers. Family Caregiver Alliance and the National Association of Area Agencies on Aging also list local resources.
The work you do today prepares you for tomorrow
Faced with the challenge of caring for your parents, it's important to consult with their attorney, accountant and financial advisor to get the advice and information you need to manage these complex issues.
And while the physical and mental energy you may need to expend to care for your parents may seem daunting, the hands-on experience and knowledge you gain will prepare you to anticipate and plan for your own future healthcare needs-and pass on your knowledge to your own children at the appropriate time.
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Joelle Spear is a financial advisor located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Canby Financial Advisors are separate and unrelated to Commonwealth. She can be reached at 508.598.1082 or atjspear@canbyfinancial.com