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Medicare, Rehab, and “Failure to Improve”

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After a hospital stay, Medicare-covered people may need rehab to continue improving from the treatment that the hospital provided.  (As discussed in the March 10, 2017 installment, the hospital stay must be at least three days and a full “admission” to the hospital.)  In the past, as a way to save money, Medicare would cut off rehab for someone who wasn’t getting better (or wasn’t getting better fast enough.)

BUT, Medicare’s rules don’t allow for a cut-off of rehab for a failure to improve.  Medicare got sued to stop using the “improvement” standard.  A class action lawsuit was filed in 2011 in Vermont, Jimmo v. Sebelius (Kathleen Sebelius was the United States Secretary for Health and Human Services between 2009-2014.)  Jimmo and the other claimants pointed out that the Medicare rules do not set restoration of the patient’s condition as the only goal of rehab.  Instead, the rules specifically list the preservation of current capabilities and the prevention of further deterioration as alternate goals if restoration isn’t possible.

Now, restoration is listed in the rules as the goal of rehab when the patient is trying to recover from a malformed body part.  Unfortunately, that restoration goal came to be applied to most or all rehab programs, not just to malformed limbs.  Using a “failure to restore” the patient’s function test allows payment to be cut off earlier in the rehab process than would using a “preservation of current function/prevention of deterioration” test.  Cutting off rehab earlier saves Medicare and its insurance affiliates save a great deal of money when rehab gets shut down early.  As a result, bit by bit, most or all rehab patients came to be measured by their progress toward restoration of function, and when the patient failed to improve toward that goal, payment for rehab get cut off.

The Jimmo lawsuit forced Medicare to face its failure to follow its own rules.  The Jimmo lawsuit didn’t go to trial but, instead, led to a settlement agreement that Medicare would stop improper use of the “restoration” standard and its “failure to improve” test for ending rehab payments.  (The restoration goal still applies to malformed body parts.)  The judge approved the settlement as a court order.

Unfortunately, years later, rehab providers and Medicare’s insurers are still applying the failure to improve standard.  The Jimmo case went back to court to demand that Medicare follow the settlement agreement.  (Based on the resulting court order, it appears that the judge is not happy with Medicare.)  Under the new court order that adds to the original settlement agreement, Medicare must undertake an effort to educate the public that the failure to improve test does not apply.

To patients undergoing rehab, the Jimmo case is the basis to argue that rehab should not be ended.  The proposed ending of rehab must come in writing with an explanation of the right to appeal.  The Jimmo settlement is an argument to present in the appeal.

Unfortunately, many hearing officers are more familiar with the incorrect approach that “failure to improve” is a reason to end rehab than they are familiar with the Jimmo agreement.  Appeals about the continuation of rehab may require the help of an attorney who works in Medicare or Medicaid.

Also, the Jimmo settlement does not get rid of the 100-day limit on Medicare payments for rehab.  The 100 days of available rehab does not reset unless the patient can go 60 days without needing Medicare’s support for the health issue that led to rehab.  If the family is concerned about the patient going 60 days without needing more medical help, the family may not wish to push the Jimmo issue too far.  The family may wish to “save” some of the 100 days.

In summary, if a patient seems to be getting pushed out of rehab early and the patient or family wishes rehab to continue, argue that Medicare can’t cut off rehab for a failure to improve.  Use the name “Jimmo,” so the care provider, insurer, or hearing officer can look for the agreement.

Medicare, Rehab, and Observation Status

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Rehab is expensive.  No surprise there.  Under the right circumstances, the person getting rehab care sees little or no cost.  Under the wrong circumstances, the person getting rehab will get stuck with the entire cost.

Just to be sure we all understand, “rehab” is rehabilitation.  An example of rehab is the effort to strengthen the legs after a knee replacement.

In our discussion today, rehab follows a hospitalization.  Most often, rehab takes place in a nursing home or in a facility similar to a nursing home that has chosen to focus on rehab services.  (There is a trend to rehab at home, relieving the insurer from the room and board cost of a care facility.)

To have Medicare or an Advantage Plan cover rehab, the patient must be admitted to a hospital for a three-day period immediately before the start of rehab.  If such a hospitalization took place and the patient has Medicare, then Medicare will usually pick up the entire bill for the first 20 days of rehab and all but $165 of the costs for any additional days (up to 100.)  The patient or supplemental insurance picks up the $165.  If the patient has an Advantage Plan, the plan’s rules will control how the costs of rehab will be handled.  (Ed. Note:  The $165 amount was inserted on 3/20/2017 after receiving new information.)

Separate from rehab, hospitals have economic pressures to control who gets “admitted” to the hospital.  If a Medicare-covered person is re-admitted to the hospital within 30 days, Medicare will penalize the hospital for the first hospitalization for not treating the patient’s malady adequately enough the first time that another hospitalization was needed.  The penalty will be a reduction in the Medicare reimbursement for the first hospital stay.

Because the risk of this payment reduction, hospitals tend not to “admit” someone on Medicare if the hospital’s staff isn’t sure that the patient can be cured.  Many chronic illnesses of older adults can’t be cured.  Perhaps they can be treated, or perhaps the symptoms can be controlled, but the illness may not be curable.  The lack of a cure creates a stronger likelihood of the need for more hospital care for the same person for the same medical needs.  This risk of more care creates a high risk of a “readmission” for the patient.  So, the hospital has a reason to look for a way to avoid admitting someone with an uncurable chronic illness or with symptoms that can’t be completely diagnosed.

Hospitals have started to use “observation status.”  Observation status takes place in the hospital in a hospital bed in a hospital room and looks just like an admission to the hospital, but it’s not an admission.  A person on observation is “outpatient” for billing purposes.  Medicare is billed via Part B rather than Part A.  Advantage Plans are billed via outpatient billing codes.  But, the patient doesn’t see a difference.

If a patient goes from observation status to rehab, the rehab will NOT be covered by Medicare.  Rehab in a nursing home or rehab center can cost $10,000 per month.  Unfortunately, someone on observation status may not know that rehab won’t be covered by Medicare or an Advantage Plan until it’s too late.

So, a person on Medicare or an Advantage Plan who is in the hospital (or the person’s loved ones) needs to advocate for full admission to the hospital.  When the patient goes into a hospital room (i.e., not in the emergency room any more,) ask if the patient is admitted or on observation status.  (Just using the terminology will get the staff’s attention.)  If not admitted, demand to know why.  Demand to know how to get fully admitted  Demand to be fully admitted.  Talk to the hospital social worker.  Talk to the nurses.  Talk to the doctors.  Talk to the patient ombudsman.  Talk to anyone necessary to get a full admission.  (It may not happen, but if you don’t try, it definitely won’t happen.)

Check again everyday.  (Status can change at any time.)

Being an advocate isn’t fun (for most people,) but it may be necessary.

Special Needs Trust Fairness Act

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People with special needs have a new ability to help themselves.

On December 13, 2016, President Obama signed the Special Needs Trust Fairness Act (buried within a larger law titled the 21st Century Cures Act.)  The Special Needs Trust Fairness Act allows someone with special needs to create his/her own Special Needs Trust.  (For background on Special Needs Trust, read the April 2, 2015 installment of this blog.)

Before adoption of the SNT Fairness Act, only a parent or grandparent of the special needs person or a court could create a SNT.  As awful as it sounds, the Congress that first memorialized the concept of a Special Needs Trust must have assumed that all people with special needs lacked the ability to handle their own affairs.  Of course, that was a terribly incorrect assumption.  Unfortunately, the law that allows Special Needs Trusts wasn’t updated for years.  Finally, that oversight is fixed.

So, what does this mean?  If a person needs to create a Special Needs Trust, he/she can do it.  A parent, grandparent, or court isn’t necessary.  The person with special needs now has control that wasn’t available before.

Here’s an example.  Some people with special needs have injury claims against someone.  (Perhaps the person is the victim of medical malpractice or an industrial accident.  Perhaps the injury is even the cause of the person’s disability.)  The injury claim can take a long time to pursue through the court system.  During the interim, the person may have started to receive Supplemental Security Income for food and housing and Medicaid for medical care.  When the court award or settlement payment arrives, it can cause a break in Medicaid coverage (because the new money is “income” during the month it arrives) and long term suspension of SSI payments (because the person will have more “savings” that SSI allows.)

To avoid the loss of these benefits, the person with special needs often places the judgment/settlement award into a Special Needs Trust.  Rarely was there a Special Needs Trust waiting for use.  The person usually needs a Special Needs Trust set up about the time that the award is going to arrive.  Before the SNT Fairness Act, the person needed a parent, grandparent, or court order to create the SNT.  Now, he/she can set up the SNT directly.

Medicare Annual Enrollment is here. Choose your insurance plan wisely.

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This week’s blog continues the break from the ongoing discussion of the changes to Ohio Medicaid’s Aged, Blind and Disabled (ABD) program.  That series will resume soon.

Medicare’s “Open Enrollment” period has arrived for next year’s coverage.  To have an insurance plan for the upcoming year to help cover the 20% of medical costs that Medicare will not cover, a Medicare-eligible person must enroll in the plan of his or her choice by December 7.  (Open Enrollment is October 15 to December 7 each year.)  The new policy will take effect on January 1.

People who have Medicare available to them have three basic options for medical insurance.  So called “straight Medicare” provides the insured person with Medicare coverage for 80% of medical costs.  The insured person is responsible for the other 20% as a co-pay.  People who do not wish to pay the 20% co-pay can purchase either Advantage Plans or Medicare Supplements.An Advantage Plan is an insurance policy that pays most or all of the 20% of medical costs that Medicare does not cover.  The amount of the insured’s new co-pay depends on the Advantage Plan that the insured chooses.  Generally, the higher the premium, the lower the co-pay.  There are plenty of other options that change the price and co-pay as well.  (An Advantage Plan actually steps into the shoes of Medicare and pays the 80% in addition to whatever costs exceed the insured’s co-pay.  The Advantage Plan insurance company receives both the premium of the individual insured person and a payment from the Medicare program in lieu of Medicare’s usual 80% payment towards the insured’s costs.  The Advantage Program’s coverage of Medicare’s portion of costs is generally not noticed by the insured.)  Because an Advantage Plan is a “replacement” for Medicare, it can have some limitations in covered services or in approved service providers as compared to “straight Medicare.”  In addition, there are many different Advantage Plans, each offering slightly different coverage, from which to choose.

When an insured person has a Medicare Supplement (sometimes called a Medi-Gap policy,) the Medicare program pays its usual 80% pays the insured’s medical costs, and the Supplement pays the 20% not covered by the Medicare office.  Medicare Supplements, because they supplement Medicare rather than replace Medicare, do not generally have any differences from Medicare in covered services or approved service providers.  There are many different Supplements.  The differences among Supplements generally is small, but worth examining.
Please be aware, it isn’t necessary to have Medicare additional insurance.  Someone can choose “straight” Medicare in which he or she must cover the 20% Medicare co-pay by himself or herself.    It costs nothing in a year during which that person has no medical issues.  It can, though, without warning, cost lots of money if that person has an accident or needs an operation, for example.  Each person on “straight” Medicare could pay 20% of $0 or 20% of $200,000, or 20% of any amount depending on what happens during that year.  Before choosing traditional Medicare, you must decide whether you wish to assume the risk of a big surprise in health costs during the coming year.
The monthly premium for an Advantage Plan is generally much lower than the premium for a Medicare Supplements.  (Some Advantage Plans have a $0 premium, in fact.)  An Advantage Plan’s limitations on services and providers is the trade-off for a lower premium.  The most glaring difference, though, between Advantage Plans on the one hand and both straight Medicare and Medicare Supplements on the other hand is the coverage of post-hospitalization rehabilitation services.
With straight Medicare and Medicare Supplements, an insured person who has been admitted to the hospital for three days and then needs post-hospitalization rehab can have 100 days of rehab coverage.  Someone on an Advantage Plan may have rehab coverage end before 100 days have elapsed.  An Advantage Plan (because it has rules slightly different than straight Medicare) can determine that rehab is not helping the insured person and can end coverage.  Sometimes the rehab coverage is stopped as early as day 20.  (Advantage Plans used to base their decisions on ending rehab payments on on day-to-day progress reports.  Now, Advantage Plans must now look at week-to-week comparisons or even bi-weekly comparisons.)  Still, rehab can be very expensive, so Advantage Plans have a strong incentive to end rehab coverage as early as possible.
(“Admission” to the hospital rather than “under observation” in the hospital is a very important distinction in the availability of any insurance coverage for rehab.  That issue is not handled differently by Medicare, Advantage Plans, or Medicare Supplements, though.  Consequently, the “admission” versus “observation status” issue is not important to today’s discussion.  I mention it here as a side note because it is an important issue for all people insured through Medicare.)
Even though we are in an “open” enrollment period, someone covered by any form of Medicare cannot simply switch plans on demand.  Medicare, unlike the Affordable Care Act, allows the insurance company to make underwriting decisions on individual plans.  Trying to move to a plan that provides more coverage may require a medical examination and will certainly require answering medical questions.  Generally, I urge people to move to a Medicare Supplement, if they can (as long as the premium isn’t prohibitive.)
If a Medicare Supplement is not available, an alternative is an Advantage Plan or even straight Medicare with a separate Hospital Indemnity policy.  (The cost of an Advantage Plan plus Hospital Indemnity policy is usually less than a Medicare Supplement.)  A Hospital Indemnity policy is subject to underwriting, though.  Someone who exhibits symptoms that are a concern for the Hospital Indemnity insurance company may not be able to get such a policy.
Without considering the cost of premiums, my preferences for medical insurance is a Medicare Supplement.  My second choice is an Advantage Plan with a Hospital Indemnity policy.  My third choice is straight Medicare.  Finally, my fourth choice is an Advantage Plan.  (Because I provide legal services to people who need long term care or that have special needs, my clients have health concerns.  That possibly causes my preference for the broad coverage that supplements provide.)
No matter your preference, seek out a Medicare insurance agent that represents more than one insurer.  Don’t just assume that the person at the table in your local grocery, pharmacy, or department store can give you all the options.  If the person at that table sells insurance for just one company, please consider whether you want to find more options before deciding.
But, don’t go it alone.  Get help from an insurance broker.  These insurance plans are complicated, and there are many different choices among Advantage Plans and among supplements.  Let someone help you figure out your best options.  Their help doesn’t cost you anything.  They’re paid by the insurer you choose.
Choose your plan wisely.
Acknowledgement:  Thanks to Michael Whitaker of Premier Solutions Group in Brookpark, Ohio for helping me understand Hospital Indemnity insurance.

Ohio Medicaid changes “Aged Blind Disabled” Eligibility

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Ohio Medicaid will change its rules on who can participate in the Medicaid Aged, Blind, and Disabled (“ABD”) program.  The change will take effect in July 2016 for new applicants and will take effect with the annual renewals for existing Medicaid enrollees starting in January 2017.  (The dates are subject to federal approval.)  Ohio’s aim is to spend less on Medicaid.  (It is a HUGE part of the state budget.)

Under federal Medicaid law, states can choose from two different ABD eligibility systems (meaning that the states can choose from two different SPENDING systems for their ABD programs.)  The Ohio Department of Medicaid and the Ohio Department of Health Transformation, with a supporting change in the law by the state legislature, will change Ohio’s ABD Medicaid program from following section 209(b) of the federal Medicaid law to following section 1634 of the federal Medicaid law.  Under the 209(b) system (the one that Ohio is leaving,) the states can make certain of their own choices on who is eligible for ABD coverage.  Under the 1634 system (the one into which Ohio is moving,) the states must follow federal guidelines on eligibility.

The biggest differences between most states’ (including Ohio’s) 209(b) eligibility rules and the federal rules were in financial eligibility.  States that followed 209(b) could have limits on income and assets that were tighter than the federal standards.  That gave the appearance of keeping more people off of Medicaid ABD coverage than federal rules would have allowed.

Ohio’s rules under its 209(b) sy(tem (the old system) allowed people who had medical expenses to reduce their countable income by the amount of those medical expenses.  This is called a “monthly spend down.”  That spend down measurement allowed some people who had too much income “back” into Medicaid coverage.  (A future installment will discuss the spend down in more detail.)  The new system (under section 1634) will not allow spend downs to reduce countable income.

People with too much income won’t be left without coverage.  People who have too much income to qualify for Ohio’s ABD Medicaid will be eligible for private insurance under the Affordable Care Act.  Most anyone who would have qualified for ABD coverage through a spend down under Ohio’s old system will probably qualify for a highly subsidized,  cost-controlled insurance policy through HealthCare.gov.

Many states followed 209(b) before the Affordable Care Act and its subsidy and cost control requirements made commercial policies affordable to more people.  Many of those states have made the switch to 1634 since the Affordable Care Act has been implemented.  Ohio is now following that trend.

In the installments ahead, we will discuss some of the details of this switch.

Medicare Open Enrollment is here. Choose your insurance plan wisely.

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This week’s blog takes a break from the ongoing series about Legal Issues when someone has Dementia to discuss a topic that is important at this time of year.

Medicare’s “Open Enrollment” period has arrived for 2016 coverage.  To have an insurance plan for 2016 to help cover the 20% of medical costs that Medicare will not cover, a Medicare-eligible person must enroll in the plan of his or her choice by December 7, 2015.  (Open Enrollment is October 15 to December 7 each year.)  The new policy will take effect on January 1.

People who have Medicare available to them have three basic options for medical insurance.  So called “straight Medicare” provides the insured person with Medicare coverage for 80% of medical costs.  The insured person is responsible for the other 20% as a co-pay.  People who do not wish to pay the 20% co-pay can purchase either Advantage Plans or Medicare Supplements.

An Advantage Plan is an insurance policy that pays most or all of the 20% of medical costs that Medicare does not cover.  The amount of the insured’s new co-pay depends on the Advantage Plan that the insured chooses.  Generally, the higher the premium, the lower the co-pay.  There are plenty of other options that change the price and co-pay as well.  (An Advantage Plan actually steps into the shoes of Medicare and pays the 80% in addition to whatever costs exceed the insured’s co-pay.  The Advantage Plan insurance company receives both the premium of the individual insured person and a payment from the Medicare program in lieu of Medicare’s usual 80% payment towards the insured’s costs.  The Advantage Program’s coverage of Medicare’s portion of costs is generally not noticed by the insured.)  Because an Advantage Plan is a “replacement” for Medicare, it can have some limitations in covered services or in approved service providers as compared to “straight Medicare.”  In addition, there are many different advantage plans, each offering slightly different coverage, from which to choose.

When an insured person has a Medicare Supplement (sometimes called a Medi-Gap policy,) the Medicare program pays its usual 80% pays the insured’s medical costs, and the Supplement pays the 20% not covered by the Medicare office.  Medicare Supplements, because they supplement Medicare rather than replace Medicare, do not generally have any differences from Medicare in covered services or approved service providers.  There are many different Supplements.  The differences among Supplements generally is small, but worth examining.

Please be aware, it isn’t necessary to have Medicare additional insurance.  Someone can choose “straight” Medicare in which he or she must cover the 20% Medicare co-pay by himself or herself.    It costs nothing in a year during which that person has no medical issues.  It can, though, without warning, cost lots of money if that person has an accident or needs an operation, for example.  Each person on “straight” Medicare could pay 20% of $0 or 20% of $200,000, or 20% of any amount depending on what happens during that year.  Before choosing traditional Medicare, you must decide whether you wish to assume the risk of a big surprise in health costs during the coming year.

The monthly premium for an Advantage Plan is generally much lower than the premium for a Medicare Supplements.  (Some Advantage Plans have a $0 premium, in fact.)  An Advantage Plan’s limitations on services and providers is the trade-off for a lower premium.  The most glaring difference, though, between Advantage Plans on the one hand and both straight Medicare and Medicare Supplements on the other hand is the coverage of post-hospitalization rehabilitation services.

With straight Medicare and Medicare Supplements, an insured person who has been admitted to the hospital for three days and then needs post-hospitalization rehab can have 100 days of rehab coverage.  Someone on an Advantage Plan may have rehab coverage end before 100 days have elapsed.  An Advantage Plan (because it has rules slightly different than straight Medicare) can determine that rehab is not helping the insured person and can end coverage.  Sometimes the rehab coverage is stopped as early as day 20.  (Advantage Plans used to base their decisions on ending rehab payments on on day-to-day progress reports.  Now, Advantage Plans must now look at week-to-week comparisons or even bi-weekly comparisons.)  Still, rehab can be very expensive, so Advantage Plans have a strong incentive to end rehab coverage as early as possible.

(“Admission” to the hospital rather than “under observation” in the hospital is a very important distinction in the availability of any insurance coverage for rehab.  That issue is not handled differently by Medicare, Advantage Plans, or Medicare Supplements, though.  Consequently, the “admission” versus “observation status” issue is not important to today’s discussion.  I mention it here as a side note because it is an important issue for all people insured through Medicare.)

Even though we are in an “open” enrollment period, someone covered by any form of Medicare cannot simply switch plans on demand.  Medicare, unlike the Affordable Care Act, allows the insurance company to make underwriting decisions on individual plans.  Trying to move to a plan that provides more coverage may require a medical examination and will certainly require answering medical questions.  Generally, I urge people to move to a Medicare Supplement, if they can (as long as the premium isn’t prohibitive.)

If a Medicare Supplement is not available, an alternative is an Advantage Plan or even straight Medicare with a separate Hospital Indemnity policy.  (The cost of an Advantage Plan plus Hospital Indemnity policy is usually less than a Medicare Supplement.)  A Hospital Indemnity policy is subject to underwriting, though.  Someone who exhibits symptoms that are a concern for the Hospital Indemnity insurance company may not be able to get such a policy.

Without considering the cost of premiums, my preferences for medical insurance is a Medicare Supplement.  My second choice is an Advantage Plan with a Hospital Indemnity policy.  My third choice is straight Medicare.  Finally, my fourth choice is an Advantage Plan.  (Because I provide legal services to people who need long term care or that have special needs, my clients have health concerns.  That possibly causes my preference for the broad coverage that supplements provide.)

No matter your preference, seek out a Medicare insurance agent that represents more than one insurer.  Don’t just assume that the person at the table in your local grocery, pharmacy, or department store can give you all the options.  If the person at that table sells insurance for just one company, please consider whether you want to find more options before deciding.

But, don’t go it alone.  Get help from an insurance broker.  These insurance plans are complicated, and there are many different choices among Advantage Plans and among supplements.  Let someone help you figure out your best options.  Their help doesn’t cost you anything.  They’re paid by the insurer you choose.

Choose your plan wisely.

Acknowledgement:  Thanks to Michael Whitaker of Premier Solutions Group in Brookpark, Ohio for helping me understand Hospital Indemnity insurance.

 

Legal Issues when someone has Dementia – Think about Medical Insurance

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This week’s blog continues the discussion of Legal Issues when someone has Dementia.  The introductory installment (April 30, 2015) put forth the issue of “Who can speak for someone with dementia?”  The May 14, 2015 installment discussed the situation where the person with dementia has Advance Directives in place.  The May 21, 2015 installment discussed the legal issues in determining whether a dementia sufferer can choose to have new Advance Directives prepared.  The May 30, 2015 installment discussed options in preparing a Health Care Power of Attorney.  The June 4, 2015 installment discussed how to decide whether to prepare a Living Will.  The June 11, 2015 installment discussed some of the basic issues in preparing a General Power of Attorney.  The June 18, 2015 installment discussed the importance of making the General Power of Attorney “durable.”  The June 25, 2015 installment discussed the importance of NOT making the General Power of Attorney “springing.”  The July 2, 2015 installment discussed revoking prior Powers of Attorney.  The July 9, 2015 installment discussed Do Not Resuscitate orders.  The July 16, 2015 installment discussed the Right of Disposition designation.  The July 23, 2015 installment discussed the Will (or Last Will and Testament.)  The July 31, 2015 installment discussed beneficiary designations on life insurance policies, IRAs, annuities, etc.  The August 6, 2015 installment discussed whether to pre-plan a funeral.  The August 14, 2015 installment discussed choosing a final resting place.  The August 28, 2015 installment discussed pre-planning the funeral ceremony.  The September 3, 2015 installment discussed when and how to pay for the pre-planned funeral.  Today’s installment will discuss medical insurance choices.

Today’s installment continues the discussion of issues to manage when someone finds out that he or she has a disease that causes dementia.  These issues should be managed before the dementia gets worse, before the disease takes away the person’s ability to make decisions.  Along with the issues previously discussed, someone who has dementia (or his or her family) should look at the different options to pay for his or her upcoming medical costs.

Because the vast majority of people who have dementia related disease are seniors, this installment will focus on Medicare options.  The people who have dementia related disease that are not yet old enough to qualify for Medicare have health insurance options very similar to those available to people with special needs discussed in the March 5, 2015 installment of this blog.  (Someone who becomes disabled (from the dementia related disease or from some other cause) can get Medicare 25 months after the disability is recognized by the Social Security Administration.  These people have the same Medicare options as seniors.)

People who have Medicare available to them have three basic options for medical insurance.  So called “straight Medicare” provides the insured person with Medicare coverage for 80% of medical costs.  The insured person is responsible for the other 20% as a co-pay.

People who do not wish to pay the 20% co-pay can purchase either Advantage Plans or Medicare Supplements.

An Advantage Plan is an insurance policy that pays most or all of the 20% of medical costs that Medicare does not cover.  The amount of the insured’s new co-pay depends on the Advantage Plan that the insured chooses.  Generally, the higher the premium, the lower the co-pay.  There are plenty of other options that change the price and co-pay as well.  (An Advantage Plan actually steps into the shoes of Medicare and pays the 80% in addition to whatever costs exceed the insured’s co-pay.  The Advantage Plan insurance company receives both the premium of the individual insured person and a payment from the Medicare program in lieu of Medicare’s usual 80% payment towards the insured’s costs.  The Advantage Program’s coverage of Medicare’s portion of costs is generally not noticed by the insured.)  Because an Advantage Plan is a “replacement” for Medicare, it can have some limitations in covered services or in approved service providers as compared to “straight Medicare.”  In addition, there are many different advantage plans, each offering slightly different coverage, from which to choose.

When an insured person has a Medicare Supplement, the Medicare program pays its usual 80% pays the insured’s medical costs, and the Supplement pays the 20% not covered by the Medicare office.  Medicare Supplements, because they supplement Medicare rather than replace Medicare, do not generally have any differences from Medicare in covered services or approved service providers.  There are many different Supplements.  The differences among Supplements generally is small, but worth examining.

Advantage Plan premiums usually cost about one-third of Medicare Supplements.  (Some Advantage Plans have a $0 premium, in fact.)  An Advantage Plan’s limitations on services and providers is the trade-off for a lower premium.  The most glaring difference between Advantage Plans on the one hand and both straight Medicare and Medicare Supplements on the other hand is the coverage of post-hospitalization rehabilitation services.

With straight Medicare and Medicare Supplements, an insured person who has been admitted to the hospital for three days and then needs post-hospitalization rehab can have 100 days of rehab coverage.  Someone on an Advantage Plan may have rehab coverage end before 100 days have elapsed.  An Advantage Plan (because it has rules slightly different than straight Medicare) can determine that rehab is not helping the insured person and can end coverage.  Sometimes the rehab coverage is stopped as early as day 20.  Rehab can be very expensive, so Advantage Plans have a strong incentive to end rehab coverage as early as possible.

(“Admission” to the hospital rather than “under observation” in the hospital is a very important distinction in the availability of insurance coverage for rehab.  That issue is not handled differently by Medicare, Advantage Plans, or Medicare Supplements, though.  Consequently, the “admission” versus “observation status” issue is not important to today’s discussion.  I mention it here as a side note because it is an important issue for all people insured through Medicare.)

Someone who has a dementia causing disease is likely to need much greater medical attention than before the dementia started.  Accordingly, someone suffering from dementia (or his or her family) may want to change to an insurance plan with greater coverage than he or she had previously.  (Open enrollment for such a switch falls between October 15 and December 7 each year, with the new policy taking effect on January 1 of the next year.)

Unfortunately, someone covered by any form of Medicare cannot switch plans on demand.  (Medicare, unlike the Affordable Care Act, allows the insurance company to make underwriting decisions on individual plans.)  Trying to move to a plan that provides more coverage may require a medical examination and will certainly require answering medical questions.  If the dementia related disease has been identified by a doctor or is noticeable to an insurance company underwriter, a more generous plan may not be available.  Accordingly, I urge anyone who believes that he or she is in the early stages of a dementia related disease to move to a plan with better coverage (if necessary) at the next open enrollment period.  Generally, I urge people to move to a Medicare Supplement, if they can.

If a Medicare Supplement is not available, an alternative is an Advantage Plan or even straight Medicare with a separate Hospital Indemnity policy.  (The cost of an Advantage Plan plus Hospital Indemnity policy is usually less than a Medicare Supplement.)  A Hospital Indemnity policy is subject to underwriting, though.  If someone with a dementia related disease waits too long, the Hospital Indemnity policy may not be available either.

Without considering the cost of premiums, my preferences for medical insurance for someone who has a dementia related illness is a Medicare Supplement.  My second choice is an Advantage Plan with a Hospital Indemnity policy.  My third choice is straight Medicare.  Finally, my fourth choice is an Advantage Plan.  I realize that my preference is for the most expensive insurance.  When someone learns that he or she has dementia, I suggest that he or she abandon price sensitivity and try for the best coverage.  (The insurance may not be available because of the dementia or some other pre-existing condition, but, with the disease likely only to get worse, trying to get the best insurance as soon as possible is a good idea.)

Most people on Medicare keep their existing insurance plans from year to year.  Someone who believes that he or she has the early stage of a disease that causes dementia should take a hard look at his or her insurance choices at the next open enrollment period.

Acknowledgement:  Thanks to Michael Whitaker of Premier Solutions Group in Brookpark, Ohio for helping me understand Hospital Indemnity insurance.

Setting aside Money for a Loved One with Special Needs

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Today’s blog post continues the series about Special Needs Law.  The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs.  The blog post on February 5, 2015 discussed hidden problems with the new ABLE accounts.  The blog post on February 26, 2015 discussed sources of income for people with special needs.  The blog post on March 5, 2015 discussed medical insurance for people with special needs.  The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.)  The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income.  The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid.  The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny.  The blog post on April 9, 2015 discussed how a Pooled Trust can help shelter excess resources from SSI and Medicaid scrutiny.  The blog post on April 17, 2015 discussed how an ABLE account (when fully implemented by the U.S. Department of Treasury and the various states) can help shelter excess resources from SSI and Medicaid scrutiny.

Today’s post discusses parents, grandparents, and other family members (and, for that matter, anyone) can make money and other assets available to someone with special needs without creating a problem with his or her Supplemental Security Income (SSI) or Medicaid eligibility.

Most parents and grandparents want to name their children and grandchildren equally in their wills.  A child or grandchild who relies on SSI or Medicaid who receives assets (no matter from where the assets come) can lose SSI or Medicaid because of these new assets.  The arrival of the assets can be income, causing the special needs person to fail the income eligibility test.  If enough of the assets remain in the possession of person with special needs a month later, then the person may fail the asset eligibility test.  When the assets are used up, then the person may get back onto SSI and/or Medicaid.  (Giving the assets away to achieve eligibility will be considered an “improper transfer” or “illegal transfer,” which still creates ineligibility for the time period that the assets would have covered.)

So, how do parents and grandparents share their legacies with their loved ones who have special needs?

The most common way to leave a legacy for a loved one with special needs is through a trust.  The person who wishes to make sure that money (or other assets) are available to someone with special needs will set up a trust for the benefit of that loved one.  (If a trust already exists, then the person who wishes to leave money or other assets can transfer the money/assets into the already existing trust.)

First, let’s be clear about something very important.  We are talking about money and other assets that never belonged to the person with special needs.  Such money and assets would be considered “third-party” money/assets because they never belonged to the person with special needs (the first party) who wants government benefits (or may want benefits in the future) from Medicaid and/or SSI (the second party.)

The person who sets aside the money (Let’s call this person the “donor.”) has no legal obligation to set money aside for the person with special needs (Let’s call this person with special needs the “beneficiary” since we’re talking about trusts.)  Because there is no legal obligation to give money or assets to the beneficiary, the donor’s money isn’t subject to a payback requirement like with assets placed in a stand-alone first-party Special Needs Trust or with a Pooled Trust.

So, when setting aside money for someone who needs, or will likely need, Medicaid and/or SSI, the keys are:

  1. To avoid screwing up the beneficiary’s Medicaid or SSI eligibility, and
  2. To avoid wasting the donated assets, like through a payback requirement after the beneficiary dies.

If the donor gives money or assets to the person with special needs, that money and those assets would then belong to the person with special needs.  The money and assets must be considered in determining the eligibility (or continuing eligibility) of that person for Medicaid and SSI benefits.  In other words, giving money or assets to someone on SSI or Medicaid might make that person too “rich” to get SSI or Medicaid.  The person with special needs could be forced to spend the money or assets before SSI or Medicaid would be available for his or her care.  The gift directly to the person with special needs makes the gifted money and assets the property of the person with special needs, and, therefore, subjects them to his or her asset and income limits.  Such a direct gift reduces the costs of the government programs and increases the costs to the family.

A trust, if prepared properly, can hold the money for the person with special needs, as the lifetime beneficiary, without reducing or cutting off SSI or Medicaid benefits.  The trust contents never belong to the beneficiary, so they don’t become “first-party” money.  Because it isn’t first-party money, it isn’t subject to the beneficiary’s control.

The trust must also be written to avoid an obligation to pay out for things that SSI and Medicaid would normally pay.  Many trusts state that they are meant for the health, maintenance, welfare, or support of the beneficiary.  SSI and Medicaid pay for health, maintenance, welfare, or support.  Such a trust would have to pay out for the beneficiary’s benefit before Medicaid and SSI would pay.

To avoid the perception of a payment obligation, the trust should have no payment obligation during the lifetime of the beneficiary.  The best way for a trust to have no payment obligation is to have no “standard” for payment.  (A “standard” for payment is an event or condition triggering a payment obligation, such as health care costs of a beneficiary when the trust says it is for the beneficiary’s health.)  A Wholly Discretionary Trust, in the Ohio Revised Code, is the most often used no-standard trust for this purpose in Ohio (where I work.)

A Wholly Discretionary Trust provides that the trustee (a person other than the person with special needs) can pay out of the trust when he or she wants with complete discretion.  (I wish that the name of the trust were “Completely Discretionary Trust” because people often hear “Holy Discretionary Trust” with some sort of religious meaning rather than “Wholly Discretionary Trust” is the sense of complete discretion.  Unfortunately, the Ohio Revised Code uses the name “Wholly Discretionary Trust,” so that name is pretty much stuck in place.)

With a Wholly Discretionary Trust, the trustee can pay out for a beneficiary when the trustee wants, for any reason or for no reason.  Likewise, the trustee can choose not to pay out of the trust for any reason or for no reason.  For example, a trustee can feel pretty good about life on a sunny day and decide to use the trust contents to buy something for the beneficiary.  Likewise, a Cleveland Browns fan (in a fit of frustration) could easily decide that he or she will pay no money from the trust until the Browns win the Super Bowl (meaning that the beneficiary may never get anything, if the Browns continue to play as poorly as in recent memory.)

Because a trust such as this (if set up properly) has no payback obligation, the trust can be set up to pay out to someone else after the initial lifetime beneficiary (the person with special needs) dies, acting like a will.  The remaining contents of the trust (if any) can go to brothers and sisters, nieces and nephews, parents, grandchildren, or anyone else whom the grantor (the person who initially set up the trust) wishes to benefit.  The remaining contents can go to a charity as well, if that is the grantor’s wish.

Some people call trusts like this “third-party special needs trusts.”  I prefer not to use that label.  Because first-party special needs trusts must have a payback obligation, SSI and Medicaid personnel take notice of anything that is called a “special needs trust.”  I’d rather call these trusts something else to avoid having to clarify (over and over) the difference between a first-party special needs trust that has a payback obligation and a third-party special needs trust that has no payback obligation.  I like to call them “supplemental services trusts.”  (I don’t care if you call one “Bob” or “Stairway to Heaven.”  I just suggest avoiding the words “special needs.”  There’s no legal necessity to avoid those words.  It’s just a suggestion to help avoid confusion.)

As mentioned above, the donor doesn’t need to set up a new trust if one already exists for a particular person with special needs.  Perhaps,for example, one set of grandparents already set up a supplemental services trust for a special needs grandchild as part of the grandparents’ estate plan.  Rather than creating a new trust, the other grandparents can designate that existing trust as the recipient of the money that they wish to set aside for the grandchild.  (The original creators of the trust need not be grandparents.  It can be anyone.  I just used grandparents as an example.)

In fact (absent some serious internal family squabble,) I think it is better to have only one such supplement services trust.  To work properly, a supplemental services trust should be completely separate from the people who set it up.  It must be irrevocable.  Because of the complete separation from a person or a married couple, the trust must pay its own taxes and have its own accounting.  Two separate trusts paying for tax preparation and accounting services wastes money that could have remained in trust for the benefit of the beneficiary with special needs.  To avoid duplicate trusts, the person or couple that sets up a supplemental services trust must make the trust known to other family members and to anyone else likely to wish to set aside money for the beneficiary.

To set aside money for someone with special needs, the most protective vehicle to hold that money is an irrevocable wholly discretionary trust.  This allows a person with special needs to participate in the last will and testament of or a significant gift from a relative, just like the siblings and cousins who do not have special needs.  At the same time, if done correctly, the gift via trust does not take away the Medicaid and SSI benefits on which the person with special needs might rely.