Managing your assets as you get into your later years is tricky. You don't want to give away too much too soon, so that your care becomes a burden to others. But if you aren't careful you can get hit with medical costs that threaten to eat up much of your estate.
A timely example of this is what happens when someone has a lengthy stay for rehabilitation in a nursing facility, after a hospital stay that was classified as "observation status" rather than admission. In that situation, Medicare refuses to pay for the rehabilitative stay - which can result in extremely large out-of-pocket expenses for patients.
In this post, we will update you on a new federal law that affects payments for rehabilitative care in this context. We will also discuss how this could affect your estate plan.
When Medicare won't pay: an example
Earlier this month, The New York Times gave an example of how people can get blindsided with huge medical costs when going to skilled nursing facility for rehab after a hospital stay that was classified as observational rather than a formal admission.
The case involved an 85-year-old woman in Pennsylvania who had handled her money well and had substantial assets. After suffering a bad fall, she spent nearly a week in the hospital, and then almost five more months in a skilled nursing facility for rehabilitative care.
Quite to the woman's surprise, Medicare refused to pay for the woman's stay and services in the nursing facility. The cost was over $40,000. And the elderly woman would have to pay that out of her own pocket.
Naturally she found this nonsensical. After all, she had paid into Medicare for so many years. How then could Medicare not cover her now?
How Medicare rules got to be this way
Medicare rules restrict reimbursement for rehab after an "observational" hospital stay because auditors working for the government had become concerned about hospitals becoming too quick to admit patients.
What resulted was a rule that withheld payment for stays in rehabilitative nursing care unless such stays were preceded by a hospital admission of at least three successive days.
Under the peculiarities of the Medicare rules, time under in a hospital bed under "observation" status is not counted when calculating the three days. This is the case even if the person under observation receives extensive services.
As a result, a long stay in rehab can result in bewilderingly large out-of-pocket costs for someone who was expecting Medicare to pay for them.
Response by Congress
Congress has acted to address, though not completely fix, this strange payment scenario.
What Congress didn't do is require Medicare to pay for rehab services that follow a lengthy hospital stay. But Congress has required that Medicare outpatients get a formal notice that they are on the hook for the costs. This new notice requirement takes effect in January.
Congress is also considering tweaking the law further, so that time spent under observation in a hospital could be included in determining whether someone was in the hospital long enough in order for Medicare to cover subsequent nursing and rehabilitative care.
Protecting your assets
A rule like this one on Medicare coverage can affect you in several different ways. For starters, if you or a close family member is facing several nights in a hospital under "observation," you could consider insisting on admission as the formal status.
More broadly, there is also the question on how to manage your assets so that they are not excessively impacted by health care costs. It makes sense to discuss your situation with a knowledgeable attorney. An attorney can help you make appropriate use of trusts or other estate planning tools to make decisions about your assets that fit your family's goals.