Medicare Misunderstandings

Well, welcome once again.

It is Mr. Stillman's Opus. I'm joined today by a good friend, Bruce Gray, who comes to us from Springfield, Missouri, but spends a lot of his, or has spent a lot of his time in Walnut Creek, right outside of the Bay Area, or I guess it is the Bay Area, in California, right? Sure. I hang around in both places. Little time in the heartland, a little time on the West Coast. You've been helping people plan their retirements, Bruce, since, I believe, the Herbert Hoover administration. Is that accurate?

Yeah, me and Herbert, we went to different schools together. Actually, you know, it's interesting, at least it is to me, but I started in this field the year Medicare began, 1966. Mm-hmm.

Which means I'm old. You've been around the block, so to speak, but that is exactly what I wanted to talk with you about, is Medicare, because you've been living in that world for several decades now, so I wanted to get your perspective on some things in the Medicare world, some little understood facts, you might say, about Medicare. And I think one of the big misunderstandings that people have about Medicare is, you know, what exactly is covered as far as skilled nursing and long-term care and all that kind of stuff? Well, as far as long-term care, nothing. Simple enough. Yeah.

Well, I mean, you have to listen very succinctly, folks, to the terms that he just used. Skilled nursing is skilled care on a daily basis. And yes, Medicare will cover skilled care on a daily basis, but the minute you are just helped out of bed or helped to walk or bathed, that's not skilled care, folks. That's custodial care, and that breaks your consecutive skilled days, and when that happens, Medicare is done with you.

So let's talk about what Medicare does. When you go into a skilled nursing facility under federal Medicare, the first 20 days, Medicare does not cover at all. In other words, if it's $300 a day in that skilled nursing facility, that's what you're going to pay.

The first 20 days are on you, all out of your pocket. Then beginning with the 21st day to the 100th day, Medicare, if you are having skilled care and listen very closely to this term, you have to have skilled care on a daily basis. If they're teaching you to speak from a stroke or to walk or anything of that nature, that's fine and dandy. That is skilled care. But if you rest one day, you are no longer having daily skilled care.

If you have skilled care today, you rest tomorrow, you have skilled care the following day and the rest of the day after that, that is termed intermediate care, intermediate care. Medicare does not pay for intermediate care. So basically, what you should look at under federal Medicare is having precious little skilled nursing or custodial nursing benefits at all. And custodial care, by the way, folks, is the big bugaboo for those who are in a long-term care facility. The longest cares are typically people who are there from dementia or Alzheimer's, and they do not get skilled care. They're just helped to walk, bathe, getting in and out of bed, taking their medications. That is custodial care.

There is not even intermediate skilled care there. You might say, well, wait a minute, if I have a stroke, I'm good. Well, you're good if your care is again daily skilled, but if you have speech therapy, Monday, Wednesdays and Fridays and Tuesday, Thursday and Saturdays, you rest, you're right back into the intermediate care thing. So the thing that needs to be very, very well understood, John, here, and most people don't get it, is it must be skilled care on a daily basis. The minute that you miss one day, you're done. You're cooked.

It's over. And that is the law of Medicare. Now, you might say, well, that's unfair.

Well, it's not unfair. Medicare was never designed to be a long-term care plan. It was designed to pay hospital and doctors coverage and help you a little bit in between becoming a skilled patient and a custodial patient.

That's all that it was designed to do. And if you want more coverage out of Medicare, what you're basically saying is, dear federal government, I want more taxes because the money has to come from somewhere. And Medicare is already a huge, huge program. People are living longer, so it's requiring more and more dollars to pay their Medicare benefits. So Medicare is the greatest buy that you will ever have in insurance. If you were to be 66 years of age and have no Medicare and you had to have a traditional major medical coverage with catastrophic coverage on it, state of California, I've been, had a business there for, since 1983. I can tell you that your costs to pay, your charges to pay those costs in California would badly bend you. Costs just continue to go up all around the United States.

By the way, if you go into a doctor's office, you're going to see why. They've become more able to handle more situations. They have more advanced equipment. That simply means they make a larger investment in their business and they're not there to be in philanthropic organization.

They're not there to say, hey, John, it's good to see you. And I'm here because I want to care for you and I'm loaded with money and I'm not going to charge you a penny. So understand what you're looking at here. Federal Medicare is a wonderful benefit for hospital and doctor. You do need a Medicare supplement, but if you are concerned about long-term care in any capacity, you need to see if you can get a long-term care contract. Does that make sense John?

Yeah. Well having explained all that and underscored the fact that custodial care is not going to be covered in any way, shape or form by Medicare, one of the points I'm always trying to drive home to people is that you need some kind of long-term care plan and that doesn't necessarily mean long-term care insurance per se. That could be the solution for some, but we need a plan for how we're going to address those expenses.

Yeah, and you may have a lot of money and you could pay for it. Now what I have started suggesting in my practice started, have been doing it for years now, is instead of buying traditional long-term care insurance, which is like homeowners insurance or car insurance, if your home doesn't lose its roof or burn down or have a problem, you don't get any back and if you don't wreck your car or have it stolen or whatever, you don't get car insurance money back. And that's the way long-term care was for years. Now today, John, as you well know, we have long-term care life insurance plans and we have long-term care annuity plans. Let's just look at the annuity plan for simplicity for a minute.

You can put a lump sum of money into a fixed annuity with a guaranteed growth rate and let's suppose that you put in $200,000. The company that issues this particular type of coverage will triple your coverage. They will then make your long-term care coverage for $600,000.

If you passed away and you never used it, your $200,000 plus the growth goes to your heirs. But if you need long-term care protection, you would now have $600,000 plus to pay to a long-term care facility and so basically for every dollar that you put in, the company adds an additional $2 for long-term care coverage. These types of plans are far, far more popular today than the old long-term care plans because you win-win. If you get sick, you win because you have somebody to help you pay the charges.

But if you stay well, you or your heirs win because the money still remains in your control. So there are some wonderful opportunities today for long-term care opportunities that didn't exist back in 1966 when Medicare began. How often do you do long-term care insurance? Like traditional long-term care insurance as people have known it where you're paying a couple thousand a year for the premium and you have X amount per day in coverage. I mean, what percentage of the time do you go that route versus either a life insurance or an annuity solution? Far more rarely do we use traditional long-term care because you were kind in your premiums. If you take two people in their mid-60s for long-term care, you're talking $8,000 a year probably in long-term care premiums.

Why? Because they have to have enough money paid to them in the event that one of them is ill that it will pay these larger long-term care charges. I mean, mercy. You look at long-term care costs in 1966 and look at them today, it's a whole different picture. By the way, John, I have had several occasions over my career where I've had a husband and a wife in a skilled nursing facility at the same time.

Most often they're in the same room together, which is nice because they know each other and they'll get along. But the fact of the matter is that happens. Don't think it's just an isolated event. And God forbid it happens to both of you. You're talking about some spicy meatball there when you're paying those charges on both of you. So it is something, I tell people, it is something that has to be considered. I have a client I talked with not long ago.

He's worth $8 million. We're talking about it and he says, do I need to have this? I said, only if you want it. If you go into a facility and you're willing to pay the bills for you and your wife, yourself, you have the money to do that.

Now if you want to protect that money for your children, you should have some type of long-term care coverage because now it becomes protection for your heirs as well as protection for you. Makes an awful lot of sense. And also the first time that we've ever used a spicy meatball talking about long-term care. Thank you for going that route.

Oh, I have a lot of wonderful Italian clients. They teach me these phrases. There you go. Well, certainly appreciate your wisdom, Bruce. I know this is right in your wheelhouse and we'll have you back at some point to talk about some other things about Medicare and long-term care planning that people need to know. But certainly appreciate your wisdom, big guy. Glad to talk with you, brother. We'll talk to you soon. Thanks for tuning in. This has been Mr. Stilman's Opus.