What Does HCPOA Mean in Financial and Estate Planning?

A Healthcare Power of Attorney (HCPOA) is a key document in financial and estate planning, allowing a designated person to make medical decisions when someone becomes incapacitated. While its main function is healthcare-related, it also has financial implications, particularly in managing medical expenses, insurance claims, and long-term care costs.

Financial Authority for Medical Expenses

When a person becomes incapacitated, medical expenses can accumulate quickly. An HCPOA grants the designated agent authority to approve payments for treatments, hospital stays, and specialized care, ensuring providers are paid without delays that could disrupt care. Without this authorization, unpaid bills could lead to denied services or collection actions against the patient’s estate.

The agent may access bank accounts, write checks, and authorize electronic payments for medical costs. If the incapacitated individual has a Health Savings Account (HSA) or a Flexible Spending Account (FSA), the agent can use these funds for qualified medical expenses under IRS rules. Misuse of these funds for non-medical purposes can result in tax penalties.

In some cases, the agent may need to negotiate payment plans with healthcare providers or apply for financial assistance programs. Many hospitals offer income-based assistance or charity care programs that reduce out-of-pocket costs. Qualifying for these programs requires financial documentation, which the agent must provide to ensure care continues without excessive financial strain.

Coordination with Health Insurance Payments

Managing health insurance claims and reimbursements requires careful oversight. The agent is responsible for filing claims, appealing denials, and ensuring providers receive payments based on policy terms. Without active management, billing errors or missed deadlines could lead to unexpected out-of-pocket costs.

Insurance policies typically require claims to be submitted within 90 to 180 days after treatment. If a claim is denied, the agent must initiate an appeal, usually within 30 to 60 days. Appeals may be necessary due to coding errors, lack of preauthorization, or documentation discrepancies. Keeping detailed records of treatments, invoices, and insurer correspondence helps support these appeals.

The agent must also verify that deductibles, copayments, and coinsurance amounts are calculated correctly. Many health plans require policyholders to meet an annual deductible before coverage applies. Reviewing Explanation of Benefits (EOB) statements ensures accuracy and confirms that insurers have processed claims correctly.

Long-term care insurance adds complexity. These policies often have an elimination period—typically 30 to 90 days—before benefits begin. Some policies reimburse expenses rather than paying providers directly, requiring the agent to submit receipts and proof of payment. Failure to follow these procedures could delay or reduce benefits.

Administration of Assets During Incapacity

Managing an incapacitated individual’s finances extends beyond medical expenses. An HCPOA often works alongside a Durable Power of Attorney (DPOA) to ensure ongoing obligations—such as mortgage payments, utility bills, and investments—continue without disruption. If the individual owns rental properties, the agent may need to collect rent, pay property taxes, and handle maintenance to prevent financial losses.

Investment accounts require attention, as market fluctuations can impact financial stability. If the incapacitated individual has a brokerage account, the agent may need to work with financial advisors to adjust asset allocations. Some accounts, such as IRAs or 401(k)s, have withdrawal restrictions that could result in penalties if accessed improperly. The agent must also ensure required minimum distributions (RMDs) from retirement accounts are met, as failure to do so results in a 25% penalty under IRS regulations as of 2024.

Business ownership adds further complexity. If the incapacitated person owns a business, the agent may need to oversee payroll, vendor contracts, and operational expenses. Some businesses have succession plans or buy-sell agreements that outline procedures for incapacity, but if none exist, the agent may have to make financial decisions to keep operations running. If the business is structured as an LLC or corporation, the operating agreement may specify the agent’s authority, but sole proprietors may face greater challenges maintaining continuity.

Potential Tax Consequences

Managing tax obligations for an incapacitated individual requires attention to reporting requirements, deductions, and potential liabilities. The agent under an HCPOA may also hold a DPOA or work alongside a financial agent to ensure tax filings remain compliant. If the individual receives passive income from investments, rental properties, or business interests, the agent must ensure proper withholding and estimated tax payments to avoid IRS penalties. Underpayment of estimated taxes—required if expected liability exceeds $1,000—can result in interest charges.

Tax implications also arise when liquidating assets to cover expenses. Selling securities from a taxable brokerage account may trigger capital gains tax, with long-term gains taxed at 0%, 15%, or 20% depending on income. If assets are sold at a loss, tax-loss harvesting strategies can help offset other gains. Real estate sales add complexity, as depreciation recapture on rental properties is taxed at up to 25%, and state-level tax laws may impose additional burdens.

Effects on Estate Administration

An HCPOA affects estate administration after death. Decisions made by the agent—such as asset liquidation, debt payments, or long-term care arrangements—can impact the estate’s value and the distribution of assets to heirs. If significant medical expenses were incurred, outstanding liabilities may need to be settled before beneficiaries receive inheritances.

Debt obligations at the time of death must be addressed before assets are distributed. If the incapacitated individual had unpaid medical bills, those debts typically become the responsibility of the estate. In states with community property laws, a surviving spouse may also be liable for certain medical expenses. The estate executor, who may or may not be the same person as the HCPOA agent, must prioritize creditor claims before distributing assets. If estate funds are insufficient, some debts may go unpaid, but secured obligations—such as mortgages—could result in asset liquidation. Medicaid recipients who received long-term care benefits may also be subject to estate recovery programs, where the state seeks reimbursement for services provided.