When chronic health conditions, recovery from an illness, dementia, or even the normal aging process makes it difficult for a senior to live at home safely, in-home care can provide the supervision and assistance they need to age in place and carry on daily routines. However, families are often concerned about how much home care services cost and what their financial options are for payment. Use this guide to determine a senior’s unique care needs and explore ways of paying for home care.
The first step is clarifying the type of care an elder needs. Medically necessary home health care is likely to be covered by a combination of payment options, whereas non-medical home care provided by “unskilled” caregivers is typically paid for out of pocket. A comprehensive needs assessment is usually conducted to determine the type and amount of services a senior requires to meet their unique needs.
How Much Do Home Care Services Cost?
The second step in deciding if in-home care is the right fit for an aging loved one is to estimate costs. In-home care costs vary by location as well as by service level. Home health care that is provided by trained medical professionals like registered nurses and therapists is the most expensive level of care at home. According to the Genworth Cost of Care Survey 2020, the national median cost of home health care is $24 per hour. The median hourly cost of non-medical home care, such as homemaker services and custodial care, is $23.50.
What Insurance Covers In-Home Care?
Medicare In-Home Care Benefits
Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities and people with end-stage renal disease.
In most cases, when ordered by a physician, Medicare Parts A and/or B will pay for medically necessary services provided in a home setting over the short term. A senior who requires only non-medical care (e.g. meal preparation, bathing assistance, housekeeping), will NOT qualify for Medicare coverage of these services.
Medicare-certified home health care agencies are companies contracted by Medicare to provide a host of covered home health services. Medicare only pays for services provided by an agency that meets its quality standards. A senior who is part of a Medicare Advantage Plan may have to use a certified home health care agency that participates in their plan’s network.
Using Traditional Health Insurance Plans to Pay for Home Care
Private health insurance plans may pay for select elder care services, but coverage varies from plan to plan. Most forms of private insurance will not pay for non-medical home care services, and in-home skilled care is rarely covered at 100 percent. Research prospective policies for the best coverage options.
Medigap Coverage of Home Care Services
Also known as Medicare Supplement Insurance, Medigap is additional policy coverage that works alongside Original Medicare benefits (Parts A and B). The supplemental policy is purchased from a private company to pay for the “gaps” in costs not covered by Medicare, such as copays and deductibles. Neither Medicare nor Medigap policies are designed to pay for long-term care, so their coverage for in-home services is typically limited to medically necessary care over the short term. If a senior does not meet Medicare’s requirements for home health care coverage, then a Medigap plan will not minimize out-of-pocket costs for these services.
Long-Term Care Insurance Benefits Cover In-Home Care
Long-term care insurance is a type of insurance purchased from private companies to cover the costs of nursing home care, assisted living and home health care. Benefits vary depending on the plan, so it is important to clarify the services covered by the policy at the time of purchase. Keep in mind that assistance with the costs of personal home care may only be provided if the plan includes an allowance for non-medical services.
Plan ahead when it comes to building and purchasing a long-term care insurance policy. Premiums are lowest for healthy individuals in their fifties or sixties. Older seniors and those with chronic illnesses or serious medical conditions are unlikely to qualify for coverage. According to the American Association for Long-Term Care Insurance, more than half (53.6 percent) of applicants age 75 and older were declined for traditional policies in 2020.
Using Life Insurance to Pay for Home Care
There are a few ways that seniors who have life insurance policies can use them to pay for home care. Options include taking a loan from the policy’s cash value or surrendering the policy entirely in exchange for the cash value.
Some policies may feature an “accelerated death benefit” rider, which is a cash advance that is subtracted from the death benefit amount the beneficiary receives upon the death of the policy holder. The owner of the policy must be terminally ill with a limited life expectancy (usually under 24 months) or be deemed unable to perform basic activities of daily living (ADLs). The policy is not surrendered at the time of the cash advance, so the policy holder must continue to pay the premiums to guarantee the beneficiary receives what remains of the original death benefit. The insurance company will require physicians’ statements and medical records attesting to the illness or loss of function before they will pay out any early benefits.
The life settlement industry is emerging as a popular option for seniors to receive cash payments through the sale of existing life insurance policies to third parties, who assume future premium payments and collect the death benefits upon maturity. Elders can then use this lump sum however they choose—often to cover long-term care costs. According to the Life Insurance Settlement Association, “candidates for life settlements are typically age 65 or older and own a life insurance policy with a face value amount in excess of $100,000.” Viatical settlements are similar except that the original policyholder is usually terminally ill and has a defined life expectancy of less than two years.
Another relatively new option is life care funding or life insurance conversion. Instead of receiving a lump sum from the sale of a life insurance policy, the original owner receives a specific dollar amount worth of elder care services in the form of a “long-term care” or “life care” benefit account. This account must be used to pay for the provision of services like home care directly. Again, the third party who buys the life insurance policy assumes the premium payments and subsequently collects the death benefit when the original policyholder dies. Unlike settlements, life care funding will not affect a senior’s Medicaid eligibility if done properly.
Veterans Benefits That Cover In-Home Care
Using VA Health Benefits to Pay for Home Care
The Veterans Health Administration (VHA) Standard Medical Benefits Package may be used to provide various levels of home care services as an alternative to nursing home care and as a way of delivering respite care for veterans and their family caregivers. The VA’s Skilled Home Health Care Services (SHHC), Homemaker and Home Health Aide Services (H/HHA), and Home-Based Primary Care programs are available to all veterans who meet eligibility requirements for standard benefits, although some additional conditions may apply.
VA Pension Benefits Can Offset Home Care Costs
VA pensions are a source of funding that can help cover the costs of home care for veterans and their surviving spouses. In addition to the basic Veterans Pension, “improved” pensions (categorized as Aid & Attendance or Housebound) increase the monetary benefits available to veterans and surviving spouses whose needs require a higher level of care.
Eligibility for VA Pensions can be complex, but the basic requirements include 90 days of active duty service (including at least one day during a recognized wartime period) and any character of discharge other than dishonorable. Since pensions are need-based, applicants must meet certain income and asset limits as well.
Private Pay Options for Funding In-Home Care
Using Income and Savings to Pay for Home Care
Most families pay out of pocket for in-home care services. Possible sources used to cover private pay home care expenses might include individual retirement accounts (IRAs), health savings accounts (HSAs), pensions, investments, annuities, real estate and Social Security benefits. Although seniors may be hesitant to use their hard-earned savings or liquidate assets, it is important to consider that properly “spending down” almost all assets is required to qualify for Medicaid. By and large, elder care needs grow over time and higher levels of long-term care are increasingly expensive. Unless an aging loved one has amassed significant savings, it is important to consider the possibility that they may outlive their funds and need to apply for Medicaid when creating a long-term financial plan.
Using a Reverse Mortgage to Pay for Home Care
A reverse mortgage loan allows senior homeowners with substantial home equity to receive cash by borrowing against the value of their homes. The proceeds can be used to pay for home care, fund home modifications for aging in place, and even purchase long-term care insurance. Reverse mortgages become due when the borrower sells the home, moves from the home or passes away.
Public Assistance for Home Care Coverage
Medicaid Coverage of In-Home Care
Medicaid is a joint state and federal program that provides health coverage to seniors with low income and limited assets. Benefits are administered on a state level, so eligibility requirements and covered services can differ greatly.
Depending on where a senior lives, the fundamental Medicaid State Plan may cover both home health care and personal care services. Some states have expanded their Medicaid coverage through the use of waivers to provide services for populations that might not be eligible otherwise. Home & Community Based Service Waivers (HCBS) can be used to pay for in-home health care and non-medical home care services. In many states, family caregivers can get paid for the care they provide through Medicaid “Cash and Counseling” programs.
Check Medicaid.gov or your state’s website for information on specific eligibility guidelines, waiver programs, services that are covered and how to apply.
Supportive Services Through the Older Americans Act
The Older Americans Act (OAA) provides federal funding for a range of home- and community-based services throughout the country. Although they are not intended to provide funds to seniors directly, these services and resources can be a welcome time and cost savings to supplement the expense of providing in-home care. The OAA established a nationwide network of Area Agencies on Aging (AAAs)—public or private non-profit agencies designated to address the needs and concerns of all older persons at regional and local levels. Contact your local Area Agency on Aging for a list of supportive senior services offered in your community.
Planning to Pay for Home Care
Fortunately, there are many resources available to help families with financial planning for in-home care expenses. Elder law attorneys specialize in topics related to aging, such as preparing for retirement, funding long-term care and estate planning. They draft wills, draw up power of attorney documents, answer tax questions, and help seniors with Social Security benefits, veterans benefits, and Medicaid applications and issues. If you or an aging loved one needs assistance, locate an elder law specialist in your community. Not only can they assist with legal documents and counsel but they can also provide referrals to other professionals like financial advisors, tax specialists, geriatric care managers and elder care providers.
Sources: Genworth Cost of Care Survey 2020 (https://www.genworth.com/aging-and-you/finances/cost-of-care.html); Medicare Home Health Services Coverage (https://www.medicare.gov/coverage/home-health-services); The Ability To Remain In Your Own Home Is One Of The Greatest Benefits Of Owning Long-Term Care Insurance (https://www.aaltci.org/long-term-care-insurance/learning-center/home-health-care.php); Long-Term Care Insurance Facts, Data & Statistics: 2020 Report (https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2020.php); Home and Community Based Services (https://www.va.gov/GERIATRICS/pages/Home_and_Community_Based_Services.asp); Eligibility for Veterans Pension (https://www.va.gov/pension/eligibility/); FTC Consumer Information: Reverse Mortgages (https://www.consumer.ftc.gov/articles/0192-reverse-mortgages)