Paying for Senior Care: Long-Term Care Costs & Options

According to Genworth’s 2020 Cost of Care Survey, the national median rate for care in an assisted living facility (ALF) is $51,600 annually. The median annual rate for a semi-private room in a nursing home is $93,075 and opting for a private room will bump that annual cost up to $105,850. If you think that you won’t be affected in some way by long-term care costs, think again. A study conducted by the U.S. Department of Health and Human Services predicts that more than 70 percent of Americans over the age of 65 will require long-term care at some point in their lives.

How to Pay for Long-Term Care

Families often struggle to find funds for an aging loved ones' long-term care. All too often individuals do not pursue a comprehensive financial plan early enough to cover all of their future costs. Either they are not proactive, or they plan to “self-insure” for long-term care through the lifetime accumulation of personal savings and investments. But, unless you have amassed substantial monetary resources, these costs can wipe out a person’s life savings in a relatively short amount of time.

Long-term care options include adult day care services, home care, assisted living, specialized memory care and nursing home care. Health insurance policies do not cover these costs, and Medicare coverage for skilled nursing facilities is only intended for short-term rehabilitation, not extended treatment of a chronic condition. Medicaid does cover long-term care services, but only for those eligible individuals who have low income and few assets. So where do seniors and their families turn for financial assistance?

Planning for the unknown is always a challenging feat, but there are a number of sources of funds available that could help finance a loved one’s long-term care.

Medicare

Medicare is a national health insurance program funded and administered by the U.S. government. As part of the Social Security Act, Medicare is available to people 65 or older, younger people with disabilities and people with End-Stage Renal Disease (ESRD). There are different parts of Medicare, one of which (Part A) pays for inpatient hospital stays, rehabilitative care in a skilled nursing facility, hospice care and some health care. It is important to understand, however, that Medicare only pays for medically necessary, short-term care. Although Medicare-covered services may include skilled care in a "nursing home" or skilled nursing facility, costs are only covered in certain conditions and for a limited time.

Read more about: Medicare

Medicaid

Medicaid is a medical assistance program for low-income individuals. It is need based, therefore there are strict financial eligibility requirements to qualify. Medicaid is administered by each state in accordance with federal guidelines, so the specific eligibility guidelines and benefit programs vary by state.

In all states, Medicaid can be used to pay for a variety of long-term care options. Medicaid always pays for medically necessary inpatient and skilled home-care services, and in some states will pay for non-medical personal care services provided at home. Through HCBS waiver programs, it is even possible in some states to pay a family member to provide care at home.

For more information on eligibility and specific programs available near you, contact your state Medicaid office for answers to any questions on applications, coverage and services.

Read more about: Medicaid

VA Benefits

There are a number of different compensation and benefits programs available to veterans and their spouses. One of the most popular benefits used to help pay for long-term care services is the Aid and Attendance and Housebound increased monthly pension. This program provides funds for care at home, in assisted living, independent living, or a nursing home to veterans who require regular assistance of another person in order to perform activities of daily living (bathing, toileting, dressing, etc.), are bedridden, living in a nursing home due to physical or mental incapacity, blind, or permanently and substantially confined to their home due to a disability. The application process for VA benefits can be lengthy and complex, so it is crucial to ask for assistance from an expert and apply as soon as possible. See the Veterans Benefits Guide for more information on available benefits, eligibility guidelines and how to apply.

Long-Term Care Insurance          

The sole purpose of buying a long-term care insurance (LTCI) policy is to ensure that funds will be available to pay long-term care bills for a set period of time. Insurance companies will typically only approve individuals under age 84 who do not have dementia or memory issues, mobility issues and/or diabetes, so it is essential to purchase one of these policies while you are still healthy. There are various kinds of LTCI available, and each has its own perks and drawbacks. Consult with a reputable insurance agent to find out what kind of policy would be best for your situation.

Life Insurance

As long-term care costs begin to put a strain on a family’s income and assets, it can be particularly difficult to continue paying monthly premiums for a life insurance policy. While many seniors end up letting their policy lapse or surrendering it to receive a lump sum that amounts to only a fraction of their policy’s worth, there is a better alternative. Whole, term, or universal life insurance policies can all be converted into a Long-Term Care Benefit Plan Account. This conversion transfers ownership of the policy to an entity that acts as a benefits administrator who then assumes all responsibility for premium payments. In order to convert, the previous policy holder must have an immediate need for some acceptable type of long-term care, and he or she arranges monthly payouts to help cover these services. These payouts are made directly to the care provider (e.g.: assisted living facility or home care agency), not the previous policy owner, so this is a perfectly acceptable Medicaid spend-down strategy.

Private Pay Options

Pensions, interest income, dividends from investments, payments from an IRA or 401(k), cash, savings, stocks and bonds, annuity payments, or real estate are all straightforward resources for funding long-term care. However, the real issue boils down to whether or not these funds are sufficient on their own or in conjunction with others to cover care expenses for an extended period of time.

Funds to Consider for Covering Long-Term Care:

  • Social Security Benefits
  • VA Benefits
  • Pensions
  • 401(k) or 403(b) accounts
  • Individual Retirement Accounts (IRAs)
  • Savings
  • Stocks, Bonds and Mutual Funds
  • Annuities
  • Real Estate
  • Investment Dividends
  • Interest Income
  • Reverse Mortgage
  • Trusts
  • Medicaid
  • Life Insurance
  • Long-Term Care Insurance

Plan Ahead for the Costs of Long-Term Care

Regardless of how you decide to plan for financial security in your golden years, it is vital to begin preparations as soon as possible. Consider all of your options, designate a trusted family member or professional fiduciary as your financial power of attorney who can manage your affairs in case you are unable to, and thoroughly educate this person on the entirety of your financial situation (assets, liabilities, debts and income) so they can make informed and confident decisions on your behalf.

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