It’s natural for older adults and their caregivers to worry about the cost of senior medical care. We ask ourselves things like, how much does it cost? How will I/we pay for it? For how long? What if I/we need help paying for it? These are difficult questions. Fortunately, there are options when it comes to paying for senior care. Often, a person will rely on a variety of payment sources over time, including personal funds, government programs, and private financing options.
According to the 2020 Genworth Financial Cost of Care Survey (https://www.genworth.com/aging-and-you/finances/cost-of-care.html), the average national monthly cost for Assisted Living care is $4,300. For comparison, the average monthly cost for care increases to $4,576 for Home Health Aide care and increases substantially more to $8,821 a month for private room Nursing Home care. Costs can vary substantially by location and we recommend you look at estimated costs in your local area using readily available online cost calculators like Genworth.
With that as background, let's look at some of the options.
Personal Funds (Private Pay)
Private payment for care using your personal or family funds is generally the first source of funding for care. These funds can come from your income or savings, including Social Security, but also pensions, retirement accounts, and proceeds from the sale of a home or other assets. Many government assistance programs have criteria that essentially require that the majority of personal funds be spent prior to becoming eligible for the government assistance.
Many seniors are or ultimately become eligible for government health-related benefits. Although this is not a comprehensive list, some of the major programs are described below.
Medicaid: Medicaid is a joint federal and state program that may be available for those who have exhausted their own personal resources or have low enough income to qualify for government aid. Medicaid eligibility varies by state, but typically, it requires the recipient to have less than $2,000 in assets beyond their home and car. Additionally, most state Medicaid programs implement at 60 month “Look-Back Period” where they review financial transactions of the applicant for below market dispositions or gifting of assets (e.g. selling or transferring assets to family at a discount).
Not all assisted living providers participate in Medicaid-funded programs due to low reimbursement rates and increased regulations. If you anticipate using Medicaid to fund your assisted living care, it’s wise to ask upfront if the facility accepts Medicaid. It’s also wise to start early, as the application documentation is quite extensive and it often takes 45 to 90 days for a Medicaid application to be processed by the state Medicaid office.
The exact services that Medicaid covers vary by state and the specific program a senior enrolls in. In many states, Medicaid programs go by another name (e.g. in Kansas it’s called Kancare), so it’s a good idea to look up the name of your state’s program online. Medicaid.gov is a good resource for state-specific research. Some other useful resources, particularly for state-by-state and estate planning information, are: PayingForSeniorCare.com (https://www.payingforseniorcare.com/medicaid-waivers/assisted-living) and MedicaidPlanningAssistance.org (https://www.medicaidplanningassistance.org/).
Medicare: Medicare does not cover assisted living room and board or personal care.
Veteran’s Benefits: For those who have served our country, the Veterans Administration (VA) offers benefits that can be used to pay for assisted living, known as Non-Service Connected Improved Pension Benefit with Aid & Attendance (or simply, Aid & Attendance). This benefit is an “increased” monthly pension that can range from $1,244 to $2,295 per month in 2021. If you think you may be eligible for this benefit, apply sooner rather than later as eligibility is fairly complicated and there can be extensive wait times for approval. Although the Aid & Attendance program does have income and asset eligibility requirements, the financial thresholds for eligibility are significantly higher than for Medicaid (e.g. $127,061 in assets vs. $2,000 for Medicaid).
One important point to mention is that, in practice, individuals do not receive assistance from both Medicaid and the VA Aid & Attendance program at the same time. Both programs can be considered and potentially utilized at different points in time. However, with married couples, one spouse can receive Medicaid assistance and the other can receive a veteran’s pension.
Other Private Financing Options
Reverse Mortgage: this is a special type of home loan, only available to individuals age 62 or older, that lets a homeowner convert part of the equity in his or her home into cash. There are different types of Reverse Mortgages but the most common is the federally insured Home Equity Conversion Mortgage (HECM).
The loan amount is tax-free and can be used for any expense. However, if you have an existing mortgage or other debt against your home, you must use the funds to pay off those debts first.
Reverse mortgages are usually only an option if the senior’s spouse, or another individual who is a co-borrower on the loan, still resides in the home and maintains it per the terms of the loan. Otherwise, the loan becomes due when the last borrower no longer lives in the house for 12 consecutive months, sells the home or dies.
Long-Term Care Insurance: this is an insurance policy, generally purchased years in advance, that is purchased through a private insurance company to cover the costs of senior care. The exact coverage depends on the type of policy you buy and what services are covered. The cost of the policy is based on the type and amount of services, how old you are when you buy the policy, and any optional benefits you choose.
Life Insurance: some life insurance policies allow for “living benefits” and the opportunity for the company to buy back the policy at some % of face value (e.g. 50-75%). In some cases, these policies require the policyholder to be terminally ill before a buy back can be considered. If your life insurance policy does not allow for “living benefits”, there are still options available. You may be able to sell your policy at some % of face value (e.g. 50-75%) to a third-party in return for a “life settlement” or “senior settlement”. In this scenario, you may receive a lump sum while the buyer becomes the beneficiary of the policy and is responsible for future premium payments.
There are a lot of options when it comes to how to pay for assisted living care. Don’t be afraid to ask for help navigating it! Please feel free to reach out to us at firstname.lastname@example.org. We’re here to help. We realize we may not be a fit for your assisted living needs, but we would love to be helpful in any way that we can.
Until next time….
Disclaimer: This video and article are for educational purposes only. It is not intended to provide any legal, medical, financial or other professional advice. As with all of our educational content we encourage you to seek out competent advice from licensed professional. While we make our best effort to provide correct and up-to-date information we cannot guarantee the accuracy of the information provided.
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