Paying for Long- Term Care: Straight Answers to Financial Questions

How much does long-term care cost?

Costs of long-term care vary by service and geography. The average costs in the United States in 2006 are:

$176 a day for a semi-private room in a nursing home

$203 a day for a private room in a nursing home

$2,691 a month for an assisted living facility, one bedroom unit

$19 per hour for a home health aide

$17 per hour, (or about $200 per 24 hour shift) for homemaker services

$56 a day for Adult Day Health Care

Who Pays for Long-Term Care Services?

You! That is the short answer to dispel any myths. If you want maximum choices and control over you future, you will need to save and invest or have (generally very costly) long-term care insurance.

Currently, fifty percent of home care costs are being paid for privately by the care recipient or their families. The next biggest payer is Medicare, followed by other payers, such as Medicaid, Social Services Block Grant, Title III of the Older Americans Act, and the Veterans Administration. Currently, private long-term care insurance finances a small percentage of home care, but may expand as a funding source over the next two decades.

Personal resources

Personal resources, or family money, is typically how long term care is paid for. Saving and investing money for your long-term care needs is the best way to assure that you can choose where and how you receive your care for the rest of your life. Savings, stocks, bonds, investments, life insurance policies, pensions, income, checking and savings accounts are some examples of where people accumulate funds. Some investments may have a penalty for withdrawing money, so check with your financial advisor for details. Home Equity Lines of Credit (HELOC) or second mortgages are also options.  Contact your certified financial advisor to find the method that will work best for you.

What about Medicare?

Medicare is essentially a form of health insurance. Most Americans misunderstand the relationship between health insurance and long-term care. Like private health insurance, Medicare DOES NOT pay for all of our needs as we age. Medicare does not pay for help with activities of daily living, such as eating, bathing, dressing at home or assisted living. Medicare also doesn’t pay for hearing aids, dental care or dentures, glasses, most prescription drugs (except if you buy Medicare Part D), routine foot care, or services outside the U.S. (with few exceptions). Custodial care is not included as a Medicare benefit, yet that is the most costly type of care we need as we age. This is very disappointing for those who think Medicare (or private health insurance for that matter) will be covering these expenses.

Generally, Medicare will pay for skilled nursing or home health care and  skilled nursing and rehabilitation costs (up to 100 days), but only after a three-day (three midnights) stay at a hospital for “skilled” services, such as nursing or physical therapy.  Home health care is sometimes covered by Medicare, and Medicare does cover intermittent nursing services, physical therapy, and medicine assistance.  In most cases Medicare does pay 100% for hospice services from an approved agency for terminally ill people.

Medicare Part B / Supplemental helps pay for physician’s visits, rehabilitation services, outpatient hospital services, ambulance services, some medical supplies and services.

Some Medicare Advantage Plans offer limited skilled nursing facility and home care coverage if it is medically necessary. Caregiving, or companion care services include assistance with activities of daily living, house cleaner, cooking, and shopping. Medicare has rules for approving home health care, such as the patient must be homebound, must need periodic rehabilitative therapy, and the agency must be Medicare approved.

Medicaid

Medicaid (or MediCal in California) is for those with very limited income and assets, and acts as health insurance for hospitalizations, rehabilitation, medicine, limited custodial care and long-term nursing home care. The rules for counting your income and resources for eligibility vary from state to state and from group to group. Until recently, getting Medicaid assistance for long-term care meant a trip to a nursing home. 

In some states Medicaid has recently improved programs to pay for Adult Day Health Care programs, meals, and portions of in-home supportive services. Medicaid has also started partially covering assisted living and other costs in some states.

   The following are some of the things that are considered in determining whether   

   someone is eligible for Medicaid benefits in a nursing home:

• You can have no more than $2,000 in “countable” available assets (these have general federal guidelines, rules by state may vary somewhat). 

• The spouse of a nursing home resident (called the “community spouse”) is limited to one-half of the couple’s joint assets up to $101,640 (in 2007) in countable assets. 

• In addition, the community spouse may keep the first $20,328 (in 2007), even if it is more than half the couple’s assets.

As you can see, most people are not eligible for Medicaid because their assets and income are too high. Contact a Medicaid Planning specialist to discuss the latest laws and regulations, and how to best plan for your long-term care needs.

Long Term Care Insurance

Long Term Care Insurance can help pay for many types of long-term care, skilled and custodial (non-skilled) care, at home and assisted living or nursing home. This can be good protection against the high costs of long-term care services. However, this is not something to be purchasing for a senior when the need is already present.

Policies vary widely and rates vary by age, health, and coverage options. These policies can be expensive. In general, you must be in good health when you purchase the policy, so it may be a good idea to purchase when you are younger and the premiums are lower.

Polices are sold by private insurance companies, and it is very important that you purchase coverage from a reputable provider. Do your research to insure you get the coverage you will need in the future. Compare costs and coverage from different companies. Make sure you examine what benefits the policy covers. Ask about inflation riders and deductible periods. 

Employees can sometimes get group rates through an employer or membership in an organization. Some polices offer tax benefits, under as Tax-Qualified policies and, depending on your age, premiums might be used as a medical deduction on your Federal income tax form. Talk to your long term care insurance agent, certified financial advisor, or your State Insurance Department to find out what is best for you. You can also contact the National Association of Insurance Commissioners (NAIC) and request their publication, “a Shopper’s Guide to Long-Term Care Insurance.”

Supplemental Security Income (SSI)

Supplemental Security Income (SSI) is a monthly income for older adults with limited financial resources. Typically SSI and Medicaid eligibility have similar income and asset thresholds.  SSI provides a monthly federal cash assistance of up to $623 (in 2007) to cover basic needs of food, shelter, and clothing. Some states increase this amount. For example, California increased the cash amount by $233 per month in 2007.

Some states have programs through which SSI will cover assisted living costs (at approved facilities), for a shared room. One of the requirements of SSI is that a person’s assets are below a certain level – around $2,000 for an individual and $3,000 for a couple. Income levels also must fall below a certain level, which varies by state and circumstance.

Home Equity Loan

A home equity loan (or line of credit) is a second mortgage that lets you turn home equity into cash, allowing you to spend it on home improvements, debt consolidation, caregiving, home modifications or other expenses. There are two types of home equity debt: home equity loans and home equity lines of credit, also known as HELOCs. Both are sometimes referred to as second mortgages, because they are secured by your property, just like the original, or primary, mortgage.

If your loved one owns a home that is worth more than they owe on it, they may be able to use their home as collateral to secure money.  Home equity loans and lines of credit usually are repaid in a shorter period than first mortgages. Most commonly, mortgages are set up to be repaid over 30 years. Equity loans and lines of credit often have a repayment period of 15 years, although it might be as short as five and as long as 30 years.  Research the fees involved, interest rates, and what the payment amount will be.

Reverse Mortgage  

Reverse Mortgages are a special type of loan that allows owners to convert a portion of the home equity into cash. With this loan, no payment is required until the borrower no longer uses the home as their primary residence.

There are very strict rules for this type of loan, so seniors don’t get taken advantage of. Rules generally include that the senior must be at least age 62 and they must own the home outright or have a low remaining mortgage balance that can be paid off at closing with proceeds from the loan. There are no income or medical requirements to qualify and the income from a reverse mortgage is tax-free.

With a reverse mortgage, the senior still owns their home. When they sell, move, or die, they or their estate will need to repay the loan supplied by the reverse mortgage, and any remaining equity then belongs to the senior or their heirs. 

Costs for this loan can be high, so if the senior will be living in the house for only a short time, sale of the home rather than reverse mortgage may be a better option. There are formulas to figure out how much money a senior may qualify for with a reverse mortgage.

There are three types of reverse mortgages:

·         Home Equity Conversion Mortgage (HECM) – This program is offered by the Department of Housing and Urban Development (HUD) and is insured by the FHA. HECMs are the most popular reverse mortgages, representing about 90 percent of the market.

·         Fannie Mae Home Keeper Loan – Borrowers may receive more cash from these loans than with a HECM since the loan limit for these loans is higher.

·         Financial Freedom Cash Account Loans – These loans are designed for seniors who own expensive homes.

Reverse mortgages are not for everyone, and it is very important to consult a professional mortgage lender before making this choice. Search the AgingPro directory for Reverse Mortgage specialists or visit www.aarp.org for more information.

Veterans Benefits

The Veterans Administration has two disability programs available to veterans and their spouses or widows.  Disability compensation is available to those veterans who have service-related disabilities. The amount of compensation relates to the level of the disability.  The disability pension is available to any veteran who served in a time of war and has a disability (the disability does not have to be service related).

Some veterans or surviving spouses are eligible for veterans pensions, if you meet the following guidelines and your income is limited to between $11,000 and $17,000 annually (depending on marital status and number of children).

• You must have been honorably discharged.

• If you enlisted before September 7, 1980, you must have served 90 days or more of active duty with at least one day during a period of war. Anyone who enlisted after September 7, 1980, must serve at least 24 months or the full period for which that person was called to serve.

• You must be permanently and totally disabled, or age 65 or older. You will need a letter from your doctor to prove that you are disabled.

There is also an Aid and Attendance program for veterans who are in need of an attendant on a regular basis. This is in addition to the disability pension.  Aid and Attendance helps pay for in-home caregiving or assisted living costs.

You can apply for both disability benefits by filling out VA Form 21-526, Veteran's Application for Compensation Or Pension. If obtainable, attach copies of dependency records (marriage & children's birth certificates) and current medical proof  (doctor & hospital reports). You can apply online at http://vabenefits.vba.va.gov/vonapp.

TriCare for Life is a VA benefit that is similar to Medigap (or supplemental insurance) with no premium, for those who have purchased Medicare Part B.  Some VA facilities also have nursing homes, though they often have waiting lists.

Visit the Department of Veterans Affairs (www.va.gov ), call the VA at 877-222-8387, or visit your nearest VA medical center to obtain more information about what services are available in your area.

Life Settlement

Life Settlement is another option to pay for long term care. In a Life Settlement, the qualifying senior sells their life insurance for a determined market value of the policy. Life Settlements have age and health restrictions. 

This option can be attractive when the reason for the life insurance policy (to financially support someone upon your death) no longer exists (such as divorce or the death of beneficiary). Proceeds from Life Settlements are taxable so you will want to consult the IRS or your financial advisor before seriously considering this option.

Viatical Settlements

Viatical Settlements are similar to Life Settlements and can be an option for those who are terminally ill or chronically ill. In this type of transaction the ailing senior sells their life insurance to a third party, usually for a lower amount than the full face value but an amount higher than the policy’s surrender value. The amount paid depends on remaining life expectancy of the insured (which usually can’t be any longer than 5 years). Typical benefits are from 50-80 percent of face value. 

This option may be tax-free, but consult the IRS, your state’s Department of insurance, or your certified financial advisor for more information.

Annuities and Trusts

Annuities and Trusts can also sometimes be used to pay for long-term care.

An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total purchase payments.

A trust is when a person (the trustor) transfers something of value (the asset) to another person (the trustee). Once that takes place, the trustee manages and controls the asset for the benefit of the trustor or for a named beneficiary.

A trust can provide flexible control of assets for the benefit of minor children, or for the benefit of an elderly or disabled person, including yourself or your spouse. Two types of trusts can be used to pay for long term care:

• Charitable Remainder Trusts

• Medicaid Disability Trusts

Charitable Remainder Trusts allow you to use your own assets for long-term care with the added benefit of reducing taxes. This type of trust is typically used by wealthy people with specific types of assets that they donate to a public charity at fair market value. The individual making the donation receives a tax deduction on the amount that has been gifted. The donor then receives payments from the trust that can be used to pay for long-term care. Once the donor dies, the balance of the funds in the trust go to the charity.

The purpose of a Medicaid Disability Trust (sometimes called a Special Needs Trust) is to enhance the quality of life of an individual with a disability who also qualifies for public benefits. Medicaid Disability Trusts are limited to disabled persons under age 65. With this type of trust, assets are managed by a non-profit organization. The trust may be established by a parent, grandparent or legal guardian for the benefit of the disabled person. This is the only kind of trust that is exempt from rules regarding trusts and Medicaid eligibility. These trusts are complex. Consult a tax professional for details.

Because of the technical aspects of all these approaches, we suggest you consult AgingPro’s directory for a certified financial advisor who can provide further information.

State-funded community-based programs

State-funded programs and services help people live independently. Available services vary by location. Learning about the “formal system” of care (companies and agencies) will take some effort if you are doing this without a Professional Geriatric Care Manager. AgingPro is dedicated to helping you make sense of this potentially confusing field. The AgingPro directory is filled with listings of services and products to assist you. You can also explore www.eldercare.gov or call 800-677-1116, or your local Area Agency on Aging office to find out what services are offered in your community.

When researching these options, will want to find out:

• What services do they provide?

• What are the eligibility requirements (geographical, age, financial need)?

• What are the fees or costs for the service involved?

• Are their services covered by insurance/Medicare/Medicaid?

• How quickly are services available? Is there a waiting list?

• What documents or other paperwork do you need in order to apply for  services?