In my last article, Caregiver Tips: Long-term Care Part 1, I spoke about the different options families have for long-term housing.
In this article I’d like to discuss how to pay for these long-term care services. After all, in today’s world, it is difficult enough trying to build an emergency savings account and retirement nest egg, how can one plan for potential long-term care costs later in life too?
According to Genworth’s Cost of Care Survey, here are the 2016 national median annual cost for various long-term health care services:
- Homemaker Services: $45,760
- Home Health Aide: $46,332
- Adult Day Health Care: $17,680
- Assisted Living Facility: $43,539
- Nursing Home Care (Semi-Private Room): $82,125
- Nursing Home Care (Private Room): $92,378
How can a person pay for the above services? Here are some options:
Option 1. Medicare – Under Medicare, up to 20 days of skilled nursing care is 100% covered following a hospital stay of at least 3 days. From day 21-100 a daily coinsurance of $161 must be paid out of pocket, after day 100 the cost of the skilled nursing is 100% paid out of pocket with no further coverage.
There are other stipulations and guidelines. For further details, please click here.
Option 2. Medicaid – Medicaid will cover long-term care expenses if your income and assets are below a certain level mandated by your state. In many cases, you will need to “spend down” the majority of your assets before qualifying for this program. For further details, please click here.
Option 3. Accelerated Death Benefit from your life insurance policy – Some insurance companies allow policyholders, who need cash to pay for their own terminal or chronic illness or long-term care needs, to cash out their own life insurance policy. On average policyholders are able to receive 25% to 95% of the policies death benefit.
In order to receive the benefit, the policyholder will need to meet the insurance company’s requirements proving that they are severely and/or terminally ill. There may also be tax implications involved and the death benefit that may have gone to beneficiaries will likely be greatly reduced or eliminated. Please contact your insurance company for further details, as needed.
Option 4. Reverse Mortgage – If you plan to stay in your home as long as possible and receive in-home care, then a reverse mortgage may be able to help finance that care.
According to the National Reverse Mortgage Lenders Association (NRMLA) more than 920,000 senior households have used an FHA-insured reverse mortgage loan and more than 625,000 are currently in use.
If a person is 62 or older, does not plan to move from their home for many years and they would like to supplement their retirement income, then it is possible a reverse mortgage is for them.
Reverse mortgages supplement income by tapping into part of a home’s equity. In general, it’s a loan against a principle residence that a homeowner does not have to repay for as long as they live in that home. The homeowner should have significant equity in their home to apply for a reverse mortgage.
Income from a reverse mortgage is usually tax-free and the homeowner is allowed to keep the title to their home. In addition, it usually will not affect their Medicare or Social Security benefits.
If the home is sold, or the homeowner moves or passes away, they, their spouse or their estate must repay the loan. At times the house will have to be sold to repay the outstanding loan balance. There are some circumstances that permit a spouse who is not on the mortgage note to stay in the home if the homeowner were to pass away.
It’s imperative the borrower understand that with a reverse mortgage they must continue to pay the property taxes, homeowner’s insurance and maintenance on their home. If they do not pay these items, the home may be lost to foreclosure.
Option 5. Long-term care insurance – When we think of how to pay for long-term care services, a traditional long-term care insurance policy likely comes to mind.
These types of insurance policies are designed to pay for care not covered by Medicare, general health or Medicaid. In recent years, the number of sold long-term care policies has been on decline.
One of the drawbacks of long-term care insurance can be its high premium cost (which has been on the rise in recent years) and that its payout must be used for long-term care needs only.
Therefore, if the policyholder were to pass away without the need for long-term care services, the premiums paid over the years would have been for naught.
That is why hybrid long-term care insurance policies have become an attractive alternative. A hybrid policy combines life insurance or a retirement-income annuity with a long-term care policy. With these hybrids, at least you will be able to leave a death benefit to your loved ones or receive income from the annuity if the actual long-term care insurance policy is never touched.
The U.S. Department of Health and Human Services has website dedicated to Long Term Care information. Please visit: http://longtermcare.gov/
Ms. Dakar is the author of The Busy Person’s Guide to Personal Finance, a primer to help consumers manage their finances so they can build a substantial nest-egg. She also conducts personal finance seminars where she provides concepts to attain overall financial health.